Gold-Stabeck Loan & Credit Co. v. Kinney

157 N.W. 482, 33 N.D. 495, 1916 N.D. LEXIS 104

• Court: North Dakota Supreme Court
• Decided: March 27, 1916
• Status: Published

Opinion

Bruce, J.

(after stating’the facts as above). The main question for determination in this case is whether the loan was tainted with usury.

It is conceded that though the land was situated in North Dakota, both the mortgagor and the mortgagee were nonresidents, the latter living in Wisconsin and the former in Minnesota; that the contract was to be performed in Minnesota, and that therefore, and on the question of usury, the Minnesota, and not the North Dakota, statute will apply.

It is conceded that the statutes of the state of Minnesota on the subject of usury were and are as follows: “Section 2133. The interest for any legal indebtedness shall be at the rate of $6 upon $100 for a year, unless a different rate is contracted for in writing; and no person shall directly or indirectly take or receive in money, goods, or things in action, or in any other way, any greater sum, or any greater value, for the loan or forbearance of money, goods, or things in action, than $10 on $100 for one year; and in the computation of interest upon any bond, note or other instrument or agreement interest shall not be compounded, but any contract to pay interest, not usurious, upon interest overdue shall not be construed to be usury,”' etc. Bev. Laws 1905.

“Section 2135. All bonds, bills, notes, mortgages, and all other contracts and securities whatsoever, and all deposits of goods, or any other thing, whereupon or whereby there shall be reserved, secured, or taken any -greater sum or value for the loan or forbearance of any money, goods, or things in action than hereinbefore prescribed, shall be void, except as to bona fide purchasers of negotiable paper, in good faith, for a valuable consideration and before maturity, as hereinafter provided,” etc.

It is settled by the supreme court of Minnesota that “the test . . » [of usury in such a case] is, Will the contract, if performed, result in producing to the lender a rate of interest greater than is allowed by law and was that result intended?” Smith v. Parsons, 55 Minn. 520, 57 N. W. 311.

It is also settled that “when the agreement exacts from the borrower a ‘bonus’ to be paid to the lender for making the loan, that, on the question of usury, must be taken out as of the date when it is to be paid by the terms of the agreement. If payable at the time of advancing the loan, it is, for the purpose of determining what rate of interest the agreement reserves to the borrower, to be deducted as of that date from the amount of loan nominally agreed upon, and the computation of interest made on the remainder.” Ibid.; Rantala v. Haish, — Minn. —, 156 N. W. 666.

If we apply these considerations to the case at bar, there can be no question of the usurious nature of the transaction. Being usurious, the contract was, under the Minnesota law, absolutely void. We are not here called upon to say what would be the law in Minnesota upon the subject if the sum reserved were a legitimate commission to be paid by the borrower for the services of the go-between in inducing some third person to make the loan, as such fact cannot be and is not elaimed in this case. According to plaintiff’s own witness, Stabeck, the excess sum was retained for “commission and services in negotiating the loan.” The loan, however, was admittedly advanced out of plaintiff’s own money, and the mortgages and notes were never negotiated or sold. Plaintiff now seeks to collect the full-face value of his notes, and has never at any time offered to return the commission not earned and which he himself says was for “negotiating the sale of the loan.” There can indeed be no question that the bonus was retained as interest, and not as commission or as compensation for services rendered.

Nor is there any merit in plaintiff’s claim that the bonus of $1,000 was for services rendered in clearing the title to the land and sending a special examiner to visit the same. Not only is the charge palpably exorbitant for any such a purpose; not only is there no evidence of these expenses or proof of any real services rendered, or of services which could ever amount in value to the amount claimed, — but plaintiff’s witness, Stabeck, expressly testifies that a part of the claim at least was for services or commission in negotiating the loan, which was in fact never negotiated.

His testimony on this point is conclusive against him and his firm. It was:

Q. Now, Mr. Stabeck, I believe you testified that the execution and •delivery of the $600 note and mortgage was a part of the transaction by which you loaned Mr. Bailey this.$5,000 loan secured by the note .and mortgage in this action?

A. Yes, sir.

Q. Now, what was this $600 note and mortgage, what was it for?

A. It was for commission and part of the services for negotiating the loan.

Q. You paid no cash for the $600 note and mortgage, as I understand it ?

A. No, sir.

Q. And this simply represents commission that Mr. Bailey paid to the Gold-Stabeck Land & Credit Company for securing this loan?

A. Bor commission and services in negotiating the loan, yes, sir.

Q. Well, principally commission, isn’t it ?

A. No, not any more commission than for services for negotiating the loan for him.

Q. Well, what were the services ?

A. Looking up the land title, getting the papers executed and the payment of prior encumbrances, examination of abstracts, negotiating the sale of the loan.

Q. Now, whose money was it that you were loaning?

A. We put our own money into it temporarily until we sold the loan.

Q. So you made a loan out of your own money for $5,000, and as commission and services you took a second mortgage of $600 secured by a mortgage covering the same land ?

