Clemens v. Crane

The sole question in this case is whether the contract between appellee and appellant's intestate is usurious.

Usury is defined to be an illegal profit required and received by a lender of a sum of money from the borrower. (Blackstone, 156; Bouvier's Law Dict.) To constitute usury, in contemplation of law, the following essential elements must be present: (1) There must be a loan or for-bearance; (2) the loan must be of money or something circulating as money; (3) it must be re-payable absolutely and at all events; (4) something must be exacted for the use of the money in excess of and in addition to the interest allowed by law. Some decisions appear to imply that a fifth element should be added, consisting of the intent of the parties or at least of the lender, but it seems to us quite as accurate to say that the intention of the parties as the same appears from the facts and circumstances of the case may be considered, in connection with the other evidence, in determining whether the essential elements of usury are present in the particular case under investigation. The form of the contract is not conclusive of the question. The desire of lenders to exact more than the law permits and the willingness of borrowers to concede whatever may be demanded to obtain temporary relief from financial embarrassment have resulted in a variety of shifts and cunning devices designed to evade the law. The character of a transaction is not to be judged by the mere verbal raiment in which the parties have clothed it, but by its true character as disclosed by the whole evidence. If, when so judged, it appearsto be a loan or forbearance of money for a greater rate of interest than that allowed by law, the statute is violated and its penalties incurred, no matter what device the parties may have employed to conceal the real character of their dealings. In Cooper v. Nock, 27 Ill. 301, on page 302, this court said: "In such transaction it is the intention of the parties, not the forms employed, which fixes its character. If it were otherwise, every species of fraud, oppression and wrong might be perpetrated with perfect impunity. Hence in trials of questions of usury it has ever been held that no device intended to cover up the real character of the transaction can ever avail to defeat the statute." It is the constant practice of courts to resort to extrinsic evidence to determine the question of usury. (2 Jones on Evidence, sec. 441; 1 Elliott on Evidence, sec. 591; Ferguson v. Sutphen, 3 Gilm. 547;Reeve v. Strawn, 14 Ill. 94.) Resort to parol evidence in such cases does not in any way depend upon the existence of an ambiguity in the written contract, but it is justified on the ground that the charge of usury raises a question of the legality of the instrument to the extent that usury, under the statute, renders contracts illegal or void. An agreement to pay an illegal rate of interest is void because it is in violation of a public law, and such illegal nature of the agreement may be shown by any competent evidence. Under the law applicable to the case in hand all of the correspondence and dealings between the parties to the transaction under consideration are proper evidence to be considered in the decision of the issue involved. The facts are open for consideration by this court. The statute making the finding of the Appellate Court conclusive upon this court has no application to this case. In the adjustment of claims of the character of the one here involved the probate court exercises an equitable jurisdiction and may resort to equitable procedure, and upon an appeal to this court it is our duty to examine and determine questions of fact as well as those of law. In such case the rules applicable to appeals in chancery apply and the facts are reviewable.Cheney v. Roodhouse, 135 Ill. 257; Henry v. Curuthers, 196 id. 136.

Having made these general observations regarding the law, we will proceed to examine the evidence and express our views as to the proper conclusion to be drawn therefrom.

Two opposing theories are pressed upon our attention by the parties to this controversy. As already indicated, appellant's contention is that the contract of January 2, 1893, shows upon its face that it was a loan of money at a usurious rate of interest, and that there is nothing in the other evidence which relieves it of its usurious character. On the other hand, appellee contends that she turned this money over to appellant's intestate to be by him invested in his extract business for a share in the profits thereof, with a guaranty that such profits would not fall below fifteen per cent per annum, and that thereby she became a partner in the profits of said business.

