ARIC..] BOSTON MUTUAL LIFE; INS. 1CO. V . NEWTON.- 547-
BOSTON MUTUAL LIFE INSURANCE COMPANY V . NEWrON. - Opinion delivered June 27, 1927. 1. 's USURY—WHAT LAW GOVERNS.—A loan transaction, in which notes for commission of the lender were alleged to make the loan usurious, held governed by the laws of Oklahoma, where the application for loan was made to an agent of the Oklahoma corporation in Arkansas, and the notes were dated in Oklahoma, payable to an Oklahoma corporation in that State. • • 2. USURY—RATE OF INTEREST.—A loan governed by the laws of Okla-homa is not usurious where the interest plus commissions did not exceed 10 per cent, interest for the term of the loan. 3. USURY—FORFEITURE.--The laws of Oklahoma do not declare a usurious contract void, but merely declare that double the amount of the interest charged, reserved or paid shall he forfeited, and , that this may be . recovered upon a separate suit, or upon a counterclaim or a set-off for the money loaned. 4. USURY—INNOCENT PURCHASER OF NOTE.—Under Comp. St. Okla., 1921, § 5100, making fhe exaction of more than 10 per cent. interest usury, and providing for the forfeiture of double the amount of Interest charged in such case, the forfeiture does not extend to the iDurchaser of the note or evidence of debt reserving the usurious interest in good faith before maturity. - 5.. BILLS AND NOTES—INNOCENT PURCHASER.—The fact that an instrument is based on a transaction prohibited by a statute does not defeat the right of an innocent purchaser to recover on it, unless the statute makes the instrument absolutely. void. Appeal from Arkansas Chancery Court, Northern District; II. R. Lucas, Chancellor ; reversed. STATEMENT BY THE COURT. A. A. Newton and wife applied to an agent at Stut t-gart of the Dickinson-Reed-Randerson Company, au Oklahoma corporation authorized to do business in this
548 BOSTON AIUTUAL LIFE INS. .CO. V. NEWTON. [174 State, kir a loan of $4,000, and executed a centract appointing said company their agent. to procure the loan for:10 years at 7 per . cent. The loan was made or procured: • • The note for the loan is dated Oklahoma City, Okla:- homa, January 25, 1921, payable on the first day of Feb-ruary, 1931, to the order of the Dickinson-Reed-Randerson Company, Oklahoma City, Oklahoma, in the sum of $4,000, at the Hanover National Bank of New York City,. with interest at 7 per cent., payable annually, signed by A. A. Newton and Jerusha Newton, with interest coupons of the same date, each for one year's interest. at 7 per, cent., $280. A first mortgage was given to secure the payment of the $4,000 note to said company of Oklahoma City, acknowledged by the Newtons on the . 7th day of Januavy, 1921, and recorded February 14, 1921. Newton and wife also executed, on the same day, three notes for $400 each, payable to the order of Abe said company,, at the Farmers' National Bank of Okla-homa City, due one, two and three years from date, with interest froth maturity at 10 per• cent. per annum, and secured same by a second . mortgage on the same land, which provided that all of the notes should 'become due on the failure to pay either. . • . The Dickinson-Reed-Randerson Companyrhereafter called the brokerage company, brought • this suit • to enforce payment of the two last ' $400 . 0111111ission notes, the first having . been paid. The NeWtons admitted the execution of the notes, alleged the facts relative to the Making of . the Man, that it was one transaction, which was void for usury under the laws of Arkansas, where it alleged the contract was made, and asked the penalty provided by the law of Oklahoma. if it should be held to he an Oklahoma con-, tract ; alleged further that the Boston MututifLife Insurance Company, a Massachusetts corporation, held the loan note, with the mortgage security, , and praYed that it he made a party, and its note and 'mortgage be canceled as a cloud upon their . title; that, if the transaction was'
ARK.] BOSTON MUTUAL LIFE INS. CO . v. NEWTON. 549 held to be governed by the Oklahoma laws, they 'recover $8,000, double -the interest to be paid, and $1,500 a ttoyney 's fees. The brokerage company filed a reply to the cross-complaint, denying that the $400 notes were given as interest, and all other allegations of the cross-complaint, and alleged that they were in payment Of a commission charged for procuring the $4,000 loan; that it did not and never had lent funds of its own in Arkansas or any-wbere else ; "that it procured money tor those who apply to it therefor from persons and banks having same - to loan, and that it receives as its compensation for its sOrv-ices therein a commission from the borrower"; alleged the prOcuring of the loan, under the appointment of the Newtons, as already set out, and that it assigned the loan note and mortgage to the Boston Mutual Life Insurance Company, which company furnished the money loaned,.which was paid over by it to the Newtons ; that the loan note and mortgage was made direct to the plaintiff, the brokerage company, and by it assigned to the Boston Mutual Life Insurance Company, and for its services in procuring said loan it charged the defendant, and they agreed to pay, a commissiOn of $1,200, evidenced by the three notes of $400 each. • The Boston-Mutual Life Insurance Company, here-. after called the insurance company, appellant, replied, denying, on information and belief, that the notes and mortgages were executed under the circumstances alleged by defendants' cross-complaint, and- denied all other allegations therein; denied specifically that its mortgage and note was usurious ; denied any knowledge of the execution of the three $400 notes to the brokerage company until the answer and cross-complaint was filed herein;. alleged that it paid over the $4,000 without any knowledge of any kind whatever of any defense thereto ; that it was a stranger to the transaction between the brekerage pany and the Newtons, and that its loan was a separate transaction, and in no wise connected with the commis si on notes.
