Armor v. Bank of Loudon

Oox, J., delivered the opinion of the court. Under the contract by which appellant secured from the Atlas Savings & Loan Association the loan of $500 he was to pay monthly as premium the sum of $1.65, and as interest the sum of $2.50. The aggregate sum of $4.15 — which, under the decisions of this court, must be treated as interest — was less than the interest at ten per cent, the maximum legal rate, by so small an amount that the first monthly payment of $3, provided for as payment on stock, if credited on the loan, would raise the interest rate above ten per cent. It is averred in the bill [666] that the subscription for stock, the contemporaneous application for the loan, the execution of the contract and deed of trust, and the depositing of certificates of stock as collateral, were all parts of the same scheme to negotiate and secure the loan. This averment is not denied, and must therefore be treated as confessed. Section 4 of art. 9 of by-laws of the Atlas Savings & Loan Association, with reference to which the loan was made and the securities taken, provided that: “Every member who procures a loan shall secure the payment by an acceptable deed of trust, mortgage, or deed on real estate, the conservative value of which must be at least twice the amount wanted, and this deed of trust, mortgage, or deed shall remain in force till the monthly dues applied to the general fund, dividends, and reserve apportioned make up the sum of one hundred dollars on each share drawn. The deed of trust, mortgage, or deed.shall then be canceled, and such member shall cease, with regard to his incumbered shares, to be a member.” The confessed averments of the bill, taken in consideration with the section from the by-laws above quoted, make it clear that in the instant case the taking of stock was merely a condition to the getting of the loan; that appellant was in reality never to acquire any stock, but that the payment in full for the stock was ipso facto to pay the loan and cancel the stock. This is nothing but a scheme to evade the law against usury,- and we are therefore constrained to differ with the opinion of the learned chancellor that the contract was not usurious. Inge v. Interstate Building & Loan Association, 79 Miss., 18 (29 South. Rep., 998). It is evident from the averments of the bill and the express and tacit admission of the answer, as well as from the evidence in the case, that complainant never in fact borrowed money from Lowery to pay off and discharge his indebtedness to the Atlas Association, and, indeed, that he had no dealings with Lowery of any kind. Kendall, as agent for the receiver, and in pursuance of the plan adopted by the receiver and the stockholders of the Atlas Savings & Loan Association [667] to reduce all the assets of said association to cash as soon as possible, in liquidating the indebtedness of complainant, took four notes for $375 in the aggregate:, payable to Lowery. '' This was a mere merger of indebtedness. The amount promised to be paid included usury. The. new contract, taken in lieu of the old, was tainted with usury, and was therefore not enforceable for more than the principal unpaid of the original loan. Appellant, having repaid the original loan in full, is entitled to the cancellation of the trust deed, even as against an innocent holder of the notes and security. Long v. McGregor, 65 Miss., 70 (3 South. Rep., 240); Building & Loan Ass’n v. Tony, 78 Miss., 921 (29 South. Rep., 825); Fraser v. The Bank, 63 Miss., 231. Reversed and remanded.