Gage v. J. F. Smyth Mercantile Co.

CARRAND, District Judge (after stating the facts as above). The claim of the appellees is that the cotton contracts were a scheme or device to cover usurious interest on the loan represented by the two promissory notes of $3,000 each. If this claim is well founded, the amount of money paid by the mercantile company or J. F. Smyth, as damages on the cotton contracts, should be credited on the notes representing the loan of $6,000. The contracts involved in this suit are to be construed with reference to the laws of the state of Missouri, as they are Missouri contracts. Section 3709 of the Revised Statutes of Missouri 1899 (Ann. St. 1906, p. 2077) provides as follows: “Sec. 8709. Defendant may plead usury — judgment, how rendered. Usury may be pleaded as a defense in civil actions in the courts of this state, an-t upon proof that usurious interest has been paid, the same, in excess of the legal rate of interest, shall be deemed payment, shall be credited upon the principal debt, and all costs of the action shall be taxed against the party guilty of exacting usurious interest, who shall in no case recover judgment for more than the amount found clue upon the principal debt, with legal interest, after deducting therefrom all payments of usurious interest made by the debtor, whether paid as commissions or brokerage or as payment upon the principal or as interest on said indebtedness.” The trial court found from the evidence before it that the cotton contracts were simply a scheme or, device to cover usurious interest, and directed that all payments made subsequent to March 18, 1902, by the mercantile company or Smyth to appellants should be credited on the loan of $6,000. After careful consideration of the evidence hereinbefore stated and the other evidence appearing in the record, we are satisfied that the trial court was justified in reaching the conclusion that it did upon the facts. The question as to whether or not the cotton contracts were a scheme or device to cover usurious interest turned wholly upon the decision of a question of fact, and as this decision depended upon the acts and intentions of the parties and the proper inferences to be drawn from the evidence this court on familiar principles will not reverse the finding unless some .serious and important mistake appears to have been made in the consideration of the evidence. Coder v. Arts, 152 Fed. 943, 82 C. C. A. 91; McDonald et al. v. Campbell, 151 Fed. 743, 81 C. C. A. 101; Snider v. Dobson, 74 Fed. 757, 21 C. C. A. 76; Barton v. Texas Produce Co., 136 Fed. 355, 69 C. C. A. 181; Hussey v. Richardson, etc., Dry Goods Co., 148 Fed. 598, 78 C. C. A. 370. The same rule has been announced and acted upon by the Supreme Court of the United States. Tilghman v. Proctor, 125 U. S. 136, 8 Sup. [430] Ct. 894, 31 L. Ed. 664; Kimberly v. Arms, 129 U. S. 512, 9 Sup. Ct. 355, 32 L. Ed. 764; Evans v. Bank, 141 U. S. 107, 11 Sup. Ct. 885, 35 L. Ed. 654; Furrer v. Ferris, 145 U. S. 132, 12 Sup. Ct. 821, 36 L. Ed. 649. In the case of Cockle et al. v. Flack et al., 93 U. S. 344, 23 L. Ed. 949, it was held that contracts by commission merchants similar to the cotton contracts in this case were not necessarily usurious. That commission merchants may loan their money at lawful rates of interest to such .parties and on such terms as would bring them also the business which would grow out of the investment of it; that if the contract was made only with the honest purpose of securing in addition to interest, the profits incidental to handling the products as commission merchants it would not be usurious; that, on the other hand, such contracts might be used as a mere evasive device to cover usurious interest; and that in jury trials it would be the province of the jury, and in suits in equity of the chancellor, to determine on a full consideration of all the facts whether it be the one or the other. To the same effect are the cases of Patillo v. Allen-West Commission Co., 108 Fed. 723, 47 C. C. A. 637; Harman v. Lehman, 85 Ala. 384, 5 South. 197, 2 L. R. A. 589; McKenzie v. Garnett, 78 Ga. 257; Shattuck v. Clark (Tex. Civ. App.) 34 S. W. 404; Uhlfelder v. Carter’s Adm’r, 64 Ala. 532. In the case of Cockle v. Flack and several of the other cases above cited there was no question but that the parties to the contracts could or would perform them, and the loans or advancements were to be invested in the purchase of property which was to be sold and the proceeds applied to the payments of the existing debt. In the case at bar the delivery of cotton could not have been contemplated. No money was advanced to be invested in cotton. The whole reasoning upon which such contracts as are described in Cockle v. Flack, supra, are sustained at all wholly failed. Such contracts as were made in this case were held void for want of consideration by Caldwell, C. J., in Norman v. Peper (C. C.) 24 Fed. 405, but it is not material in this case whether they are void as a cover for usury or for want of consideration; in either event the payments made thereon as damages must be applied on the loan. It appears in the record that there was an item of $157.50 charged the Smyth Mercantile Company for shortage on a cotton contract of 1901. Counsel for appellants urge in their brief that this amount cannot be counted as usury or included in the decree awarded the appel-lees, for the reason that it is admitted that both parties intended to perform the contract of 1901. This item cannot be included in the decree awarded the appellees for much stronger reasons. The bill of appellees did not complain or ask relief in regard to any transactions, prior to March 18, 1902. The decree rendered in direct terms limited the accounting between the parties to payments made subsequent to said date, that being the date of the notes. In this state of the record counsel for the respective parties made the following stipulation: - “In this cause the reference to the master to state an account under the findings and opinion of the court is by agreement of counsel hereby waived. And jt appearing from the proof that upon such reference being executed the [431] amount due from defendants W. A. Gage & Co., to the complainant the J. F. Smyth Mercantile Company, would, under the opinion of the court, amount to the sum of $132.81 at the date of the decree to be passed herein, it is hereby agreed between counsel for all parlies, respectively, that a decree may be passed l'or said sum.” We have no right to suppose that the item of $157.50 was considered in the making of this stipulation as the amount stipulated to be due the appellees was upon the expressed idea that an accounting had in accordance with the opinion and decree of the court would show a balance of $132.81 in favor of appellees. Upon the record as it now stands all parties are concluded by the stipulation as to the amount due. Counsel for appellants urge in support of the good faith of the cotton contracts that the Smyth Mercantile Company and J. F. Smyth warranted their representations as to the delivery of the cotton to be true. This is so, and still what could appellants think of such a warranty in the contract of 1903 when the same warranty was in the contract of 1902 for 600 bales, and only one bale was delivered thereunder? The mind of man cannot conceive or his hand frame a cover for fraud or usury that a court of equity will not look through and beyond it to see what the real transaction is, and if it finds it to he fraudulent or usurious will so declare, notwithstanding the parties may as to form have conducted themselves in a manner beyond criticism. No error appearing in the record, the decree appealed from is affirmed.