Summary
In Joy v. Provident Loan Society (Tex.Civ.App.) 37 S.W.2d 254, a pawnbroker's charge represented the lender's pro rata cost of doing business, but was labeled "storage charge.
Summary of this case from Strickler v. State Auto Finance Co.Opinion
No. 3995.
March 27, 1931. Rehearing Denied April 2, 1931.
Appeal from Kaufman County Court; Chas. Ashworth, Judge.
Action by M. A. Joy against the Provident Loan Society. From a judgment of the county court for defendant, after an appeal from a justice court, plaintiff appeals.
Reversed and rendered.
The appellant brought the suit against the appellee in the first instance in the justice court to recover $151.60, being double the amount of alleged usurious interest paid by appellant and collected and received by the appellee upon the simple loan of money. After trial and judgment in the justice court, an appeal was taken to the county court, and there judgment was entered in favor of the loan society. The plaintiff, M. A. Joy, has appealed to this court.
In the county court the following issues were submitted to the jury:
"1. Do you find from a preponderance of the evidence that the plaintiff paid more than 10% interest per annum on the loans represented by the contracts introduced in evidence in this case?" Answer of the jury: "No."
"2. What amount of interest do you find from a preponderance of the evidence was paid by the plaintiff to the defendant?" Answer of the jury: "10%."
The plaintiff contends on this appeal that the jury findings were (1) "wholly against the preponderance of the evidence"; and (2) "there was absolutely no evidence in the trial of this case that justified or warranted the jury in so finding."
The evidence in the case shows that the Provident Loan Society of Dallas, Tex., is a private corporation organized under the authority of article 1302, subdivision 48, of the Revised Statutes of this state. Its capital stock is $50,000, divided into shares of $25 each. The charter provides, as material to state: "The purpose for which this corporation is formed is the accumulation and loan of money, by lending the capital of the Company and such other funds as it may from time to time lawfully acquire from various borrowers upon such personal security or security of personal property as may be agreed upon between the corporation and borrowers, and by re-lending in like manner the funds arising from such loans when paid but the corporation shall not have banking or discounting privileges."
The further provision is in the charter: "Dividends paid for any period by this corporation on its capital stock shall never be greater in the aggregate than at the rate of 6% per annum for such period on the par value of the stock on which such dividends are paid."
According to the terms of the charter, the principal office of the corporation was to be in the city of Dallas, and its business was to be conducted there only. The corporation has a manager with general authority to conduct its business, and who receives an annual salary payable monthly. The president and the secretary of the corporation and the other officers receive no pay for their services.
Mrs. M. A. Joy, wife of the appellant, M. A. Joy, applied for and obtained loans of money from the society as follows: On March 12, 1927, the sum of $50, and as security for which she pledged three diamond rings; on May 6, 1927, the sum of $50, and as security for which she pledged five diamond rings; on May 26, 1927, the sum of $20, and as security for which she pledged a diamond brooch and a sapphire onyx ring; on January 3, 1928, the sum of $100, and as security for which she pledged a solitaire diamond ring. Mrs. Joy signed the following written instrument at the time of the loan of $100:
"The Provident Loan Society of Dallas.
"102 N. Poydras between Main Elm.
"Name. Mrs. M. A. Joy. No. 58595
"Address. Terrell Texas 102 Pecan St.
"Date of Loan Jan 3rd, 1928.
"Amount of Loan $100.00 Interest, etc.
"Amt. Paid $2.00
"Collateral Diamond Sol Ring
"A Remedial Loan Office "Read other side."Open Daily from 8:30 A. M. to 5:00 P. M.
"This ticket good for 30 days from date.
"For rates of interest and storage see other side.
"Conditions of loan."Agreed by the holder of this ticket that the Provident Loan Society of Dallas, Texas, shall not be liable for loss or damage by fire, breakage, dampness, moths, burglary, holdup, theft or pilferage, nor shall it be liable in any event for more than 25 per cent in addition to the amount loaned to the holder hereof.
"Mrs. M. A. Joy.
"Rate of Interest and Storage Charges.
"We charge at the rate of ten per cent per annum for one month or a fraction of a month. Together with such storage and charge we will make a maximum cost of two per cent per month, or a fraction of a month.
"Instruction for Redemption by Non-Resident."Deposit the ticket and the amount due, including interest, with the Express Company of your city, and instruct the express agent to pay the loan and forward the collateral to you.
"Articles deposited as collateral for a loan will not be sent to borrower unless loan is paid in full.
"Only Bank Drafts, postal and Express Orders accepted in payment of loans. They must be made payable to the Provident Loan Society of Dallas, Texas. Checks will not be accepted in payment of Loans.
"It is especially agreed and understood that if the pledge is not redeemed, or loan renewed, at the expiration of 30 days from the date of loan said property may be forfeited and sold.
"Take Notice."When interest is paid or pledge redeemed this ticket must be returned."
On the above instrument appears the following notations:
Int. etc. Date Paid. Paid to.
