*1 al. v. et FINANCE CO. WAHLEN SEABOARD July 7, (260 556.) P. 2d 1953. No. 7890. Decided *2 Money Lenders, Usury, J. See C. S. sec. 6. elements of. 55 Am. 12; Jur., Usury, sec. A.L.R. 796. Eksayn Howard N. Jones Anderson, City, Salt Lake appellant. Dibblee, City, respondents. .Richard C. Lake Salt Pcwrkinson, City, R. Lake Arthur H. Nielsen and B. Salt amicus curiae.

CROCKETT, Justice. judg- pre-trial summary At the lower court rendered against ground ment of dismissal brought the loan action was usurious. was appeals. Plaintiff foreign Plaintiff, corporation,

The facts shown were: qualified duly to make loans under our Loan Industrial Act,1 July 2, application 1951 received an from defend- they get ants for loan “in an amount sufficient so $1,000.00 They given $1,000. in cash.” were To this *3 plaintiff sum insurance, added for an for $20 $27.57 investigation fee, plus interest, making a total $330.81 $1378.38, payable for which defendants executed a note equal monthly in $57.44, signed 24 installments of and also mortgage security a chattel as therefor. paid only August payment

Defendants as the $58 nothing 2, further. On plaintiff brought October note, action on mortgage, to foreclose the chattel attorneys’ and also asked for fees. general usury maximum statute limits interest per annum, over loans “except $100 as other- 10% provided by

wise law.”2 The rate allowed industrial companies exception. an is such grants

The Industrial Loan Act to industrial loan cor- porations power: * * *

“(1) money To loan and to deduct interest thereon in advance * * * per at the rate of one cent per month, face of such loan and, require addition, payment in weekly, semimonthly uniform U.C.A.1943, 7-8-3, now U.C.A.1953. 1 7-6-3, U.C.A.1943, 2 44-0-2, 15-1-2, (1953 now Supp.). U.C.A.1953 installments, monthly or interest or with without an allowance of * * * per installments, and to a maximum fee of two such * * * * * * * * * expense investigating cent borrower- ^[*] ^[*] ^[*] i» figuring Defendants contend basis for must; charges

interest and allowed above statutes they received, cash, $1,000 plus be the amount i. e. $20- coverage, in value for insurance which would make the? computation as follows:

Principal .$1,000.00 Insurance. 20.00 (months) $1,000. x x 240.00 1% investigation fee . 20.00

$1,280.00 Counter to this maintains that because the» permits statute the lender to: “* * * ** * interest deduct in advance at the rate of one * * * * * *” cent of the face of (italics, such loan month

added) it was authorized to make the face of the note sufficient: pay charges all of the advance, interest and and. figure plus investigating fee, totaling 26%,. gross amount, computed thus:

Principal .$1,000.00 Insurance. 20.00 *4 (months) $1,378.88. x x 330.81 1% (total loan) $1,378.38. inv. x fee 27.57 2% Total.$1,378.38 question posed,

The is whether the applying- basis for charges is; the interest and allowed the above statute actually by the money and received value the amount of plus all of the ($1020) amount interest or that borrower charges ($1378.38). survey arguments favoring defendants’ first We position. ordinarily meaning accepted it of interest is that compensation pays money

is which one for the use of he Obviously, has borrowed for his own use.3 one money repaid cannot use another’s after he has it longer possession. and it is in no his As this statute applied by plaintiff, is plain it here is is interest charged money possession in is not or use the borrower.

Ignoring niceties, principal mathematical demon- repaid thus: A borrower to be in strated takes ten $100 installments; monthly on there is deducted interest $10 per total face of the loan at month for each month 1% period, $90, of the entire So he receives but he total-$10. possession during only has this in his the first month. $90 pays payment, during After he his first the second month period, possession only in he has his but $80 paid he during has interest for the use of the full $100 month; payment, after the second pos- he his during month, only session the third but he has $70.00 paid- $100; interest for the full use so down month, until in the final when he has l/10th money possession use, left in his for his he still has been pay interest on the entire sum for that month. paid year And he has it a advance without money being he has thus advanced credited to him. Thus in the paid, tenth month he has month, not 1% per month, but or at year the rate of 10% money actually in his hands. 3 30Am. Jur. 6.

