Summary
In Kennedy v. Porter, 176 Miss. 742, 748, 170 So. 286, 287 (1936), this Court held: "[a] contract for usurious interest is a corrupt contract, and is violative of the public policy of this state.
Summary of this case from Watkins v. Mississippi BarOpinion
No. 32356.
October 26, 1936.
1. USURY.
Contract for usurious interest is violative of public policy of state, and courts, in order to ascertain whether contract is usurious, will look through form to substance, and real facts will control (Code 1930, secs. 1946, 3986).
2. BUILDING AND LOAN ASSOCIATIONS.
Statute exempting building and loan associations from general usury statute must be strictly construed against associations (Code 1930, sec. 3986).
3. APPEAL AND ERROR.
On appeal from decree striking answer from files on ground that it presented no defense, answer must be taken as true.
4. BUILDING AND LOAN ASSOCIATIONS.
In suit by receivers of building and loan association to foreclose mortgage, answer alleging that contract did not involve a loan but a purchase price of property, and was therefore usurious because in excess of statutory rate of interest, held to state good defense (Code 1930, secs. 1946, 3986).
APPEAL from the chancery court of Harrison county. HON. D.M. RUSSELL, Chancellor.
Hannah Simrall, of Hattiesburg, for appellants.
A motion to strike an answer on the ground that it presents no defense necessarily admits the truthfulness of all the allegations contained in the answer, and it is wholly unnecessary, we assume, to remotely discuss this question.
The general subject of Interest, Loans and Usury is covered by chapter 37, Mississippi Code of 1930, and section 1946.
Building and Loan Associations are covered by chapter 92 of the Mississippi Code of 1930, and section 3986 prescribes and defines the rate of interest that building and loan associations may charge.
While this identical question has not been raised or presented by any previous cases, a kindred and analogous question was before the court in the case of Sullivan v. Jackson Building Loan Association, 70 Miss. 94, 12 So. 590.
It is always to be borne in mind that chapter 37 of our code fixes and declares the general policy of the state of Mississippi with reference to interest rates; and that building and loan associations constitute an exception to the declared policy as fixed by said chapter 37. And it is everywhere recognized that all exceptions to general principles are to be more strictly construed against those claiming the benefit of such exceptions.
The case at bar offers the opportunity for an extended discussion as to the evil consequences that might result from enlarging on the legislative enactments that ingraft exceptions as to the fixed legal rates of interest. However, we respectfully submit that the well recognized principle of strictly construing all exceptions to general statutes inevitably leads to the conclusion that building and loan associations can never charge a rate of interest in excess of eight per cent, except where money is loaned. Furthermore, we respectfully submit that the case of Sullivan v. Jackson Building Loan Association unqualifiedly supports this contention, and that the decision in said case should be, and is, controlling in the case at bar.
Statutes exempting building and loan associations from the usual and ordinary interest laws are very strictly construed.
9 C.J. 974, Building and Loan Associations; 4 R.C.L., Building and Loan Associations, sec. 31.
It is, of course, admitted on the record in this case that the note here sued on does not represent a loan of money, and it was not executed in strict accordance with the statute.
The cases of Callison v. Trenton Building Loan Association (Mo.), 72 S.W. 477; Midland Savings Loan Association v. Gast Heights Development Company (Okla.), 197 P. 484, and Borrowers Investors Building Association v. Eklund, 190 Ill. 257, 52 L.R.A. 637, all support the proposition that loans made by building and loan associations cannot escape the condemnation of usury statutes, unless made in strict conformity with the letter of the statute.
Gardner Backstrom and Mize, Thompson Mize, all of Gulfport, for appellees.
Building and loan associations are given preference in their power to charge as much as ten per cent interest in Mississippi. Over a long period of time the policy of various states has been to encourage the ownership of homes and property and for this purpose have encouraged building and loan associations and shown them special favors. This is permissible as the question of usury is one strictly of statutory law and whatever the Legislature says is not usury is a valid regulation of the Legislature.
4 R.C.L., page 342 and page 344, sec. 3.
Building and loan associations as an incident to their right to do business have the power to own land or to purchase land at foreclosure sales, but as a general proposition it cannot engage in the real estate business generally.
4 R.C.L., pages 366, 367.
The transaction in the instant case is just as clearly within the rights conferred by the statute as if the appellant Julia S. Kennedy had bought a piece of property from a third party but was unable to pay for it. She went to the Building Loan Association as a member and holder of twenty shares of stock and said to the Association, "I desire to assign my 20 shares of stock and to give you a deed of trust on a piece of property to secure the two thousand dollars which I owe to a third party for the purchase of that property. I want you to make the check to the third party for two thousand dollars." The transaction is handled simultaneously, she executes and delivers the deed of trust and assignment of her stock and executes the note at the same time the two thousand dollars is handed to the third party. In that illustration the money was never passed into her hands. Nevertheless it is a loan acknowledged and admitted by her.
