Jenkins v. Dugger , 96 F.2d 727 ( 1938 )

HICKS, Circuit Judge

(dissenting).

Before 1925 the legal rate of interest in Tennessee was 6 per cent. The Act of 1925 c. 69, provides: “That corporations, firms and individuals may, and are hereby authorized to, issue their bonds or notes in an aggregate amount of $50,000.00 or more, secured by ‘lien or deed of trust, bearing interest at a rate not greater than seven and one-half (7%%) per cent per annum, payable .annually or semi-annually, the shortest maturity of said notes or bonds to be not less than two years after their date of issuance.”

It seems clear enough that the term “maturity” means the date upon which the notes or bonds become due and payable, and I think that in contemplation of the statute if one borrowed as much as $50,000, securing its payment by a deed of trust, and agreed to pay 7 per cent, interest, he was entitled to tire use of the money for at least two years. The payment of 7 per cent, was consideration for the use of the money for that period. The act is silent upon the subject of a sinking fund.

The bonds involved were in accordance with the statute, but the trust deed to which they referred and which became a part of the contract carried this provision: “It is further covenanted and agreed that the said Corporation shall deposit on or before the 15th day of February, 1930, with the Trustee, the sum,of $10,700.00, which said sum shall be held by the said Trustee, without obligation on it for the payment of interest thereon, and shall be applied on February 15th, 1931, to the payment of the bonds maturing hereunder on the 15th day of February, 1931.”

'The effect of it, if complied with, was that the borrower lost the use of $10,700 of his loan for one year before it was payable to the holders of the bonds; and if not complied with, then, by another provision of the trust deed, all of the bonds matured at the option of the holders.

I think that the agreement to pay 7 per cent, interest upon a loan so conditioned was unauthorized by the act, and, the usurious nature of it appearing upon the face of the contract, was unenforceable.

From my viewpoint the judgment should be affirmed.