Interest at the rate of 8 3/4 percent in Nebraska is not
usurious.
The
cestuis que trust is not a necessary party to a
bill by a trustee to foreclose a mortgage.
A loan was made February 1, and the mortgage and notes were
dated on and bore interest from that day, but as there were sundry
encumbrances, part of the money was retained; one sum applied to a
payment March 4; another sum March 11; a large proportion of the
whole debt was not remitted to the borrower until June 8, and on
the 8th of October a final sum of $3,000 was sent to the borrower's
agent to pay a judgment of $2,466, which was paid, the agents
retaining the balance. On a suit to enforce the lien of the
mortgage a decree was entered for the plaintiff with an allowance
of $1000 as an attorney's fee.
Held:
(1) That no rebate of interest should be allowed on the payments
made March 4, March 11 and October 8.
(2) That a rebate should be allowed on the remittance of June
8.
(3) That the attorney's fee should be reduced to $500.
Page 144 U. S. 452
The Court stated the case as follows:
On February 17, 1886, the appellants, residents of Hall County,
Nebraska, executed and delivered two instruments, each dated
February 1, 1886, and together given for a loan of $10,000. Both
instruments conveyed the same lands. The first was in form a trust
deed executed to L. W. Tulleys, trustee, to secure payment of a
bond of $10,000, given to Clarence K. Hesse, due in five years,
with interest at 6 1/2 percent, payable semi-annually. The second
was in form a mortgage to Burnham, Tulleys & Co., to secure ten
notes of $112.50, due, respectively at the times the semi-annual
interest became due on the $10,000 bond. Burnham, Tulleys & Co.
were loan brokers doing business at Council Bluffs, Iowa, and took
these notes and this mortgage as payment of their commissions, the
notes, with the interest named in the $10,000 bond, making the loan
in fact as was intended at 8 3/4 percent. Clarence K. Hesse, the
obligee in the bond, was in the employ of Burnham, Tulleys &
Co. as examiner of lands. He was not the lender of the money, and
was named as obligee simply for convenience in transferring title.
Default having been made in the payment of interest, a suit of
foreclosure was commenced in the name of L. W. Tulleys, trustee, to
which suit the present appellants were the sole defendants. The
bill described complainant as "trustee for Cornell University, and
for Burnham, Tulleys & Company," and set out two separate
causes of action, the first on the trust deed, and the second on
the mortgage. In respect to the first, after alleging the execution
of the bond and the trust deed, it averred that Cornell University
was the present holder of the bond. With reference to the second,
the bill contained this allegation as to complainant's title:
"And your orator further shows the court that he is trustee for
Burnham, Tulleys & Co., the owners of said promissory notes,
and the mortgage deed securing the same, by virtue of the purchase
of the same before maturity."
It is also alleged that Tulleys was a citizen of Iowa and the
defendants citizens of Nebraska. To this bill a demurrer was filed
by defendants on the grounds
Page 144 U. S. 453
first of a want of equity, second that Cornell University and
Burnham, Tulleys & Co. were not made parties, and third that a
cause of action in favor of Cornell University had been improperly
joined with one in favor of Burnham, Tulleys & Co. This
demurrer was overruled, and leave given to answer. Subsequently,
the court held that Cornell University ought to be made a party to
the suit, and leave was given to amend the bill by making new
parties plaintiff, and thereafter Cornell University and Burnham,
Tulleys & Co. appeared and filed what was called an amendment
to the bill, but which simply reaffirmed in their behalf the
allegations of the original bill. The answer, admitting the
execution of the papers, alleged that Hesse, the obligee, was a
mere nominal party, the real lender being Burnham, Tulleys &
Co., and that $534 of the $10,000 loaned had never been paid to the
defendants, and also pleaded generally usury. Proofs were taken and
a decree entered in favor of the complainants for the full amount
claimed, with a thousand dollars allowance for attorney's fees. The
defendants appealed to this Court.
MR. JUSTICE BREWER, after stating the facts in the foregoing
language, delivered the opinion of the Court.
Appellants allege several matters as grounds for reversal. They
claim that the commission notes represent unlawful interest, or
that in any event they should be credited with rebates. Adding the
commission notes to the interest named in the bond aggregates only
8 3/4 percent on the money actually loaned, and ten percent is
allowable under the laws of Nebraska. Comp.Stats. of Nebraska, p.