In the instant case, instead of being delivered to the third party, she accepts the loan, receipts for the money when she executes the note and deed of trust and a straight-out unincumbered deed is delivered to her by the Building Loan Association.
Halsell v. Union Ins. Co., 105 Miss. 268, 62 So. 235; Tiley v. Grenada Building Loan Association, 109 So. 10, 143 Miss. 391; 9 C.J. 954.
To place the narrow construction contended for by the appellants would practically deprive the association of disposing of its property that it had acquired by foreclosure proceedings and such was never the intention of the Legislature.
If the contract was not usurious as to the original maker the fact that the other appellants went into the transaction with her cannot complain of the amount of interest charged as they assume that part also.
9 C.J. 960, sec. 80.
Appellees, receivers of the Gulfport Building Loan Association in liquidation, filed their bill in the chancery court of Harrison county against appellants to foreclose a mortgage on real estate in the city of Gulfport. The question involved is whether or not the contract is usurious.
Appellants answered the bill setting up facts which they relied on as constituting usury. Appellees' motion to strike the answer from the files because it presented no defense was sustained, and decree rendered in their favor on appellants' failure to answer further. From that decree appellants prosecute this appeal.
The bill alleged that appellant Mrs. Kennedy borrowed from the Gulfport Building Loan Association the sum of two thousand dollars, to secure the payment of which she gave a mortgage on lots three and four in the McAlpine addition in the city of Gulfport, and, in addition, assigned to the building and loan association twenty shares of stock therein of the par value of one hundred dollars per share; that the indebtedness was evidenced by her note for two thousand dollars, which provided for the payment of the principal and interest in monthly installments of twenty-five dollars each, the note to bear interest from date at the rate of nine per cent. per annum; that the other appellants had become interested with appellant Mrs. Kennery in the lots in a manner unnecessary to state; that default had been made in the payments as provided by the contract, and therefore appellees were entitled to a foreclosure. Appellants answered the bill setting up, in substance, that the form of the transaction was a mere subterfuge to conceal usury; that in truth and in fact there was not any loan by the building and loan association to Mrs. Kennedy but a sale and purchase of the two lots; that the building and loan association owned the lots which Mrs. Kennedy desired to purchase, and the price agreed on was two thousand dollars; that the building and loan association conveyed the property to her and took the note and mortgage referred to, and, in addition, required her to take two thousand dollars stock, par value, in the association, which she did, and place that up as additional security; in other words, that the unpaid indebtedness represented the balance due on the purchase price of the lots and not on a loan.
The precise question is whether the indebtedness was a loan or the purchase price of the property. The chancellor, as above stated, was of the opinion that the answer presented no defense and struck it from the files.
Our general usury statute, section 1946, Code of 1930, is in this language: "The legal rate of interest on all notes, accounts and contracts shall be six per cent per annum; but contracts may be made, in writing, for a payment of a rate of interest as great as eight per centum per annum. And if a greater rate of interest than eight per centum shall be stipulated for or received in any case, all interest shall be forfeited, and may be recovered back, whether the contract be executed or executory. If a rate of interest is contracted for or received, directly or indirectly, greater than twenty per centum per anum, the principal and all interest shall be forfeited, and any amount paid on such contract may be recovered by suit."
Section 3986, Code of 1930, exempts building and loan associations from the operation of the general statute to the extent that they are authorized to charge as much as ten per cent. per annum on loans. That statute follows: "All associations, whether foreign or domestic, now organized or that may hereafter be then organized, shall be permitted to contract for loans to its members who are stockholders and who participate in the profits of the association, at a rate of interest not to exceed ten per cent. per annum. And all associations as defined in this chapter shall be permitted to contract for loans to applicants or borrowers who are not members, and who do not participate in the profits, at a rate of interest not to exceed ten per cent. per annum, payable in equal monthly installments for the average time or duration of such loans, but not less than three years."
A contract for usurious interest is a corrupt contract, and is violative of the public policy of this state. The courts, in order to ascertain whether the contract is usurious, will look through the form to the substance; the real facts will control. Parchman v. McKinney, 12 Smedes M. 631; McLaurin v. Parker, 24 Miss. 509; Hiller v. Ellis, 72 Miss. 701, 18 So. 95, 41 L.R.A. 707; Brown v. West, 80 Miss. 764, 32 So. 52; 66 C.J., section 299, page 305.
A statute exempting building and loan associations from the general usury statute is to be strictly construed against the associations. Sullivan v. Jackson Building Loan Ass'n, 70 Miss. 94, 12 So. 590; 9 C.J., pp. 973, 974. Building and loan associations, by the plain language of the exempting statute, are authorized to charge more than eight per cent. per annum and not above ten per cent. on loans. If the answer in this case be true (and of course it must be taken as true for the purposes of this decision), the transaction involved was not a loan but the ordinary purchase price of real estate.
Reversed and remanded.