McFarland v. Carr

By the Court, Cole, J. This is an action to foreclose a mortgage. The defense is, ti íat the note and mortgage are us a-rious and void. This defense the circuit judge thought was not sustained by the evidence. But upon this point, we have arrived at a different conclusion. In our opinion, the testimony in respect to the making of the loan, and the giving of the note and mortgage shows that the transaction was usurious. It is true that the evidence :iri the case is quite conflicting. Indeed it is, on some important points, so certainly and positively contradictory, that it is impossible to reconcile it upon any theory. But nevertheless the real facts attending the transaction can be sufficiently ascertained to authorize us in saying the loan was usurious. The appellant Carr and one Satterlee Warden, who, according to his own statement, acted as agent for the respondent in the negotiation of the loan, — 265 — were the principal witnesses at the trial. Their account# of the arrangement in respect to the loan, differ widely in many important particulars. According ,to the testimony of Carr, the whole arrangement was made with Warden who acted for himself and who was the real party in interest, nothing being said about McFarland until it came to the .execution of the papers, when his name was inserted as the lender, Warden, for the first time, saying the money belonged to him. If this statement is true, it .would tend strongly to support the theory, that Warden was the real lender and that the name of McFarland was used to cover the usury. And the previous transactions between Carr and Warden, in which the latter .had exacted and received most unconscionable usury, even five per cent, a month, are somewhat calculated to support the idea that he was the only party who had any interest in the loan, and who was to be benefitted .by the usury taken. Indeed nearly one half of the amount of the mortgage in suit, consisted of usury and fees paid to Warden upon this and other usurious transactions. But assuming that the loan was made under the circumstances and substantially in the manner stated by Warden in his testimony, we -think the contract must be presumed usurious. His statements are open to criticism, but we will assume that they are in -the main correct. Then, according to -his account of the matter, it appears that in October, 1858, he himself .took a note and mortgage of Carr, .upon the very property .embraced in the present, mortgage, for the sum of ^296, due one year from date, with interest at 12 per cent. When the-money became due he informed Carr, and said it must be paid. Carr wished an extension of the time of payment, which was refused. Carr then asked Warden if he could not procure him a loan .of ¡0400, fora year. Warden told him that a man in the state of New York, by the name McFarland, had sent him a mortgage for collection against a person living in Beloit, which mortgage had keen collected, and he was instructed to hold the money a while that the — 266 — amount was not as much as Carr wanted, but be presumed McFarland would furnish the balance at 12 per cent. Carr told Warden if he would procure such a loan for him that he would pay him, Warden, $50. Warden said to Carr that he would write to McFarland and tell him about the securities, and get the loan if he could. He says he did write to McFarland, stating what securities would be given, and that the loan would be a safe investment. McFarland replied that he would take the loan, and sent Warden a, check on Beloit for $70, which, with what he already had in his hands, made the amount of $400. He says McFarland instructed him to have the securities properly executed and recorded. After the receipt of McFarland's letter, Warden saw Carr, and told him he could have the loan. When Carr and wife came to Warden's mill to execute the note and mortgage, after the papers were executed, Warden says he handed to Carr a package of $400 in bank bills. Carr took the money, and remarked that his hands were so stiff he could not count it, and asked Warden to take the money and count out what was coming to him. Thereupon Warden took out the amount due him upon the $296 mortgage, and the $50 which Carr agreed to pay him for procuring the loan, and the remainder was paid over to Carr. Warden said that he had acted as agent for McFarland in various transactions in making loans; that he had money placed in his hands for that purpose; that he had no general authority as to making loans, but alwags made them under the directions of McFarland. We do not pretend to give the words of the witness, but this is substantially his statement in respect to making the loan. Now upon the evidence, the circuit judge thought Warden must be considered as the agent of McFarland in making the loan. And this was most unquestionably Warden's own understanding of his relation to the parties. But the court held that this agency ceased when the $400 was placed in the hands of Carr, and that as this money then became his, Carr could — 267 — dispose of it as he pleased without affecting in any way the contract. So that, according to this view, because Carr once received all the money, though he immediately handed the same back to Warden to be counted and to have him deduct the amount due him on his mortgage and the $50 bonus, yet these subsequent matters could not affect the loan or the rights of McFarland. But this, it appears to us, is a most