152 P. 424 | Utah | 1915
On October 15, 1913, the plaintiff commenced this action ' against the defendant to recover certain sums of money which, the plaintiff alleged, he had paid to the defendant as principal and interest upon two contracts alleged to be usurious and which are hereinafter set forth. Two causes of action, one upon each of the contracts were stated in the complaint. The defendant appeared in the action, and in his answer, after admitting the matters of inducement, denied generally the other allegations of the complaint.
The action was based upon Comp. Laws 1907, sections 1241x, 1241x1, 1241x2. Section 1241x, in substance* provides that parties may enter into a contract “for the payment of interest, for the loan or forbearance of any money, goods, or things in action, not to exceed twelve per cent, per annum.” Section 1241x1, as amended by Laws Utah 1909, p. 180, prohibits the taking of “any greater sum or greater value for the loan or forbearance of any money, goods, or things in action than is prescribed in section 1241x”; and any violation of the statute is declared a misdemeanor, and is punishable as such. Section 1241x2, so far as material here, reads as follows:
‘ ‘ Every person who, for any such loan or forbearance, shall pay or deliver any sum or value (greater) than is above allowed to be received, or the principal or any part thereof of said usurious loan or forbearance, and his personal representatives, may recover in an action against the person who shall have taken or received the same, and his personal representative, the amount of money so paid or value delivered, both
There are several other sections in which all notes, bonds, mortgages, etc., wherein more than twelve per cent, interest per annum is reserved are declared void.
The contract declared on in the first cause of action reads as follows:
“Salt Lake City, Utah, Nov. 29, 1911.
“I, E. A. Hartenstein, seller, have this day sold to R. If. Cobb & Co., buyer fourteen thousand {14,000) shares of the capital stock of the Pioche Demijohn Mining Company, at ten and one-half cents (10%)■ per share buyer sixty {60) days, such sale being in accordance with the rules and by-laws of the Salt Lake Stock and Mining Exchange, the same being hereby referred to and made part of this contract. The said seller has deposited in escrow with E. A. Hartenstein said fourteen thousand {14,000) shares of stock and hereby acknowledges the receipt of four hundred forty-one no/100 dollars {$441.00) from the said buyer, being thirty per cent. (30 per cent.) margin required, and the said buyer hereby agrees to remargin as required by said rules and by-laws. In case of an advance in the price of said stock, any surplus margin over thirty per cent., shall upon demand of said buyer, be returned to him by said seller in like installments as they were made. The said E. A. Hartenstein is hereby authorized to deliver said stock to said buyer at any time with sixty days from date hereof, upon payment to him of amount due thereon.
Amount paid.'.$ 441.00
Balance due.§1,029.00
Total ....§1,470.00
“[Signed] , E. A. Hartenstein, Seller.
“R. If. Cobb & Co., Buyer.”
The one on which the second cause of action is based reads as follows:
“Salt Lake City, Utah, June 3d, 1912.
“I, E. A. Hartenstein, seller, have this day sold to R. K. Cobb & Co., buyer, five thousand {5,000) shares of the capital stock of the Pioche Demijohn Mining Company at ten and
Amound paid .-. $153.75
Balance due ..$358.75
Total.$512.50
“[Signed] E. A. Hartenstein, Seller.
“R. 11. Gobi) & Co., Buyer.”
Those portions italicized were written in the contracts with pen and ink, while the other portions were printed matter. There were several extensions of time indorsed on the backs of both of said contracts, but those may be passed by for the present. There is also another writing which, it is contended, is material in determining the question at issue to which we shall refer again later.
In the first cause of action the purpose for which the contract was entered into was characterized as follows:
“That the agreement desci’ibed in the preceding paragraph was disguised, and an attempt was made to conceal the usurious nature thereof by a certain pretended contract of sale dated November 29, 1911, signed by and entered into between said firm of R. K. Cobb & Co. and said defendant and known as a ‘buyer sixty/ wherein and whereby said defendant pretended to sell to said firm of R. K. Cobb & Co. on a margin, and said'firm of R. K. Cobb & Co. pretended to buy on a margin from said defendant, 14,000 shares of the capital
Respecting the second contract' similar allegations were contained in the second cause of action. It was also alleged that the transactions represented a loan of money, and that the plaintiff had paid to the defendant excessive sums of money as interest on said loan, and had also paid him the principal ■amount specified in the contracts. Judgment was prayed for the full amount stated in each cause of action. A trial to the court resulted in findings that the transactions described as aforesaid constituted loans from the defendant to the plaintiff ; that the same were usurious, in that the amount paid to the defendant as principal and interest exceeded the amount-permitted by the statute aforesaid; and that the contracts were entered into as a cloak or cover for usury. Upon those findings the court made conclusions of law and entered judgment for the whole amount prayed for in favor of the plaintiff, from which the defendant appeals.
