Summary
In United States B. L. Assn. v. Lanzarotti, 47 Idaho 287, 274 Pac. 630, 631, the same kind of contract was before this court and was held to be usurious.
Summary of this case from Cornelison v. United States Bldg. Etc. AssnOpinion
No. 5017.
February 4, 1929.
APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. O.R. Baum, Judge.
Action to foreclose real estate mortgage. Judgment for plaintiff. Modified and affirmed.
P.C. O'Malley, for Appellant.
Was the contract between the plaintiff and defendants, Lanzarotti and wife usurious? (33 C. J. 187, sec. 28, p. 188; Western Loan Building Co. v. McGillivrae, 141 Wn. 392, 251 Pac. 770; 39 Cyc. 952 (C), p. 953 (D) and (2); Salvin v. Myles Realty Co., 227 N.Y. 51, 6 A.L.R. 581, 124 N.E. 94; 27 R. C. L. 208, par. 9; Anderson v. Creamery Package Mfg. Co., 8 Idaho 200, 101 Am. St. 188, 67 P. 493, 56 L.R.A. 554.)
If the contract is usurious, has the defendant and cross-complainant the right to raise that question? (39 Cyc. 999 (H); 27 R. C. L. 281, par. 83; Rev. Codes, sec. 1540; C. S., sec. 2554; U.S. Rev. Stats., sec. 5198; Union National Bank v. International Bank, 123 Ill. 510, 14 N.E. 859; De Wolf v. Johnson et al., 10 Wheat. (U.S.) 367, 6 L. ed. 343; 39 Cyc. 999; 27 R. C. L. 281, 282; Pritchett v. Mitchell, 17 Kan. 355, 22 Am. Rep. 287.)
If the contract is usurious and the defendant and cross-complainant has a right to raise the question of usury, has he or any of the defendants the right to have interest actually paid, applied as a counterclaim or offset? ( Barnet v. Muncie National Bank, 8 Otto (U.S.), 555, 25 L. ed. 212; McCarthy v. First National Bank, 23 S.D. 269, 21 Ann. Cas. 437, 121 N.W. 853, 23 L.R.A., N.S., 335; Higley v. First National Bank of Beverly, 26 Ohio St. 75, 20 Am. Rep. 759; Lazear v. National Union Bank, 52 Md. 78, 36 Am. Rep. 355; Merchants National Bank of Portland v. Jno. P. Sharkey Co., 64 Or. 32, 128 P. 1005; Wysong Miles Co. v. Bank of North America, 262 Fed. 130; Lealos v. Union National Bank, 9 N.D. 60, 81 N.W. 56; Matthews v. Paine, 47 Ark. 54, 58, 14 S.W. 463.)
H.R. Turner, for Respondent.
"The test of usury fixed by our statute is not what might have happened under possible contingencies, but rather, that if a rate of interest has been contracted for greater than is authorized by law it is usurious and must be so treated by the courts. The subject of inquiry in such cases is whether or not a contract has been made whereby, either directly or indirectly a greater rate may be charged than that authorized by law." ( Ford v. Washington Nat. Bldg. etc. Assn., 10 Idaho 30, 109 Am. St. 192, 76 P. 1010; Stevens v. Home Savings etc. Assn., 5 Idaho 741, 51 P. 779, 986; Fidelity Savings Assn. v. Shea, 6 Idaho 405, 55 P. 1022; Cleveland v. Western Loan Sav. Co., 7 Idaho 477, 63 P. 885.)
"Payments made upon a loan as usurious interest and as commissions for extensions are to be applied in an action by the creditor to recover his demand to the discharge of the original debt." ( Nunn v. Bird, 36 Or. 515, 59 P. 808; Western Loan Bldg. Co. v. Larsen, 110 Wn. 213, 188 P. 390.)
"A junior mortgagee may contest the validity of the prior mortgage without offering to redeem and making a tender." ( Gaither v. Clarke, 67 Md. 18, 8 Atl. 740.)
"The defense of usury may be pleaded by anyone claiming and in privity with the borrower." ( Ford v. Washington Nat. Bldg. etc. Assn., 10 Idaho 30, 109 Am. St. 192, 76 P. 1010.)
"A court cannot grant other or greater relief than what the instruments and the pleadings ask for. Judgment must be limited to the relief demanded or to such as is embraced within the issue." ( Brunzell v. Stevenson, 30 Idaho 202, 164 P. 89.)
"Where parties come into this state and loan money to citizens of this state upon real estate situated here, the validity of the contract would be declared by the laws of this state, and our usury laws cannot be evaded by a stipulation in the contract that it shall be tested and its validity determined by the laws of another state." ( Fidelity Sav. Assn. v. Shea, 6 Idaho 405, 55 P. 1022.)
