Commercial Credit Corp. v. Robeson Motors

• Decision Date: 13 January 1956
• Docket Number: No. 745,745
• Citation: 54 A.L.R.2d 1337,90 S.E.2d 886,243 N.C. 326
• Parties: , 54 A.L.R.2d 1337 COMMERCIAL CREDIT CORPORATION, a Corporation, v. ROBESON MOTORS, Inc., Wilton B. Barnes and Knox M. Barnes.
• Court: North Carolina Supreme Court

Page 886

90 S.E.2d 886

243 N.C. 326, 54 A.L.R.2d 1337

COMMERCIAL CREDIT CORPORATION, a Corporation, v. ROBESON MOTORS, Inc., Wilton B. Barnes and Knox M. Barnes.

No. 745

Supreme Court of North Carolina.

Jan. 13, 1956

Nance & Barrington, Fayetteville, and Ellis E. Page, Lumberton, for defendants, appellants.

McKinnon & McKinnon, Lumberton, and Mordecai, Mills & Parker, Raleigh, for plaintiff, appellee.

BOBBITT, Justice.

Neither the assignment of error based on exception to the order requiring defendants 'to separate their several causes of action and to plead same specifically,' nor the assignment of error based on exception to the judgment, insofar as it sustains plaintiff's demurrer to said further (fourth) cause of action, is brought forward in defendants' brief. Hence, these are taken as abandoned by defendants. Rule 28, Rules of Practice in the Supreme Court, 221 N.C. 544, 563.

The elements of a usurious transaction need not be restated here. Reference is made to Doster v. English, 152 N.C. 339, 67 S.E. 754, and to Planters' Nat. Bank v. Wysong & Miles Co., 177 N.C. 380, 99 S.E. 199.

Plaintiff contends that defendants' first and second causes of action to recover the penalty for usurious interest paid are demurrable for failure to state facts sufficient to constitute causes of action on the ground that the dates and amounts are not alleged with the required definiteness, citing Riley Co. v. W. T. Sears & Co., 154 N.C. 509, 70 S.E. 997. Considering the allegations and exhibits in the light most favorable to defendants, we think these causes of action are sufficient to survive plaintiff's demurrer. Incidentally, the ground of demurrer assigned in this connection is simply that defendants' pleading 'fails to state facts sufficient to constitute a valid counterclaim, set-off, or defense,' without pointing out any particular defect(s) therein. G.S. § 1-128; Duke v. Campbell, 233 N.C. 262, 63 S.E.2d 555.

The question, squarely presented and determinative of this appeal, is this: Where a lender brings an action to recover on a note or other evidence of debt, can the borrower, by counterclaim in such action, recover the penalty for usurious interest paid by the borrower to the lender in connection with separate and independent transactions between them? Apparently, the precise question is one of first impression in this jurisdiction.

Two statutes, namely, G.S. § 24-2, which prescribes the penalty for usurious interest paid, and G.S. § 1-137, which prescribes the causes of action that may be alleged by way of counterclaim, must be considered in answering the question presented.

G.S. § 24-2, in pertinent part, provides: '* * * And in case a greater rate of interest [than six per centum per annum] has been paid, the person or his legal representatives or corporation by whom it has been paid, may recover back twice the amount of interest paid in an action in the nature of action for debt. In any action brought in any court of competent jurisdiction to recover upon any such note or other evidence of debt, it is lawful for the party against whom the action is brought to plead as a counterclaim the penalty above provided for, to wit, twice the amount of interest paid as aforesaid, and also the forfeiture of the entire interest. * * *'

Of the two sentences quoted from G.S. § 24-2, the first is found in Laws of 1876-77, c. 91, while the second had its origin in Public Laws of 1895, c. 69.

G.S. § 1-137 provides: 'The counterclaim mentioned in this article must be one existing in favor of a defendant and against a plaintiff between whom a several judgment might be had in the action, and arising out of one of the following causes of action: 1. A cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's claim, or connected with the subject of the action. 2. In an action arising on contract, any other cause of action arising also on contract, and existing at the commencement of the action.'

G.S. § 1-137, in all material respects, contains the same provisions as sec. 244 of the Code of 1883.

Inquiry as to the origins of the quoted provisions of our usury statute, now codified as G.S. § 24-2, throws light on the question now before us for decision.

Originally, our usury statutes condemned as utterly void 'all bonds, contracts, and assurances whatsoever, * * * for the payment of any principal or money to be lent, or covenanted to be performed, upon or for any usury, whereupon or whereby there shall be reserved or taken' interest in excess of the legal rate prescribed. Act of 1741, Potter's Revisal of 1819, c. 28; Revised Statutes of 1837, c. 117; Rev.Code of 1854, c. 114; Laws of 1874-75, c. 84. Under these statutes, no action could be maintained on any usurious assurance for the payment of money. Shober v. Hauser, 20 N.C. 222; Norwood v. Marrow, 20 N.C. 578. (It is noted that the Act of 1866, Laws of 1866, c. 24, repealed c. 114, Rev.Code of 1854. This Act of 1866 appears as c. 114, Battle's Revisal of 1873. It was in effect from 1866 until the Act of 1874-75 re-enacted substantially the provisions of the earlier statutes.)