A. We were to procure Mr. Bailey a loan of $5,000. We took this $600 mortgage in connection with it.

Q. Without any additional cash being paid to Mr. Bailey ?

Q. Now, Mr.' Stabeck, how much money did you pay Mr. Bailey at the time of the execution and delivery of this .$5,000 note and mortgage after you had examined the title and found that it was a first mortgage of record on this land ?

A. Bead that over.

(Question read.) Now, Mr. Stabeck, how mucE money did you pay Mr. Bailey at the time of the execution and delivery of this $5,000 note and mortgage after you had examined the title and found that it was a first mortgage of record on this land ?

A. I couldn’t say offhand just when the payments were made. It might have been paid before, part of them, and part of them might have been paid afterwards.

Q. Now, I don’t think that is responsive to the question. How much money did you pay Mr. Bailey for this $5,000 loan ?

A. Five thousand dollars.

Q. Are you sure of that ?

A. Yes, sir, with the exception of a few dollars recording fees and taxes that we paid out, the balance of the money went to him. I will change that. A deduction for some additional commission there that. I had forgotten about.

Q. What was that additional commission, Mr. Stabeck ?

A. What was the amount ?

Q. Yes.

A. Four hundred dollars.

Q. What did that represent ?

A. That represented an additional amount for placing the loan and the work we done in connection with it.

Q. Now,, can you testify and tell this court just how much money you did pay Mr. Bailey for this $5,000 note and mortgage and the $600 ■ note and mortgage ?

A. We paid him $5,000 less the $100 and the few dollars recording fees and taxes that we paid for him.

Nor is it necessary, as contended by appellant, at any rate under the laws of Minnesota, that there shall be proof of an actual intent to evade the usury laws. The plaintiff must be presumed to have been cognizant of the laws of Minnesota and to have intended the necessary consequences of its acts, and the natural inferences must be made from these acts. Plaintiff must have intended usury, or at any rate that the greater part of the so-called bonus should be interest and not compensation for services rendered. Otherwise why, and when it knew it had not sold the mortgage, did it seek on its foreclosure to collect for the commission which it claimed was reserved for services in making the sale ?

The case at bar indeed seems to be definitely decided against the appellant, not only by the prior decisions of the Minnesota court, but by the recent case of Rantala v. Haish, — Minn. —, 156 N. W. 666, and which was handed down since the argument. This case not only is decisive of the main question before us, but answers in the negative the contention of counsel for appellant that as far as the facts of the case at har are concerned, the Minnesota decision in Smith v. Parsons, 55 Minn. 520, 57 N. W. 311, has been overruled by Swanson v. Realization & Debenture Corp. 70 Minn. 380, 73 N. W. 165, and Commonwealth Title Ins. & T. Co. v. Dakko, 89 Minn. 386, 94 N. W. 1088.

Plaintiff also claims that the defendant Carrie Lombard does not plead usury and therefore has waived the point. In this counsel is in error. Usury is pleaded.

The same objection is made concerning the defendant Korst. It is true that no defense of usury is pleaded by him. He, however, at no time assumed the mortgage, and his interest is merely under a land contract from the defendant J. B. Mulhollam, the interest in which had been assigned to P. B. Mulhollam. P. B. Mulhollam raised the point in his answer and pleaded the defense, and we think that is sufficient.

We next come to the contention of plaintiff and appellant, that the -defense of usury was personal to the mortgagor, Bailey, and cannot be taken advantage of by the defendants in this case.

There is no merit in this contention, and plaintiff only cites one authority in support thereof, which is 39 Cyc. 999. He fails entirely to cite 39 Cyc. 1068 and 1069, which qualifies the statement which is made in 39 Cyc. 999, and which is directly opposed to his contention. The rule is that though usury is usually a personal defense and can only be pleaded by the borrower, or one in privity with him, yet the purchaser of property charged with a usurious lien can allege the usury and defeat the claim when the sale was made free from the usurious lien, and that in such eases “the purchaser is permitted to defend as against usury on the ground that he stands in privity of contract and estate with the mortgagor.” In the case at bar there was no assumption of the mortgage by any of the grantees, nor was the amount of the mortgage deducted from the purchase price, but the full amount was paid in every case. In such cases the law is settled that the defense of usury may be interposed by the purchaser. Grove v. Great Northern Loan Co. 17 N. D. 352, 138 Am. St. Rep. 707, 116 N. W. 345; 39 Cyc. 1068, 1069; Crawford v. Nimmons, 180 Ill. 143, 54 N. E.. 209; Jones, Mortg. § 1494.

We now come to the counterclaim of the defendant Bennett, which alleges that before the heginning of the present action the plaintiff had commenced an action against the defendant Bennett and others for the foreclosure of a certain pretended mortgage, arising out of the same transaction, as the mortgage sought to be foreclosed in the present action, and that as a result of said action and on or about April 15, 1911, a judgment was entered for the foreclosure of said pretended mortgage, and ordering and decreeing a sale of the premises, and that pursuant to said judgment the said premises were offered for sale and advertised to he sold by the sheriff of Adams county, North Dakota, on June 19, 1911; that by reason of said judgment and order, the defendant Bennett was compelled to pay and did pay to the clerk of the district court for Adams county the sum of $248.08 on June 9, 1911, in order to satisfy said judgment and to prevent a sale of the premises. That on February 13, 1912, the said pretended judgment and order of sale based thereon were duly and regularly set aside by the district court of the tenth judicial district of the state of North Dakota; that said sum of $248.08 has not been repaid and that the defendant Bennett demands judgment for the same.

