State Bank v. Northwestern Security Co.

Dibell, J.

This is an action to recover on a guaranty by the defendant of the payment of notes payable to it and transferred to the plaintiff *509 with a guaranty of payment. The court directed a verdict for the plaintiff. The defendant appeals from the order denying its alternative motion for judgment or a new trial. .

The defense is usury, not in the notes as between the maker and payee, but in the subsequent transaction between the payee and the plaintiff bank which took them at a discount with the guaranty of the payee.

To constitute usury there must be a loan with an agreement to repay with greater than legal interest. 3 Dunnell, Minn. Dig. § 9961, and cases cited.

It matters not what device or shift is used, or what is the form of the transaction, if there is in fact a loan and an illegal rate of interest reserved, there is usury. Trauernicht v. Kingston, 156 Minn. 442 , 195 N. W. 278 ; Rantala v. Haish, 132 Minn. 323 , 156 N. W. 666 ; 3 Dunnell, Minn. Dig. § 9965, and cases cited.

A mere discount or sale of commercial paper does not constitute usury though the buyer makes more than the legal rate. But if a transaction in the form of a discount or sale is in reality a loan at a rate greater than the legal rate it is usurious. 3 Dunnell, Minn. Dig. § 9979, and cases cited. The doctrines of the different courts and their application of them to particular facts are not always harmonious. Cases are collected in 43 L. R. A. (N. S.) 211; 27 R. C. L. 215, § 16; 1 Daniel, Neg. Inst. §§ 762-768; 39 Cyc. 931.

The defendant, an investment and loan company, was the owner of notes secured by second mortgages largely on Montana lands, which it had received in payment of its commissions in negotiating loans. They represented a three per cent commission,- that is, three per cent for each year which the mortgage ran, usually five or six years, and became due in yearly instalments. They bore no interest until maturity. These mortgage notes were transferred to the plaintiff on October 1, 1918, with a guaranty of “payment when due of each and every instalment mentioned with each and every note in connection with each and every one of said mortgages, hereby waiving notice, demand and protest.” The defendant had “the privilege of repurchasing any and every one of said mortgages at any time at its present value at the time of repurchase on the *510 basis of a discount at tbe rate of 10 per cent per annum for tbe average time of the unpaid instalments.”

Tbe notes were transferred by the defendant to tbe plaintiff for value. They were valid obligations of tbe makers. They were taken by tbe plaintiff at a rate of discount giving it tbe equivalent of an’, interest rate of twelve per cent on its investment payable not yearly but at tbe maturity dates, wbicb varied from one to five or six years after tbe transfer. Tbe average was slightly in excess of two years.

If tbe transaction was in reality a loan of tbe money paid by tbe plaintiff to tbe defendant there was usury. We are unable to see a loan. Tbe written contract does not show one. It shows a sale of tbe notes, and a guaranty by tbe defendant. Tbe evidence is not sufficient to prove that tbe contract was not tbe real agreement. Tbe defendant bad no account with tbe bank. It did not ask a line of credit. It merely sold tbe paper. It did not agree to pay except as its guaranty of “payment when due” was an agreement to pay. Tbe transaction was not a pledge of tbe notes for a loan. Tbe correspondence of tbe parties indicates that both thought of tbe transaction as a sale accompanied by tbe defendant’s guaranty. Neither thought of a borrowing or lending.

We have examined all tbe cases cited. We find none compelling a conclusion different from that reached by tbe trial court. Tbe defendant relies much upon Becker’s Inv. Agency v. Rea, 63 Minn. 459 , 65 N. W. 928 . There tbe trial court found that tbe transaction was a sale of paper and not a loan of money. Its finding was sustained. In reviewing tbe evidence tbe court said that whether a transaction is a loan or a sale is usually a question of fact, as there it was. Under other facts it may be a question of law. Rantala v. Haish, 132 Minn. 323 , 156 N. W. 666 ; Lassman v. Jacobson, 125 Minn. 218 , 146 N. W. 350 , 51 L. R. A. (N. S.) 465. Unless we adopt tbe view that a mere transfer and sale of commercial paper at a rate of discount wbicb applied to a loan would be usurious is usury, and that is not in accord with our decisions, we cannot bold that usury can be found here.

Order affirmed.