In Allen v. Grenada Bank, 160 Miss. 419, 133 So. 648, the court held that a bonus received by the lender's agent, who had rendered valuable services outside of the transaction involved in the making of the loan, did not constitute usury, provided the bonus was not so excessive or unfair as to support the conclusion that it was a mere circuitous device to evade the usury laws. Where the agent, in order to procure the loan, became surety and furnished additional security for a substantial portion of the loan, the bonus did not constitute usury.Summary of this case from Gully v. Gulf Coast Ind. L. Co.
April 20, 1931. Suggestion of Error Overruled May 12, 1931.
USURY. Bonus received by lender's agent only who rendered valuable services outside transaction involving making of loan does not constitute usury.
Furthermore, such bonus received by lender's agent must not be so far fictitious or excessive or unfair as to support conclusion that it was a mere circuitous device to evade usury laws. Foregoing rule is especially applicable where agent, in order to procure loan, becomes indorser and furnishes security for a substantial portion of loan.
APPEAL from chancery court of Sunflower county; HON. J.L. WILLIAMS, Chancellor.
B.B. Allen, of Indianola, for appellants.
A bank or its officers cannot cover up its usury by any subterfuge, trick or device. That usurious interest was charged by the bank because its officers were ignorant of the law, or temporarily overlooked the law, was not an excuse, and did not prevent a recovery of the usurious interest.
Lee v. Blewett, 77 So. 147.
It is a fundamental proposition of law that the agent of the lender cannot charge the borrower for services in connection with putting through a loan, where those service charges, together with the interest, bring the total cost to the borrower in excess of the maximum amount of interest allowed to be charged by law.
Gardner v. Ruffner, 91 So. 580; Bank of New Port v. Cook, 60 Ark. 288, 30 S.W. 35; Canal-Commercial Trust Savings Bank v. Brewer, 108 So. 424; Sherwood v. Roundtree, 32 Fed. 113; France v. Munro, 138 Iowa 1, 115 N.W. 577.
The taking by a lender, as a part of the consideration for the loan, of a share of the commissions paid to the borrower's agent is, of course, a mere device to conceal usury, and consequently a violation of the statute.
Fisher v. Porter, 23 Fed. 162; Jones v. Phillippe, 135 Ark. 578; Harrison v. Styles, 95 Ga. 264; Pattle v. Lowe, 99 Ga. 576; Byrnes v. Labaugh, 4 N.Y.S.R. 522; Collamer v. Goodrich, 30 Vermont 628.
Where a lender accepts a contract or security, knowing that it includes not only the amount which he advanced, but also his agent's illegal charge against the borrower, he thereby ratifies the act of the agent, and becomes responsible therefor.
Richards v. Bippus, 18 App. D.C. 293; Umphrey v. Auyer, 208 Mich. 276; Hughson v. Newark Mortg. Loan Co., 57 N.J. 139; Fowler v. Equitable Trust Co., 35 L.Ed. 786; Citizens Bank v. Heywood, 133 S.E. 709 (1st Syl.).
The law will not tolerate any device to defeat its provisions, where the consummation of usury is really intended.
Bank of Manchester v. Nolan, 7 How. 508.
Alfred Stoner, of Greenwood, for appellants.
The lender is not guilty of charging usury in those cases where commissions are charged by agents of the borrowers, but if the agent of the lender, with its knowledge, charges a commission for negotiating the loan, which commission, together with the interest charged exceeds the maximum rate allowed by law, the loan becomes usurious.
New England Mortgage Security Co. v. Townes, 1 So. Rep. 242; France v. Munroe, 19 L.R.A. (N.S.) 391; 27 R.C.L. 238-239, secs. 40, 41.
Moody Johnson, of Indianola, for appellee.
When a transaction alleged to be usurious shows no usury on its face, evidence must be adduced fully to prove some corrupt device or shift to cover usury.
39 Cyc. 1056.
If, from the beginning, W.L. Harrison was the real owner of the note, then it is of course not usurious.
Allen v. Grenada Bank, 124 So. 71-2.
It is the uniform rule that the chancellor's finding on the facts is reviewable on appeal only when manifestly wrong.