While the contract was executed between the parties January 2, 1893, it is clearly established that the business relations between the appellee and appellant's intestate commenced early in 1891. The first letter introduced in evidence written by Bode to appellee is dated February 14, 1891, in which he says: "I am in receipt of your favor with agreements signed, and also draft for $1000. I enclose one of the agreements signed by me. I would say more now, but as I am a little rushed I will let it go until next time. Now that we are partners I will just simply say that I will do my utmost to make you feel satisfied with this world." The agreement referred to in this letter is not in the record. The $1000 the receipt of which is acknowledged in this letter was the first money paid by appellee to Bode. All that the record discloses about the form of the agreement under which this $1000 was paid is that it was an instrument signed in duplicate, and that it was satisfactory to appellee and that appellant's intestate construed it as constituting the parties partners. It was undoubtedly so understood by appellee. Afterwards, during the year 1892, appellee paid Bode other sums of money, and he gave her acknowledgments of its receipt which appellee thought varied from the original understanding. Under date of January 18, 1892, appellant's intestate wrote appellee, saying: "I received your letter with draft this afternoon. I think it best to give you a certificate showing that I have the money, and I enclose it. * * * I will do my best for you and remit the profit at the same time that I remit the profit on the other $1000." Ten months later, November 28, 1892, we find the following writing signed by appellant's intestate and transmitted to appellee: "This is to certify that I have received from Mrs. Matilda M. Clemens, of Fairbury, Ill., the sum of $4550, to be used by me in such manner as to realize her the largest profitable income." Below the signature of Gustav A. Bode, the following words are written: "Mrs. Clemens — The above will do until you get the other $3450 in, and then I will give you one writing to cover the entire $7000." So far as the record shows appellee accepted this certificate and acquiesced in the suggestion that it would answer the purpose until the remainder of the money was paid over, which the evidence shows occurred before January 2, 1893.

After appellant's intestate secured the full $7000 of appellee and sent her the "one writing to cover the entire $7000," appellee, believing that she saw in the writing a departure from the original understanding, protested against the form of the agreement in her letter of January 16, 1893, in which she says: "I wrote you that I was not just satisfied with the agreement you sent. It was not what I expected, and your second letter convinces me we are laboring under a misunderstanding. I thought all the time you expected to use my money in your business and would give me such profits as it realized. Don't you remember me saying, before I sold my business, I would sell if you would let me put the money in your extract business, the same as you had the $1000, and you said you would, and as you could not make any change in the business until the first of the year you would use that money I sent you to the best advantage until that date? Then I understood you was to put it in your business and give me papers to that effect. I don't understand your writing about having it out on ninety days' time when I expected it to go into your business January 1. When you write the agreement I would much prefer you would say the money was in the business and state a per cent that it will not fall below; in fact, just duplicate the agreement for the $1000, only have it for $6000."

We have in the foregoing quotation from appellee's letter clear evidence of what she intended to do and what she really believed she had done, as subsequent events will show. She intended that this additional amount of money should go into the extract business and nowhere else. The agreement which she desired duplicated for the $6000 is the agreement referred to in Bode's letter of February 14, 1891, in reference to which he said: "Now that we are partners I will just simply say that I will do my utmost to make you feel satisfied with this world." Appellant's intestate did not give appellee a duplicate of the agreement of February 14, 1891, but instead thereof gave her the agreement of January 2, 1893, in reference to which appellee made her protest of January 16, 1893, and which she did not sign until after she received the persuasive letter written by appellant's intestate January 18, 1893. Before referring to the letter of January 18, we will digress for a moment to point out the relative situation of the parties as the same appears from the evidence.

The appellee undoubtedly had implicit confidence in appellant's intestate. There had been a sincere and devoted friendship existing between appellee's husband and Bode. On the occasion of his first visit to appellee's house after her husband's death, Bode told appellee that her husband, having a presentiment that he was not going to live long, exacted a promise from Bode that he would look after and care for his family. The appellee believed implicitly in the business ability and integrity of Bode, and further believed that Bode's interest in her affairs was largely due to his devoted friendship for her dead husband and the moral obligation which his promise to him imposed. Bode was an intelligent, experienced business man, whose judgment appellee no doubt believed superior to her own. Under these circumstances we can see how easy it was for appellant's intestate to vary the form of the contract and at the same time make appellee believe that its substance was retained, and that the form was only departed from in order to better protect and serve appellee's interests.