2.00 Jan. 3 — 1928 Feb. 3 — 28 2.00 Feb. 6 — 1928 Mar. 3 — 28 2.00 Mar. 2 — 1928 Apr. 3 — 28 2.00 Apr. 6 — 1928 May 3 — 28 2.00 May 8 — 1928 June 3 — 28 2.00 Jul. 3 — 1928 July 3 — 28 2.00 Aug. 8 — 1928 Aug. 3 — 28 2.00 Sep. 8 — 1928 Sep. 3 — 28 2.00 Oct. 4 — 1928 Oct. 3 — 28 6.00 Dec. 8 — 1928 Jan. 3 — 29
The $100 principal was fully repaid in money on January 3, 1929. The notations under "int. etc." mean twelve monthly payments in money, aggregating $24, in addition to the principal. At the date of each of the other three named loans Mrs. Joy signed instruments of the same form as above. All of the three loans were fully repaid in money, together with additional total sums under the heading of "Int. etc." The aggregate amount of the principal of the four loans was $220 in money. The aggregate amount of the additional payments was $75.80 in money. On the $50 loan $1 per month was paid. On the $20 Loan 40 cents per month was paid. On the $100 loan $2 per month was paid. All of the above evidence appeared without dispute.
The manager of the loan society testified, and without contradiction, as follows: "I am the manager of the Provident Loan Society. If you want to borrow $5.00 from the Provident Loan Society, you would have to bring in a security of a diamond or some kind of jewelry and we give you a ticket with your name and address on it and you pledge your security with us. That would cost you 10¢ a month; that 10¢ would include interest and storage charges. The Society keeps a set of books. These books are kept under my direction and supervision. Our income for 1927 was $13,687.92. That includes interest and storage. There is no expense for advertising except the sales which occur when we have to foreclose when a borrower falls down. If we did not make a charge for storage we would not make any money, but we would lose money. We have $50,000.00 invested in this corporation. We have on hand approximately $200,000.00 security, meaning the retail value of it. The 2% a month charge covers interest and storage and insurance. The insurance charge covers fire, breakage, holdup, and messenger insurance. A messenger is where a man leaves the office and goes to the bank and a hi-jacker meets him on the way — that is messenger insurance. We have several safety boxes at the bank that we pay rent on. The rent is paid by the year and that is not expensive. We have expenses to run the business of salary for clerks, printing tickets, phone bills, petty cash incidentals, wood alcohol for cleaning diamonds, and rents. We take out the fire insurance to secure the pledge of the man that borrows our money. That is included in the storage charge and expense — The 2% charge was arrived at by 10% interest and covering insurance and storage. I figured up how much it would cost to run this business of ours, and that is added to the 10%. The 10% (interest) a year, and the storage added would make 2% a month. We keep about $200,000.00 of jewelry stored in the office and in the bank. We have insurance. It would not be necessary to keep insurance if jewelry were not taken in. It becomes necessary to keep track or account of this jewelry and that necessitates bookkeeping. We have to employ some one to do that. It is an additional expense to us in taking jewelry. The expense of safely keeping that jewelry stored increases our overhead. If you have a diamond ring and want to borrow money and pledge the ring, the ring is cleaned by solution in order to tell if it is good quality. There is extra expense to the Society for examining. An expert has to appraise the jewelry. A reasonable salary has to be paid that jeweler. That is figured out as cost to the Society."
The manager further testified: "2% (a month) includes the 10% interest and the storage charges. That is all we want to charge. That (the Society) is classed as a 'charitable institution.' We are not in the business to make money. The 2% (a month) charge is arrived at by a 10% interest and to cover the insurance and storage — All the money that is made over 6% in this Society is given to charity. That is why I said it was a charitable institution. It is also given to distressed patrons who want to borrow money at a low rate of interest. We don't pay any city taxes. It is recognized by the city officials of Dallas as a charitable institution. We get by the payment of taxes under the plea that it is a charitable institution in which we loan a certain part of our funds to distressed patrons — men who have been patronizing us all along. These distressed patrons cannot get these loans unless he has the collateral to get the loan."
Thos. R. Bond, of Terrell, for appellant.
