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Opinion of the Court.
tion is not usurious. The whole interest may be lawfully reserved in advance." McGill v. Ware, 4 Scammon, 21, 28; Mitchell v. Lyman, 77 Illinois, 525, 529, 530; Brown v. Scottish-American Mortgage Co., 110 Illinois, 235, 239; Hoyt v. Pawtucket Inst. for Savings, 110 Illinois, 390, 394; Telford v. Garrels, 132 Illinois, 550, 554.
Whether that doctrine would apply where the loan was for such period that the exaction by the lender of interest in advance would, at the outset, absorb so much of the principal as to leave the borrower very little of the amount agreed to be loaned to him, we need not say. The present case does not require any expression of opinion upon such a point, for the interest reserved in advance on the loan to Fowler was only of three per cent out of ten per cent, and a reservation to that extent, it would seem, is protected by the decisions of the state court. The defence of usury, so far as it rests upon the fact that three per cent of the stipulated interest was taken in advance by the lender, must, therefore, be overruled.
But, in view of other decisions of the Supreme Court of Illinois, must not that defence be sustained, in respect to this loan, upon the ground that the borrower was in effect required, as a condition of the loan, and, in addition to the highest legal rate of interest, to pay $100, under the guise of commissions, to the lender's agent for procuring the loan? It is not the case simply of a borrower employing a broker who has no regular or established connection with the lender as agent and no arrangement with the lender in respect to compensation for his services to effect a loan, and agreeing to pay him commissions. With the agreements of the latter kind the courts have no concern, and they are not permitted to affect the rights of the lender, where he does nothing more than lend his money at such rate of interest as the statute permits. Such is the rule in Illinois. Hoyt v. Pawtucket Inst. for Savings, 110 Illinois, 390, 394; Telford v. Garrels, 132 Illinois, 550, 554; Sanford v. Kane, 133 Illinois, 199, 205.
These authorities, however, have no application to the case before us. The Trust Company established an agency at Springfield, Illinois, for the purpose of securing loans upon
Opinion of the Court.
real estate, and to that end constituted Johnston as its agent. It made him a medium of communication between it and those in that locality who might wish to borrow money. It supplied him with the necessary blank forms, and expected him to make a report as to the sufficiency of the security offered. Of course it knew that no one would regularly perform the duties of such a position without reasonable compensation. That the agent might receive such compensation, the company came to an understanding with him at the outset that he must make the borrower pay for his services. With such an arrangement between it and its agent, the company need not be informed in any particular case of the amount the latter would exact from the borrower as compensation for effecting a loan. But it must be held to have known that the agent would not devote his energies and time to its business gratuitously, and would not forward to it an application for a loan, unless the borrower agreed to compensate him for his services. The services performed by Johnston, as its regular local agent, charged with the duty of receiving and forwarding applications for loans, with his opinion as to the sufficiency of the security offered, were of substantial value to the company, as much so as if they had been performed under an arrangement that the company should, out of the money loaned, retain for him the amount which, by previous agreement with the borrower, he was to receive as his compensation. And the services performed by him were just what they would have been had he accepted the agency under such a specific arrangement as that just suggested.
Under all the circumstances, was not this transaction tainted with usury? Should not the $100 paid to the company's agent be regarded as part of the amount which Fowler was required to pay for the use of the money borrowed? These questions are answered by the Supreme Court of Illinois. In Payne v. Newcomb, 100 Illinois, 611, 616, the inquiry was whether the commissions paid by the borrower to the person through whom a loan, at the highest legal rate, was effected, were to be taken into account in determining whether the transaction was usurious. That case is so directly in point
Opinion of the Court.
that we feel justified in making extracts from the opinion of the court. It was said: "Did Stevens [the lender] know that Newcomb [the broker] was charging for his services, and collecting it from the borrower? Newcomb says that it was the understanding he was to get it of the borrower, and that establishes the fact beyond all cavil. Were these payments of commissions of benefit or profit to Stevens? They unquestionably were, as they paid his agent for long-continued and valuable services rendered by Newcomb for him. No one will believe that Newcomb thus incurred liability to Stevens, and rendered skilful and valuable services for him for more than twenty years as a mere gratuity. It was not so understood. Newcomb says he was to get his pay from the borrower. Stevens then paid what he owed to Newcomb by requiring the agent to impose it on the persons to whom loans were made. The arrangement amounted to no more or less than requiring the agent to loan for a per cent sufficiently high to yield Stevens the highest rate of interest allowed by the law, and to pay the agent for his responsibility, labor, skill and trouble. In effect, the transaction is the same as had the loan been made at fifteen per cent, and ten had been paid to Stevens and five to Newcomb. This was the result which was by the parties intended before the inception of the transaction. It was in pursuance of an arrangement of the lender and his agent. . . . It is, however, claimed that Stevens is not liable for what Newcomb retained and charged for what is called commissions-that he had the right to charge any sum he chose, and that would not render the loan usurious. Had Stevens not known that Newcomb was making such charges, it may be that he would not have been affected by them. But here it was agreed between Stevens and Newcomb that the latter should charge a commission to the borrower to pay him for his services. Stevens obtained the services of Newcomb. They were of value to him, and no one will pretend that Newcomb rendered them as a gratuity. They were rendered for Stevens, and they were paid for by him by indirectly charging the amount to and requiring the borrower to pay it, and this, too, by the express authority of
Opinion of the Court.