Defendant’s principal assignment however, relates to the finding, or conclusion rather, of the district court that, in view of the facts and circumstances, the transactions in question were usurious, within the purview of our statute. While there are other questions presented by the assignments to
It is wholly impractical to set forth even the substance of the large mass of evidence which was produced at the trial by both sides. There are, however, some controlling features to which we shall specially refer. Before doing that, however, it is deemed best to refer to some of the leading authorities respecting what constitutes usury, so that we may obtain a. clearer conception of the law upon that subject and to better enable us to apply the particular features of this case to the law.
“Since usury laws are quasi penal, the court will not hold 'a contract to he in violation of the usury laws, unless upon a fair and reasonable construction of all of its terms, in view of the dealings of the parties, it is manifest that the intent of the parties was to engage in such a transaction, as is forbidden by those laws. If two reasonable constructions are possible, by one of which the contract will be legal and valid, while by the other it will be usurious and invalid, the court will always adopt the former. In short, the gen*184 eral rule of interpretation and construction of such contracts may be said to be that the contract is not usurious when it may be explained on any other hypothesis.”
“The character of a contract with respect to usury is determined as of the time it is made. If it is then legal, it cannot be rendered usurious by subsequent transactions, which, although themselves iU legal and forbidden by law, cannot impart the taint of usury to an antecedent honest and legal agreement. This rule of construction finds-its most frequent application in those numerous cases in which it is held that, when a person agrees to pay a sum of money by certain date, and thereafter more than the legal rate of interest if the debt be not punctually paid, such an agreement is not usurious, even though excessive payments actually made under the agreement may be usurious.”
“In deciding whether any given transaction is usurious or not, the courts will disregard the form which it may take, and look only to the substance of the transaction in order to determine whether all the requisites of usury are present. These requisites are: (1) An unlawful intent; (2)) the subject-matter must be money or money’s equivalent; (3) a loan or forbearance; (4) the sum loaned must be absolutely, not contingently, repayable; and (5) there must be an exaction for the use of the loan of something in excess of what is allowed by law. If all these requisites are found to be present, the transaction will be condemned as usurious, whatever form it may assume and despite any disguise it may wear. But if any one of these requisites is lacking, the transaction is not usurious, although it may bear the outward marks of usury.”
It is further stated that the offense of usury is not complete unless there is an unlawful intent to violate the usury statute; and it is further stated that the intent may be inferred from the transaction or contract.
We are firmly committed to the doctrine as the same is stated in Cyc., in so far at least as the same relates to a corrupt
“In no case, however, would a borrower be heard to complain of excessive interest contracted for or taken with the knowledge of the borrower only. If he were allowed to set up his own secret intent to evade the usury law and to give to the transaction a character different from what the other party supposed and intended it to be, and ‘thus be enabled to avoid his own engagements, he would be taking advantage of his own wrong.’ ”
Referring now to some of the decided eases, it will be seen that the text quoted from Cyc. is amply sustained by the most respectable courts of this country.
In Gillette v. Ballard, 25 N. J. Eq. 491, it is said:
“Usury will not be inferred when the opposite conclusion can be reasonably and fairly arrived at.”
Further:
“To sustain such a defense it must be shown that there was a usurious agreement.”
.In discussing the subject, the Supreme Court of Kansas, in Lusk v. Smith, 71 Kan. 556, 81 Pac. 175, says:
“Again, the existence of .a usurious contract is never presumed. Where an agreement to pay interest is subject to two constructions, one of which would make it usurious, and the other not, the court will adopt the latter. * * * The burden is upon the party seeking to impeach the transaction to show guilty intent, and that the contract was a cover for usury.” (Italics ours.)
“But before proceeding to consider them (the statutes) severally, it may be proper to remark that, in construing the usury laws, the-uniform construction in England has been (and it is equally applicable' here) that, to constitute usury within the prohibitions of the-law, there must be an intention knowingly to contract for or to take-usurious interest; for, if neither party intend it, but act dona fide and innocently, the law will not infer a corrupt agreement.”