534 the longer period shows payments over

Using smaller borrowing be cogently. more One picture $100 even the last month monthly payments, at twenty paid in $5 pos- only leaving in his $95, paid $5.00 back would have charging him interest instance, In for such session use. would make of full the use the $100 final month for for the actually using money he is rate on the interest 20% longer period for re- per year. the month, The or 240% payment, loan, the and the smaller the payment of the during terminal exaggerated the more the becomes. months clearer principle the becomes even application of money for property than used other is or

if some chattel of Suppose at the rate one hired 12 trucks illustration. use; required lender each for their month $10 year paid in advance and that one truck for a the use be During month. the second month returned each using only paying 11 but would be trucks borrower using 12; only paying but month trucks the third 12; when he and so on down until the final month paying trucks, fee for the use of 12 still be full $120 only using 1 of but them. plain is thus where the interest deducted or

paid original in advance the full amount average possession the borrower his period during the the loan for use about of the money upon pay which he is interest. This actually approximately means that the interest rate is double that named as interest rate of loan. arrangement plaintiff,

Under the with the defendants possession average, here would have had their of the during period loan, only about one-half of the money they originally ($1,000) amount received considerably less than one-half of the total face ($1,378.38) so plus note the interest rate of percent, *6 actually ostensibly years, than for two amounts to more plus per year money per on of the bor- cent the amount possession. rower his would argument plausible and which

An least which is at imposition is the interest rate avoid of the exorbitant the approach phrase face interpreting “the that instead of the original loan, of of the loan” to mean the total the interpreted1 it should to the balance due the be mean any given time, is, loan at an exam- that the amount which given any would ination of the face of the note at time outstanding reveal as loan. This the amount then the being charged only money result interest on the actually suggested in the hands of the borrower. It is that such application is the reasonable and fair of the statute. noted, however, phrase ques- should be here the that tion, loan,” of usually principal “the face the means the thereof.4 urged permit

It is that the did not intend to plaintiff such excessive of interest has con- as comparison trived to with rates because interest exceptions general usury allowed other to the statute. Under the Act5 Small Loan where loans limited to are $300, permitted month, the maximum interest is 3% chargeable only but loan, the balance aof deferred per year money amounts on the the 36% actually borrower newly has in hand for A use. enacted statutory provision relating to conditional sales contracts permits charging the “unpaid month of the balance,” act, as defined in “unpaid the to be added to the balance.” adding

It will principal be noted interest contract, being charged in interest results on such p. 4See 35 382. C.J.S. 5 7-10-13, U.C.A.1953. (3),

6 15-1-2a B U.C.A.1953. in ad- of interest “deduction only, whereas principal princi- to the added first to be interest permits vance” figured on both is then loan, so pal of the interest, as upon the as well as money advanced did. Usury exceptions Statute to the General that the said

It is conditional and the Loan Act Small under allowed justified because just to are referred enactment sales work large and book of detail amount and the risk In handling credit transactions. of such in the Act, this, Loan there Industrial contrast under may and such reason loaned limit to the amounts no *7 although exist, as not an rate does excessive actually charged is indicated, the interest been has argue rea- higher. cannot Defendants any supposed sonably to intended such result. be have appear not to there does be must be conceded justifiable this anomolous situation. reason for arguments foregoing position of favor defendants’ However, are not without merit. of the antecedent because statutory state, and case law and here- other reasons stated, liberty inafter we are not at cause consider this impression. its merits if it as were matter first People’s In Varney,7 Finance & Co. v. this court Thrift predecessor present construed the statute which undergone only slight changes (hereinafter noted) since. Varney evidently applied A Miss for a loan of $200 from company; there was deducted therefrom interest and a $20 service $2 advance; signed she received $178 note for to be $200 paid monthly in ten installments of each. She resisted $20 ground suit on the usury, claiming that she would re- be quired pay than per more (now per annum 12% month), statute, mentioned in the succeeding since as in- 355, 7 75Utah 285 P. 304.

537 money would be paid, of the borrowed were less stallments use, arguing interest should for her in her hands had use of the borrower calculated on the basis that month, month, for the for the second for one $160 $180 $200 argument set out in the fore- third and on—the same so going portion opinion. of this directly

This contention met and answered Mr. was Straup, speaking Justice for the court as follows: “* * * j-he expressly provides 2925 statute that an industrial loan * * * company is authorized to deduct in advance interest on the cent, per per annum, addition, loan at the rate of require ‘in weekly, semi-monthly, monthly uniform or installments.’ cent, company per When therefore the as deducted annum note, it did on the face of the interest in as advance for the 10-month period loan, expressly it but did what the statute authorized company $20, such a to do. The interest deducted was which is the period interest on for a ten months at the rate of $200 cent, per company annum. When the ‘in addition’ the loan monthly paid each, again he to the statute think, installments of it but did what $20 permitted expressly company Such, such a we to do. reasonable, necessary, meaning is not but the to be given respect the statute. We do not see wherein it in such is doubt- ful or uncertain.”8 directly holding

Defendants do not assail the of the Var- ney distinguish case but seek to it from the instant one saying that *8 originally requested by [Varney] “the amount the defendant and identical,

the face of the note is in the while case at bar the amount requested by the defendants and the face of the note is not identical.” argument The burden their is that because the defend- requested $1,000 ants a loan of that such is the amount upon investigating which the interest and fee must be cal- loan, culated, implying that if a had been re- $1378.38 quested, charges the interest figured and could be on that and amount deducted plain therefrom. It is that this is but page 360, 8 75Utah at page 285 P. at 305.