Stevens. Had he directed Newcomb to loan at fifteen per cent for the first year, and ten per cent for each succeeding year, and to retain five per cent on the loan for the first year, and two and a half per cent for renewals and extensions, and to retain the extra per cent above ten per cent as compensation for his services, would any one say that was not usury? And in what does the transaction differ by the form given it by the agreement of the parties? In each case, Stevens would get Newcomb's services, and compel the borrower to pay them." And the court adds: "There is no more familiar rule in the law than that the usury laws cannot be evaded by mere pretences, shifts or evasions. This rule runs through all of the books, and requires the citation of no authority in its support. The policy of the statute is to protect the weak and necessitous from the oppression of the strong, and to sanction such transactions as this would be to defeat that policy. Courts have no right to judge of the policy, but must enforce the law as they find it. Whenever deemed proper, the General Assembly will change the policy by modifying or repealing the statute, but until so modified or repealed we have no power to alter or change its provisions."
In the previous case of Peddicord v. Connard, 85 Illinois, 102, 103, the court said: "It is first urged that although there may have been a greater rate of interest retained than is permitted by the law, still, it was not usury, unless it was agreed and so understood when the transaction occurred, and that there was no such understanding or agreement in this case. Such seems to be the ruling of the courts in Great Britain and the various States of the Union in which the entire debt is forfeited or heavy penalties are imposed when the transaction is tainted with usury. The law does not favor forfeitures, and in such cases the courts hold to a rigid and strict compliance with the law imposing the penalty. It is, therefore, probable that those courts would not give so strict a construction if the only loss were, as it is with us, the interest on the debt for the money loaned or forborne. Reason does not require it, as it does where the debt and interest are lost by reason of taking or contracting for a trifle more than is sanctioned by the law.
Opinion of the Court.
Hence we are not prepared to adopt so rigid a construction. If an usurious contract is made, whether express or implied, at the time of or subsequent to the entering into the agreement, to take or reserve more than lawful interest, it is such an agreement as is within the purview of the statute." And, in a subsequent case: "The statute cannot be avoided by any shift or device which may be resorted to by the parties. The form of the transaction is not material, but whenever it clearly appears that more than the legal rate of interest has been exacted, the contract will be held to be usurious." Leonard v. Patton, 106 Illinois, 99, 104.
We do not find that the principles announced in Payne v. Newcomb have been overruled or modified by the state court. On the contrary, that case has been frequently referred to and its doctrines recognized. In Hoyt v. Pawtucket Inst. for Savings, 110 Illinois, 390, 394, it appears that Taylor, a loan broker of Chicago, sent to the Pawtucket Institution for Savings, in Rhode Island, an application by Hoyt for a loan, which was accepted. The lender retained $250 out of the $5000 loaned, to pay a half year's interest in advance. The broker charged the borrower $250 as his commission, and the latter received only $4500. The court said: "This commission received by Taylor was not from any arrangement with the Institution for Savings or with its knowledge. It got no part of the commission, and received no more than ten per cent interest on the money loaned. Brokers negotiating loans of other people's money may charge the borrower commissions, without thereby making a loan at the full rate of legal interest usurious. Ballinger v. Bourland, 87 Illinois, 513; Phillips v. Roberts, 90 Illinois, 492; Boylston v. Bain, 90 Illinois, 283. Payne v. Newcomb, 100 Illinois, 611, was not intended to decide anything to the contrary, as seems to be supposed by counsel for plaintiffs in error. In the latter case there was an express understanding between Stevens, the lender, and Newcomb, his agent, that Newcomb should get his commissions from the borrower." In Cox v. Life Ins. Co., 113 Illinois, 382, 385, the court, after observing that the fact that an agent, without the authority, consent or knowledge of his principal, upon