France v. Munro

115 N.W. 577, 138 Iowa 1

Opinion

Weaver, T.

At the time of the loan in controversy the appellees, husband and wife, were in straitened circumstances, their household furniture and other personal property being incumbered by a mortgage, which was about to be foreclosed. Mrs. Munro applied for advice or assistance to her neighbor, J udge Miller, and he introduced her to the plaintiff, a money lender and broker.. There appear to have been two interviews between the parties, the first being on August 10, 1904, and the second on the following day, when the transaction was consummated. At first the plaintiff made some objection to the character of the security offered, but finally agreed to loan the appellants the sum of $350. In closing the deal appellant prepared, and the appellees executed at the same time, and as a part of the same transaction, three separate documents. The first of these was the statement of the desire of appellees to procure a loan of $363.50 on certain specified security, which statement was followed by a clause in the following form:

I authorize G. H. France, as agent for me, to negotiate for said loan, for which I agree to pay $13.50 cash in hands as commission and interest. The lawful contract rate of interest that my note bears for the payee above described time is to first be taken from the $13.50 above described, and the remaining amount to go to G. H. France, my authorized agent, as commission or pay for his services for procuring the loan for me for said time, for examining the securities, the records of the county, writing the papers, collecting and paying over the money, and such additional work and trouble as he is required to do in procuring said loan.

The next paper was a promissory note for the sum of $363.50, payable one month after date to J. K. Little, or bearer, with interest at 8 per cent, per annum at appellant’s office in Des Moines. Payment of this note was secured by the third of the papers mentioned, a chattel mortgage on a list of household furniture, silverware and glassware. The testimony of the appellees, corroborated by that of Judge Miller, is to the effect that during these negotiations appellant made no claim to be acting as agent for another or otherwise than in his own right. According to the statements of these witnesses appellant said to them that he could not lend the money at 8 per cent, but must have $12.50 per month instead, payable monthly, but mentioned nothing about commission. These terms having been agreed to, the papers were made out, and appellant paid over to Mrs. Munro, or to Judge Miller for her, the sum of $350. Miller did not read the papers, and Mrs. Munro, who conducted the business for appellees, signed them, as she says, without reading them, and without hearing them read, assuming them to be all right, as she was assured by the appellant; and it was not until a considerably later date that appellees or Judge Miller became aware that appellant claimed to have been acting as an agent only, and that the written evidences of the transaction had been made to indicate a third person as the real party in interest. It is true appellant testified that he informed the appellees that he was acting as agent for J. K. Little, and that the excess which he charged over the lawful rate of interest was his commission for procuring the loan; but in this a decided preponderance of the testimony is against him. Though the note is made payable in one month, it is very clear from the evidence that there was no expectation on part of either that it would be paid when due. At the end of the month, and at the end of each succeeding month thereafter down to and including September, 1906 (with one or two slight variations in the regularity of dates and amounts), Mrs. Munro paid or sent to the plaintiff the sum of $12.50, and at the time of each.payment, or very soon thereafter, appellant prepared and obtained her signature to a paper in one of the following forms; the date of the period of extension being varied according to the date of the payment made, but on no occasion was the extension for more than one month:

G. H. France, Loan Broker, Des Moines, Iowa. This is to certify that I owe on my note of $363.50, made and executed by me August 11, 1904, in favor of J. K. Little, which note matured September 11, 1904, $363.50; that I have paid to apply on the principal no dollars; that what payments I have made to G. II. France from time to time, including payment made this day, have been made to him as commission or pay for his services as my authorized agent to procure loan and extension of time on same to February 11, 1905, for examining the records and securities at such time as he might deem proper, and such additional work as he has been required to do in procuring said loan and extension of time for me to said date, and interest due to said payee at 8 per cent, per annum; that I have no claim or defense against said note, and will pay the same in full when due; that no part of the money paid is to apply on the debt due payee, except as described above. Mrs. W. D. Munro.

G. H. France, Loan Broker, Des Moines, Iowa. I desire an extension of time on my note of $363.50, made and executed by me August 11, 1904, in favor of J. K. Little, which note matured September 11, 1904. I authorize G. H. France, as agent for me, to negotiate for said extension of time to October 11, 1904, for which I agree to pay $12.50 as commission and interest. The annual rate of interest that my note bears for the payee for the above-described time is to be first taken from the $-above described, and the remaining amount to go to G. TI. France, my authorized agent, as commission or pay for his services for attending to said loan for me -for said time, for re-examining the records and the securities at such times as he may deem proper, and such additional work as he is required to do in procuring said extension of time for me. I still owe to the payee on said note $363.50. I have no claim or defense against said note, and will pay the same in full when due. Florence A. Munro.

