BBICKELL, C. L
As the case is presented, it is not necessary to inquire whether the stipulations for the future delivery of the cotton, contained in the mortgages, can be regarded as agreements for liquidated damages, or in the nature of a penalty, to be compensated, if there is a breach, only by the recovery of actual damages. The whole inquiry is resolved into the question, whether these stipulations are not mere devices to obtain a greater rate of interest, for the forbearance of an existing debt, than is lawful. The facts are, that the mortgagor was indebted to the mortgagees, in a sum stated in the mortgages at eight hundred dollars, but which is shown to have been much less in amount; the balance accruing upon dealings for several years. The mortgagor was a farmer of limited means, known to the mortgagees not to have the ability of raising more than fifteen or twenty bales of cotton in any one year, under the most favorable circumstances, and not of ability to purchase cotton to supply any deficiency between the quantity he could raise and that stipulated to be delivered. The mortgagees were retail merchants, not factors, or brokers, or warehouse-men. Into the first mortgage is introduced a stipulation, that the mortgagor shall, on or before the first of the ensuing October, deliver to the mortgagees, for storage and sale, forty bales of cotton; and into the second mortgage a like stipulation is introduced, [532] for the delivery of fifty-four bales of cotton. In the event of a failure to deliver, the mortgagor stipulated to pay, as liquidated damages, one month’s storage, and a commission of two and a half per centum on the value of the cotton not delivered.
All contracts, express or implied, for the payment of money, or other thing, or for the performance of any act or duty, bear interest from the day such money or thing, estimating it at its money value, should have been paid, or such act, estimating the compensation therefor in money, performed. The lawful rate of interest is eight per-centum per annum ; and any contract for a higher rate is usurious, and can be enforced for only the principal. — Code of 1876, §§ 2088, 2092. Mortgages, like other contracts, may be impeached for usury, and, at law, the same consequences result, as would follow from taking or reserving it in any other form of contract. When, however, it becomes necessary for the mortgagor to resort to a court of equity for relief, in the absence of some peculiar fact or circumstance, the court will not interfere, unless he pays the principal and lawful interest. Relief from the usury is the extent to which he is entitled in good conscience. 1 Story’s Eq. § 301; Br. Bank of Mobile v. Strother, 15 Ala. 51; Hunt v. Acre, 28 Ala. 580; Noble v. Walker, 32 Ala. 456; Eslava v. Elmore, 50 Ala. 587.
In determining whether a contract is infected with usury, its substance and effect, not its form, is material. The intent to take or reserve more than lawful interest for a loan of money, or the forbearance of a debt, must exist; and this is deduced from the relations of the parties, their acts contemporaneous with, or subsequent to the contract, and all attendant circumstances. When this intent exists, and such is the substance and effect of the contract, no form or covering which may be given it, no device or shift, can sustain it. A simple loan, or the mere forbearance of an existing debt, which, with the lawful interest, is not put at hazard, but is certainly to be paid, will become usurious, by engrafting upon it stipulations intended for the additional profit of the creditor, and not as compensation for loss or inconvenience he may bear. — Durham v. Day, 13 Johns. 40; Durham v. Gould, 16 Johns. 367.
A commission-merchant, accepting bills, or advancing money for a customer, may contract for the usual reasonable commissions in the course of that business, when the charge is intended as compensation for the risk, trouble, or expense he may incur. — Nourse v. Prime, 7 John. Ch. 69; Brown v. Harrison, 17 Ala. 774; Swilly v. Lyon, 18 Ala. 552. But such transactions must be closely watched; and in the language [533] of Dargan, C. J., in the case last cited, “If the transaction was a device to evade the statute against usury, then the mere form of the contract could not relieve the party seeking to enforce it from the consequences of usury; for mere device or shift can not purge the contract, if it be tainted tuith the intent to take more than latofvL interest by toay of loan.” The intent is the test — was it intended to compensate for risk, trouble or expense, incurred at the request of the debtor, or was it intended to give the creditor additional profit for the loan of money, or the forbearance of a debt.