The justice then proceeds to say that, where a contract “upon its very face imports usury,” the intent is self-evident. Where, however, the contract or transaction in question is not of that character, and it is, nevertheless, claimed to be usurious, then, the justice says:
“It must be proved that there was some corrupt agreement or device, or shift, to cqver usury, and that it was in the full contemplation of the parties." (Italics ours.)
The foregoing quotation is approved by the same court in Call v. Palmer, 116 U. S. 101, 6 Sup. Ct. 301, 29 L. Ed. 559, but the case from which the quotation is taken is erroneously stated to be reported in 14 Peters. Orvis v. Curtiss, 157 N. Y. 657, 52 N. E. 690, 68 Am. St. Rep. 810, is a case in which there was a stock transaction between stock brokers. It was there claimed that the transaction was, in fact, a shift or coyer for usury. The New York Court of Appeals, in 157 N. Y. at page 661, 52 N. E. at page 691, in defining what constitutes a usurious transaction, lays down the following rule :
“There must exist, in fact or in law, a corrupt purpose or intent on the part of the person who takes the security to secure an illegal rate of interest for the loan or forbearance of money. There must be a lender and a borrower, and it must appear that the real purpose of the negotiations and transactions was, on the one side, to loan money at usurious interest reserved in some form dy the contract, and, orí the other side, to dorrow upon the usurious terms dictated dy the lender. These principles governing the law of usury are so well settled that it is unnecessary to cite authorities in support of them.” (Italics ours.)
While, as we have seen, there is a diversity of opinion upon the proposition whether both the borrower and the lender
In Wood v. Babbitt, 149 Fed., after determining what must be proved to establish a usurious contract or transaction, at page 822, it is said:
“It is not enough that the circumstances proved render it highly probable that there is a corrupt bargain; such a bargain must be proved, and not left to conjecture.”
The same language is used by the Court of Chancery of New Jersey in Berdan v. Trustees, etc., 47 N. J. Eq. 3, 21 Atl. 40. Jackson v. Travis, 42 Minn. 438, 44 N. W. 316, is to the same effect, though in Minnesota the doctrine prevails that it is sufficient if the lender entertains a corrupt or unlawful intent to violate the usury law.
“Q. Just where it lies there now, doesn’t it evidence just-such a contract — just such a transaction as is daily entered into on the Stock Exchange ? A. It might; yes. Q. Does it not? A. It does, but it wouldn’t — but it wasn’t that kind of a contract. Q. But on its face it does, does it not? A.- On its face it does. Q. Yes; and that is true also of the other contract or transaction set out in the complaint under date of June 3, 1912, on the face of the contract it evidences just such a transaction as is of daily occurrence in the regular session of the Stock Exchange, is it not? A. They use the same paper; yes; they use the same contract? Q. Yes, you say? A. Yes. Q. Have you stated all of the conversation that you had that you can recall as having had with the defendant Hertenstein prior to the execution of the contract of November 29, 1911? A. Yes; I think so, Judge. Q. I wish you would give it to us again. A. Which conversation do you want, Judge? A. All conversations you had with the defendant, Hartenstein, about any business transaction, stock transactions, up to and including the time when the contract was signed on the 29th of November, 1911. A. Well, a few days before November 29th, a day or two before, Mr. Hartenstein came to me— Q. Where? A. On the floor of the Stock Exchange? Q. G-o ahead. A. And he said to me, ‘Why don’t you give me some of your business?’ He says, ‘I have got some money.’ ‘Well,’ I said, ‘I guess I can;-1 can — ’ Q. Go ahead. A. ‘I can use about $1,000 on Demijohn now.’ He says, ‘That will be all right.’ I says, ‘I will see you about it a little later.’ The next day or the day after I met him on the floor of the Exchange again, and I said, ‘I can fix up that Demijohn matter now if you want to,’ and he came into my office, and he said, ‘What do you want to do?’ I said, ‘I want to get about $1,000 on Demi
His version of the second-transaction is not materially different. The plaintiff also, in substance, testified that, when the transaction in question was entered into, he did not know there was a usury statute in force in Utah; that he did not' have in mind any usury law, and did not intend to violate any statute. It was also shown that the transactions were not carried on plaintiff’s books as a loan, but were entered as a regular stock transaction. His counsel, however, insist that it was so carried for convenience merely; yet the fact that it was carried as a stock transaction on the books remains.