unsatisfactory ground upon which to rest the case. The disguise of paying over the $400, of course with the intention and expectation that Warden was to have his bonus, can impose upon no one. The real character of the transaction could not be changed by any such shift or device. The real question is, was Warden, while negotiating the loan and exacting the payment of the $50 for making it, acting as the agent of McFarland, and within the scope of his authority ? The circuit judge found that he was acting as the agent of McFarland while making the loan. And that he was right-in his conclusion is most manifest from Warden's own statements, as to his manner of making this and all other loans for McFarland. For he expressly says that he had no general authority as to making loans, but acted under McFarland's directions, and never made loans without first being directed to do so. If this did not constitute him the agent of McFarland for making this loan precisely as he did, it would be difficult to say what would. It was assumed, in the argument of the case by the counsel for the respondent, and the circuit judge adopts the same view, that McFarland had no knowledge of the arrangement by which Warden was to receive fifty dollars for making the loan, and that he never assented to this corrupt agreement. This assumption is gratuitous; at all events there is nothing in the case to support it, and the bill of exceptions purports to contain in substance all the testimony given at the-trial. We think, however, that the directly contrary inference must arise, and that from the evidence we must presume that he knew of the arrangement. Warden says, in effect, that he acted in this — 268 — and in all other cases under special instructions from Ms principal. What those special instructions were in this case, he does not inform us. But if he acted merely under the directions of McFarland in making loans, what right have to presume that he departed from those directions in consummating this loan as he did ? We cannot assume any such thing. And this feature distinguishes this case from Condit vs. Baldwin, 21 N. Y., 219; North vs. Sergeant, 33 Barb., 350; Baxter vs. Baxter, 10 Vt., 548, and cases of that class. The courts held in those cases that the principal had no knowledge of the secret arrangement entered into between his agent and the borrower, or the latter’s agent, in respect to the bonus to be paid for making the loan, and sustain the contract on that ground. W.e certainly do not feel authorized to say that here. On the contrary, we must assume that Warden, in making the loan and exacting the payment of fifty dollars, acted as the agent of McFarland, and that the latter must b.e chargeable with all the consequences of his acts. If this was so, no one will contend that the transaction was not usurious. We have already said that it was clear, even from Warden's own testimony, that he understood he was acting throughput, in making the loan, as the agent of McFarland. He had been in the habit of loaning money for McFarland. He evidently considered that he held the $330, which had been collected on the Beloit mortgage, to be loaned in the same way. He knew what McFarland's terms were in respect to rate of interest, &c. And in this particular loan, when McFarland wrote him that he would accept it, he likewise instructed him to have the securities properly executed and recorded. In all this it appears, that both understood that Warden was acting wholly and exclusively as the agent of McFarland in negotiating this loan, and was authorized to contract as be clid. This would be the fair and natural inference from all the circumstances attending the making of the Joan. But when, in addition to this, it appears from Warden's own testimony, that he had no general authority for making — 269 — loans, but merely acted under directions of bis principal, it would seem there was no longer room for doubt in the case. It may be said that be fails to state in so many words that be informed McFarland that be was to receive fifty dollars from Carr, and that the lender assented to it. It is true that be says generally that he wrote McFarland upon the subject of the loan; that McFarland accepted the proposition made, &e. The highest legal rate of interest was charged, and also the fifty dollars bonus. If Warden acted under the directions of his principal, as he says he did, then it is very clear that the latter must be charged with participation in this unlawful profit. We are well aware that there is a class of cases which hold that if a person acts as a broker in behalf of the borrower, and charges a commission for his services in negotiating a loan, without any knowledge or participation of the lender, this does not constitute usury. The doctrine of these cases is not infringed upon or violated here. The agent of the money lender may also be employed to perform services for the borrower, and receive compensation therefor, without rendering the transaction usurious. But there were no services performed here for the borrower. The agent acted throughout for the lender, and did no more than is performed .by him in making every loan. The case, therefore, does not fall within the principle of those decisions which allow a brokerage for negotiating loans on behalf of the borrower. It follows from this, that the judgment of the circuit court must be reversed, and the cause remanded with directions to dismiss the complaint.