5B8 difference essential in fact without distinction $200, Varney loan of for a

principle. asked Miss Whether import. is what she The latter amount $178, of no or for is loan, her got. deducted from interest and fee was The $22 which totaled $200. argument

If were sound it would follow that defendants’ $178, aif man asked a loan of received $200 figured $200; interest would be but if he asked for a $178, signing loan of net and received such sum a note for $200, computed only interest would be on the $178. is obvious that no such variance in interest rate should depend any magical wording formula as to the of the request so, borrower’s for a may loan. If it were one rest assured that always borrower would to ask larger Further, amount. against conclusive defendants’ point contention on this is the fact that just is what was done in the stipulation instant case. The pre-trial at was that defendants * * * “applied for a loan in give an amount sufficient them net proceeds $1,000, cash repaid which was to be within 24 months.” That was the net they amount charges received and the and interest were added they to it and figured upon were gross amount at, just thus arrived as in Varney case. holding

The Varney case that under the Industrial Loan Act interest could be based the total of the loan (the principal plus interest) for the period entire deducted advance, has stood since March 1927. It con- Chap. strued 116, Laws of Utah 1925. Legislature 1927 amended inserting statute provision “with or without an allowance of interest on such installments.”9 This -was undoubtedly done to meet this situation: If substantial amount of paid in advance, as in the case, instant the loan company receives payment be- Utah, 9Laws of 1927, p. 72.

539 is, That the borrower money occurs. use of the fore the money for all beginning of the the use pays at the pay for the his lender receives and the of the loan months rendered; in- is money such service before use of the money month for the last gets paid of the stance, for use he lender Hence, in states the years some in advance. a full two with an offset for borrower is to credit the purpose of the pays advance.10 The he thus undoubtedly just to eliminate amendment referred to was allowing company any question necessity of the loan position that this such credit state. Plaintiff’s is Varney with the case and with its amendment is consistent interpretation of the statute. It is difficult to ascribe meaning except to it in accord with the contention of the plaintiff given express privilege the lender receiving monthly payments crediting without the bor- payments. rower with interest on such again 1945,11 This same statute was re-enacted only change being proviso an addition of a the 2% investigating fee could be assessed once each six months. appears years general therefore that 26 and 13 sessions legislature gone have Varney since the decision

interpreting statute, yet has not seen fit to any change make law, in the as therein established. In reliance thereon the and other industrial companies have issued running thousands of loans into many hundreds of thousands of dollars. universally authorities recognize usury involves degree some of mala fides. As we said in Cobb v. Hartens tein12 contract, “A usurious, to be must be so at the time made” and it is essential that corrupt “a or unlaw ful intent to violate usury law, at least on the part of the proved lender” be to render the contract 3862-8; 10Rem.Rev.Stat.Wash. § Wis. Stat.1951 (7) (b). 115.09 § Utah, 11Laws of 1945, ch. 73 1.§ 174, 12 47Utah 424; 152 P. Parsons, Minn. Smith v. 520, 526, 57 N.W. 311. *10 hold- that fact of the that because It is undoubted usurious. aof application the involves ing usurious contract to be a property of his deprive party penalty will which plainly manifest it is lightly, nor unless will not be done of interest a rate to intended that the lender principle dispute the not clearly This does usurious. knowingly charges interest at a usurious that one who probable conse- and natural presumed intend the will be consequences.13 the suffer quences of act and be held to his two construc- law reasonable if the facts and the But under legal, possible, by the will be are one of which contract tions be, invalid, by court will and the while the other it usurious usury necessary corrupt will not find the intent establish penalty and invoke the thereof.14 As this court observed Rospigliosi Mining case of v. Glenallen Co.15: * * * ought interpret legislative not, “Courts do not and act so property another, that of one citizen is forfeited and lost to unless plain unequivocal Legislature and of no mandate of the admits other rational construction.” plaintiff, question There is no but that Seaboard practically “squeezed Company, last Finance has to the drop” charges possible all of interest and to recover always under the And statute. there is the straw that premium charged breaks the camel’s back. If insurance compulsion, was exacted pre- under anas additional burden requisite granting loan, might to the under some circumstances violate the and statute render the in- note valid. by No such contention here, is made the defendants they stipulated they got and “value received” insur- ance for the $20. entirely possible

