To render a contract usurious, it must be so when made. If the contract is not usurious at its inception, it cannot be affected with usury by any subsequent usurious transaction. 27 Rawle C. L. 208 and cases cited. So the first question here is whether this contract was usurious when made; that is, criminally usurious by reason of charging or accepting more than 25 per cent. per annum on the amount loaned, so as to fall within the operation of the statute which forfeits both principal and interest when the lender charges or accepts 25 per cent. per annum or more "by any contract, contrivance or device whatever, directly or indirectly," and which also renders the lender subject to criminal prosecution.
It will be observed that this mortgage contract purported to give the lender the power to declare the whole amount due, both principal and interest, upon thirty days default in the payment of any interest installment, or taxes, etc., it being provided therein that 8 per cent. interest should be payable semi-annually, the principal of $14,000 to become due in three years.
In Webb on Usury, Section 29, it is said: "The test of usury in a contract is whether it would, if performed, result in securing a greater rate of profit on the subject matter *Page 161 than is allowed by law." Now, if this contract had been fully performed by both parties, the rate of interest would not have amounted to as much as 25 per cent; indeed it would have been considerably less. But the contract contemplated that the borrower might possibly make default, and provided that if such default continued for 30 days the aggregate sum mentioned in the promissory note should forthwith or thereafter, at the option of the lender, become due and payable as of the date of such default. A "bonus" of $2,500.00 was retained by the lender. Thus the effect of the contract, in view of the retention of this $2,500.00, was to give the lender the option, so far as the contract was concerned, to demand or charge more than 25 per cent. if any default should occur during the first year or year and a half of the contract period, and if the demand was not paid, the lender could, if he chose, exercise the ostensible right to foreclose the mortgage for such an amount. Of course, under the law, such purported contract right was unenforceable on account of its usurious nature, but this is no defense to the charge of usury in the contract itself. If the legal unenforceableness of a usurious contract could be pleaded for the purpose of showing that the contract itself was not usurious and therefore the lender was not subject to the penalties provided by the statute for usurious contracts, the purpose of the statute would be defeated and the penalties therein provided for rendered futile and nugatory.
However, it has been held, apparently by a majority of the decided cases in other jurisdictions, that a provision in an agreement for the payment of money which accelerates the maturity of the debt on default in payment of either interest or an installment of principal does not constitute usury; that such acceleration entitles the lender on default only to the principal and interest then accrued. See 27 Rawle C. L. 234. Some of the courts uphold the validity of *Page 162 such contracts on the ground that the additional sum thus accelerated to maturity is not interest, but a penalty, and though the penalty is usually held unenforceable, the principal is not forfeited. The theory underlying this view is that such a stipulation is in the nature of a penalty from which the borrower could relieve himself by a prompt payment of the installments when due. 27 Rawle C. L. 234, and cases cited. Of course, where the contract is not usurious, the inclusion of an acceleration clause, providing that on default in the payment of interest the principal debt and the interest at the highest legal rate shall become due, does not render it usurious. Graham v. Fitts, 53 Fla. 1046, 43 So. 512. Here, the contract on its face provided for the payment of $14,000.00 three years after date and legal interest payable semi-annually, but the contract was rendered usurious by the retention of a bonus of $2,500.00. Thus the actual amount loaned was at most $11,500.00, and by providing the right to accelerate the maturity of the full amount named in the mortgage and note, upon any default, the effect was that the lender, so far as the terms of the contract were concerned, reserved the right at itsoption to charge more than 25 per cent. upon such default. So the contract itself did not directly and in any event impose a charge of more than 25 per cent; it merely gave to the lenderthe option to make such a charge, in case of default, if the lender should see fit to do so. As is shown by the record this option was in fact exercised one year, three months and 20 days after the date of the contract. But the intent to exercise the option to accelerae the entire note to maturity and to foreclose, on default, may not have been decided on or formed until after the default. The suit was not brought until three months after the second default in payment of interest occurred. So the question recurs, was the original contract conclusively usurious to the extent of 25 per cent. per annum, at its inception, by *Page 163 reason of embracing this option to accelerate the entire debt to maturity?