Free access — add to your briefcase to read the full text and ask questions with AI
BBICKELL, C. L
As the case is presented, it is not necessary to inquire whether the stipulations for the future delivery of the cotton, contained in the mortgages, can be regarded as agreements for liquidated damages, or in the nature of a penalty, to be compensated, if there is a breach, only by the recovery of actual damages. The whole inquiry is resolved into the question, whether these stipulations are not mere devices to obtain a greater rate of interest, for the forbearance of an existing debt, than is lawful. The facts are, that the mortgagor was indebted to the mortgagees, in a sum stated in the mortgages at eight hundred dollars, but which is shown to have been much less in amount; the balance accruing upon dealings for several years. The mortgagor was a farmer of limited means, known to the mortgagees not to have the ability of raising more than fifteen or twenty bales of cotton in any one year, under the most favorable circumstances, and not of ability to purchase cotton to supply any deficiency between the quantity he could raise and that stipulated to be delivered. The mortgagees were retail merchants, not factors, or brokers, or warehouse-men. Into the first mortgage is introduced a stipulation, that the mortgagor shall, on or before the first of the ensuing October, deliver to the mortgagees, for storage and sale, forty bales of cotton; and into the second mortgage a like stipulation is introduced, [532] for the delivery of fifty-four bales of cotton. In the event of a failure to deliver, the mortgagor stipulated to pay, as liquidated damages, one month’s storage, and a commission of two and a half per centum on the value of the cotton not delivered.
All contracts, express or implied, for the payment of money, or other thing, or for the performance of any act or duty, bear interest from the day such money or thing, estimating it at its money value, should have been paid, or such act, estimating the compensation therefor in money, performed. The lawful rate of interest is eight per-centum per annum ; and any contract for a higher rate is usurious, and can be enforced for only the principal. — Code of 1876, §§ 2088, 2092. Mortgages, like other contracts, may be impeached for usury, and, at law, the same consequences result, as would follow from taking or reserving it in any other form of contract. When, however, it becomes necessary for the mortgagor to resort to a court of equity for relief, in the absence of some peculiar fact or circumstance, the court will not interfere, unless he pays the principal and lawful interest. Relief from the usury is the extent to which he is entitled in good conscience. 1 Story’s Eq. § 301; Br. Bank of Mobile v. Strother, 15 Ala. 51; Hunt v. Acre, 28 Ala. 580; Noble v. Walker, 32 Ala. 456; Eslava v. Elmore, 50 Ala. 587.
In determining whether a contract is infected with usury, its substance and effect, not its form, is material. The intent to take or reserve more than lawful interest for a loan of money, or the forbearance of a debt, must exist; and this is deduced from the relations of the parties, their acts contemporaneous with, or subsequent to the contract, and all attendant circumstances. When this intent exists, and such is the substance and effect of the contract, no form or covering which may be given it, no device or shift, can sustain it. A simple loan, or the mere forbearance of an existing debt, which, with the lawful interest, is not put at hazard, but is certainly to be paid, will become usurious, by engrafting upon it stipulations intended for the additional profit of the creditor, and not as compensation for loss or inconvenience he may bear. — Durham v. Day, 13 Johns. 40; Durham v. Gould, 16 Johns. 367.
A commission-merchant, accepting bills, or advancing money for a customer, may contract for the usual reasonable commissions in the course of that business, when the charge is intended as compensation for the risk, trouble, or expense he may incur. — Nourse v. Prime, 7 John. Ch. 69; Brown v. Harrison, 17 Ala. 774; Swilly v. Lyon, 18 Ala. 552. But such transactions must be closely watched; and in the language [533] of Dargan, C. J., in the case last cited, “If the transaction was a device to evade the statute against usury, then the mere form of the contract could not relieve the party seeking to enforce it from the consequences of usury; for mere device or shift can not purge the contract, if it be tainted tuith the intent to take more than latofvL interest by toay of loan.” The intent is the test — was it intended to compensate for risk, trouble or expense, incurred at the request of the debtor, or was it intended to give the creditor additional profit for the loan of money, or the forbearance of a debt.