483, c. 44, sec. 1.
The claim of a credit for rebates springs from these facts: the
title to the land at the time the loan was contracted for and the
securities given was only partly in the defendants.
Page 144 U. S. 454
One tract of it was school and another railroad land, in respect
to which they had only a contract of purchase, and upon which
balances were still due to the state and to the railroad company.
These were paid by the lender out of the loan, and deeds perfecting
title obtained. Then a portion of the loan was handed over to the
defendants. Three thousand dollars were by agreement retained on
account of a judgment against the defendant F. C. Dodge, which was
a lien upon the land, but which had been appealed by him to the
supreme court. After this judgment had been affirmed by that court,
it was paid out of the moneys thus retained. Dates and amounts are
as follows: the securities are dated February 1, 1886, and call for
interest from that time. They were not in fact executed until
February 17. The amount due the state was $1,417.25, and was paid
March 4. That due the railroad company, $1,388, was paid March 11.
On June 8, $4,194.75 was sent to defendants, and the judgment,
$2,466, was paid October 8. On the face of the papers, interest was
due from February 1. There was no agreement between the lenders and
the borrowers with respect to a different date for its
commencement. The borrower knew the condition of his title and the
fact of a judgment lien. The moneys due the state and the railroad
company were paid within a reasonable time and as soon as title
could be obtained from the vendors. In the absence of an express
agreement to the contrary, it must be assumed that the borrower,
knowing that there would be some short delay in making payments and
perfecting title, intended and agreed that such delay should work
no change as to the time at which interest was to commence to run.
The same is true of the $3,000 retained by express agreement for
the judgment. It cannot be that the lenders were to hold that money
without interest, waiting his pleasure in respect to the judgment.
The delay was for his accommodation and at his instance. But with
respect to the moneys given to him on June 8, we think equity
requires a rebate of interest on account of the long delay in the
matter. When a loan is negotiated, the understanding is that the
money is to be paid promptly after the execution of the papers. As
the
Page 144 U. S. 455
parties lived in different cities, of course, a little time for
transfer would be expected, and the perfecting of the title is
implied; but there is no excuse for such a long delay as this. The
judgment, which was a lien upon the property, justified the lenders
in retaining enough money to satisfy it. It was only $2,000 in the
first instance, and by agreement, $3,000 was retained in order to
cover interest and costs; but the balance of the loan should have
been promptly forwarded to the borrower. Because it was not so
forwarded, we think the defendants are entitled to a rebate on the
amount due to Burnham, Tulleys & Co., for the interest on the
sum withheld during the time it was so withheld, a period of about
three months. Eighty-five dollars would be a fair amount to thus
credit.
Another claim of appellants is that they had in fact paid all of
the interest due at the time the suit was commenced. It appears
that the $3,000 retained for the judgment was sent in a single
draft to West & Schlodtfelt, real estate men at Grand Island,
through whom the application of defendants had come to Burnham,
Tulleys & Co. Out of that they paid the judgment, $2,466. The
balance, $534, they retained. Why it was retained is not fully
disclosed by the testimony. It would seem that they had rendered
some services to the borrowers, and an inference is possible that
there was a dispute as to the matter of compensation. Be that as it
may, and although West & Scholdtfelt wrongfully retained the
money, the burden of this wrong must be borne by the defendants,
and is not chargeable to Burnham, Tulleys & Co., for they sent
the money to West & Schlodtfelt upon the written direction of
the borrowers, and there is no evidence that West & Schlodtfelt
ever paid the interest, as the defendant Freeman Dodge testifies
they promised to do.
Another defect claimed is that the citizenship of Hesse, the
obligee in the bond, is not alleged; but this is unnecessary. The
suit is in the name of Tulleys, trustee, to whom the legal title
was conveyed in trust, and who was therefore the proper party in
whose name to bring suit for foreclosure. It happens in this case
that there was but one party beneficiary under
Page 144 U. S. 456
the trust deed; but it often is the case, as in railroad trust
deeds, that the beneficiaries are many. But whether one or many,
the trustee represents them all, and in his name the litigation is
generally and properly carried on. The fact that the beneficiary in
a trust deed may be a citizen of the same state as the grantor
would not, if the trustee is a citizen of a different state, defeat
the jurisdiction of the federal court. In any event, the bond being
negotiable, the citizenship of the obligee becomes immaterial after
transfer of title from him.
