Opinion
No. A-106089.
1948-04-15
PORTER v. INTERSTATE SECURITIES CO.
Theodore M. Berry, of Cincinnati, for plaintiff. Petermann, Calhoun & McPherson, of Cincinnati, for defendant.
Action by Edgar E. Porter against Interstate Securities Company for a declaratory judgment to establish the rights and liabilities of the parties under two notes and mortgages signed by plaintiff, wherein the defendant filed a cross petition.
Judgment for plaintiff in accordance with opinion.Theodore M. Berry, of Cincinnati, for plaintiff. Petermann, Calhoun & McPherson, of Cincinnati, for defendant.
SCHNEIDER, Judge.
This is an action for a declaratory judgment, plaintiff seeking to establish the rights and liabilities of the parties under two notes and mortgages signed by plaintiff.
Defendant, a licensee under the Small Loan Act, Gen.Code, § 8624-50 et seq., has filed a cross petition for a money judgment upon the last note and mortgage given.
The evidence is largely documentary and the facts are not in dispute, the dispute being over the interpretation to be given those facts.
November 27, 1946, plaintiff purchased from Bill Cargill, a used car dealer of this city, a Buick automobile, the used car order, Ex. 1, reciting the cash price of the car as $550. The accessories, consisting of $16.50, sales tax, and other items bring the total price to $578.60. $198.60 was paid down, leaving balance due of $380, ‘to be paid in 15 payments of $33.84 each’. 15 x 33.84 equals $507.60, thus making total obligation of plaintiff $127.60 over the purchase price.
On the same day plaintiff signed a chattel mortgage and note payable to Cargill (Ex. 2) for $507.60, the mortgage setting out ‘finance charges and insurance for 15 months $127.60’. The mortgage and note were endorsed to the defendant without recourse. Counsel for defendant informed the Court that Bill Cargill was paid $380 for this note and mortgage by defendant, and that the insurance premium was $27.50, no further explanation being given as to what made up the remaining ‘finance charge’ of $100.10.
Plaintiff made two payments in December and January, amounting to $67.68. On February 20, 1947, seven days before the due date of the third payment, he stated to an individual in defendant's office that the car needed repairs to the extent of $75 and he wished to borrow that sum. After some conversation, two checks were issued to him, one being for $439.92, this representing the fact of the original note, less the two payments made. This check he endorsed and returned to defendant. Thereupon (Ex. 2) said original note and mortgage were marked ‘paid’ and returned to plaintiff.
A new note and chattel mortgage (Ex. 4) were made out in the amount of $515 signed by plaintiff and a second check for $75.08 issued, which plaintiff cashed. This new note, however, calls for fifteen payments of $40.72 each, a total of $610.80. In other words, the difference, $95.80, represents the lawful interest charge under the Small Loans Act. After paying four such installments, plaintiff asked for some consideration for the discounting of the thirteen payments at one time on the original note. This was refused and suit was then brought.
Counsel for plaintiff, upon questioning by the Court, conceded that the first note and mortgage, in its inception, was a valid purchase or discount of an obligation for goods, and that if its terms had been carried out, was binding upon plaintiff; therefore, except insofar as a deviation in the execution of the contract is claimed, there is no necessity for determining whether the first transaction, in its inception, was a ‘device, subterfuge or pretense or the acquiring by purchase of a bona fide obligation.’
Plaintiff's complaint is that defendant wrongfully hastened the maturity of the thirteen remaining payments on the first note and allowed plaintiff nothing for discounting that note. He contends that defendant only paid Cargill $380 for the originalnote and $27.50 for the insurance (407.50 in all), and that he, the plaintiff, was charged $100.10 for the use of $407.50 for three months.
Counsel for defendant contends that this is not an interest charge at all; that Cargill had two prices, one, a cash price and the other a time price, and that the $100.10 represents the difference between the time price and the cash price, rather than a charge for the use of the money. He cites 165 A.L.R. p. 631, et seq., and cases therein found, in support of the two price contention. A similar statement may be found in Ohio Jurisprudence, Vol. 40, Usury, p. 835, Sec. 13. However, Sec. 11, Usury, also recites: ‘The cupidity of lenders and the willingness of borrowers to concede whatever may be demanded * * * have resulted in a great variety of devices to evade the usury laws, and, to frustrate such evasions, the courts have been compelled to look beyond the form of the transaction to its substance.’
In the opinion of the Court the evidence does not support this contention of defendant. The documents show that Cargill had but one sale price; that sales tax was collected on that price; that defendant company paid Cargill at once the unpaid balance of that sale price, for the note and mortgage, and at all times thereafter claimed for its own all in excess of that amount.
The circumstances surrounding this transaction are such as to indicate that the defendant was not an ‘innocent purchaser for value’ of the note and mortgage and that the transaction was a mere device to evade the provisions of the Small Loans Act, whereby Cargill got his sale price at once, and the defendant was able to charge an amount 20% or 25% greater than it could have charged under the Act; however as counsel has admitted the genuineness of the transaction in the beginning, the inquiry will only be directed to the happenings on February 20th.
Sec. 8624-51(c) of the Small Loan Act, General Code, provides that any refinancing or extension of an existing obligation with charges greater than eight per cent shall be done under such Act.