The question as to whether the defendant S. L. Bennett is entitled to recover on this counterclaim is dependent entirely upon the question whether this was or was not a voluntary payment. Plaintiff maintains, and the proof no doubt shows, that at the time of the payment by Bennett the other defendants were at the time settling the case preparatory to a motion for a new trial or appeal. That the defendant Bennett wrote to his attorney that he did not care to take the risk of future litigation, and preferred to make the payment at that time. The proof shows that the defendant took no part in the proceedings that led to a reversal of the judgment, though he was made an adverse party in such proceedings and served with notice. Plaintiff maintains that defendant had no legal right to make the payment of $248.08 and obtain a release of the land he owned from the lien of the mortgage; that the company was under no legal obligation to accept such payment and release the mortgage, and that, though there was no direct evidence of an adjustment, the payment can only be considered to have been maed for such a purpose. He maintains that “the general rule is that where an unfounded or illegal demand is made upon a person and the law furnishes him adequate protection against it, or gives him an adequate remedy, instead of taking the protection the law gives him or the remedy it furnishes, he pays what is demanded, such payment is deemed to be a voluntary one.” See 30 Cyc. 1311.

We believe that the plaintiff and appellant is correct in this contention, and that the case of Wessel v. D. S. B. Johnston Land & Mortg. Co. 3 N. D. 160, 44 Am. St. Rep. 529, 54 N. W. 922, is decisive of the question which is before us. In that case this court held that where a party in possession, and with full knowledge of all the facts, pays to the proper officer the money necessary to redeem certain real estate from a foreclosure sale by advertisement, which sale was made after the lien of the mortgage had been fully satisfied and destroyed, and where such payment is made for the sole purpose of preventing the execution of a deed to the purchaser at the foreclosure sale which would create an apparent cloud upon the title, such payment is voluntary, and cannot be recovered. In passing upon this question this court said: “We deem it a well-settled rule of law that where a party with full knowledge of the facts pays a demand that is unjustly made against him and to which he has a valid defense, and where no special damage or irreparable loss would be incurred by making such defense, and where there is no claim of fraud upon the part of the party making such claim, and the payment is not necessary to obtain the possession of the property wrongfully withheld, or the release of his person, such payment is voluntary and cannot be recovered.” This court also in its opinion quoted from the case of Shane v. St. Paul, 26 Minn. 543, 6 N. W. 349, where the Minnesota court said: “The execution and de’ivery of a tax deed in accordance with the alleged threat could work no disturbance of that possession, for being founded upon a judgment void upon its face, its invalidity could always be shown to defeat any claims that might at any time be asserted under it. There was, therefore, no necessity for plaintiff to make any redemption in order to protect his possession of the property, neither was he required to do so to avoid any injurious consequences which might arise by reason of the apparent cloud which might be cast upon his title, for upon the facts stated he had a perfect and adequate remedy by action for the removal of such apparent cloud whenever created.”

There is no proof whatever that the defendant Bennett paid the money through a mistake either of fact or of law, nor on account of an actual or necessary duress of property. “Not having heard from you in the Bailey-Bennett matter,” write his lawyers when making payment, “and being desirous of taking no chances as to the termination of our rights, we are inclosing herewith our check in the sum of $250, the same to be used by you to satisfy our pro rata share of the GoldStabeck judgment and prevent the sale of the Bennett lands on foreclosure.”

The defendant Bennett was in possession, and there is no proof that there was any immediate danger of that possession being interfered with. He had an adequate remedy at law, as the record clearly showed that the plaintiff had in fact no lien as against him, and his codefendants were already preparing the motion which afterwards led to the reversal of the judgment. The case, therefore, comes squarely within the ruling in the case of Wessel v. D. S. B. Johnston Land & Mortg Co. just cited.

We are not unmindful of our decision in Murphy v. Casselman, 24 N. D. 336, 139 N. W. 802. A perusal of that case, however, will, we believe, clearly distinguish it both from the case of Wessel v. Johnston Land & Mortg. Co. supra, and the Minnesota case of Shane v. St. Paul. Both of the latter cases indeed are sought to be distinguished therein.

It follows from the above that that part of the judgment of the district court which provides “the defendant S. L. Bennett to have and recover from the plaintiff judgment on his counterclaim for the sum of $299.96, principal and interest, on the sum of $248.08, paid to the plaintiff by said defendant, S. L. Bennett, on the 4th day of August, 1911,” must be reversed and set aside, and that in all other respects the judgment of the district court must be affirmed.

As against the defendant Bennett, the plaintiff and appellant will be allowed the sum of $15 for its costs and disbursements upon this appeal. As between the appellant and all other parties to this appeal, the costs and disbursements will be taxed against the appellant. This ■decision does not affect the rights or pass upon the rights of any of the defaulting defendants.