We will now return to the letter of January 18, 1893, and see how appellant's intestate answered appellee's objection to the contract of January 2, 1893, and the reasons which he gave for not duplicating the partnership agreement of February 14, 1891, as appellee had requested him to do. In this letter he says: "I will answer your letter by first saying that I understood that I was, and I expect, to use your money for your benefit in the extract line. The reason that I loan money for 60, 90 and 120 days at a time is, because I nearly always have from $2000 to $5000 more ready money than the immediate wants of my business justifies, and as I cannot get interest from my bank on it, I look about and find a safe place to invest it for the time desired and thereby make the profit at the end of the year to amount to just * * * left it unused at the bank. This makes that clear to you, I hope. Now, then, about the paper I sent you. In the first place, if I gave you an ordinary partnership paper, then in case of my death you would be obliged to depend upon the ability of the administrator to turn the real estate and other assets into cash, and in case of bad handling or financing (as is often the case with estates) you might not realize all that is coming to you, and even if you did get every cent, you would get it much later than if it is done as I intended for it to be done. I will try to explain my object and also my desire in sending you the paper I did. First of all comes the matter of safety, — that is, to make you perfectly safe in case of my death. To do this I put an insurance of $10,000 on my life, which is payable to my wife. Out of this she will pay you the amount due you, and as this insurance money is not a part of the estate it will not come under the jurisdiction of the court, and will thus simplify matters to such an extent that you can close it up among yourselves by you giving her my paper back and she giving you the cash. Should Mrs. Bode die first, then I would have your name put on the policy to the amount of your investment, and then you would in that event also be safe. I want to arrange everything to your entire satisfaction and at the same time make it as simple and easy as possible for you to get all of your money back at the earliest possible moment after my death, should it happen during the time I have your money, and it is the * * * at heart when I made out the paper. Regarding the per cent you will get, I can simply say that it will be just as large as what my own per cent amounts to, and while I never expect to see it as low as fifteen per cent, it might by unexpected conditions of trade come to that, but I rather look for it to go to twenty-five per cent or thirty per cent before five years, as the business is growing and the quality of the extracts are making new trade continually. But then, what is the use of talking about that here? The whole thing must be left entirely with me to make the result good and the returns to you correct. It is therefore necessary, above all other things, that you have explicit confidence in me."

There is nothing in this letter to indicate to appellee any change in the substance of the contract which appellant's intestate said constituted them partners. The essence of this letter is to re-affirm to appellee that she was still to be regarded as in the business on a profit-sharing basis, which she is assured will never be below fifteen per cent and may reach twenty-five or thirty per cent in five years, and that the only reason for not giving her "an ordinary partnership paper" was to avoid delay and possible loss from the legal course of settlements in case Bode predeceased appellee. With the hope of further protecting appellee she is assured in this letter that appellant's intestate had put an insurance of $10,000 on his life and made the same payable to his wife, who would be instructed to pay the appellee $7000, with an approximation of the profits earned since the last settlement. Finally, after making this explanation as to why the former partnership agreement had not been sent her, the letter concludes the explanation with these words: "I shall await your reply regarding the agreement, and if you still think that you would rather have a regular partnership agreement you shall have it, although I feel I have done the very best that can be done for safety, simplicity and prompt liquidation in case of my death." In her reply to this letter the appellee accepts the contract as explained in the foregoing letter, and says: "You are so kind to let me have the agreement written as I wish, and, my dear friend, I do trust you thoroughly, and I have perfect confidence in your ability to do as you say and know you will if you can. My sending you the money before we had the written agreement proves to you I trust you." Three days later, on January 23, she again writes Bode and assures him that she is pleased with the agreement. She says: "I want you to know that I feel perfectly satisfied and shall not worry at all. There is not another man on earth that I could trust my all with and not feel afraid I might lose it, but my inner self tells me this is all right, and I know it is."

A letter from appellant's intestate to the appellee, dated three days before his death, closes the communications passing between these parties. In this letter appellant's intestate sent appellee $590.43, being the balance of her profits, figured at eighteen per cent for the year 1900. This is simply a business letter giving an account of the business for the year, in the course of which it is said: "In spite of the fact that I was away from the business this past summer a good part of the time that I could have increased the total net profits, the profit would have been twenty-one per cent but for one loss of the matter of nearly $1000." He closes by saying: "The net profit of all invested is a fraction of a mill over eighteen per cent. I will carry the fraction over and call it even eighteen per cent, on which basis I remit."