Griffith's Miss. Chan. Prac., sec. 674.
Argued orally by Alfred Stoner and B.B. Allen, for appellant, and by C.C. Moody, for appellee.
This is the second appearance of this case here, the report of the first appeal being found in 155 Miss. 91, 124 So. 69. On the second trial, the issue now particularly before the court was more fully developed by the evidence, so that an amended statement of the salient facts is to be made, in accordance with the present effect of the findings by the chancellor.
In December, 1920, W.L. Harrison was, and had been for some years, engaged in the real estate, insurance, and loan business at Moorhead, Mississippi. He was also a member of the board of directors of the Grenada Bank, and a member of the loan committee of said directorate, although the real and dominant authority of the bank, in respect to the making of loans by it, seems to have been vested in its president, J.T. Thomas. One of these appellants, J.A. Ely, was the owner of a plantation, in Sunflower county, which was incumbered, as the record now appears, to the aggregate amount of more than ninety thousand dollars, and it had become necessary that these incumbrances be refunded, as well as that adequate financial arrangements be made for the plantation operations of the coming year. In this urgent situation, appellant Ely applied to Harrison for aid, and, it being obvious that it would be impossible to refinance the property at so large an amount as ninety thousand dollars, Harrison was engaged by appellant, for the conditional compensation hereinafter mentioned, to negotiate with the holders of the incumbrances for a reduction in the respective amounts due said incumbrancers in consideration of the immediate payment in cash, and thereupon to secure a loan for the total amount necessary to close the entire indebtedness after the reductions had been agreed upon. Harrison made diligent efforts to get these amounts reduced to an aggregate of forty or forty-five thousand dollars, and did succeed in getting them reduced to fifty thousand six hundred dollars. He made efforts also to procure the loan, from persons other than banks, for the necessary refunding amount, but failed, owing to the fact, among other things, that the land comprising the plantation was a sixteenth section. Finally Harrison applied to the Grenada Bank for the loan, and upon his urging the loan there, and agreeing himself to indorse and to furnish security for twelve thousand dollars of the amount, Mr. Thomas, the president, agreed to make the loan, and states very candidly that he was largely influenced so to do by the fact that he knew that appellant Ely was to pay Harrison a bonus or compensation of five thousand dollars for his services in case he should succeed in putting this reduced refunding transaction through to a consummation. The loan was made by the bank on the terms stated; and thereupon a note for five thousand dollars was executed by Ely and delivered to Harrison to cover the said bonus or compensation, and the said note was afterwards transferred by Harrison for value to appellant Allen. This note appellant Ely now contests on the ground that Harrison was a director of the bank and a member of its discount committee, and that, regardless of the form of the transaction, the note for the bonus or compensation was of the same effect in law as if given to the bank itself, and in consequence was and is usurious.
Even if we should consider that Harrison was the agent of the lender, rather than of the borrower, the law is fairly well settled that, where the agent of the lender has received from the borrower what is commonly called a bonus, and for and in consideration thereof the said agent has rendered valuable requisite services to the substantial advantage of the borrower outside of and beyond the making of the loan, and outside of any obligation justly incumbent on the lender in the preparation or consummation thereof, there is no usury if the lender receives, and is to receive, no part of the compensation paid by the borrower to said agent for and in consideration of said services, and the said compensation is not so far fictitious or excessive or unfair as to support the conclusion that it was a mere circuitous device to evade the usury laws; and this is particularly true where, as in this case, the agent, in order to procure the loan, becomes indorser and furnishes security for a substantial portion of it. This statement of the rule is confirmed by the text, and the numerous cases cited, in 27 R.C.L., pp. 231-238; by the cases cited in the notes, 46 Am. St. Rep., pages 194-199, and by Floyd v. Candler, 148 Miss. 200, 205, 114 So. 344. See, also, Pass v. Mortgage Security Co., 66 Miss. 365, 6 So. 239.
The inquiry becomes, therefore, in such cases, one of fact; the transaction to be scrutinized with due care and caution in respect to its good faith. The evidence is sufficient to sustain the findings of fact by the chancellor; wherefore the case falls within the protection of the rule as stated, and the decree must be affirmed.