Parker v. Fulton Loan & Building Ass'n

| Ga. | Jul 15, 1872

McCay, Judge.

Was this contract usurious upon its face? Was the Court, construing the papers as they were presented, without other testimony, wrong in saying that the contract was not usurious in form ? We think this contract on its face to be a mere sale by the plaintiff of his right to a share in the ultimate division of the accumulations. That is clearly the form of the contract. The plaintiff was the owner of stock or shares; they paid nothing, and were to pay nothing, until the accumulations amounted to a certain sum, when, as is the result of the provision for winding up, that sum was to be divided between such of the shareholders as had not sold. Having such shares, the plaintiff sold them to the company, the company advancing him a certain sum of money and he binding himself to do certain other things. That is clearly the form of the contract. It is not a loaning of money at all, nor is it forbearance for the use of money, but a sale of certain shares of stock in the company to the company. We do not, at present, mean that beneath this form, apparently legal, there may not lurk a device for covering up usury; we only say that, upon the face of the contract, it is simply a sale of the plaintiff’s stock to the company, at such a price as he saw fit to take and the company to give, and that is all. If there is usury, it is concealed, covered up; the contract does not indicate it. The plaintiff was a subscriber to the stock; he had paid in a portion of his assessments, and he agreed to sell out his stock, or, rather, to sell out to the company his interest in the final dividend.

It must be remembered that the evidence shows two contracts: one is the taking of the stock and the contract to pay for it, monthly, as stipulated; and the other is the sale of it. They were not cotemporaneous; one was complete without the other. The taking of the stock, and the obligations then assumed, were not dependent at all upon the sale. The plaintiff might or might not sell. Doubtless, some of the stockholders will not sell. It is not a part of the stock contract that they shall sell. It is at their option. The contract, as stockholder, is a separate, independent thing, complete in itself, and, with all its obligations, is prior to, and in no necessary way has anything to do with the subsequent contract of sale. A stockholder, who had paid ten monthly installments, might certainly have sold to a stranger — one who was not a stockholder — all his interest in the company, contracting, at the same time, that he would continue to pay the monthly installments, as they fell due, and, no matter how low the price, or at how great a sacrifice he sold, there would be nothing in the form of the contract to show usury. In other words, as the facts in the record show, the plaintiff subscribed for a certain number of shares in the stock of the company. By the terms of that subscription, he was to pay, monthly, on each share, a certain sum until the accumulations should reach a fixed figure, when the assets were to be divided among the stockholders then holding stock. There was no usury or illegality here, but only a simple subscription for stock, with the obligation to pay according to the terms of the contract. The subscriber becomes the owner of the stock as he would be the owner of-any other stock subscribed for. "Why may lie not sell it as he may other stock, to a stranger or to the company, and contract that the purchaser shall have it, free from any liability to calls or monthly payments ? This is the stock contract, and it is a legal, natural contract on its face.

Having made this contract, the stockholder has his option to keep it or to sell it, to hold on for his final division, or to sell for what he may deem its present worth in cash, he contracting to keep the purchaser harmless from the demand for monthly payments. This second contract, this sale, is purely optionary. The stockholder may make it or not, and for this reason this contract of sale has no necessary connection with the subscription. The contract of sale on his part is simply that he will pay $1,00 per share extra each month, and will comply with his original undertaking. There is absolutely nothing in either of these two contracts, upon the face of them, that is usurious, and we see no error in the Court so holding.

Whether the scheme, taken as a whole, is or is not a device to avoid the usury laws, is a question of fact for the jury under the proof. The Court so charged the jury, and the finding is in effect that it was not such a device. We think the jury found rightly under the evidence. As we have shown there is nothing in the form of the contract, nothing on its face, to make it usurious. Was this form a mere trick or device by which to hide or cloak the real intent?

The object of the Association is, as expressed in the articles, to enable the members to acquire, by the payment of small sums monthly, houses and homes. The whole affair is simply this: A certain number of persons agree among themselves that they will each advance, to make up a fund, a certain sum monthly; that each will bind himself to continue to make that monthly advance until the gross value of the whole fund shall amount to a certain agreed sum, when it shall be divided among those who have continued to pay and have not sold out their interest. Having thus secured a monthly fund and arranged for its continuance, it is further agreed that at each monthly meeting the money on hand shall be employed in buying up the interest "of any stockholder who may be willing to sell any of his stock, the seller continuing his regular monthly payments, and paying also, each month, one dollar for each share he has sold. Whenever the accumulation on hand — whether derived from regular monthly payments or from profits thus made by the purchase of the stock — reaches a certain per cent., the whole affair winds up. The monthly payments cease, and the money on hand is divided to the stockholders who remain. It must be added, also, that each stockholder, when he sells to the company his ultimate interest, still retains his right to vote and act as a member. Now, as we have said, there is nothing, either in the form or in the nature of the contract of subscription, or in the contract of sale, that is illegal. Both of them occur every day, and were the sale of the ultimate interest made to a stranger or to another member of the company, there would be no pretense of usury, however low the price. Can the fact that the sale is made to the company itself make any difference ? If there is any difference it is only in this, that the seller is himself interested in the purchase, and continues, as we shall see, to be interested in every sale and purchase until the final winding up of the enterprise. What the stockholder agrees to pay for the money he gets when he takes money, is dependent on what he and others agree to take the money at. So soon as the accumulations reach a certain per centage — that is, will divide $200 to each stockholder — all payments stop and the concern winds up. If the money at each monthly meeting is in demand and stockholders take it at a high premium, the accumulations increase rapidly and the end comes soon. If the rates are low, the end is a long way off and the monthly payments must be continued a long time. If the company gets its maximum accumulation in two years, the monthly payments are $24 per share. If it takes four years to reach that point, then their payments are $48 per share. Hence, all parties are interested in high rates. Even on the rates at which this plaintiff sold out, it is in testimony that if the rates could have been kept up to that figure he would have only had to pay seven per cent, for his money; in other words, the end would have come so soon that his monthly payments would not have been more than the money he actually got and seven per cent.

