Thompson & Co. v. Gillison , 28 S.C. 534 ( 1888 )

The opinion of the court was delivered by

Mr. Justice McIver.

We agree with the Circuit Judge and the special master, Mr. James Aldrich, who, in his able and elaborate report, has shown conclusively that there is no usury in the contract here brought in question. It would be very difficult to add anything to what is so well said in the report, and we shall not attempt to do so, further than to illustrate his views by two calculations based upon two different views of the case.

It seems that the appellant was not one of the original stockholders in the association, but after it had been in operation for more than a year he became a purchaser of fourteen shares, for which he paid the sum of f308.ll, and when the association had but seven years and five months of the nine years for which it was permitted to run by the terms of its charter, the appellant borrowed from the association, or bid off, as it is termed, at a discount of seven hundred dollars, the whole amount which he was permitted to do under the regulations, to wit, the sum of twenty-eight hundred dollars, so that after deducting the discount he received in cash the sum of twenty-one hundred dollars. Thereupon he executed the bond and mortgage upon which this controversy arises. The bond is in the penal sum of twenty-eight hundred dollars, conditioned for the payment to the said association of “the monthly sum of twenty-eight dollars (of which the sum of fourteen dollars per month is for subscription to the said shares, and the sum of fourteen dollars per month is for interest on the sum actually paid over to said Daniel B. Gillison); to be paid on or before the fifth of each and every month until the said association shall wind up and determine, and upon such, winding up or determination shall transfer and' surrender the said fourteen shares to the said association in satisfaction of the advantage aforesaid, and shall stand to and abide by the constitution, rules, and regulations of said association,” &c.

Now% as the association could unquestionably loan to the appellant, or any one else, the amount received by him for the remainder of the term for which the association was to run, to wit, seven years and- five months, at ten per cent, interest, we will first see whether the amount which the appellant would have actually paid, assuming that he complied with the terms of the contract at the winding up of the association, would exceed the amount which he could have been legally required to pay under an ordinary contract for the borrowing of money with the rate of interest at ten per cent, per annum:

1st Calculation.

Amount borrowed for 7 years and 5 months at. 10 per cent, interest,- $2,100 00

Interest on same at 10 per cent, per annum, 1,557 50

Total amount due at maturity, $3,657 50

Amount which appellant actually pays under the contract under consideration as follows:

Amount paid when shares were bought, $ 308 11

“ “ per month, $28.00 for 89 months, 2,492 00

Amount of discount (so-called) surrendered, 700 00 $3,500 11

Difference in favor of appellant, $157 39

If, however, we make, a different calculation, based upon the assumption that each share of the stock will be worth, at the time of the winding up of the association, two hundred dollars, then the result would be, that, upon such assumption, the appellant would have to pay more than ten per cent, interest, but for the. fact that such result is prevented by the provision in section 5, of art. VI., of the constitution of the association, which is incorporated in, and made a part of, the contract, whereby it is provided that the rate of interest on any advance is not to exceed ten per cent, at the winding up of the association.

2nd Calculation.

Amount of interest to be paid by appel- • ■ lant according to the contract, $14 per month for 89 months, $1,246 00

Assumed value of shares to be surrendered, 2,800 00 $4,046 00

The sum actually borrowed, $2,100 00

.Interest on same at 10 per cent, for 89 mos., 1,557 50 3,657 50

Which would make an excess over ten per cent, of $388 50

But if this assumption should prove to be well founded, and each share at the winding up should be found to be worth two hundred dollars, then, under the terms of the contract, the appellant could not be required to surrender the whole of his shares, but only so much thereof as with the amounts actually paid in cash would be sufficient.to repay the sum actually borrowed with interest at the rate of ten per cent, per annum ; for that is the necessary effect of the provision of the constitution of the association above referred to, and was, doubtless, inserted for that very purpose.

Of course, when this contract was entered into, it could not possibly be known, with any degree of ’certainty, whether the shares would be worth-at the winding up as much as two hundred dollars each, and if they should not be worth that amount, as seems quite likely from the testimony of the secretary in this case, then it might become necessary for the appellant to surrender the whole of his shares in order to refund the amount borrowed, with interest thereon at the rate of ten per cent, per annum, and if so, then, certainly, there would be no usury in the contract. But if, as we have said, such a necessity should not arise by reason of the fact that the shares would prove to be worth two hundred dollars each, then the appellant could not be required, under the contract, to surrender any more of the shares than would be necessary, with the amount of interest previously paid, to repay the sum borrowed, with ten per cent, interest. As the special master has well remarked, this provision for the surrender of the shares may be regarded as in the nature of a mortgage or collateral security, and nothing is more common than for lenders of money to require a deposit of collaterals to an amount exceeding the sum loaned in order to guard against deterioration in values.

This case, it seems to us, differs very materially from the cases cited by the counsel for appellant. In Bollinger's Case (12 Rich. Eq., 124), the borrower executed his bond conditioned for the payment of two thousand dollars, with interest thereon at the rate of six per cent, per annum, while the sum actually received by him was only thirteen hundred dollars. This was clearly usurious, for the rate of interest then being limited to seven per cent., the borrower could only have been required, legally, to pay ninety-one dollars per year, whereas his contract required him to pay one hundred and twenty dollars per year. In Dorsey's Case (15 S. C., 462), the borrower received one thousand dollars, for which he contracted to pay interest at the rate of six per cent, per annum, and also an additional premium (as it was called) of seven 25-100 dollars per month, amounting to $87 per year, so that the borrower, for the use of $1,000, agreed to pay each year the sum of $60 as interest, plus the sum of $87, as premium (so-called), making in all the sum of $147, which he had to pay each year for the use of $1,000; whereas he could, legally, have only been required to pay $70 per year for the use of that sum of money, as the law then stood. So that, beyond all question, the contract in that case was usurious. In this case, as we have seen, the contract was of a very different character, and under it, in no view of the case, could the appellant be required to pay more than the rate of interest allowed by law, and hence there was no usury in it.

As to the counsel fees, we see no reason why the appellant should not be required to pay them, as by his contract he expressly agreed to do.

The judgment of this court is, that the judgment of the Circuit Court be affirmed.

Mr. Justice McGowan concurred.