Referring now to the defendant’s testimony respecting his understanding, he testified:
‘ ‘ Q. Referring to the spreads in your book, I will ask you to examine your book and to say whether there is in that book any spread save with Cobb & Co. where the' amount of the spread was other than the amount fixed by the rules of the Exchange? A. We have no rules of the Exchange, fixed [fixing] amounts. Q. Don’t your rules define the increment or spread? A. That is bids and offers. * * * Q. You did depart from the spread, as defined in your rules, with Cobb & Co., didn’t you? A. No; we have no rules on the spreads. Q. Well, the rule as to bids and offers? A. Well, that is different. Q. Your rule as to bids and offers provides, where the stock is 10 cents, an increment of one-half a cent? A. Yes, sir. Q. Now, in your contract with Cobb & Co. of June 3d you made it one-quarter of a cent for 30 days, didn’t you? A. Mutually agreed between he and I. * * * Q. When you entered into one of these contracts or any one of them, with Mr. Cobb — we will take the first one,, of November 29, 1911 — you may state whether or no you understood that you had to hold that stock for the 60 days, subject to
The contract entered into by plaintiff and defendant were also fully explained by the stock brokers and members of the Salt Lake Stock and Mining Exchange. A precise and clear idea respecting their testimony can perhaps best be gleaned from plaintiff’s counsel’s brief. It is there said:
“There was assembled at the trial of this case, as witnesses for the defendant, nearly all of the brokers of the Stock Exchange. With the regularity and unanimity of an Anna Held ballet, these benighted individuals were called and testified that they had never heard of buyer 30 contracts covering loans, and could not conceive of money borrowed upon such contracts. Yet at the time of Cobb’s failure- — at a time when they had no possible object in concealing the real transactions- — -almost every last broker termed these transactions ‘ contracts covering loans. ’ ”
The “contracts covering loans” referred to by counsel is as follows:
“Salt Lake City, Utah, Jan. 18, 1913.
“In consideration of amounts written below, which are margins on the various accounts, the undersigned creditors of R. K. Cobb & Co. hereby promise and agree to extend time of payments on their notes and contracts covering loans on Prince Consolidated stock until April 1, 1913, and to hold
Then follow the number of shares held by each broker and their names. This is the other writing to which we referred before in this opinion.
The plaintiff, like the defendant, however, also testified that at the time of the transactions in question he did not know there was a usury law in force in the State of Utah and had no intentibn of violating any law. There is a vast amount of testimony pro and con. "We cannot give even the substance of more here. Neither is it necessary to do that, since we have neither the power nor the disposition to analyze or weigh the evidence. All that we have the power to do, and all that we purpose doing, is to take plaintiff’s version of the transae-1 tions, and from his statements and from the' circumstances surrounding him and the defendant at the time of the transactions, when considered in connection with the inferences that may be deduced from the whole evidence in favor of the plaintiff, determine whether there is any substantial evidence upon every element that is necessary to stamp the transactions in question as usurious and in violation of our usury statute'. In view, however, that the usurious character of the transactions in question must be established otherwise than from the face of the contracts, it becomes necessary to consider the defendant’s testimony relating to his intention in connection with plaintiff’s testimony in order to determine the true nature or character of the transactions. While defendant’s testimony may not be conclusive, yet where, as here, no evidence respecting his intentions is in the record, except the inference that may be deduced from the fact that he was paid a larger sum of money than is permitted by our usury statute, Ms testimony upon that subject may at least weaken the inference, if it does not entirely dissipate it.
By the foregoing statement we do not mean that defendant’s testimony can be considered for the purpose of comparing it, with plaintiff’s testimony or to weigh one against the
In view that the judgment must be reversed, for the reasons stated, it becomes necessary for us to decide at least two other questions raised by defendant’s counsel. It is contended that, under the provisions of Section 1241x2, nothing can be recovered except the excessive interest or the excessive value that has been paid or delivered. While the statute is not as clear as it might be, yet by giving all the language in the statute its ordinary force and effect, as we must, there seems little, if any, doubt, that it was intended that the person who has paid money or has delivered “things in action” in excess of the rate fixed by the preceding sections may sue for and recover back both “principal and interest,” if the action is brought within one year after the money is paid or the “things in action delivered.” We confess that we are unable to give the language of the statute any other meaning.
For the reasons stated, the judgment is reversed, and the • cause is remanded to the District Court of Salt Lake County, with directions to grant a' new trial and to dispose of the ease in accordance with the views herein expressed.