In Section 24, 27 Rawle C. L. 223, the following appears:
"Though there is authority to the contrary, it does not seem requisite that an excess above the amount prescribed by statute be payable in any event. On the contrary a contract is usurious when there is any contingency by which the lender may get more than the lawful rate of interest, whether it is so apparent that it becomes the duty of the court so to declare, or whether it is a case in which it is necessary that the jury should find the facts. Usury, it is considered, does not depend on the question whether the lender actually gets more than the legal rate of interest or not; but on whether there was a purpose in his mind to make more than legal interest for the use of money, and whether, by the terms of the transaction, and the means used to effect the loan, he may by its enforcement be enabled to get more than the legal rate."
Two cases are cited in support of the last two sentences of this text, but they do not seem to fully support the proposition set forth. Thus in one of the cases cited, Spain v. Brent, as Administrator of Hamilton, 1 Wall., 604,17 Law. ed., 619, the holding of the United States Supreme Court, as expressed in the headnote, is as follows: "Where a paper does not contain a promise to pay anything absolutely in addition to the loan and the interest, and the payment of anything additional depends upon a contingency, and not upon thehappening of a certain event, it is not sufficient to make a loan usurious." (Italics supplied.)
Of course, the contract here under consideration was usurious to the extent of more than 10 per cent. even if it had run for the full term of three years, because the retention of the bonus of $2,500.00 had the effect of making the interest, even for the full three-year period considerably more than 10 per cent. though less than 25 per cent. *Page 164 But the question we are now considering, as already stated, is whether by this contract the lender at the time of its execution "wilfully and knowingly charged" more than 25 per cent. per annum within the meaning of Section 6942 C. G. L.
It could hardly have been known, or within the contemplation of the parties at the time the loan was made that the borrower would make default at the time she did. Nor had the contract provided that in case of default the entire amount named in the note should ipso facto and in any event become due and payable. It merely gave the lender an option to so declare it. This differentiates this contract from the one construed in the Maxwell case, 45 Fla. 425, 34 So. 255. It is not charged that the lender was responsible in any way for the default of the borrower, and the provision in the contract giving the lender the right to accelerate the mortgage debt should not be held to make the contract criminally usurious in its inception unless it appears that it was a mere device to cover and effectuate a usurious intent. As these acceleration clauses are embraced in practically all mortgages, the inclusion of such a clause would not ordinarily be evidence of a usurious intent in and of itself. As was said in an early Texas case, Seymour Opera House Co., v. Thurston, 18 Tex. Civ. App. 417, 45 S.W. 815; 29 L.R.A. (N.S.) 114.
"Where the right to declare the debt due in case of default on the part of the maker of the note is contained in the contract, the time of maturity should not be reckoned only to the day on which maturity was afterwards declared, as contended for by appellant, but to the day fixed in the written contract in good faith for the maturity, with grace added, unless it is waived. This rule may sometimes result in requiring the maker to pay more for the use of money than the rate fixed and limited by law would permit, but it would be on account of the subsequent default of the maker, for which the holder of the note ought not to be held responsible unless *Page 165 such provision was made as a device to cover usury."
I am inclined to think therefore that the contract, when made, was not necessarily usurious to the extent of 25 per cent. per annum.
The question which next arises is whether the subsequent actual exercise within the terms of the contract, of the option to accelerate the debt, after the borrower's default, at such an early time in the period covered by the loan as made it amount to a charge of more than 25 per cent. per annum, resulted in rendering the lender subject to the penalties prescribed in Section 6942, C. G. L. It is true the lender should not on this record be held responsible for the default of the borrower, but the lender was and is responsible for his own act in exercising the option given him by the mortgage contract to declare the full amount due upon the borrower's default. And this was actually done at a time when the amount claimed under the terms of the mortgage contract, added to the amount of the bonus retained, amounted to a demand or charge of nearly 40 per cent. per annum for the use of the amount loaned. While given the option to do so by the contract the lender did not have to make this demand. In spite of the borrower's default, while the lender had the right to do so under its contract, it was not compelled to declare the whole amount due and bring foreclosure proceedings to enforce that demand, and hence the lender must accept the full responsibility for its action in this regard. As we have seen, the fact that this demand could not be legally enforced in the courts is no defense.