Webster defines interest as ‘a price or rate of premium per unit of time that is paid by a borrower for the use of what he borrowed; specifically a rate of per cent of money paid for the use of money or the forbearance of demanding payment of a debt’.
The defendant, in the second note, uses the words ‘charges of three per cent a month’ as the equivalent of ‘interest of three per cent a month’.
Sec. 8624-50 reads in part: ‘The word ‘charges' shall include interest and all manner of compensation’.
The Court, looking to the substance and not the form, finds this ‘finance charge $100.10’ to be interest for the use of defendant's money.
The Supreme Court of Ohio, in Bank v. Slemmons, 34 Ohio St. 142,32 Am.Rep. 364, held that where a new note incorporated the principal of the old note, together with interest due and unpaid, into one total, the new note was merely an extension of the old note and the resultant compounding of interest constituted usury. See also Rosebrough v. Ansley, 35 Ohio St. 107, Syl. 3.
That the defendant recognized the new note as an extension of the old is evidenced thus: insurance was charged as part of the first mortgage which was marked paid but no information was given the Court as to whether the buff copy of the certificate of title was so marked or given back, that being the only way in which the lien could be cancelled in the office of the Clerk of Court. The mortgage, covering the automobile, given on the second note, was not even filed for record and makes no mention of insurance. The only reasonable inference is that the lien of the original mortgage is still in existence. (Ex. 10), defendant's own office record of the last mortgage carries insurance as expiring February 27, 1948, the expiration date of the first mortgage but three months before the expiration of the last mortgage.
Sec. 8624-62(b) reads in part: ‘No charges shall be paid, deducted, or received in advance or compounded, but it shall be permissible if part or all of the consideration for a loan contract is the unpaid principal balance of a prior loan, to incorporatein the principal amount of a new loan, contract unpaid charges on the prior loan which have accrued within sixty days before the making of such new loan contract.’
Subsection (c) provides for voiding the contract if charges are intentionally in excess of those stipulated in the section.
It is clear that there were no ‘unpaid charges' on February 20, 1947.
The Court therefore finds that when defendant incorporated all of the charges on the thirteen installments into the new note, it intentionally violated the section above quoted. If there could be any doubt of the defendant's intention, it is removed by the filing of its cross petition, asking judgment on such charges.
The Supreme Court of Ohio in Capital Loan & Savings Co. v. Biery, 134 Ohio St. 333, 16 N.E.2d 450, made some caustic comments on a mortgage, such as (Ex. 4) in the instant case, which enabled the mortgagee under certain circumstances to enter into plaintiff's building and seize the property without process of law, etc. In that case the argument was made that inasmuch as Sec. 8566 provided foreclosure proceedings must first be had, that clause in the mortgage meant nothing. That argument was rejected summarily.
In the instant case the mortgage provides that the defendant may do these things, except as provided in Sec. 8566. This Court will follow the ruling of the Supreme Court.
The particular vice of the mortgage herein, however, is that it provides ‘* * * or if it (the defendant) shall with or without cause at any time deem itself insecure as to the safety of said property, * * * then the whole sum, principal and charges, shall become due. etc.’
The Supreme Court, in the case cited, stated, 134 Ohio St. at page 337, 16 N.E.2d at page 452: ‘The validity of the note and mortgage may be determined from the terms thereof and not necessarily from the acts of the parties'. and further held in the syllabus that: ‘such promissory note and chattel mortgage are void, and such licensee has no right to collect any principal, interest or charges whatsoever on such promissory note or chattel mortgage’.
It is true that in that case the decision turned on Sec. 6346-5 which section has since been repealed. However, it has been substantially reenacted in Sec. 8624-62 so that the rights and liabilities of the parties remain the same.
This Court therefore holds that because of the violations of the sections of the Small Loan Act cited above, the note and mortgage for $515 (Ex. 4) are void and that defendant has no right to collect any principal, interest or charges thereon, the terms of the note being usurious.
In Stinson v. Bisbee, 55 Idaho 38, 37 P.2d 236, 237,102 A.L.R. p. 570, it is held that: ‘Usury payments made under a subsequent usurious transaction upon a contract, which in its inception is unaffected by usury, should be applied on the original indebtedness.’
In the 34th and 35th Ohio State cases it was held that where usury is shown in an ordinary commercial transaction, only the usurious interest is void, the principal remaining collectible. See Sec. 40, Usury, Ohio Jurisprudence.
Applying these principles of law and reverting to the first note and mortgage, the Court finds that the acceleration of the maturity of the note by the defendant was in direct violation of the contract assigned to it, and that plaintiff is entitled to carry out his part of the contract in the manner and times specified in said original mortgage.
Plaintiff has made two payments thereon totaling $67.68 and four payments thereafter of $40.72, amounting to $162.88 or a total of $230.56. This amount deducted from $507.60 leaves $277.04 now owing by plaintiff, which he will make in eight monthly payments of $33.84 each and a final payment of $6.32, these payments to begin when defendant has complied with these findings. No interest will be allowed as it is the wrongful conduct of the defendant that has prevented these payments from being made. The costs will be assessed against the defendant.
An entry may be drawn in accordance with these findings.