Plaintiff, United States Building Loan Association, brought this action to foreclose a first mortgage on real estate in Bannock county, and pleaded that it was a foreign corporation existing under the laws of the state of Montana, and had complied with the constitution and laws of the state of Idaho to entitle it to do business in this state; that the note and mortgage were made, executed, and delivered at Pocatello, Idaho. The note was, so far as material, in the following language:
"For value received, I, we or either of us, promise to pay, in lawful money, to the order of the United States Building Loan Association, a Montana corporation, at its office in Butte, Montana, the sum of Thirty Five Hundred Dollars, with interest thereon at the rate of six per cent per annum and one per cent premium per annum on the total principal sum until fully paid. Payments to be made in 108 equal monthly installments of ($52.83) each payable on the 10th day of each and every month, commencing with the month of March, 1923, each installment being a payment on the principal sum of ($3500.00) and ($2205.00) agreed interest and premium.
"If default shall be made in the payment of any of the aforesaid installments of principal, premium and interest upon the day the same becomes due and payable, all of the unpaid balance of principal, premium and interest accrued to date, shall at once become due and payable, without notice, at the option of the said United States Building and Loan Association and bear interest at the rate of twelve per cent per annum until paid."
The mortgage contained in substance the same material recitals as in the note.
The plaintiff alleged that there had been made thereon twenty-one monthly payments, of which $296.37 had been credited on the principal sum of $3,500, leaving a balance of principal due of $3,203.63; that the last payment having been made on the 17th of November, 1925, plaintiff was entitled to $3,203.63, with ten per cent interest from that date.
The defendant mortgagors defaulted. The defendant, appellant, Dufresne, holder of a second mortgage given by the same mortgagors, answered and, by affirmative allegations and cross-complaint asking foreclosure of his mortgage, pleaded usury involved in the plaintiff's note and mortgage, and demanded that all payments of principal and interest alleged by plaintiff to have been made by the mortgagors, be applied on the principal of its debt, and that the plaintiff recover only the balance after such application, and recover no interest.
The court found that the defendant, a second mortgagee, was not a party or so connected or related to the first mortgage or the parties thereto as to entitle him to raise the question of usury; that the first mortgage contract was not usurious; allowed the full amount claimed by the plaintiff, including interest, and an attorney's fee of $370.
Succinctly stated, the questions presented are: (1) Has the defendant second mortgagee the right to raise the question of usury? (2) Was the contract usurious? (3) If so, can the defendant cross-complainant enforce the application upon the principal debt of interest actually paid by the original mortgagors, under C. S., sec. 2554? (4) Did the court err in allowing $370 attorney's fees?
Under C. S., sec. 6357, the lien of a mortgage is special, unless otherwise expressed. C. S., secs. 6344, 6352 and 6353, provide:
Sec. 6344. "Where the holder of a special lien is compelled to satisfy a prior lien for his own protection, he may enforce payment of the amount so paid by him, as a part of the claim for which his own lien exists."
Sec. 6352. "Every person, having an interest in property subject to a lien, has a right to redeem it from the lien, at any time after the claim is due, and before his right of redemption is foreclosed."
Sec. 6353. "One who has a lien inferior to another, upon the same property, has a right:
"1. To redeem the property in the same manner as its owner might, from the superior lien; and,
"2. To be subrogated to all the benefits of the superior lien, when necessary for the protection of his interests upon satisfying the claim secured thereby."
C. S., sec. 6385, gives, as to a personal property mortgage, the right to "any person interested in so doing," to contest the "right of the mortgagee to foreclose, as well as the amount claimed to be due." To hold otherwise, as to a real property mortgage, would be to grant a right under a chattel mortgage not granted as to one upon real estate, although as to either, under C. S., sec. 6353, the junior lienor can redeem the same as the owner.
This court held in Madsen v. Whitman, 8 Idaho 762, 71 Pac. 152, that a mortgage given to secure a loan upon which usurious interest was contracted for, was security for the principal of the loan, but did not secure the interest. There is no difference in principle between the law then in force (R. S., sec. 1266) and the present statute (C. S., sec. 2554) as to the forfeiture of interest upon which that holding was based.
In Ford v. Washington National Bldg. Loan Inv. Assn., 10 Idaho 30, 109 Am. St. 192, 76 P. 1010, it was held that the defense of usury may be pleaded by anyone claiming under and in privity with the borrower.
