Embola v. Tuppela

Supreme Court of Washington · Contracts

ContractsUsuryConsiderationFraudUnconscionabilityusurycontingent repaymentinvestment not loan

Facts

After being released from an asylum, Tuppela discovered that his Alaska mining property had been sold by his guardian and was destitute. He told the respondent, a longtime friend who had already advanced him $270, that if respondent would give him $50 more so he could go to Alaska and get his property back, he would pay $10,000 when he won the property. Respondent accepted and immediately advanced the $50, and after extended litigation Tuppela recovered the property in 1921. When payment was not made, respondent sued to collect the promised $10,000.

Issue

Whether Tuppela's promise to pay $10,000 in exchange for prior advances and an additional $50 was unenforceable because it was a usurious loan, lacked adequate consideration, or was procured by fraud or was unconscionable.

Rule

To constitute usury, the principal sum advanced must be repayable at all events and not put in absolute hazard. If repayment is due only upon a contingency that may never occur, the advance is treated as an investment rather than a loan, and the transaction is not usurious.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Spokane, Nora Kim gave Eli Barrett $800 so he could travel to Nevada and pursue a disputed inheritance claim. Eli signed a writing promising to pay Nora $25,000 only if he successfully recovered the inheritance; if he recovered nothing, he owed nothing.

If Eli later defeats Nora's suit for payment by arguing the agreement was usurious, which is the best result?

Explanation. The majority rule is that usury requires the principal sum advanced to be repayable at all events and not placed in absolute hazard. Here, Nora's advance would be repaid only if Eli recovered the inheritance, an uncertain event that might never happen. Because the principal was contingent rather than absolutely repayable, the transaction is treated as an investment, not a usurious loan. (Derived from Embola v. Tuppela (n.d.).)