Under the Act of 1874-75, a person who loaned money upon such usurious contract lost his right to recover it. If he actually made recovery thereof, he became liable, by way of penalty, for twice the amount of such recovery, in an action brought by any person who sued therefor. The earlier statutes (except the Act of 1866) provided that the person who sued for such penalty was entitled only to one-half of the recovery, the other one-half going to the State. It was provided further in the Act of 1874-75 that a violation thereof was a misdemeanor.

The Act of 1876-77, Laws of 1876-77, c. 91, in express terms, repealed and superseded the Act of 1874-75. It contains this explanatory recital: 'Whereas, The supreme court of North Carolina, on the authority of a decision of the supreme court of the United States, has decided that the penalties imposed by the present usury law cannot be enforced against national banks.' The decision referred to is Merchants' & Farmers' Nat. Bank v. Myers, 74 N.C. 514, January Term, 1876, based on Farmers' & Merchanics' Nat. Bank v. Dearing, 91 U.S. 29, 23 L.Ed. 196.

The Act of 1876-77, after prescribing the then legal rate of interest, provided:

'Sec. 3. That the taking, receiving, reserving, or charging a rate of interest greater than is allowed by the preceding section, when knowingly done shall be deemed a forfeiture of the entire interest which the note, or other evidence of debt, carries with it, or which has been agreed to be paid thereon; and in case a greater rate of interest has been paid, the person by whom it has been paid, or his legal representative, may recover back, in an action in the nature of an action of debt, twice the amount of interest paid: Provided, Such action shall be commenced within two years from the time the usurious transaction occurred.'

This was and is in substance, and nearly so in terms, the provision of the federal statute applicable to national banks. Act of June 3, 1864, c. 106, sec. 30, 13 Stat. 108, Rev.Stat. § 5198, Title 12, U.S.C.A. § 86. Also, this is in substance, and nearly so in terms, an integral part of G.S. § 24-2, our present usury statute.

It is noteworthy that the Act of 1876-77 effected these changes: (1) the usurious contract, as to the principal of the loan made, is not void; (2) the penalty is for twice the amount of interest paid; and (3) the action to recover the penalty vests in the person who paid such interest, or his legal representative, in an action in the nature of an action of debt.

In Barnett v. Muncie Nat. Bank, 98 U.S. 555, 25 L.Ed. 212, the Supreme Court of the United States, October Term, 1878, held explicitly that the penalty for usurious interest paid could be recovered only by a separate suit, 'BROUGHT SPECIALLY AND EXCLUSIVELY FOR THat purpose,' not by way of counterclaim. The authority of Barnett v. Muncie Nat. Bank, supra, as applied to national banks, was recognized in subsequent North Carolina decisions. Oldham v. First Nat. Bank, 85 N.C. 240; Commercial Nat. Bank v. Simpson, 90 N.C. 467.

Even so, in Bank v. Ireland, 122 N.C. 571, 29 S.E. 835, wherein plaintiff was a national bank, it was held that under our usury statute the defendant was entitled to plead the forfeiture of interest and a counterclaim for twice the amount of usurious interest paid. This Court then entertained the view that such defense and counterclaim were permissible by reason of Act of July 12, 1882, c. 290, sec. 4, 22 Stat. 163, 28 U.S.C.A. § 1348. This Act of Congress conferred jurisdiction upon the state courts in actions by and against national banks. But in Planters' Nat. Bank v. Wysong & Miles Co., supra, after full review of the later decisions of the Supreme Court of the United States, this Court concluded that, as applied to national banks, the federal usury statute controlled; that said Act of 1882 had no bearing upon the matter; and that recovery of the penalty for usurious interest paid, in respect of an action by a national bank could not be had by way of counterclaim but only by separate and independent action for that single purpose.

While recognizing the duty of this Court to follow the decisions of the Supreme Court of the United States in its construction of a federal statute, Walker, J., in Planters' Nat. Bank v. Wysong & Miles Co., supra, says [177 N.C. 380, 99 S.E. 206]: 'We would not ourselves adopt this construction of the act of Congress, were it a question before us to be decided irrespective of the ruling of the highest federal court, as the words by an 'original or independent' action in the nature of an action of debt are not used in the act, nor do we think there is anything there from which they should be implied, but that the Congress merely intended to refer to the nature of the action in which recovery...