Even on the idea that he was borrowing the money, and was merely selling his interest in the dividend, it was wholly a matter of contingency whether he paid seven per cent., or more or less than that, for the money. This fact, this uncertainty or contingency, introduces into the transaction an element wholly foreign to an agreement to pay so much for the use of money. It may be that the borrower pays nothing; it may be that he does not really pay the whole of the principal. It may happen that he shall have to pay one, or two, or thirty per cent. It all depends on how soon the end comes; how high the average rates are. The contract is not a contract for the loan of money with interest, since the lender (if it is a loan) does not know what he will get back, or rather what the taker will eventually pay, since that depends entirely on how long it will take to reach the point of final winding up. The profits to the lender, or loss to the borrower, may be less or more than seven per cent on the amount received.

Treating this sale of the ultimate interest as a borrowing, let us see how it would be under, say, the rate of forty per centum premium. At forty per centum average sales, through the whole period, the concern will come to an end and the payments stop in aboutsix years. Suppose one holding five shares, on the first meeting, takes an advance at forty per cent, premium, this would be $400 on the $1,000, or five shares. This would leave him $600 in cash.

His account would stand thus with the company:

Company Cr.

By cash,

Company Dr.

Six years’ monthly payments of one dollar per share

on five shares..........................................$360 00

Six years’ monthly payments of one dollar per share

on five shares (interest).............................. 360 00

Amount paid in all...................................$760 00

Now suppose he had borrowed $600 00 at seven per cent?., and kept it six years and paid it, the account would be:

Six years’ interest on $600 00, at seven per cent.,

$42 00 per year................................. $252 00

Add the principal.......................................... 600 00

Amount paid in all...................................$852 00

So that in the Association plan he pays $108 00 less than seven per cent.

The settled rule is, that if any other element — as risk of losing the whole or risk of getting less than the legal rate, is a part of the contract, it is not usury. Usury is the taking of more than the legal rate for One forbearance. If the lender undertakes any risk, if the contract is of such a character as that the borrower or taker of the money may not have to pay the principal or may not have to pay as much as the legal rate, then it is not usury. Now it is apparent — first, that the great leading idea of this Association was, that it was an advantage to its members to pay in small sums monthly, with the right to anticipate their ultimate interest by selling that out for its present worth at auction; and, second, that bona fide, really and truthfully, it depended entirely upon the average price the ultimate interests sold at, what rate each purchaser was paying for his money. If the average price was high, the end would soon come when the payments would stop; if low, it would take a longer time, and the rate of interest would be low or high accordingly. Each purchaser had an interest in the profits — in the price of all the sales — since, as that price was on the average, high or low, so would his monthly payments continue long or end quickly.

In such a scheme as this, the great element of usury is wanting, to-wit: oppression — ad vantage taken by one of the necessities of another. The person getting the money in this case, being, in fact, interested himself in having the sales as high as possible. To permit the usurer himself to set up the usury, after the contract has been executed, would be contrary to all principle. The person wronged is allowed so to do, hilt not the wrong doer, and if the plaintiff here recovers he will recover a part of the advantage which came to himself, from the high rates at which others sold their interest in the ultimate dividend. We can easily see how a society of this kind might be used by schemers, to get money for themselves. But there is not a particle of proof that this was the case here. All seems to have been carried on according to the professed object, to-wit: to enable individuals under an agreement to pay small monthly payments, to sell out for a present respectable sum, the ultimate share of each, in the final accumulation. And we think the jury did rightly in finding there was no proof that this scheme was a mere device to evade the usury laws.

Assuming, therefore, that in the taking and in the sale of the stock in the contract the parties made, there was no violation of the law, it only remains to inquire, if in the settlement made there was usury. The plaintiff admits that if he had complied with his contract, there would have bee.,.none. Has he done anything more than this? It was ditA^ctly agreed from the first that any stockholder who failed to comply with the rules, should be subject to certain penalties or forfeitures. Nothing more was exacted in the settlement than the rules required. Indeed, the settlement was more liberal than was provided by the regulations in case of failure. ,

We do not think the charge of the Judge, on the question of accord and satisfaction, was proper. We agree that if there be a dispute, bona fide, as to whether or not any particular contract is tainted with usury, that the parties may, by accord and satisfaction, settle that dispute; but the payment of the usury is not such a settlement. It must appear that there was a bona fide dispute — uncertainty, doubt as to the existence of the usury — that the parties must have that doubt, dispute, distinctly in view in the settlement, and the resolution of the doubt must be a point of the settlement. We do not think there is any proof here to justify the inference of such a settlement, and we think the charge does not submit the law fairly to the jury under the proof. But, as we are satisfied that the contract was not usurious — as the jury must, under the law, have found there was no proof of usury — we will not reverse the judgment for this error.

Judgment affirmed.