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Embola v. Tuppela - 127 Wash. 285, 220 P. 789 (1923)

Rule:

Where the principal sum advanced is to be repaid only on some contingency that may never take place, the sum so advanced is considered an investment and not a loan and the transaction is not usurious.

Facts:

John Tuppela joined the gold seekers' rush to Alaska, and, after remaining there a number of years prospecting, was adjudged insane and committed to an asylum in Portland, Oregon. Upon his release, after a confinement of about four years, he found that his mining properties in Alaska had been sold by his guardian. In May of 1918, Tuppela, destitute and without work, met Henry Embola at Astoria, Oregon. They had been close friends for a period of about 30 years. Embola advanced money for his support, and in September brought him to Seattle to the home of Herman Lindstrom, a brother-in-law of Embola. Tuppela had requested a number of people to advance money for an undertaking to recover his mining property in Alaska, but found no one who was willing to do so. The estimated value of this mining property was about $500,000. In the month of September, Tuppela made the following statement to Embola: "You have already let me have $270. If you will give me $50 more so I can go to Alaska and get my property back, I will pay you ten thousand dollars when I win my property." Embola accepted this offer and immediately advanced the sum of $50. In January, 1921, after extended litigation, Tuppela recovered his property. Tuppela, remembering his agreement with Embola, requested Mr. Cobb, his trustee, to pay the full amount, and upon his refusal so to do, this action was instituted to collect the same. The lower court found in favor of Embola, and Tuppela appealed.  

Issue:

Was the advance Embola gave to Tuppela a usurious loan?

Answer:

No

Conclusion:

The supreme court affirmed because the advance Embola gave to Tuppela was not a usurious loan, but an investment because Embola was only to receive $10,000 if Tuppela recovered his property, a fraction of the value of the recovered property. Because the money that was advanced was an investment, the court found that the consideration was adequate, and the contract was not fraudulent or unconscionable.

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