Gordon v. Dooley

HUGHES, District Judge. I think the foregoing statement embraces all the evidence in the case that can at all affect the decision of the question at issue, which is whether the two deeds, by which a rent-charge was nominally secured by Gordon upon the foundry property’ of Snyder, were really designed to cover, and did cover, a loan of $12,500 from Gordon to Snyder at the usurious interest of $1000, or eight per cent, per annum. If the intention of the parties to the transaction was in fact to cover up a usurious loan, or if the deeds are such as, carried by any practical means into operation according to their legal effect, do virtually provide for a loan, then the transaction is usurious and void .under the law of Virginia as it stood at the date of the deeds. We have nothing to do here with the technical term “usury”; we have to do only with the term's of a specific law. Section 5, c. 141, of the Code of 1860, In force in 1866, provided that “all assurances made directly or indirectly for the loan of money at a greater rate than six per cent.” shall be void. This is the law which rules the transaction between Gordon and Snyder. The deeds which then were executed are assurances. They do not provide directly for a loan of money. They in terms provide for the sale by Snyder to .Gordon of a rent-charge of $1000 per annum, to be paid to Gordon in considera^ tion of the sum of $12,500 paid down by Gordon to Snyder. If this transaction was in good faith the sale of a rent-charge, it is not usurious, though, in effect the deeds provide for an annuity of $1000 to be collected on the original payment of $12,500 by Gordon to Snyder. “If the parties intended to make a usurious loan in the form of a sale, then, of course, the transaction will be illegal and void; but if it appear that a sale was really intended, then it is equally clear that the transaction is legal and valid. The difference between the two cases is, that the law allows the one and condemns the other; and though you cannot .do what the law condemns, yet you may do what the law allows, even though the effect be precisely the same. Brockenbrough v. Spindle, 17 Grab 36. A man may purchase bonds or negotiable paper in the market at any discount, whether they were manufactured for sale or not, and not be guilty of usury: Hansbrough v. Baylor, 2 Munf. 36; Taylor v. Bruce, Gilmer, 42; Whitworth v. Adams, 5 Rand. 333; and the same is held in many other cases. Nay, more, he may sell property greatly above Its market value, knowing that the purchaser intends selling it again at its market value for the purpose of raising money, and the sale will not be usurious if it is a sale. Selby v. Morgan, 3 Leigh, 577; and Brockenbrough v. Spindle, 17 Grat. 21. But if such sale is accompanied by a loan of money as part of the transaction, the whole is usurious. Bank v. Stribling, 7 Leigh, 26.” If the deeds between Gordon and Snyder, though not in form and legal effect providing for a loan, were aecom786 panied by a contract or Tinderstanding in any form, oral or written, agreed to by both parties, that the amount of $12,500 paid for the rent-charge was to be treated as a loan at an annual interest of $1000, such side-contract would vitiate the main transaction, though it should not appear on the face of the deeds; or, though no such outside contract or understanding should be proved, yet, if the deeds themselves contain any clause or provision, or if they make an omission by virtue of which, under the laws of the country, a return of the principal money originally paid could be secured, then a loan would be thereby indirectly and substantially provided for, and the contract would be usurious. It is clear from the evidence, that whatever idea Snyder may have had to the effect that he was negotiating a loan from Gordon, yet neither Gordon nor Lancaster entertained it It is clear that the minds of Snyder and Gordon did not meet in mutual agreement on a contract for a loan in fact, through the sale of a rent-charge in form. These two men did not see each other. There was no direct communication between them. The whole business was transacted through Lancaster. Nor did Lancaster and Gordon meet personally in the course of the negotiation. It was carried on wholly by letters between ‘them, and these letters do not show that a loan was either actually or impliedly the subject of their correspondence. In short, the evidence shows to demonstration that •there was no mutual understanding between Snyder and Gordon to the effect that their transaction was to be in form the sale of a ground-rent, but in fact a loan. Such a contract or understanding not having been mutually agreed upon by the parties, by a common intention not expressed in the deeds, the only question left is, whether the deeds themselves by their tenor, provisions, and covenants, directly or Indirectly, expressly or impliedly, by their actual provisions or by the omission of provisions, provide for or admit of a return or recovery of the $12,500 paid by Gordon for the rent-charge, through any means or method or possibility known to the law. The counsel of Wilson, and of Dooley, the trustee in bankruptcy, contend that these ■deeds show a usurious transaction, and claim that this case is entirely similar to that of Scott v. Lloyd, first reported in 4 Pet. [29 U. S.] 205, and again reported 9 Pet. [34 U. S.] 418. Except in one particular this case is identical in the nature of its facts with that of Scott v. Lloyd, where a rent-charge of $500 per annum, purchased for $5000 paid down, was held usurious. In that case, as it is reported in 9 Peters, Chief Justice Marshall reviewed every case, American and English, which had then been reported, in which contracts not usurious in form, but claimed to have been usurious in fact, had been passed upon by the courts. The whole learning of this important and interesting subject is there given in the lucid and conclusive manner usual with that judge. I refer for a citation and review of all cases m point to that exhaustive opinion, which leaves me nothing to do but to inquire what It decides, and compare that case of