Effect could hardly be given to the statutes quoted above without holding that a junior mortgagee could contest an usurious contract lien in the same manner as the owner of the property might. It is plain that one holding an inferior lien, who may redeem from the superior lien and be subrogated to all the benefits of the superior lien under C. S., sec. 6353, or is compelled to satisfy a prior lien for his own protection and may enforce the amount so paid by him as a part of the claim for which his own lien exists (C. S., sec. 6344), must have the right to contest the amount claimed, including any usurious claim, and have it ascertained what amount is lawfully secured by the first mortgage which he must pay or tender in redemption or satisfaction. Otherwise, to secure such redemption, subrogation or satisfaction, he might be compelled to pay to the prior lienholder an usurious claim and amount, which thereafter, when he sought to enforce it, might be in that part defeated by the mortgagor because usurious. The court erred in denying appellant this right.
We have here a foreign corporation which alleges its compliance with the constitution and laws of this state to entitle it to do business in Idaho, the note and mortgage executed by people in Idaho, delivered in Idaho, secured upon Idaho land. This corporation was doing business in Idaho, which implies the establishment of a known place of business. (Const., art. 11, sec. 10; C. S., sec. 4773.)
It is said in Olson v. Caufield, 32 Idaho 308, 182 P. 527, that whether or not a corrupt and usurious intent lurks behind the making and expressions of a contract, may be determined from all the surrounding circumstances and the true nature of the transaction. This court stands committed to the rule that "this being purely an action in rem, and the enforcement of the claim being only maintainable in Idaho," it cannot "be contended that the intention of the parties was that the laws of" Montana "should obtain in the construction of the contract." ( Vermont Loan Trust Co. v. Hoffman, 5 Idaho 376 (392), 95 Am. St. 186, 49 P. 314, 37 L.R.A. 509. See, also, Fidelity Savings Assn. v. Shea, 6 Idaho 405, 55 P. 1022.)
Courts cannot ascribe to a transaction such as here an intent to make the note payable in another state to control the rate of interest, as an innocent intent, when it is considered that a resident corporation would not be permitted to make such a contract solely for the purpose of making the interest legal under the law of the foreign state where it was to be paid. To give such a right or privilege to the foreign corporation, would be violative of the spirit of section 10, article 11, of the constitution, which provides that foreign corporations shall not exercise or enjoy greater rights or privileges than domestic corporations. ( Washington National Bldg., Loan Inv. Assn. v. Stanley, 38 Or. 319, 84 Am. St. 793, 63 P. 489 (495), 58 L.R.A. 816; American Surety Co. v. Blake, 45 Idaho 159, 261 P. 239.) Utah State National Bank v. Stringer, 44 Idaho 599, 258 Pac. 522, may be plainly distinguished as a case in which the note was made, executed and delivered in Utah, payable in Utah, and to be construed by the laws of Utah. Zimmerman v. Brown, 30 Idaho 640, 166 P. 924, is as plainly distinguishable from the present case as it was therein from Vermont Loan Trust Co. v. Hoffman, supra. The note and its interest provisions must be construed under Idaho laws.
Computed by recognized standard tables of interest on a ten per cent basis, monthly payments of $49.28 at the end of each month would retire the loan of $3,500, and ten per cent interest, in 108 months. The loan, with $2,205 added at the beginning, to be paid in 108 monthly payments of $52.83, would return just slightly less than twelve per cent per annum on the original loan of $3,500. The interest contracted for was in excess of ten per cent per annum, the legal rate at the time, and was usurious. ( Ford v. Washington National Bldg. Loan Inv. Assn., supra.) The court erred in entering judgment for any interest upon the balance due.
The court did not err in refusing to deduct the total of previous payments from the principal. The statute (C. S., sec. 2554) does not give the right to the second mortgagee, as such, to recover or offset previous interest payments. ( Carter v. Carusi, 112 U.S. 478, 5 Sup. Ct. 281, 28 L. ed. 820.)
The complaint of plaintiff, while not setting forth a specific allegation of reasonable value of attorney's fees, prayed for attorney's fees in the sum of $200. At the close of the evidence, by stipulation the attorney's fees were left to be fixed by the court. The defendant mortgagors had defaulted, and the court was without authority to fix a fee greater than the relief demanded in the prayer. (C. S., sec. 6829.) It was error to fix a fee greater than $200.
The judgment is hereby modified in accordance herewith by a reduction of the items in the first paragraph thereof as follows: By reducing the principal sum allowed to plaintiff from $3,520.31 to $3,203.63; the disallowance of any interest thereon; and the reduction of the allowance of $370 attorney's fees to the sum of $200; and, as so modified, the judgment is affirmed. Costs to appellant.
Budge, C.J., Givens and Wm. E. Lee, JJ., and Hartson, D.J., concur.