The payments thus made amounted to $303.50, or, if we included the sum deducted in advance, they aggregated $317. Appellant’s explanation of these transactions and of his own manner of doing business is substantially as follows: He says that the payee named in the note was his niece, who resided in Wisconsin, and whose money he had been handling and investing in Iowa since the year 1893. Miss Little has since died, and appellant is duly appointed administrator of her estate in Wisconsin. During all of the period named he held Miss Little’s power of attorney to make loans and to make and enforce collections due her in this State. Indeed the money in appellant’s hands, or a large part thereof, appears to have originally belonged to his father (Miss Little’s grandfather) for whom he was handling and loaning it out in this State. On the death of his father the money descended to his sister, and upon her death to Miss Little. During this long period, and through all of these changes in ownership, the fund remained in the possession and immediate control of the appellant, and he made loans therefrom according to his own judgment. He alone passed upon the sufficiency of the security taken, and so far as appears none of the loans taken by him were ever submitted to her for approval. When the balance of cash on hand belonging to his niece was insufficient to make the desired loan, he sometimes supplemented it,with his own money. At other times he admits having loaned his own money and taken the securities in Miss Little’s name, and that $3,000 or $4,000 of such loans were outstanding or at least uncanceled of record at the time of her death. As administrator he had listed the note in suit as belonging to the estate, but there were other outstanding mortgages taken by him in her name which he did not so list. It is a significant fact that appellant professed to be unable to produce any of the correspondence between himself and his niece or any books showing his account with her prior to the year 1904, the year in which this loan was made. The account shown of dealings since that date and appellant’s statement as a witness indicates that he kept a book account with her in which she was credited with moneys received and collections made, and charged with loans made from her funds and with moneys sent by him to her. The collections made were kept and cared for by him, except small sums remitted occasionally, as she might need. So far as shown she had no more actual knowledge of the individual loans, and exercised no more judgment or choice in relation thereto than a perfect stranger to the transactions. It was wholly left to the appellant to exercise his own judgment and discretion and to protect her interests as he. might deem wise or best, and, so far as the record shows, she did not undertake to pay him any compensation for his services, unless we may infer from the situation that he was to receive his profit in what he could obtain from borrowers in excess of the lawful interest charged. In- short, if we give full credit to everything he says, he occupied the relation of attorney and personal representative of his niece, and his acts with reference thereto were her acts. If there be any alternative conclusion from the conceded facts, it is that as to the money placed in his hands by her, the uncle and niece stood in the relation of debtor and creditor. Accepting either conclusion, the result is the same. If the latter were their true relation, the appellant, in making the loan, though taking the securities in her name, was acting in his own right, and his exaction of the equivalent of more than forty per cent, interest was usury. If, as claimed, he occupied a more intimate and fiduciary relation of attorney and personal representative, and made the loan for and in her behalf, prescribing its terms, passing upon the security offered, and doing all things with reference thereto which she might have done if personally present, he was her alter ego in the transaction, and his exaction of the exorbitant rate was her exaction. Either result reveals the taint of usury.

i Usury-variance ofnce' wntmg. It is no answer to say that this conclusion involves a disregard to the rule against parol testimony to vary the terms of a written contract. The game of hide and seek between the usurer and the law is not the product °f recent evolution, and the rule has long been settled that, as in case of fraud in general, the rule referred to will not be allowed to exclude proof of the true nature of a contract into which the usurer is alleged to have entered. Seekel v. Norman, 71 Iowa, 264; Train v. Collins, 2 Pick. 145 ; Scott v. Lloyd, 9 Pet. (U. S.) 418 (9 L. Ed. 178). Says the Minnesota court: “ All that is required to establish a case of usury is a fair preponderance of the evidence, and there is no shift or device on part of the lender to evade the statute under or behind which the law will not look to ascertain the real nature of the transaction.” Phelps v. Montgomery, 60 Minn. 303 (62 N. W. 260):

2. Usury: commission or bonus to agent. As is well known, perhaps the most frequent device employed to effect usury is through the use of the name of some personal or family friend for whom the lender acts as ostensible agent, and all of the excess which can be exacted from the distress or recklessness of the borrower is sought to be accounted for as “ commission.” The ease with which this fraud is practiced requires that courts scrutinize with care business dealings presenting such phases to see that the law is not evaded. It should not, however, be permitted to place the brand of illegality upon the conduct of one who acts in good faith as the agent of the borrower in securing for him a loan of money for which he charges and receives a reasonable compensation. Such transactions, when exhibiting no evidence of being a mere scheme to conceal usury, have often been upheld in our decisions. Gokey v. Knapp, 44 Iowa, 32; Greenfield v. Monaghan, 85 Iowa, 211; Richards v. Purdy, 90 Iowa, 502, and other cases cited in the decisions here referred to. But the ease at bar differs very radically from these and other precedents cited in behalf of the appellant. It comes much more nearly within the rule applied by this court in McNeely v. Ford, 103 Iowa, 508. There the borrower, desiring a loan, applied to one McNeely, who furnished him $600, and took from him his promissory note payable to McNeely’s wife for $642, bearing the highest legal rate of interest from date. The excess was embodied in the note, and the borrower testified that it was for additional interest; but McNeely claimed that it was simply his commission as agent for procuring the loan. When the note became due the time of payment was extended, and an additional payment was exacted in excess of the legal rate. It was shown upon the trial that the husband did have money belonging to the wife, which she trusted him to manage and lend in her name at his discretion, and that .he invested it as best he could, and did not consult her as to the terms of loans so made. Upon this showing we said there was “ no doubt that in this transaction McNeely acted solely as agent for his wife, and was not entitled to any commission from the defendant for effecting the loan, and that the several amounts added to the notes over and above the amount received by the defendant were usurious.” Directly in point is the case of Hall v. Maudlin, 58 Minn. 131 (59 N. W. 985, 49 Am. St. Rep. 492). There as here a nonresident left money in the hands of one Everett, a resident agent, to whom he gave full power to invest it according to his best judgment. Stating the ease the court says:

He took no part in the business himself, but left everything to the sole discretion of Everett, who never consulted him, but loaned the money when and to whom and upon such terms as he saw fit, and when it was repaid, loaned it again as he pleased. Everett’s general mode of business was to charge borrowers in addition to the interest provided in the note a bonus or commission. . . . There is no evidence that Everett had any express authority to charge more than the legal rate of interest, and no direct evidence that his principal knew that he was doing so; but it does appear that he paid Everett nothing' for his services, and that the understanding between them was that he would get his commission out of the charges, and that whatever he realised from the business would be from commissions that people would pay him for getting the money for them. When the loan was made to the defendants, Everett, in accordance with his usual custom, retained out of the amount $25, giving the defendant only $225. It is idle to claim from the evidence that Everett was in this transaction a loan broker, or in. any sense an agent of the defendants. He was acting solely as the agent of the plaintiff, and performed no services beyond what any lender would do in his own behalf. ... If the business had been conducted by plaintiff personally, no one would question the usurious character of the transaction. No one would claim that where a man is lending his own money he can charge to the borrower in addition to the maximum legal rate of interest all of the expenses of transacting his own business, including compensation for his own service in attending to it. And if he can cast all of this burden upon the borrowers by merely turning over the business to a general agent, there would be little left of the statute against usury. . . . Where the lender thus places his business under the exclusive and unlimited control of a general agent, if the agent exacts usury, the case stands precisely as if it had been done by the principal personally, and such agent has no right to exact from the borrower, either for alleged services or otherwise, anything which the principal might not have lawfully exacted had he transacted the business in person.

In all essential particulars the facts here stated parallel the facts in the case at bar, and we are content to follow the rule there announced as eminently righteous and just. To the same general effect see Dayton v. Dearholt, 85 Wis. 151 (55 N. W. 147) ; Horkan v. Nesbit, 58 Minn. 487 (60 N. W. 132) ; Kemmitt v. Adamson, 44 Minn. 121 (46 N. W. 327) ; Banks v. Flint, 54 Ark. 40 (14 S. W. 769, 16 S. W. 477, 10 L. R. A. 459) ; Fowler v. Trust Co., 141 U. S. 384 (12 Sup. Ct. 1, 35 L Ed. 786) ; Olmstead v. Security Co., 11 Neb. 487 (9 N. W. 650) ; Pfenning v. Scholer, 43 N. J. Eq. 15 (10 Atl. 833) ; Payne v. Newcomb, 100 111. 611 (39 Am. Rep. 69); Cheney v. White, 5 Neb. 261 (25 Am. Rep. 487) ; Stein v. Swensen, 46 Minn. 360 (49 N. W. 55 24 Am. St. Rep. 234) ; Note to Bank v. Cook, 60 Ark. 288 (46 Am. St. Rep. 198) ; Dade v. Spalding, 52 Minn. 356 (54.N. W. 591).

It is not necessary to go to the extent of some of these decisions to support our conclusions in the present case, but we cite them to show the general tendency of the courts to penetrate the masks under which evasions of usury laws habitually hide, and to say that contracts so tainted shall be enforced no further than the statute permits. In Dade v. Spalding, supra, the circumstances of the loan by an alleged agent with the exaction of a bonus or commission at the outset, and for each monthly extension and the careful procurement of a written statement from the borrower with each monthly renewal, was after the mánner or plan pursued by the appellant herein. Upon this showing Mr. Justice Mitchell very aptly observed: “ The formalities and contrivances resorted to to clothe the transaction on Hoffman’s part with the appearance of that of an agent were so unusual and yet. so transparent as to fully warrant the jury in concluding that he, and not Webster, who never once appeared in the transaction or on the trial, was the real principal. If transparent contrivances of this sort to evade the statute should prove effectual, the administration of the law would fall into deserved disrepute. We never met with a case where the maxim that unusual clauses always excite suspicion was more applicable.” It would be hard to imagine a case to which that animadversion could be more fitly directed than the one here presented. The workmanship of the plan employed is entirely too elaborate and artistic to be the natural accompaniment of an ordinary business transaction, in which there is nothing to conceal.

That the trial court reached the correct conclusion is not open to any reasonable doubt.

The judgment appealed from is affirmed.