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court and held the contract usurious and the bank subject to the penalties provided therefor, the knowledge of the president being imputed to the bank. This result was reached in spite of the express provision in the act of 1916,2 incorporated in the Code of 1922, that no lender should be charged with usury in such a transaction, where he does not receive or contract to receive more than the lawful interest.

The specific issues involved in this decision are (a) Can this contract be usurious as to the bank when it was not cognizant of the illegal exaction? (b) Will the knowledge of the president be imputed to the bank? (c) Was the penalty provided under section 36393 repealed by section 3640? A fourth issue, and probably the real basis for the decision, is indicated in the concurring opinion of Watts, J., who concludes with the following statement: "If this case is affirmed, the statutes against usury are dead. Any money-lending concern can employ a loan agent who will charge for himself unlimited usury, and no one can show that behind closed doors the money-lender himself not only got his legal 8 per cent, but another 8 per cent too." A brief summary of the leading rules applicable in the ordinary case involving a money-lender and his agent will be helpful in the consideration of the questions presented by this decision. By the overwhelming weight of authority a lender is not chargeable with usury when his agent, without authorization or subsequent ratification, has exacted an illegal commission without any knowledge or participation therein by the lender; Nebraska alone, in the absence of express statutory provision, being contra to this generally accepted "Code of 1922, vol. 3, § 3640: "No lender shall be charged with usury under the preceding section by reason of money paid or agreed to be paid others by the borrower in order to obtain a loan when the lender neither took nor contracted to take more than lawful interest: Provided, however, that suit may be brought within six months from the date of such transaction against such other persons as may have charged excessive fees or excessive commissions, and recovery may be had thereon for the excess over and above a reasonable fee or reasonable commission."

Supra note 1.

Supra note 2.

'At 211.

"Call v. Palmer, 116 U. S. 98, 6 Sup. Ct. 301 (1885); Whaley v. Am. Freehold Land Mtge. Co., 74 Fed. 73 (C. C. A. 4th Cir. 1896); Gardner v. Ruffner, 206 Ala. 666, 91 So. 580 (1921); Short v. Pullen, 63 Ark. 385, 38 S. W. 1113 (1897); Van Deventer v. Smith, 123 Ark. 612, 186 S. W. 59 (1916); Rogers v. Buckingham, 33 Conn. 81 (1865); McLean v. Camak, 97 Ga. 804, 25 S. E. 493 (1895); Harvard v. Davis, 145 Ga. 580, 89 S. E. 740 (1916); Brigham v. Myers, 51 Iowa 397, I N. W. 613 (1879); Commonwealth Title Ins. & T. Co. v. Dakko, 89 Minn. 386, 94 N. W. 1088 (1903); Muir v. Newark Savings Institution, 16 N. J. Eq. 537 (1863); Endicott v. Endicott, 41 N. J. Eq. 92, 3 Atl. 157 (1886); Condit v. Baldwin, 21 N. Y. 219 (1860); Estevez v. Purdy, 66 N. Y. 446 (1876)— (even though agent professed to take in behalf of lender); Stillman v. Northrup et al, 109 N. Y. 473, 17 N. E. 379 (1888); St. John v. Fowler, 229 N. Y. 270, 128 N. E. 199 (1920); Silverman v. Katz, 120 N. Y. Supp. 790-App. Term. (1910); Barger v. Taylor, 30 Or. 228, 42 Pac. 615 (1895); New England Co. v. Baxley, 44 S. C. 81, 21 S. E. 444 (1894); Williams et al v. Bryan, 68 Tex. 593, 5 S. W. 401 (1887); Franzen v. Hammond, 136 Wis. 239, 116 Ń. W. 169 (1908). Further authorities will be found in Ann. Cas. 1916 C, 337.

"In Ridgway v. Davenport, 37 Wash. 134, 79 Pac. 606 (1905), the principal was liable for usury, where his agent took an illegal commission without his


doctrine. If the commission is authorized by the principal, but is a reasonable remuneration for the service rendered by the agent to the borrower, it is not usury in many jurisdictions. There is great conflict as to what constitutes knowledge, authorization, or ratification by the principal, but it is quite generally agreed that the lender is liable for usury under this doctrine when the agent is a general agent,10 when it is understood that the agent is to look to the borrower for his compensation or commission," or when the principal accepts the benefit of the bonus.12 On the other hand, acceptance of the contract or security does not, in itself, render the contract usurious as to the principal;13 nor does subsequent knowledge of the

knowledge or consent, under Laws 1899, page 129, § 7 providing as follows; "*** and the acts and dealings of an agent in loaning money shall bind the principal, and in all cases where there is an illegal interest contracted for by the transaction of any agent the principal shall be held thereby to the same extent as though he had acted in person. And where the same person acts as agent of the borrower and lender, he shall be deemed the agent of the lender for the purposes of this chapter.'