M. B. Solomon and Turner, Rodgers Winn, all of Dallas, for appellee.
It is pointed out by appellant that he was entitled to recover the penalty for usury, because the facts of the case conclusively showed the loan society charged and received as interest on the several distinct loans of money a greater per centum on the amount of each of the loans than authorized by law. The question for determination arises upon undisputed facts, affirmatively showing that the loan society made several distinct loans of money, and received in pawn as security certain jewelry, and demanded and collected per month "2% a month" of the amount of each distinct loan. There was a charge per month on the loan of $100 of $2, and on the loan of $50 of $1, and on the loan of $20 of 40 cents. Was the "2% a month" usurious interest? Two things are necessary to show usury: First, a loan; secondly, the taking of interest or compensation in excess of the maximum sum allowed by statute in consideration of the loan. Whenever these two facts are shown to exist, the law pronounces the intent with which they are done wrongful. For in such a case, as by express reservation of more than legal interest, there is no room for presumption, for the intent is apparent. Bank of United States v. Waggener, 9 Pet. 378; 9 L.Ed. 163; Slaughter Co. v. Eller (Tex.Civ.App.) 196 S.W. 704. The intent which enters into and is essential to constitute usury is simply the intent to take and reserve more than that permitted by statute for the loan. Every agreement to take interest in excess of the highest legal rate is a violation of law and usurious. 2 Elliott on Contracts (1913 Ed.) § 967; article 5071, R.S. The character of the transaction in evidence is not involved in any doubt. The pawn ticket, which reflects the agreement, shows on its face that the intent was to actually charge, receive, and collect "2% per month" on the amount of the loan in the form of interest and storage charges, as the sole consideration for the loan. The per centum added for "storage charges" was not for services for the particular loan. Such per centum charges represented and included a pro rata share of the society's continuous expenses for storage and insurance irrespective of the outlay on particular loans. In other words, it was the pro rata cost of the society's overhead expenses. In the light of the evidence, the agreement is susceptible of no other meaning.
The manager of the loan society explained that the "2% per month" represented in part the highest statutory per centum per month as interest and in the other part a pro rata share or per centum of all the society's expenses arising generally from "storage and insurance." As he testified, he first "figured up how much it would cost to run this business of ours," and, after ascertaining that per centum, he then added to the highest legal rate of interest of 10 per cent. per annum enough more per centum of the society's continuous expenses for "storage and insurance" as "would make 2% a month." The "storage and insurance" expenses were shown to be the continuous cost, outlays, and charges incident to the maintenance and prosecution of the business of the loan society, irrespective of the outlay on particular loans. The transaction cannot be explained upon any other theory. A "yearly rent" was paid for safety boxes at the bank wherein the loan society kept all pledges of every borrower for purposes of safe-keeping. The "insurance" consisted of a general policy in favor of the loan society and for its benefit in case of loss of the pledges against "fire, breakage, holdup, and messenger." As shown "about $200,000.00 of jewelry was kept stored in the office and in bank boxes." In no wise were such expenses so incurred intended to be charged as expenses for special services rendered to borrowers on particular loans. There was no added benefit to the particular borrower by reason of such expenses. All such expenses were the continuous obligation of the loan society and beneficial to it in its business in the form of overhead expenses. As for the cost of storage for the Care of the pledged property, the ordinary obligation of a pawnbroker, as of other pledges, is to exercise the degree of care and diligence that an ordinarily prudent person would exercise for his own property. 48 C.J. p. 565. As for the insurance, the general policy of insurance, as shown was taken out, protected the loan society's liability generally for loss through its default or neglect. It is difficult to understand, as the evidence appears in the record, why the charge was made for "storage and insurance" unless to get a greater compensation for the loan of the money than the regular rate of interest would give. We are unable to construe the evidence as intending the charges so made to be charges solely and only for special services in the storing of the property pledged. There was no dual relation intended to be created of lender and of storer. So, when the lender requires of the borrower that he pay, in addition to the highest legal rate of interest, the pro rata part of overhead or continuous expenses of the business, the lender is but foisting upon the borrower its own obligation, irrespective of the outlay on particular loans. That becomes a profit to the loan society in excess of the highest legal interest, and beyond the statutory authorization solely for the loan of money.
The statute relating to pawnbrokers does not authorize a pawnbroker to charge and receive solely in consideration for the loan of money a charge in addition to the highest legal interest for storage or other service irrespective of any connection with such particular loan. Neither does the statute exempt or except pawnbrokers from the general law of usury. As defined by the statute, usury is: "Interest in excess of the amount allowed by law." And the word "interest" is defined as being "the compensation allowed by law or fixed by the parties to a contract for the use or forbearance or detention of money." Article 5069, R.S.; Parks v. Lubbock, 92 Tex. 635, 51 S.W. 322, 323. The limit of the "compensation," reckoned by a percentage, allowable for the loan or the use of money is by statute expressly fixed at "not exceeding ten per cent. per annum on the amount of the contract." Article 5071, R.S. The real inquiry in the case, then, is whether there had been a borrowing and lending at a greater rate of "interest" than the law allows. This becomes purely a question of fact about which there is no dispute. It is believed that the plaintiff has made out a case entitling him to a recovery of double the amount of the interest paid. McDaniel v. Orr (Tex.Com.App.) 30 S.W.2d 489. The maximum statutory rate of interest was clearly enlarged by adding thereto storage charges irrespective of any outlay of particular pledges in consideration solely for the loan of the money. An increase or profit above the premium allowed by law for the use of money is an illegal profit, and is usury. 4 Blackstone, Com. 156.
The judgment is therefore reversed, and judgment is here rendered for the plaintiff against the appellant loan society for the sum of $151.60, together with all the costs of this appeal and of both of the trial courts.