McHenry v. Vaught

Hart, J. (after stating the facts). The defendant signed a note for $900 dated January 7, 1916, payable to the order of F. B. Collins on the 1st day of January, 1923. The note bore 6 per cent, interest per annum, and the defendant signed fourteen interest notes payable semi-annually. Cox and Tompkins received $252 as commission. Counsel for the plaintiff concedes that the commission paid Cox and Tompkins added to the principal and interest of the notes exceeds in amount the legal rate of interest and renders the contract usurious, provided Cox and Tompkins were the agents of Collins. In Vahlberg v. Keaton, 51 Ark. 534, the court, in discussing whether or not a bonus paid to the agent of the lender constitutes usury, said: ‘‘The lender may receive for the forbearance of money ten per cent, per annum and no more. In'excess of that his agent can receive no bonus from the borrower. If the agent do receive from the borrower a bonus in excess of the highest lawful interest, either with his knowledge or under circumstances from which the law will presume he had knowledge, then the transaction is usurious; while, if the agent received the excessive bonus without his knowledge, and under circumstances from which his knowledge could not be reasonably presumed, the transaction would not be usurious. "What circumstances will raise the presumption of knowledge must be determined in each case in accordance with the principle by which knowledge is imputed to persons, in controversies generally. We will add now, that where a lender places money with an agent to be loaned, with the understanding that he must receive the highest lawful interest, and that the agent must look to the borrower for his commissions, the circumstances necessarily impute knowledge to the lender, of an usurious bonus received by the agent upon each loan.” This rule has been steadily adhered to by the court ever since. Habach v. Johnson, 132 Ark. 374. In Jones v. Phillippe, 135 Ark. 578, the court held that, where a loan of money was made at the highest rate of interest, and the lender, contemporaneously with the contract and as part consideration of it, received part of a bonus paid by the borrower to a broker for procurring the loan, the loan is usurious. Here the lender did not receive the highest rate of interest, but it is conceded that the commission received when added to the interest amounted to more ■I han ten per cent, per annum on the amount received by the borrower. The question then is, were the commissions paid to Cox and Tompkins a part of -the interest? As we have just seen, to render a loan usurious on account of a commission paid to a broker or intermediary, it must appear that he was the agent of the lender and took the commission under authority, express or implied, from his principal. • In the present case the borrowers agreed to pay Cox $252 as commission. Although Cox and Collins deny that Cox and Tompkins were the agents of Collins, the attending circumstances contradict them. Collins furnished the money directly to the borrowers. He was engaged in the farm loan business and paid all his loans to the borrower through the F. B. Collins Investment Company. Tompkins was treasurer of that company. Neither Cox nor Tompkins prepared or had anything to do with the note and mortgage in question. The note and mortgage'were prepared by T. M. Miller, the agent of F. B. Collins, who was sent to inspect the farm. At the same time he prepared the loan contract in which it was agreed to pay Cox $252 commission. Miller had never seen Cox, and did not have any instructions from him as to preparing this loan contract. If Tompkins and Cox were not the agents of Collins, neither Collins nor Miller were interested in securing the signature of the Vaughts to the loan contract to Cox. This contract was executed simultaneously with the execution of the notes and mortgage. Tompkins was the treasurer of the company through which the payment to the Vaughts was made, and, as such treasurer, it was his duty to keep the account of Collins as to farm loans. When the relationship of Tompkins and Collins is considered in connection with the attending circumstances, we are of the opinion that the transaction was a cloak for usury, and that the chancellor did not err in finding for the defendants. 1 Tompkins took a second mortgage on the land in question to secure his commission in the sum of $126. He brought suit to foreclose his mortgage, and the testimony was practically the same as in the present case. The chancery court held that the contract was usurious and void. Upon'appeal to this court the decree of the chancery 'court was affirmed. Tompkins v. Vaught, 138 Ark. 262. It is true, as pointed out in that opinion, that neither Collins nor his assignee was party to the suit, and the decree in that case did not affect their rights. However, the substance of the transaction is the same. In that case the court said that the evidence justified the conclusion that the notes in controversy were executed purely as a bonus to the lender, or his agent, for making the loan, and that the contract was usurious. No reason has been given for making a different holding here, and we can perceive none. Therefore, the decree will be affirmed.