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Philo v. Butterfield & Butterfield, 3 Neb. 256 (1874); Cheney v. White, 5 Neb. 261 (1876); Cheney v. Woodruff, 6 Neb. 151 (1877); Cheney v. Eberhardt, 8 Neb. 423, 1 N. W. 197 (1879); Olmsted v. New England Mtge. & Sec. Co., 11 Neb. 487, 9 N. W. 650 (1881); Courtnay v. Price, 12 Neb. 188, 10 N. W. 698 (1881); New England Mtge. & Sec. Co. v. Hendrickson et al., 13 Neb. 157, 12 N. W. 916 (1882); Joslin v. Miller, 14 Neb. 91, 15 N. W. 214 (1883); Anderson v. Vallery, 39 Neb. 626, 58 N. W. 191 (1894); Hare v. Hooper, 56 Neb. 480, 76 N.W. 1055 (1898). All of these Nebraska decisions are based directly or indirectly upon the early case of Philo v. Butterfield & Butterfield, and in that case it was held that the lender cannot be charged with usury when, without his knowledge or consent, the agent of the borrower takes a bonus. At page 259 of the opinion the court said, "It is a settled rule of law which will not be questioned, that in all cases where a person employs another as his agent to loan money for him, and places the funds in the hands of the agent of such purpose, the principal is bound by the acts of his agent; and if the agent charges the borrower of such money unlawful interest, or even demands and receives from the borrower a bonus for such loan, and appropriates it to his own individual use, either with or without the knowledge of the principal, the principal is affected by the act of his agent." The court cites no authority whatever for this statement, and it is clearly irrelevant to the case itself; it is nothing but bald dictum, but upon which all succeeding Nebraska decisions have been pyramided.

'Stillman v. Northrup, supra note 6. Also see 21 A. L. R. 853 for collection of authorities. But the courts will look closely to make certain that there is no subterfuge or device to hide actual usury, and if such a charge is only a pretense and cloak for usury the principal will be liable; Van Tassel v. Wood, 12 Hun 388 (N. Y. 1877), reversed on other grounds in 76 N. Y. 614 (1879).

10Rogers v. Buckingham, supra note 6; Matzenbaugh v. Troup, 36 Ill. App. 261 (1889). (but here the court also thought that there was a device to evade the usury statutes); Lewis v. Willoughby, 43 Minn. 307, 45 N. W. 439 (1890); Gleason v. Briggs, 28 Vt. 130 (1855). Also see 39 Cyc. 975, and Ann. Cas. 1916 C, 331 for collections of authorities. Contra: McLean v. Camak, supra note 6.

"Gardner v. Ruffner, supra note 6; Thompson v. Ingram, 51 Ark. 546, 11 S. W. 881 (1889); Whaley v. Am. Freehold Land Mtge. Co., supra note 6; Clarke v. Havard, 111 Ga. 242, 36 S. E. 837 (1900). Also see Ann. Cas. 1916 Ć, 329, and 39 Cyc. 974 for collections of authorities.

12See 21 A. L. R. 861 and Ann. Cas. 1916 C, 330 for collections of authorities. 13 Martin v. Adams, 66 Ark. 10, 48 S. W. 494 (1898); Jordan v. Humphrey, 31 Minn. 495, 18 N. W. 450 (1884); Estevez v. Purdy, supra note 6; Franzen v. Hammond, supra note 6.

