Danielson v. Mixon

January 28, 1918. The opinion of the Court was delivered by This is an action to foreclose a mortgage. The defendant, by his answer, set up usury. The defendant was the owner of a tract of land covered by two mortgages. He went to James Frank Son, of Augusta, Ga., to procure a new loan to take up these two mortgages. The mortgagor signed an application for a loan, appointing James Frank Son his agents to procure a loan and also an agreement to pay them $136 as commissions for procuring the loan. The note and mortgage were made to Union Savings Bank of Augusta, for $1,700, at 7 per cent., dated November 16, 1910, payable November 1, 1915. The note provided that, if any part of the principal or interest was not payable at maturity, the rate of interest should be 8 instead of 7 per cent. The note and mortgage were purchased by the appellant from the bank. It was referred to the master, who made the following statement:

Amount of old loan, $858; Bank of Western Carolina, $685.85; cost new loan, J.F.S., $136; check for recording and abstructing new tract, $18.50; balance, $1.65; total, $1,700.

The master held that the contract was usurious. Upon exceptions to the master's report, his Honor held: "By the same reasoning we conclude that the master was right in holding that the commissions charged in this case was unreasonable, and, inasmuch as the commission and the interest charged exceed the lawful rate, the contract was usurious."

In this his Honor was in error. An unconscionable fee is not necessarily usury.

In Mayfield v. Mort. Co., 104 S.C. 157, 158,88 S.E. 370, 372:

"When a Court is probing a contract for unlawfulness, the mere name by which it is called does not work an estoppel. It is the substance, and not the name, that governs. There are some cases in this State that have not stated the true test of usury. It does not change the practical result to come back to the true rule, but it tends to confusion to call things by the wrong name. People have the right to make any contract the law does not forbid. A contract may work a hardship on one of the contracting parties; but, unless the law forbids the contracts, the Courts of law must enforce it. People must take care of themselves, or the legislature must protect them by making the contract unlawful.

"When a litigant goes into a Court of equity, the Court may refuse its aid to enforce an unconscionable demand. ``He who seeks equity must do equity.' Neither the Court of equity nor the Court of law has the right to take money or any kind of property from one and give it to another, except in obedience to some law. There is no law that forbids or penalizes the charging of an unreasonable commission or an unreasonable fee. An unconscionable commission or fee being paid, there is no remedy at law or in equity. The Courts have, however, the right to uncover the hidden unlawfulness of a contract and declare its true character. A sum of money retained or paid in an attempt to evade the law against usury may be declared to be in fact usurious interest; and, when it is adjudged to be usurious interest, then the law against usurious interest applies, and should be enforced. The practical result is not changed, but it is well to give logical and lawful names to the matters with which we deal. The question for the Court is: Was the payment of this fee a cloak to hide usurious interest? If so, the penalty of usury attaches to the transaction."

This is a stronger case than the Mayfield case. In that case the mortgagee knew the amount of the fee. In this case the only evidence on the subject is that neither the mortgagee nor its assignee knew the amount of the commission charged.

In this case the trial Judge allowed a fee of $85 and declared the excess of $51 to be usurious. The appellant agreed in writing to pay the fee and could have agreed to pay 8 per cent. on the money. The note had five years to run before its maturity. Accepting his Honor's method as correct, we have (let the Circuit decree be reported), take off the $51 disallowed, and we have interest (the difference between 7 and 8 per cent.) on $1,649, is $16.49 per year. Now multiply that by 5, the number of years allowed for payment by the note, and we get $82.45, or a margin within the usury statute of $31.45. So whether we consider the commission charged a scheme or not, there was no violation of the usury laws. The agreement was in writing. Therefore 8 per cent. could be charged and taken, and the amount charged and taken did not exceed 8 per cent.

The judgment is reversed.