Opinion
The defendant borrowed $1100 from the plaintiff, an industrial bank, giving her note for that sum, not payable at any definite date nor containing any provision for interest, but referring to a deposit as collateral security of a certain installment investment certificate. At the same time she signed an agreement of purchase of this certificate, in the sum of $1100, she to pay therefore in fifty weekly installments. The plaintiff deducted $88 from the amount of the note, representing interest of six per cent on the whole sum, plus two per cent purporting to cover charges of investigation. Held: 1. That the conclusion of the trial court that the sale of the certificate was not a separate and bona fide transaction, and therefore did not fall within the provision in the statute under which the plaintiff was organized, that installments paid upon investment certificates should not be construed as part payment of a loan secured by them, was amply justified by the facts. 2. That the whole transaction being in fact a loan payable in instalments, the plaintiff was not entitled to charge interest upon the whole loan for the whole time and the amount deducted exceeded the rate of interest permitted by the statute, which expressly prescribes that no action lies to recover the whole or any part of a loan made in violation of its terms.
Argued January 22d 1930
Decided March 3d 1930.
ACTION upon a joint and several promissory note, brought to the Court of Common Pleas for Fairfield County and tried to the court, Shaw, J.; judgment for the defendants and appeal by the plaintiff. No error.
Irving Elson, for the appellant (plaintiff).
Joseph G. Shapiro, with whom, on the brief, were Harry Allison Goldstein and Charles S. Brody, and Samuel Engelman for the defendant Neikind, for the appellees (defendants).
The plaintiff is a corporation of the type known as an "industrial bank," incorporated under the provisions of Chapter 196 of the Public Acts of 1919. As such it had power, among other things, to loan money on real or personal security and "to sell its secured or unsecured certificates of indebtedness for investment, and to receive from purchasers thereof payment therefore in installments or otherwise, the receipt of, or the agreement to receive, payment for any such certificate in equal weekly or monthly installments extending over substantially the period of any loan secured by a pledge thereof not to be construed as part payment of such loan." The defendant Anna Rosenblatt borrowed of it $1100, giving her note for that sum, not payable at any definite date, nor containing any provision for interest, but referring to a deposit as collateral security of a certain installment investment certificate. At the same time she signed an agreement of purchase of this certificate, in the sum of $1100, she to pay therefore in fifty weekly installments of $22 each, with a provision that in case of default of any payment she was to pay an additional sum of five cents a week for each dollar she was in default. At the time she signed the note the plaintiff deducted from its amount the sum of $88, representing an interest charge for the year of six per cent upon the whole sum loaned and an additional two per cent purporting to cover charges of investigation. Thereafter the defendant Rosenblatt paid various installments provided for in the agreement amounting to $572 and penalty charges of $51.70, of which $5.50 accrued more than one year after the loan was made. The plaintiff brings its action to recover the amount of the loan less the amount paid to it by the defendant.
The trial court concluded upon the above facts and others it would serve no good purpose to rehearse, that the purported agreement to purchase the installment investment certificate did not represent a separate and bona fide transaction, but that the whole transaction was simply a loan and nothing more. This conclusion is amply justified by the facts found and, if further confirmation were needed, it appears from the fact that in this action the plaintiff claimed to recover only the balance left after deducting from the amount of the note the payments made under the agreement to purchase the certificate. This agreement not being a bona fide and separate transaction, the situation does not fall within the provision quoted from Chapter 196 of the Public Acts of 1919 that installment payments upon such a certificate are not to be construed as part payment of a contemporaneous loan.
Reading together the note and agreement of purchase, the effect of the transaction is that the defendant borrowed $1100 of the plaintiff, to be repaid in fifty weekly installments of $22 each, with a penalty of five cents a week for each dollar she was in default in the payment of any installment, and that for the making of this loan the plaintiff charged $88. We may disregard any question growing out of the five cent penalty, for, without the payments made under it, the plaintiff clearly charged more than the amount allowed by law. The loan being one to be repaid in installments, so that the amount due upon it would steadily decrease, until, during the last week, only $22 was due, the plaintiff was not entitled to charge interest upon the whole loan for the whole time, but only upon such sums as remained due from time to time. Even at the rate provided in the statute as the maximum for such a loan, twelve per cent, it would have been entitled to charge as interest not more than $66.
There is no ground for attack upon the finding of the trial court that the note and agreement to purchase the certificate were actually made for the purpose of violating the statute prohibiting the plaintiff from charging or agreeing to receive more than twelve per cent per year upon the loan and that the plaintiff did in fact receive more than the amount of interest it would have been entitled to charge upon the loan at that rate; and by the express terms of the statute no action lies to recover the whole or any part of a loan made in violation of its terms. General Statutes, §§ 4798, 4802.