It is the Industrial Loan Act was legislature sold to the passed by and them as a 1% unlikely month act and not language that its was devised C.J.S., Law, 13See 35, p. Criminal 93. § supra. 14See Note 13 41, 276, 15 69Utah 252 P. 279. very pur- companies for the

representatives of loan greater rate of interest. pose charging a much legislature may of this state well be that charging approve annum deliberately not actually use, particularly on the amount the borrower comparison lesser rates allowed un- in view with the of the and the Installment Sales Finance Acts. Small Loan der prerogative Nevertheless, not it is the prescribe usury. of the courts to the rules as to It is our interpret question apply, function but not to the wis- legislation. judicial propriety *11 can at- dom of We with call may appear tention to to un- situations them be reasonable, so inconsistent or undesirable that due con- given may remedy provided sideration and a thereto if by body. deemed advisable that delineated,

For the reasons hereinbefore we are con- strained to hold the partake that instant loan does of not such a usurious it nature render invalid and un- as give collectible. may Reluctant as the court be to sanction to this law charging which has resulted in wholly what seems to abe interest, unconscionable of it would be even so more to resort to distortion of the lan- guage legal of the statute and principles bearing the controversy bring this plaintiff’s about of defeat recovery.

Since determination of issues, certain of the other usury, than require of taking that evidence, of ac- tion is remanded to the trial court for proceedings further consistent opinion. with this appellant

Costs to (plaintiff).

WOLFE, Chief Justice (concurring). except

I concur for those statements in majority opin- censuring ion plaintiff charging and practices its morally are wrong. Arthur Ham, H. years many Dir- Sage Founda- Russell of Loans Remedial of of Division

ector has, in his business authority loan the small on and tion an those pamphlets, demonstrated miscellaneous Company New Loan companies the Provident such as can do large in small sums capital loaned City with York plain- month. The cent a cost of under business at a regu- and companies licensed other tiff, finance as well as necessary legitimate engaged state, in a by the lated charged defend- which it business. the interest While clearly may high, it was within the the surface seem ants Legislature permitted by took into statute. when it established the maxi- consideration these factors Long Loan Remedial statutes were mum rates. before Legislature passed in had it more than one before Utah investigating data as to the cost of losses sustained companies engaged carrying on the small loan busi- capital employed ness on the various levels without security security chattels or real estate but personal Knowing only. nothing earnings sureties of the companies, or finance say other I cannot charges “unconscionable”, their are nor Ido think properly their conduct can be classified as “scheme.” McDONOUGH, (concurring-). Justice *12 opinion I concur in the court, but likewise concur in the of observations Mr. Chief Justice concerning WOLFE opinion, statements made in the which statements, how- ever, way in no color its rationale.

WADE, Justice (concurring).

I only concur. About the benefit that can result from litigation this is that certain vicious results from the stat- usury utes on may pointed be legislature out to the for consideration in the future. I think it appropriate to call attention to some such emphasized results not prevail- in the ing opinion. remedy provide a harsh usury of our state statutes The lose lender shall by providing that their violation princi- charged, all of the but only interest the excessive not a possible justification such harsh pal loaned. The driven theory has remedy such lender based been re- bargain, have and the courts an unconscionable where the facts find a violation occurred luctant has finding. require clearly Too often the result such a do not person an uncon- of situation is that who drives this bargain stays law, technically scionable within the but person nothing who he made has done unfair finds that a technical violation of the law and has to suffer the harsh penalty.1 persons Sometimes who intend traffic collecting lobby through unfair rates for loans statutes legislature appear prac- which to be innocent but in actual tice tolerate unconscionable rates I if of interest. wonder nearly it would not accomplish more purpose to abolish penalty provide harsh one not which would work great hardship in thereby case violation and remove against finding strict construction a violation. This proposition carefully should by legislature. considered

There is very thing another vicious about this statute. appears merely its face to allow a of interest at the per rate of per one cent per month per or 12 cent an- num over and charges. average above other borrower legislator, lawyer, judge who had not had occasion figure out, the matter would be lead to believe that 12 cent annum top was the limit the rate of interest chargeable statute, under such and we are shocked when we become fact, conscious of the as this demonstrates, case that under this statute the rate of may high run as as If the was 37%. conscious fact that enacting such they a law permitting were the collection of large such percentage interest, they would have been much say more frank to language inso convey everyone that idea to who reads the statute. language This *13 v. Rossberg

1See Holesapple, 544, 123 Utah 260 P. 2d 563. give im- mislead to to be calculated to me seems ac- than it much lower allowable is pression the rate a tually for me to believe is. It is hard an deliberately a which allows such enacted statute good feel interest would exorbitant usury be accomplished by any to law. seems me charging more highly prohibit man from inconsistent neighbor to his or busi- cent on loan than acquaintance, a finance but at the time allow same ness company per cent loan. for same

HENRIOD, Justice, concurs in result. al. v. et al.

ROSSBERG et HOLESAPPLE 563.) July 27, (260 No. 7802. Decided 1953. P. 2d