exaction, unless the principal benefits thereby or ratifies it.14 Bringing an action upon a contract or security regular upon its face is not, in itself, ratification of the act of the agent in taking an illegal bonus, 15 but if the lender accepts a contract or security knowing that his agent has exacted a usurious commission from the borrower, he becomes liable for the act of his agent by ratification.16 It is generally necessary that a corrupt intent on the part of the lender to take more than the legal rate of interest be shown,17 and in New York it seems that this corrupt intent must also be shared by the borrower.18 One of the cardinal principles governing the relationship of principal and agent is that the principal is liable for the acts of his agent within the scope of his real or apparent authority;19 but it is generally held that an authority to loan money does not give an apparent or implied authority to exact a usurious bonus or commission from the borrower, and hence the principal is not liable therefor.20 The law will not imply an authority to enter into an illegal contract. These generally accepted principles have been evolved, for the most part, out of situations where the lender and his agent have been connected in no way other than through the principal and agent relationship and therefore are not necessarily controlling in the principal case, where the agent is also the president of the corporation which is the principal. But it is clear from a consideration of the above principles that, under ordinary rules of principal and agent in connection with usurious transactions, the bank would be free from the taint of usury

"Estevez v. Purdy, supra note 6; Stillman v. Northrup, supra note 6; Ditmars v. Sackett, 92 Hun. 381, 36 N. Y. Supp. 690 (5th Dept. 1895).

15Condit v. Baldwin, supra note 6; Estevez v. Purdy, supra note 6; Franzen v. Hammond, supra note 6.

16See 21 A. L. R. 864 for collection of authorities.

17Teshner v. Roome, 106 Or. 382, 212 Pac. 473 (1923); Kase v. Sennett, 54 N. J. Eq. 97, 33 Atl. 248 (1895); Condit v. Baldwin, supra note 6; Bank v. Wysong & Miles Co., 177 N. C. 380, 99 S. E. 199 (1919); Ector v. Osborne et al., 179 N. C. 667, 103 S. E. 388 (1920); Bank of U. S. v. Waggener et al., 9 Pet. 378 (U. S. 1835); Call v. Palmer, supra note 6. In Teshner v. Roome, supra the court at page 400 finds four elements necessary to constitute usury: (1) a loan, express or implied. (2) An understanding that the money loaned shall be returned. (3) That for such a loan a greater rate of interest than is allowed by law shall be paid, or agreed to be paid. (4) A corrupt intent to take more than the legal rate for the use of the sum loaned. It then adds, "The fourth element may be implied, if all the others are expressed upon the face of the contract. The other three must be established by sufficient evidence."

18 Morton v. Thurber, 85 N. Y. 550 (1881).

192 MECHEM ON AGENCY (1914) § 1720.

20Rogers v. Buckingham, supra note 6; Gokey v. Knapp, 44 Iowa 32 (1876); Condit v. Baldwin; Estevez v. Purdy; Barger v. Taylor; Franzen v. Hammond; all supra note 6. In Gokey v. Knapp, supra at page 35 the court said, "Although Danforth may have been the agent of Knapp for the purpose of loaning the money, and may have contracted for more than 10 per cent interest, yet the loan was not necessarily usurious. An authority to loan money at a legal rate of interest does not include by implication the authority to loan it at an illegal rate. An authority to violate the law will never be presumed. When Danforth exacted, in addition to the 10 per cent interest, which was embraced in the note, something for the benefit of himself, he went outside the legitimate purposes of his agency; and as Knapp did not authorize it, either expressly or by implication, he should not be affected thereby."

here for it was not cognizant of the illegal exaction, nor would the knowledge of the president be imputable to the bank, for as noted above, an authority to lend money is not an authority to make an illegal loan. There is authority for both contentions on these points and it may be argued logically that the taking of the bonus was so bound up in the transaction as to render it an inseparable part thereof, and hence within the scope of the agent's authority and imputable to the principal. There also seems to be a conflict between the rules laid down, and the frequently stated rule, that when an officer is the sole agent of the corporation in a fraudulent transaction, the corporation is chargeable with knowledge of the officer's fraud even though he was acting for his own personal interest.22 However, the weight of authority appears to be with the dissenting judges.

The professed foundation for the majority opinion seems to be the theory that the bank was chargeable with the knowledge of the president in that he was acting within the scope of his authority in making the loan, and the taking of the bonus being a part of the res gestae, this was necessarily within the scope of his authority also, it not being separable from the main transaction. We have seen that the weight of authority is contrary to this view,23 and the query arises as to whether the situation of the parties should justify the application of a different rule here. The court argues that the president, being the sole agent, is the alter ego of the bank, and in fact is the bank, and cites cases24 in support of this contention, but which the dissenting opinion easily distinguish on the ground that as a practical matter the officer in those cases was the alter ego of the corporation, he being the only large stockholder and embodying all the functions of control and management within himself. In the principal case a different situation existed, the president being accountable to a board of directors, and it not appearing that he held more than enough stock to qualify him for his position as president and member of the board. Several cases have applied the doctrine of imputation of knowledge to the principal where the agent