Under this evidence the conclusion is irresistible that appellee in good faith entrusted her money to appellant's intestate to be by him invested in his business, and that she was to receive a share in the profits of the business, which were guaranteed not to fall below fifteen per cent per annum. If this was the contract, or if appellant's intestate intentionally led appellee to believe, and she did in good faith believe, that appellant's intestate was using her money in his business and accounting to her from time to time for profits, the transaction could not be converted into a usurious loan by any secret intention that may have been in the mind of Bode, or by the fact that he may have used the money for some private purpose outside of his extract business.

The case of Robbins v. Laswell, 27 Ill. 365, is very similar in its facts to the case at bar. In that case Robbins furnished Laswell money to buy young cattle. Laswell was to feed, salt, handle and manage the stock until they were ready for market, and when sold the profits were to be equally divided between the parties. Laswell guaranteed that the portion of profits coming to Robbins should not be less than twenty per cent per annum on the amount of money furnished. This agreement was held by this court to constitute the parties partners in the profits, and that it was not necessary that the agreement should make both parties liable for losses. We think the principle decided in that case is applicable here. Briefly stated, appellee furnished $7000 to be invested in a particular enterprise. She was to receive a share of the profits. She assumed no liability for losses. This is not necessary to constitute the parties partners as to profits. Bode guaranteed to appellee that the profits would not fall below fifteen per cent. A share of profits may be taken as compensation for services or for the use of money. (Lintner v.Millikin, 47 Ill. 178; Adams v. Funk, 53 id. 219; Burton v.Goodspeed, 69 id. 237; Smith v. Knight, 71 id. 148; Parsons on Partnership, 72; Story on Partnership, sec. 49.) In Goodrich v.Rogers, 101 Ill. 523, in disposing of a question somewhat similar to the one involved in the case at bar, this court said (p. 529): "We do not understand that our statute was ever intended to prevent one person from furnishing capital to another with which the two might embark in trade, although the person advancing the capital might receive profits greatly in excess of the rate of interest allowed by law."

It would require a strained and unnatural construction of the evidence to convert this transaction into a loan of money. There is no presumption of law that a contract is illegal or criminal. The illegality, if alleged, must be established by the party charging it. Where a transaction is susceptible of an innocent construction and can only be held usurious by wresting it from its relation to other facts or by imputing to the facts a sense and meaning which they cannot reasonably bear, it is the plain duty of the court not to decree a forfeiture but to uphold the contract and enforce its obligation. (Meaker v. Fiero,145 N. Y. 165; 39 N. E. Rep. 714.) In Orvis v. Curtis, 157 N. Y. 657, (52 N.E.Rep. 690,) it is held that an agreement between two parties to enter into a joint venture, whereby one party is to furnish the capital to carry on the business, is to share equally in the profits and in case of loss is guaranteed the return of his investment together with a large sum in excess of legal interest thereon, is not usurious, where it is not shown to be a mere device to conceal a loan of money. Such a contract constitutes a partnership. (Clift v. Barrow, 108 N. Y. 187;15 N. E. Rep. 327; Hackett v. Stanley, 115 id. 629; 22 id. 745.) The contract involved in this case does not show on its face that it is a mere shift to cover up a usurious loan. The contract is signed by both parties, and the evidence shows that they both had the belief that to accomplish the object in view both parties should sign the agreement. Notes for money borrowed are not usually signed by the lender. Furthermore, if this was a shift or device to cover up a usurious loan it was a loan at fifteen per cent, but the evidence shows that at no time were the settlements between the parties made on the basis of fifteen per cent but always on the basis of a higher rate. If Bode borrowed this money at fifteen per cent, why should he pay eighteen per cent in the year 1900?

Our conclusion is that the evidence in this case shows that the true relation between Bode and appellee was that appellee was a partner in the profits of the extract business, and that the defense of usury is not available to appellant.

The judgment of the Appellate Court will be affirmed.

Judgment affirmed.

SCOTT, FARMER and DUNN, JJ., dissenting.