The statute says that any person, firm or corporation who wilfully and knowingly "charges or accepts" any sum of money greater than the sum of money loaned, and an additional sum of money equal to 25 per cent. per annum upon the principal sum loaned, "by any contract, contrivance or device whatever, directly or indirectly shall *Page 166 forfeit the entire sum, both principal and interest." This is a highly penal statute and should be strictly construed, but the language used is so broad and sweeping that the writer is inclined to the opinion that it covers the present case. The lender having taken a contract giving it the right to accelerate the entire debt upon default in payment of taxes or any interest installment, and then subsequently, upon such default, having deliberately exercised the option to accelerate the entire debt to maturity, and having filed its bill to foreclose for the full amount, at a time when the bonus retained and the interest provided in the contract together constituted more than 25 per cent. per annum upon the principal sum loaned, necessarily "charged" such prohibited sum. And under the facts alleged and proven, it must have done so knowingly and willingly. This action of the lender under the contract considered in connection with the contract previously taken by it from the borrower, which authorized such course of action on the borrower's default, at the lender's option, brought such action within the class of transactions, denounced by said section 6942. The reservation in the original contract of the option to charge what might amount to usury upon the borrower's default, and the subsequent actual exercise of that power upon such default, and the attempt to enforce such demand by suit, certainly amounted to charging usury to the extent of more than 25 per cent. within the meaning of the statute.
It is contended by appellee Bank that in taking the note and mortgage it was acting merely as trustee for one John Brand, and that the note, or the beneficial interest in the same, was transferred four days afterwards to J. Herbert Brand; that this is shown by the evidence; and hence the bank is not chargeable with usury. But the bill in this case was filed by the First Trust and Savings Bank "as Trustee;" the note for $14,000.00 and the mortgage were *Page 167 alleged to have been made payable to First Trust and Savings Bank, "As Trustee," and the bill alleged that the said Bank as Trustee was the owner and holder of the note and mortgage; no beneficiary being anywhere named in the note or mortgage, or in the bill; and the answer admitted these allegations. It is true that the Trust Officer of the bank testified that in taking the note and mortgage the bank was acting as trustee for John Brand, and the note offered in evidence, dated December 17, 1926, showed that it was at first "registered" in the name of John Brand; that this registration was cancelled by the Bank and the note registered in the name of J. Herbert Brand on December 22, 1926, four days after its execution. The Trust officer of the bank testified that at the origin of the transaction, when the note and mortgage were executed, the bank held the note and mortgage for the benefit of John Brand, who it appears paid the $11,500.00 and that at the time of testifying the bank held the said papers for the benefit of J. Herbert Brand. The note, which was made payable to the Bank "as trustee," when introduced in evidence, had on it words as follows: "This note is registered at First Trust Savings Bank, Miami, Florida, and is transferable only upon presentation with written assignment duly acknowledged. Registered December 22, 1926, in the name of John Brand. First Trust Savings Bank, Registrar, by S. A. Williams." This registration was stamped cancelled, and another similar registration in the name of J. Herbert Brand endorsed thereon, signed by the Bank in the same manner, and dated December 22, 1926.
The defendant objected to the introduction of the note in evidence, on the ground that these endorsements showed that the note was not the property of the complainant Bank as alleged in bill. This objection was overruled by the *Page 168 Master, but no exception was taken by the defendant to this ruling.
The evidence does not disclose that the note or mortgage were ever assigned, either by written instrument or by endorsement, by the Bank to John Brand, or by the latter to J. Herbert Brand; or that the latter was a purchaser for value without notice; and in view of the allegations of the bill, admitted by the answer, our opinion is that the bank has by the pleadings placed itself in a position where it cannot now avail itself to the defense against the charge of usury on the ground that it was merely acting for, and as trustee of, John Brand, and that J. Herbert Brand subsequently became the beneficial owner of the note before maturity. This would be to go outside of the issues made by the pleadings.
For these reasons, as well as for those stated in the opinion of Mr. JUSTICE TERRELL, I concur with him that both principal and interest should have been decreed to be forfeited, and that the decree of the court below must be reversed.
ON REHEARING.