"Gardner v. Ruffner, supra note 6, (but the court said that the presumption that agent informed principal that he took usurious commission is rebuttable.); McCarthy v. Liberty Nat. Bank, 73 Okla. 275, 175 Pac. 940 (1918); Mortgage Co. v. Woodward, 83 Š. C. 521, 65 S. E. 739 (1909). In Reynolds v. White, 13 S. C. 5 (1879), the court said, in discussing the logic of including negligence and excluding fraud from the scope of an agent's authority, at page 16, "Tested by reference to the intention of the principal, neither negligence nor fraud is within 'the scope of the agency'; but tested by the connection of the act with the property and business of the agency, fraud in taking the very property is as much 'within the scope of the agency' as negligence in allowing others to take it. The proper inquiry is, whether the act was done in the course of the agency and by virtue of the authority as agent."

22 First Nat. Bank v. Blake, 60 Fed. 78 (Cir. Ct. D. Or. 1894); Malone v. Merchants' & Farmers' Bank, 213 Ala. 215, 104 So. 758 (1925); Bank of U. S. v. Davis, 2 Hill 451 (N. Y. 1842); See Morris v. Georgia Loan Co., 109 Ga. 12, 25, 34 S. E. 378 (1899). See 2 L. R. A. (N. s.) 993n for collection of authorities. 23 Supra note 19.

24McCaskill v. U. S., 216 U. S. 504, 30 Sup. Ct. 386 (1910); Lea v. Mercantile Co., 147 Ala. 421, 42 So. 415 (1906).

was the sole agent, but, as the dissenting judges point out,25 this is hardly logical for a case seldom arises where more than one agent is involved in the particular transaction. The specific question whether a bank is affected with usury because of a bonus to an officer has been rarely presented, and the only two cases which appear to be directly in point apparently have been overlooked in both opinions.

In Chicago Fire Proofing Co. v. Park National Bank,26 X, the president of the defendant bank, forced Y, president of the plaintiff corporation, (a) to buy worthless stock belonging to X personally to the extent of $500, (b) to pay $500 commission to X, and (c) to buy back stock of the Y corporation, held by X, for $500, the stock being practically worthless but with a par value of $1000. In consideration of the above promises the defendant bank agreed (a) to carry loans already made to Y and his corporation, (b) to advance $5000 additional, and (c) to renew notes of the plaintiff corporation. The three transactions took place at different times. The exact phrasing of the second agreement appeared to be that X agreed to let Y and his corporation have the money, if he or they would pay X or the bank. Y executed his personal note, however. The court held that all of these transactions were purely personal and incapable of infecting the loans with usury, in spite of the fact that the agreement called for payment to X or the bank, it not appearing that the bank in fact received any share therein.

In an Oklahoma case of later date, McCarthy v. Liberty National Bank,27 the decision was directly contra to the Illinois case supra. Plaintiff, desiring a loan of $6000, applied to X, the president of the defendant bank, who had full power to make loans for the bank. The president granted him a credit of $8000, plaintiff withdrawing $2000 at once and turning it over to X, $1200 being a commission to X and the remainder interest on the loan. In a vigorous opinion by the court28 the bank was held liable for the usurious transaction, the knowledge of the president being considered as the knowledge of the bank.

With the meagre direct authority equally divided, the way was

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27 Supra note 20.

28At page 276 the court said, "The uncontroverted testimony shows that Lewis had and exercised the right of making loans for the bank; he was clearly a general agent for that purpose. The funds of the bank were in his possession to be loaned. His official position was such that his knowledge would be the knowledge of the corporation. The authorities amply sustain the position that compensation received for a loan under such conditions cannot be called a commission, and the pains of usury thus avoided. . . . It may be that the man Lewis was guilty of a fraud upon his bank, and was secretly appropriating part of the compensation which he received for loans, without the knowledge of the stockholders and directors. If so, the bank has its remedy against Lewis, but it cannot deny that his knowledge was its knowledge, or escape liability to third persons for the acts of Lewis within the scope of his authority in doing that which it had put it into his power to do. If the bank suffers a loss, by reason of the unauthorized charge of usury by Lewis, the bank may have a remedy against Lewis; but certainly this does not purge the transaction of usury.'

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