Brown v. Grundy

TRIEBER, District Judge

(after stating the facts). Usury being merely a statutory offense, federal courts in dealing with such a question must look to the laws of the state where the transaction took place, and follow the construction put upon such laws by the state courts. De Wolf v. Johnson, 10 Wheat. 367, 6 L. Ed. 343; Scudder v. Bank, 91 U. S. 406, 23 L. Ed. 245; Trust Co. v. Krumseig, 172 U. S. 351, 19 Sup. Ct. 179, 43 L. Ed. 474. It is claimed on behalf of the complainants that the plea of usury cannot be sustained, for two reasons: Eirst, that in order to constitute usury there must be a .concurrence of intent of both parties (that is to say, on the part of the borrower to pay aud the lender to receive); and, second, that there must be an intent on the part of the lender to take unlawful interest. As to the necessity of consent of both parties, the rule established hy the supreme court of Arkansas is that no such consent is necessary. In Garvin v. Linton, 62 Ark. 370, 35 S. W. 430, 37 S. W. 569, Mr. Justice Battle, in delivering the opinion of the court in that case, says:

“Many authorities hold that ‘it is not enough that the borrower intended to make a usurious agreement, but the intention to take the usury must have been in full contemplation of the parties—not of one party, but of *18both—to the transaction. There must'be an aggregatio mfentium.’ [Citing authorities to sustain that view.] While others say that, if the lender knowingly contracts for an illegal rate of interest, the contract is usurious, although the borrower is ignorant of the facts. [Citing authorities to sustain that view.]”

After reviewing the authorities on both sides, he states the conclusion of the court to be:

“According to those decisions, there need not be, under our statute, a mutual agreement to give and receive unlawful interest, to constitute usury. If it be actually ‘reserved, taken, or secured, or agreed to be taken or reserved,’ tlie contract is void for usury. As it may be reserved, taken, or secured by contract without the knowledge of both parties, a concurrence of the intent of both of them is not an essential element of usury, under the statute.”

This is conclusive on this court that the statutes of Arkansas do not require, in order to constitute usury, that there should be a concurrence of intent of the borrower and lender.

As to the second proposition, that there must be an intention to take or receive more than io per cent, interest per annum, the decisions of the supreme court of Arkansas are equally conclusive. This question first came before the supreme court in Moody v. Hawkins, 25 Ark. 191. In that case, which was an action on a note, rhe defendant pleaded usury, but failed to allege that the usurious interest was charged by the lender intentionally. In sustaining, a demurrer to this plea, the court say:

‘“The intention to take or reserve more than the legal rate of interest is an essential ingredient in all usurious contracts, and must always be averred in a plea of usury. Where the contract by its terms does not import usury, as by an express reservation of more than legal interest, and is on its face for legal Interest only, ‘it must,’ as Judge Story remained in the case of Bank v. Waggener, 9 Pet. 378, 9 L. Ed. 163, ‘be proved that there was some corrupt agreement or device or shift to cover usury; and that it was in full contemplation of the parties.’ The writings obligatory declared upon do not reserve more than legal interest, and appear upon their face to be valid contracts. The defendant attempts to invalidate them by setting up in their stead other corrupt and illegal contracts. * * * The court of appeals of Virginia, in the case of Brockenbrough’s Ex’rs v. Spindle’s Adm’rs, 17 Grat. 21, say: ‘A man must knowingly and intentionally commit the acts which, constitute the usury, but the law presumes that he intended the necessary consequences of these acts, and presumes, even in opposition to the fact, that lie knew those acts were usurious and unlawful.’ The allegation that more than the legal rate of interest was reserved may be true, yet, unless the plaintiff intended to do so, the contracts are not usurious, and the allegation that the contracts were ‘corrupt, usurious, and void’ is but a conclusion drawn from facts that do not support it.”

The same question came before the court in Garvin v. Linton, supra, and the court, after reviewing the authorities, say:

“’There must be an intent to take unlawful interest, to constitute usury. There can be no usury when the amount taken in the contmct for interest in excess of ten per cent, per annum was reserved through a mistake or ignorance of the fact that it was in such excess. If the lender, by mistake of fact, by error in calculation, or by inadvertence in the insertion of a date, contracts to receive an illegal rate of interest, ‘such mistake, error, or inadvertence will not stamp the taint of usury on such engagement, nor- cause to be visited upon him, who did not knowingly and intentionally disregard the law in this behalf, the highly-penal consequences of an usurious offense.’ ” 62 Ark. 380, 35 S. W. 433.

*19Of course, these decisions do not go to the extent that there must be an actual intent to violate the statute. Where parties to a contract for a loan knowingly agree to pay and receive more_ than xo per cent, per annum for the use of the money borrowed, this, in the sense of the law, is a corrupt agreement. If it be the real intention of the parties to receive or reserve a given rate of interest, and that rate prove to be usurious, the contract will be void for usury, whether the parties knew the interest to be usurious or not. Ignorance or mistake in relation to the law in such a case will and does not afford protection against the consequences of usury. Bank v. De Shon, 41 Ark. 331-339. As the evidence in this case shows that the excessive interest charge was not intentional, for the purpose of securing a higher rate of interest than 10 per cent, per annum, but a mere mistake in the calculation, it is clear that such an error does not constitute usury, within the meaning of the Arkansas statutes, as construed by the supreme court of the state.

The mistake in the calculation of the interest at. the time the settlement was had and the last mortgage executed amounts to $90.88, and defendants are entitled to have that sum deducted from the amount of the second note. Deducting this amount, and adding interest at 10 per cent, per annum on the first note and the corrected note, there is now due to the complainants from the defendant, interest calculated to this date, the sum of $4,416.02, for which amount a decree will be entered and a foreclosure ordered. The clerical error in describing one of the tracts of land in the mortgage not being denied, the deed will be reformed so as to describe this tract in accordance with the intention of the parties. The cross bill will be dismissed, and the defendants taxed with the costs of the entire proceeding.