Gardner v. Ruffner

Where a broker through whom a loan of money is negotiated is not the agent of the lender, his reservation of commissions for himself, over and above the legal rate of interest, with or without the knowledge of the lender, does not taint the transaction with usury. George v. N.E. M. Security Co.,109 Ala. 548, 20 So. 331. Nor does such a reservation have that effect even where the broker is the agent of the lender, unless it is made with the knowledge of the lender, or unless the lender derive some benefit therefrom in addition to the lawful interest he is entitled to charge. Ginn v. N.E. M. Security,92 Ala. 138, 8 So. 388.

In the instant case the loan was made to complainants by the respondent J. B. Ruffner, who conducted the negotiations, approved the security, and had the note and mortgage executed to himself as payee and mortgagee. He exacted 8 per cent. annual interest on the loan, and also 4 per cent. annually as commissions to compensate him for his time, labor, and expenses in making the loan and looking after its collection. His testimony is that the money in question belonged to his sister, who, and himself also, lived in Illinois; and that she had turned it over to him for lending, which he did at his discretion, on his own terms, without consulting her, and in his own name. He further testified that he had never accounted to her for the 8 per cent. interest included in the note, six or eight years having elapsed since its accrual.

We think the evidence in the record supports the conclusion that J. B. Ruffner was merely the debtor of his sister, and that she was not a beneficiary entitled to claim the note and mortgage as her property. But, assuming that Ruffner lent the money for her benefit, we think that on general principles of policy and propriety the transaction must stand, so far as the question of usury is concerned, as one between Ruffner and the mortgagors to whom he lent the money in his own name as payee and mortgagee. Pearson v. Bailey, 23 Ala. 537, 542.

The authorities, indeed, go very much further than this. Judge Freeman, in his extended note to Bank of Newport v. Cook (60 Ark. 288, 30 S.W. 35, 29 L.R.A. 761) 46 Am. St. Rep. 171, 199, deduces the following rule:

"If the agent of the lender acts for him in a single transaction and under such circumstances that his authority must be deemed special and restricted to the making of loans for which no illegal exaction shall be imposed, or if the principal has reason to believe, and does believe, that his agent is acting gratuitously, and not for the purpose of realizing a profit from either of the parties, then, to charge the lender with the consequences of a usurious transaction on the part of the agent, the principal must undoubtedly be proved to have had notice of it. If, on the other hand, the agent is a general agent of the lender for the purpose of making loans, and, whether he is such a general agent or not, if the lender understands that the services to be rendered by the agent are not gratuitous, but are not to be paid for by some person other than the lender, then any exaction made of the borrower by such agent must be regarded either as authorized by his principal from the general nature of the agency, or as done with the knowledge and consent of that principal, because he knew that his agent, for services to be performed for himself, was to be compensated in some manner by some other person not under any duty or obligation to make such compensation, and that such person must inevitably be the borrower: Sherwood v. Roundtree, 32 Fed. Rep. 113; New England, etc., Co. v. Hendrickson,13 Neb. 157; Cheney v. Woodruff, 6 Neb. 151; Fowler v. Equitable Trust Co., 141 U.S. 384; Adamson v. Wiggins, 45 Minn. 448; Vahberg v. Keaton, 51 Ark. 534, 14 Am. St. Rep. 73; Payne v. Newcomb, 100 Ill. 611, 39 Am. Rep. 69; McFarland v. Carr,16 Wis. 259; Rogers v. Buckingham, 33 Conn. 81."

That rule would govern in the instant case even if the broker were not also the payee and mortgagee.

The case of France v. Munro, 138 Iowa, 1, 115 N.W. 577, 19 L.R.A. (N.S.) 391, strongly supports the rule and many authorities are collected and digested in the editor's note thereto, in accord with the principal case. Other well-reasoned cases are Stein v. Swensen, 46 Minn. 360, 49 N.W. 55, 24 Am. St. Rep. 234; and Hall v. Maudlin, 58 Minn. 137, 59 N.W. 985, 49 Am. St. Rep. 492.

It is, however, insisted that the usurious exaction in question cannot infect the mortgage debt as it now stands for the reason that the original obligation, payable to J. B. Ruffner, was transferred by him to his son. Clark G. Ruffner, to whom a new note and mortgage were given by way of renewal, and that Clark G. then transferred the securities to his brother H. H. Ruffner, in whose name they now stand; the contention being that each of the sons was a bona fide purchaser for value in due course.

J. B. Ruffner, the father, was the general agent for each of his sons in the handling of their money in his hands, and acted as the agent of Clark G. in buying for him his own mortgage and note, and in securing their renewal. He acted as agent also for H. H. in receiving the alleged transfer of them from Clark G. Under those circumstances, it must be presumed that he informed each of his principals, his said sons, of the fact that the mortgage debt included an annual charge of four per cent. for his own commissions. H. B., etc., Co. v. Haley, etc., Co.,174 Ala. 190, 56 So. 726, L.R.A. 1918B, 924. His knowledge of that infirmity in the mortgage debt, not having been acquired in the prosecution of his agency for his sons, was not constructively binding upon them; and the presumption that he informed them of it is a rebuttable presumption, the burden of rebuttal being cast upon them. Id. In the absence of satisfactory evidence that they were not so informed, we are bound to hold that they were, and the result is that they cannot be held as bona fide purchasers for value in due course.

The infection of usury works a forfeiture of all interest, and only the principal can be recovered whether the suit is at law or in equity. Code 1907, § 4623; Lewis v. Hickman, 200 Ala. 672,77 So. 46; Law v. Mitchell, 200 Ala. 565, 76 So. 923.

It is therefore ordered that a reference be made to the register for an accounting to ascertain the amount of the mortgage debt with the item of interest eliminated. If any balance remains due after such elimination, the complainants will be allowed to redeem by paying that amount into court within such time as the trial court may direct. If, on the other hand, it shall appear that the debt has already been fully paid by complainants, they will be entitled to a decree canceling the mortgage or mortgages remaining unsatisfied of record.

The decree of the circuit court is reversed, an order of reference for accounting is here entered, and the cause is remanded for further proceedings, orders, and decrees, in accordance with this opinion.

Reversed, rendered, and remanded.

ANDERSON, C. J., and McCLELLAN and THOMAS, JJ., concur.

On Rehearing.