Mersman v. Werges,
112 U. S. 139;
School District v. Hall, 113 U. S. 135.
Hesse had, by the allegations of the bill, parted with his interest
in the bond, and it was unnecessary to either make him a party or
allege his citizenship. It may be that the allegation of the
transfer of the mortgage from Burnham, Tulleys & Co. to Tulleys
is defective, and perhaps it would have been more correct to have
made them parties defendant and permitted them to set up their
mortgage by cross-bill; but they were, by permission of the court,
made parties, and with the Cornell University, the present holder
of the bond, appeared in the case, and asserted their rights and
interest in the property. While the proceedings may have been
somewhat irregular, yet no objection seems to have been taken to
the manner in which this was done. As all the parties in interest
were parties to the record, and all the facts fully disclosed by
the testimony, it would be sacrificing substance to form to set
aside the decree because of a mere irregularity in the arrangement
of the parties or the frame of the pleadings. So far as Cornell
University is concerned, its citizenship, if it were necessary, is
sufficiently disclosed by the allegation that it is a corporation
duly organized under the laws of the State of New York.
The remaining proposition of appellants is that the court erred
in allowing a solicitor's fee of $1,000. There is a stipulation in
the trust deed for the payment of an attorney's fee of $1,000 in
case of foreclosure, but such stipulations have been held by the
Supreme Court of Nebraska to be unauthorized.
Dow v.
Updike, 11 Neb. 95;
Hardy v. Miller, 11 Neb. 395. It
seems that in 1873, an act passed the Legislature
Page 144 U. S. 457
of Nebraska expressly authorizing, in any written instrument for
the payment of money, a stipulation for not exceeding ten percent
as an attorney's fee in case of suit. Neb.Gen.Stats. p. 98. This
act was repealed in 1879. Laws of Neb. 1879, p. 78. In the cases
cited, the supreme court of the state held that by the repeal of
the statute the contract right to recover attorney's fees was taken
away. So, as this Court follows the decisions of the highest court
of the state in such matters,
Bendey v. Townsend,
109 U. S. 665, the
provision in the trust deed for the payment of $1,000 as attorney's
fees cannot be regarded as of binding force. But while contract
rights are settled by the law of the state, that law does not
determine the procedure of courts of the United States sitting as
courts of equity, or the costs which are taxable there, or control
the discretion exercised in matters of allowances. Those courts
acquire their jurisdiction and powers from another source than the
state. There is no statute of Nebraska in respect to the matter.
Even if there were one expressly prohibiting courts of equity from
making allowances to trustees or their counsel, such prohibition
would not control the proceedings in federal equity courts. They
proceed according to the general rules of equity except so far as
such rules are changed by the legislation of Congress, and while
they may enforce special equitable rights of parties given by state
statutes,
Holland v. Challen, 110 U. S.
15, set their general powers as courts of equity are not
determined and cannot be cut off by any state legislation. It is
the general rule of equity that a trustee called upon to discharge
any duties in the administering of his trust is entitled to
compensation therefor, and included therein is a reasonable
allowance for counsel fees. This is constantly enforced in the
federal courts in the various railroad foreclosures that have been
and are proceeding therein, and this irrespective of any state
legislation. The subject was exhaustively considered by Mr. Justice
Bradley in the case of
Trustees v. Greenough, 105 U.
S. 527. The English and American authorities were fully
reviewed, and the power and duty of the court to make reasonable
allowances (including counsel fees) to trustees or others acting in
that capacity
Page 144 U. S. 458
were affirmed.
See also Central Railroad v. Pettus,
113 U. S. 116. It
is unnecessary to more than refer to these decisions.
In the case before us, a trustee comes into a court of equity
and asks its aid in enabling him to discharge the duties of his
trust, and according to the settled law of this Court, he is
entitled to an allowance for reasonable counsel fees. But we think
$1,000 is too much. Indeed, in the bill of complainant, the trustee
alleges that $500 is a reasonable attorney's fee for the
foreclosure of the trust deed, and we think that, under the
circumstances, no more should be allowed.
The decree will therefore be modified by reducing the amount
found due Burnham, Tulleys & Co. to $1,094.16, and the
attorney's fee from $1,000 to $500. In other respects, the decree
will be affirmed. The appellants will recover their costs in this
Court.
Affirmed as modified.