550 BOSTON .1VII717.AL LIFE INS. CO . v. NEWTON: . [174 Amendment was filed on June .6, 1923, to the complaint, alleging that A. A. Newton was adjudged incom-- petent on November 18, 1923, and prayed that his guardians, 'naming them, be made parties to -the suit. The • guardians answered the amended Complaint, adopted the cross-complaint already ,filed, alleged that Newton was incdmpetent at and prior to the time he executed the notes . and mortgages sued on, and.unable to comprehend the transaction. , :. Other amendments to the complaint were filed; alleging , the death of A. A. Newton and his wife,, intestate, the names of their children and heirs, with .prayer that they be made parties, which was done. The brokerage company, plaintiff, and the insurance company, replied to the cross:complaint of the guardians, denying all the allegations thereof and that . Newton was incompetent, and alleged that he was capable . of :transacting business at -the time' of the execution of the, notes. . The undisputed testimony shows• that the insurance conipany had no knowledge or inforthation . about the' execution . of any commissien note§ to the brokerage company at the -time of the execution of the note and mortgage for the loan, which it in .fact made, .advancing the money upon presentation of the application authorizing the . brokerage company to procure the loan with the . note and mortgage securing it. The chancellor found A. A. Newton, the mortgagor, was. of se-Lind Mind and comPetent to contract when the papers were execnted ; that the notes and mortgageS constituted one transaction or contract, governed by the laws of Oklahoma, and that the contract was usurious ; that the brokerage coMpany was not entitled to recover, its suit being based upon interest notes given in pursuance of a ustrious contract, and dismissed its complaint. That the defendants ShOuld recover from the said brokerage company on the cross-complaint $800, being twice the amount of the one $400 commissiOn note paid to it. Found further that $560 had been paid to the insurance corn-
AREA BOSTON. MUTUAL LIVE INS. Co. v. NEWTON._ .551 pany by defendants, and that they should recOver of the insurance company on the cross-complaint double .that amount and double the amount paid the brokerage company, $1,920 in all, which , should be deducted froM the principal indebtedness, $4,090, and decreed accordingly, foreclosing the mortgage for the payment of the balance of $2,080 held to be due the insurance company, with 6 per cent. interest from the date of the decree, from which this appeal is prosecuted, and a cross-appeal also. M. F. Elms and George A. McConnell, for appellant. George C. Lewis, for appellee. KIRBY, J., (after stating the facts). It is urged for reversal on the cross-appeal that the chancellOr's finding that A. A. Newton was of sound mind land competent to contract at the time of the execution of' the application, notes and mortgages, in borrowing the money, is not supported by the testimony, but we find no merit in the contention. No useful purpose would be served by setting out the testimony or arguing at length about it, and it will suffice to say that, after a careful consideration of it all, we cannot say the finding is not supported by the preponderance of the evidence. The chancellor also correctly held the transaction an Oklahoma contract governed by the laws of that State, but erred in the constrnction and application of its.laws. Dupree v. Virgil R. Coss Mortgage Co., 167 Ark. 18; 267
S. W. 586, 1119 ; Virgil R. Coss . Mtg. Co. v. Jordan,167
Ark. 36, 267 8. W. 590, and Smith v. Brokaw, post p. 609. This case is ruled by the opinion in Smith v. Brokaw of this date. , Under the laws of Oklahoma a Contract is not usurious where the whole amount of• the interest charged or reserved for the whole term or 13eriod of the loan does not exceed the rate of 10 per cent.. upon.ithe amount of the loan. The 7 per . cent. interest reserved in the principal note for $4,000 amounts to $280 yearly, or $2,800 for the . term of the loan, and the three $400 commission notes, amounting to $1,200, Which is but 3 per
cent. of the amount of the principal note fof the' term,
.552 BOSTON MUTUAL LIFE INS. CO . V. NEWTON. [174 showing that, although the rate seems excessive computed from the Maturity of the commission notes, which is only a part of the time the loan bad to run, it is not excessive nor more than 10 per cent., the rate allowed to be charged under the Oklahoma law, when the payments are spread out over the entire time the contract, if performed, had to run. Moreover, the laws of Oklahoma do not declare a contract void for usury upon the exaction of tbe payment of more than 10 per cent. interest for a loan of money, but only that double the amount of the interest charged, reserved or paid shall be forfeited and may be recovered upon a separate suit brought, or upon a counter-claim or set-off pleaded in the suit for collection of the money loaned. Such forfeiture, however, does not extend to a bona fide purchaser before maturity of the note or evidences of debt in which usurious interest is reserved. Section 5100, Okla. Compiled Statutes, 1921 ; Stockyards State Bank v. Johnston, 152 Pac. 585, 52 Okla. 32 ; Dan-iels v. Bwach, 223 Pac. 841, 98 Okla. 47. In City Nat. Bank v. DeBaum, 166 Ark. 18, 265 S. W. 648, our court said (quoting syllabus) : " The right of an innocent purchaser to recover on ia negotiable instrument cannot be defeated merely because it is based on an illegal transaction, or one prohibited by . law, unless the. statute makes such instrument absolutely void." It follows that there will be an affirmance on the cross-appeal, but the decree will be reversed for the error in holding the contract usurious, and the cause remanded with directions to enter a decree in favor of the respective parties for the amounts due on the . notes and the foreclosure of the mortgages for the payment, -with priority payment of the amount due the insurance company out of the proceeds of the sale of the lands, and further proceedings in accordance with the principles of equity and not inconsistent with this opinion. It is so ordered.
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