Hubert v. Washington Investment Ass'n ( 1903 )

Mr. Chief Justice Moore,

after stating the facts, delivered the opinion of the court.

1. It is contended by defendant’s counsel that, though it has been held by this court that a loan of money by a building association upon a contract stipulating for the payment of interest and premiums exceeding the maximum rate of legal interest is usurious (Washington Invest. Assoc. v. Stanley, 38

Or. 319, 63 Pac. 489, 84 Am. St. Rep. 793^*; Western Sav. Co. v. Houston, 38 Or. 377, 65 Pac. 611; Pacific Build. Co. v. Hill, 40 Or. 280, 67 Pac. 103, 56 L. R. A. 163), yet the contract entered into between plaintiffs and defendant was not illegal, bnt voidable, and that plaintiffs, by making monthly payments thereon, with knowledge of its by-laws and method of applying the money so received upon each share of stock, thereby ratified the agreement, and are estopped from pleading usury, and hence the court erred in decreeing a cancellation of the mortgage. It is argued in support of the alleged estoppel that, though the defendant is, as to third persons, a legal entity, in which the duties and obligations of its stockholders are merged, yet in controversies between one stockholder and another it stands as a trustee to carry into execution their agreements for their mutual advantage, in the enforcement of which its relation is that of a stakeholder. A contract for the payment of a rate of interest in excess of that prescribed by law involves no moral turpitude, is malum prohibitum only, and voidable by the borrower and those in privity with him, who may either repudiate the agreement or waive the personal privilege: Webb, Usury, §§ 35, 363; Tyler, Usury, p. 403. The agreement to pay the sums specified in the note and mortgage, not being void ab initio, was susceptible of ratification (Bradtfeldt v. Cooke, 27 Or. 194, 40 Pac. 1, 50 Am. St. Rep. 701), and this presents the question whether plaintiffs’ monthly payments constitute such a confirmation as to estop them from invoking the plea of usury. The impediment relied upon by defendant to defeat the relief sought should have no greater efficacy than a stipulation to renounce the special immunity conferred by law; and it has been held, in an action on a promissory note given to a building association, providing for the payment of illegal interest, that a defendant cannot debar himself from setting up usury: Miles v. Kelly (Tex. Civ. App.), 25 S. W. 724. The legal principle thus announced was reiterated in Sturgis Nat. Bank v. Smyth, 9 Tex. Civ. App. 940 (30 S. W. 678), in which Mr. Justice Finley, speaking for the court, in deciding the case, says: “Had the makers of the usurious obligation, at the time of its execution or afterwards, executed a separate obligation not to plead usury, we do not think it could be successfully urged as an estoppel.” In Hutchinson v. Abbott, 33 N. J. Eq. 379, it was held that a promise by one of the mortgagors to an assignee to pay the interest on the mortgage promptly did not estop him from setting up usury in the interest previously paid. The superstructure sought to be erected upon the basic principle of an estoppel of this character, the proof of the existence of which would render it available as a matter of defense, must be a change in the position of a party, induced thereto by the act, omission, or conduct, in accordance with the real or apparent intention of the party against whom the estoppel is alleged. The answer avers that the payments of the several installments entered in plaintiffs’ pass book and acquiesced in by them were relied upon by defendant, but no allegation is found therein to the effect that it was induced thereby to change, or that it ever altered, its position in eonse'quence thereof. In the absence of this element, we do not think the plaintiffs are, or upon principle ought to be, estopped from interposing the plea of usury, for to reach a different conclusion would be to hold that a needy borrower, who, not understanding the conditions imposed, should give to a building association a note and mortgage, stipulating to pay, in addition to interest, a pretended premium or other compensation, aggregating a most extravagant rate, could not, by returning the principal and paying the specified interest, escape the consequences of his ignorance, after voluntarily paying one or more of the installments, would be tantamount to a denial of the application of the maxim that equity will not suffer a wrong without a remedy.

2. It is contended that, inasmuch as the statute provides that' on contracts interest at the rate of 10 per cent per annum may be charged by express agreement of the parties (B. & C. Comp. § 4595), the court erred in not allowing defendant more than 6 per cent interest per annum on its loan. It is argued that, as in the case of Washington Invest. Assoc. v. Stanley, 38 Or. 319 (.84 Am. St. Rep. 793, 63 Pac. 489^*), the premium added to the interest rendered the rate agreed to be paid usurious, the premium is necessarily regarded as an item of interest, and, this being so, the defendant is entitled to receive 10 per cent We think the point insisted upon is without merit, for, the parties having, by express agreement, stipulated to pay interest, as such, at the rate of 6 per cent per annum, the obligation to give a premium of 6 per cent per annum and also sixty-five cents upon each share of stock pledged was a subterfuge, evidently adopted by the defendant to circumvent the statute, and it is not legally entitled to any greater compensation for the use of its money than the rate specified as interest in the contract. It follows from these considerations that the deere.e is affirmed. Affirmed. .

* Reported also in 58 L. R. A. 816.

* Reported also in 58 L. R. A. 816, with note.