There is another class of eases, in which, in the usual course of business, money and individual services are employed, and when the real purpose is to promote the business, parties have been allowed to enter into contracts for the loan or advance of money, or for the forbearance of an existing debt, engrafting upon the contract a stipulation that the debtor shall do some act by which such business will be increased, or, if he makes default, to pay such commissions as could have been earned if he had performed. Of this class of cases is that of Pollard v. Baylor, 6 Munf. 433, to which we are referred by counsel for the appellants ; in which it was held, that a commission-merchant, granting indulgences to a debtor, could connect with the contract a stipulation that the debtor should consign him tobacco, to be sold for the payment of the debt, and, if he failed, that he should pay the usual commission for making sales. The ease had been previously before the Court of Appeals ; and the contract was pronounced usurious, and a deed of trust made for its security void. — Pollard v. Baylor, 4 Hen. & Munf. 223. In Cockle v. Flack, 93 U. S. (3 Otto), 344, a commission-merchant advanced a pork-packer $100,000, at a stipulated interest, to be employed in the purchase of pork, and it was intended the pork should be consigned to him for sale. A stipulation that, if it was not consigned, a fixed commission should be paid the merchant, it was held, did not necessarily render the transaction usurious — that it was a question for the jury, in view of all the facts, to decide whether the stipulation was a mere device to cover usurious interest, or engrafted upon the advance of the money in good faith, to secure in addition to lawful interest the profits incidental to the sale as commission-merchants. The court said: “It is to be considered that defendants were engaged in a business which was legitimate, and in which both custom and sound principle authorized the joint use of their money and their personal service, increased in value by their integrity and experience. To both these sources they looked for their profits, and they were necessarily limited. It was a necessity of their trade, and it was law[534] ful for them, while loaning their money at a specified rate of interest, to stipulate with parties to whom it was loaned for the incidental advantages of acting as commission-merchants for the sale of the property in which the money was to be invested by the borrower. They had the right, also, to require, as a condition of the loan, that it should be invested in such property as would, require their services in selling and handling it. We see no reason why the parties could not go a step further, and stipulate that if, for any reason operating in the interest of the borrower, he should prefer to become his own broker or commission-merchant, or to sell at home, he should pay tbe commission which the other had a right to contract for and recover....... While it was possible to make such a transaction a mere cover for usury, it was at the same time possible that the contract was a fair one in aid of defendants’ business — a business in which they were actually and largely engaged, and in which lending was the mere incident, and not the main pursuit.” A similar transaction was supported in Matthews v. Coe, 70 N. Y. 230; S. C. 26 Am. 583; see, also, Grubbs v. Brooks, 47 Penn. 485; Suydam v. Westfall, 4 Hill, N. Y. 211.
The manifest distinction between these cases and the present is, that the creditors in making the loans, or in the forbearance of the present debt, added only a stipulation which would promote the business in which they were-engaged, and which was usual in the course of such business. The loans or advances were to be invested in the purchase of the property, for the consignment of which they stipulated, or the property was to be sold and applied to the payment of the existing debt. In all of them, performance of the contract was stipulated, and the ability of the debtor to keep and perform was not questioned or doubted. Here, performance of the stipulation for the delivery of the cotton was not, and could not have been, contemplated. The inability of the mortgagor to perform was known to the mortgagees, and the payment of the stipulated damages it was intended and expected they would receive, without ever being subjected to the labor, expense, and loss of time, which would have been incident to the storage and sale of the cotton, if it had been delivered. Nor was the storage and sale of cotton upon commission, the business in which they were engaged, and for the increase of which, it is fair to presume, they would employ their capital, whether it was in the form of existing debts, or of money in hand. When an agreement for a loan or advance of money, or the forbearance of a debt, is part of an entire contract, whether usury is intended is, in all cases, a question of fact. Smith v. Marion, 27 N. Y. 137. When the entire contract [535] indicates that any one of its stipulations must operate to yield the creditor a profit for the loau or forbearance, and not compensation for loss or inconvenience, or for services rendered, or which it was contemplated be would render, it must be pronounced usurious. The mortgagees, in the light of tbe facts, were, under tbe guise of a stipulation for tbe future delivery of cotton for storage and sale, but stipulating for tbe payment, in addition to lawful interest on tbe debt due them, of tbe additional profit of tbe usual charges for storage, and tbe commission on tbe sales. It not being contemplated that tbe cotton would be delivered, they could as well have stipulated for tbe payment of tbe precise sum of money to which the storage and commissions will amount, in addition to tbe lawful interest. All agreements of this kind must be zealously watched, or the statutes against usury will be nullified.
We are of tbe opinion there is no error in the record, and tbe decree will be affirmed,