Scott v. Lloyd, with the one at bar. The chief justice summed up the law as to annuities and ground-rents in the following language: “The ingenuity of lenders of money has devised many contrivances by which, under forms sanctioned by law, the statute of usury may be evaded. Among the earliest and most common of them is the purchase of annuities secured upon real estate. tChe statute does not reach them, not only because the principle may .be put at hazard, but because it was not the intention of the legislature to interfere with individuals in their ordinary transactions of buying and selling, or other arrangements made with a view to convenience or profit. The purchase of an annuity or rent-charge, if a bona fide sale, has never been considered as usurious, though more than six per cent, profit be secured. Yet it is apparent, that if giving this form to the contract will afford a cover which conceals it from judicial -investigation, the statute would become a dead letter. Courts, therefore, perceived the necessity of disregarding form, and examining into the real nature of the transaction. If that be in fact a loan, no shift or device will protect it.” After thus explaining the law affecting the case, the chief justice proceeded to examine into the “real nature” of the transaction before him. As I have before said, the facts- of the transaction in that case were identical in their character with those in this case. But there was one provision of the deed there which is not to be found in the deeds in this case. In addition to clauses similar to corresponding clauses in the deeds here, the deed there contained the following clause, Scholfield being in the relation of Snyder and Moore of Gordon to that transaction: Moore covenanted that if Scholfield, his heirs or assigns, “should at any time after the expiration of five years from the date of the deed, pay to said Moore, his heirs and assigns, the sum of five thousand dollars, •together with all arrears of rent, he, the said Moore, his heirs and assigns, would execute and deliver any deeds or instruments which may be necessary for releasing and extinguishing the rent hereby created, which, on such payments being made, should forever cease to be payable.” 4 Pet [29 U. S.] 208. It is useless to show that this clause did provide for a return of the $5000 advanced in the beginning by Moore. The clause ex vi termini converted the sale and purchase of a rent-charge into a loan.' In terms the transaction was to stand as the sale and purchase of a rent-charge for five years, and after that was to assume the character of a mortgage to secure a loan of $5000 at an [787] annual rent of $500. It is useless to say tlaat on the principles heretofore stated in the foregoing pages, this provision of the deed brought the transaction between Schol-field and Moore into the category of usurious loans, and made what was in form the sale of a rent-charge in fact a loan secured by mortgage. Nor is it necessary to state how the supreme court decided the case, for, as a matter of course, it held the transaction to be usurious and gave order accordingly. It was not the fact that the rent of $500 reserved on ground purchased for $5000 was equivalent to an interest of ten per cent, per annum that was held to vitiate the transaction, but the fatal circumstance was the additional fact that a provision was made for a return of the purchase-money after a period, diming which it was to carry ten per cent in the form of rent. In the case of Tyson v. Rickard, 3 Har. & J. 109, the subject was a rent-charge reserved at the rate of fifteen per cent, upon the sum paid for the purchase of it, where the contract embodied a provision allowing the vendor within five years to redeem the property on returning the sum borrowed with all arrearages of rent due, a case all fours with Scott v. Lloyd [supra]. Are these cases all fours with the one at bar? Plainly they are not There is no such fatal clause in the deed of Gordon to Snyder reserving the rent as that which I have quoted from the deeds in the other cases. There is no provision whatever securing, looking to, or permitting the return of the $12,500 paid by Gordon for the rent-charge. Now I admit that, though no such provision actually appears in the deeds which passed between Snyder and Gordon, yet if there was an outside understanding or contract, oral or written, equivalent to it, by which they mutually agreed that the transaction should in fact be a loan, then the case would be the same as if such a stipulation were actually in the deed. But no such outside agreement is proved, and none such was made at all. I will go farther and admit that, if under the terms of the deeds between Snyder and Gordon, especially of the clause relating to a forfeiture of the fee, after five years of default, Gordon could, under the laws of Virginia, secure a return of the money paid for the purchase of the rent-charge, that legal power of recovery would have to be construed ip connection with the deeds, and be treated as a part of the contract. But a court of equity in relieving against the forfeiture of the fee would not provide for a return of the purchase-money paid for the ground-rent. It would treat the 20th section of the 13Sth chapter of the Code of 1860 as part of the contract, and give relief against the forfeiture in accordance with its provisions. It could not, on any known principle of law or equity, return to Gordon his purchase-money of $12,500. This being so, and the deeds between Snyder and Gordon making no provision' for the return of the $12,500 to Gordon, and the law giving' him no power to recover it back, it follows that Gordon, by the transaction, parted with that purchase-money forever, and absolutely, and that the transaction was not directly or indirectly, actually or intentionally, by express provision or through any means known to the law, a loan within the terms of the 5th section of chapter 141 of ■the Code of 18G0, making the taking of more than six per cent, on loans usurious, and is not void, but is valid and must be enforced in this case as against Wilson and other creditors of Snyder.