Cuneo v. Bornstein

269 Mass. 232

• Court: Massachusetts Supreme Judicial Court
• Decided: November 26, 1929
• Status: Published

Opinion

Carroll, J.

This is an appeal by the defendant Glickman from a final decree ordering the cancellation of certain notes, executed by the plaintiffs, for money loaned in violation of the small loans act, G. L. c. 140, § 96, and declaring that the notes were wholly void.

It was found by the master that Glickman was a holder in due course; that he purchased the notes in question for $700, which was a fair price, and that he was ignorant of “the circumstances under which the Realty Investment Company purchased the notes or the price which it paid for them.”

G. L. c. 140, § 96, prohibits one from engaging in the business of making loans for $300 or less, if the amount to be paid on any such loan for interest and expenses is in excess of twelve per cent per annum, without first obtaining a license. By § 103 any loan upon which a greater rate of interest is charged than is allowed by §§ 96-111, inclusive, may be declared void in equity upon petition by the person to whom the loan is made. By § 106 the unlawful interest may be recovered; and § 110 enacts that any loan made or note purchased or indorsement or guarantee furnished by an unlicensed person in violation of the statute shall be void.

The Realty Investment Company during the year 1928 was engaged in the business of making and buying loans of $300 or less, charging interest exceeding twelve per cent per annum, without a license. The defendant Bornstein was the president and treasurer of the company. In 1928 the plaintiff Wall made on four occasions promissory notes for the accommodation of the plaintiff Cuneo. These notes were purchased from Cuneo by the Realty Investment Company, and were sold by Bornstein and the company to Glickman, who was not in the business of making small loans. The defendant Glickman contends, although the statute declares notes given in violation of the statute shall be void, that the word “void” should not be construed in its technical sense, and should be construed to mean voidable; that the notes in suit are not void in the hands of a holder in due course. He cites a number of cases in support of this contention.

In Kelly-Buckley Co. v. Cohen, 195 Mass. 585, it was held that the word “void” as used in the sale in bulk statute then under consideration should be construed as meaning voidable. It was recognized that the word “void” is used in many statutes in its technical sense and in many it is used in the sense of voidable, depending in part on the subject matter of the statute and the abuse which the statute seeks to correct.

The purpose of the small loans act was to prohibit the unlicensed business of making small loans and to prevent an excessive rate of interest on such loans. The statute was passed as a protection to the borrower; it was intended to make the statute effective and to prevent its evasion by indorsing notes given for such loans to third parties. It would afford little protection to a borrower if the notes given contrary to the statute would be valid in the hands of a holder in due course. In our opinion the word “void” was used in its technical sense; the notes were void at their inception and of no validity in the hands of Glickman. This construction of the statute is supported by Thomas v. Burnce, 223 Mass. 311, where it was said at page 312: “It is true the plaintiff has a complete defence at law to the notes expressly declared to be void . . . but his remedy is not limited to the common law, since the enactment of St. 1911, c. 727, §§ 10, 13, amended by St. 1912, c. 675, §§ 3, 4, has conferred expressly also a right to maintain a suit in equity.” Missouri, Kansas & Texas Trust Co. v. Krumseig, 172 U. S. 351. These statutes declaring the usurious note to be void have not been repealed or rendered ineffective by any of the provisions of the negotiable instruments act. Sabine v. Paine, 223 N. Y. 401. Eskridge v. Thomas, 79 W. Va. 322.

Burnes v. New Mineral Fertilizer Co. 218 Mass. 300, relied on by the defendant, is not in conflict. There the action was to recover on a note given as collateral security for a loan made in violation of the statute. It was said at page 303: “It is apparent that there is nothing in that act which makes void not only notes given in violation of the act, but securities deposited as collateral for such notes ... In Van Schaack v. Stafford, 12 Pick. 565, Dunscomb v. Bunker, 2 Met. 8, and in Harrison v. Hannel, 5 Taunt. 780, the action was brought by the person to whom.the usurious loan had been made. In such a case the loan itself is void, and nothing being due on the debt for which the collateral was deposited as security, no recovery can be had on the collateral.”

The loan made in violation of the statute and the notes given are void. G. L. c. 140, § 110. By § 103 the loan may be declared void by the Supreme Judicial Court or Superior Court in equity upon petition by the person to whom the loan was made.

The plaintiffs were not required to make payment or tender of the amount actually loaned as a condition to the maintenance of the suit. Thomas v. Burnce, 223 Mass. 311, 313. Missouri, Kansas & Texas Trust Co. v. Krumseig, supra.

Decree affirmed with costs.