Edwards v. Surety Finance Co. of Seattle

• Decision Date: 07 March 1934
• Docket Number: 24825.
• Citation: 30 P.2d 225,176 Wash. 534
• Parties: EDWARDS v. SURETY FINANCE CO. OF SEATTLE.
• Court: Washington Supreme Court

30 P.2d 225

176 Wash. 534

EDWARDS v. SURETY FINANCE CO. OF SEATTLE.

No. 24825.

Supreme Court of Washington

March 7, 1934

Department 1.

Appeal from Superior Court, King County; H. G. Sutton, Judge.

Suit by A. T. Edwards against the Surety Finance Company of Seattle. From a judgment for defendant, plaintiff appeals.

Modified and affirmed.

Frank E. Hammond, of Seattle, for appellant.

Wright Jones & Bronson and W. L. Grill, all of Seattle, for respondent.

STEINERT Justice.

Plaintiff instituted suit, under nine separate causes of action, to recover usury paid by him to defendant on nine promissory notes. The court found that the payments made by plaintiff on the first seven notes were usurious to the extent of $1,065.90 and on the last two notes to the extent of $160.15. The court held, however, that the first seven causes of action of the complaint were barred by the statute of limitations. As to the last two causes of action, upon which plaintiff was held entitled to recover, the court allowed an overbalancing offset, the origin and nature of which will be referred to later. Judgment was thereupon entered dismissing the complaint with prejudice. Plaintiff has appealed.

There are but two assignments of error, both based upon the court's findings.

The first question is whether this character of action is controlled by the six-year statute of limitations or by the three-year statute. The six-year statute refers to 'an action upon a contract in writing, or liability express or implied arising out of a written agreement.' Rem. Rev Stat. § 157, subd. 2.

The three-year statute has reference to 'an action upon a contract or liability, express or implied, which is not in writing, and does not arise out of any written instrument.' Rem. Rev. Stat. § 159, subd. 3.

Appellant's causes of action with reference to the first seven notes accrued more than three, but less than six, years prior to the commencement of this action.

The taking of any greater rate of interest than 12 per cent. per annum is forbidden by law. Rem. Rev. Stat. § 7300. However, a contract reserving a greater rate of interest than that above prescribed is not of itself void, but, if suit be brought thereon, then any judgment recoverable is subject to certain deductions. Rem. Rev. Stat. § 7304. The right to recover usury paid is a common-law right; the remedy is in assumpsit for money had and received. Lee v. Hillman, 74 Wash 408, 133 P. 583, L. R. A. 1918B, 581, Ann. Cas. 1915A, 759; 27 R. C. L. p. 269, § 72.

The question immediately Before us, upon the first assignment, is this: Is appellant's action based upon an implied liability 'arising out of a written agreement,' or, in other words, does a promissory note include, in addition to its express terms, an implication that the payee shall return to the payor the usurious portion of the payment thereon? If this alternative question be answered in the affirmative, then appellant should have been allowed to recover upon his first seven causes of action; if it be answered in the negative, then those causes would, upon their faces, be barred by the three-year statute.

The notes themselves contained only the promise of the appellant to pay the respective amounts thereof. There was no express promise on the part of respondent to repay any portion of such amounts. Nor can it be said that there was any implied promise on the part of the respondent to repay to appellant any part of the amount received by it. While necessary implication is as much a part of an instrument as an express provision is, the implication must nevertheless, be such as is within the contemplation of the parties when making the contract, or else necessary to carry their intention into effect. Under such circumstances only will the law imply and enforce the obligation. 6 R. C. L. p. 856, § 244.

In addition to such contracts as draw their efficacy from the consent of the parties, there is a class of legal obligations which, though of a contractual nature, are not based on contract or consent. These are sometimes spoken of as contracts implied in law, but are usually referred to as quasi, or constructive, contracts. For the purpose of applying the contractual remedy of assumpsit, the law imposes upon such obligation a fictitious promise to pay. The liability upon an obligation of this kind arises purely upon an implication of law, independent of agreement or intention. The law in such cases establishes a duty which may be contrary to the intention of either one, or both, of the parties. 6 R. C. L. p. 588, § 7.

The right to recover usurious or illegal interest accrues, not from the contract under which usury is paid, nor from any implication contained in the contract itself, but from a duty imposed by law to repay an unjust and unmerited enrichment. The contract, under which a usurious rate of interest is reserved, having been performed, the law, in turn, implies a contract resting upon the duty to repay the amount unlawfully taken, and furnishes a remedy to the debtor, by an action of assumpsit, to recover such payment. Lee v. Hillman, 74 Wash. 408, 133 P. 583, L. R. A. 1918B, 581, Ann. Cas. 1915A, 759; City of Seattle v. Walker, 87 Wash. 609, 152 P. 330; Buntyn v. National Mutual Bldg. & Loan Ass'n, 86 Miss. 454, 38 So. 345; Woodward on Quasi Contracts, p. 355, § 233; 27 R. C. L. p. 269, § 72.

The notes in this case are but circumstantial and incidental to the relief sought by appellant. In paying and receiving the money upon the notes, the minds of both parties were directed to the discharge of one set of obligations rather than to the creation of another set. The parties having discharged one obligation, the law by implication created a new and independent one, regardless of the intention or consent of the parties. We are therefore of the opinion that the liability of the respondent did not arise out of a written agreement, and that consequently the six-year statute did not apply.

Under the second assignment of error, appellant contends that the court erred in allowing the balance due on an assigned judgment to be set off against the amount found to be due the appellant from respondent for usury. A discussion of this assignment necessitates the statement of some additional facts.

It appears from the findings of the court that on October 10, 1930, appellant and his wife had executed and delivered to Surety Industrial Loan Company their promissory note for $1,000 payable in installments and secured by a chattel mortgage. This note had nothing to do with the other notes hereinabove referred to. In February, 1931, Surety Industrial Loan Company instituted suit upon that note and, on January 23, 1932, obtained judgment. Thereafter the property covered by the chattel mortgage was sold, and the proceeds were applied on the judgment, leaving a balance of $865.20 owing thereon. It further appears from the findings of the court in this case that on August 13, 1931, while the other suit was still pending, Surety Industrial Loan Company sold and assigned that note and mortgage to the respondent herein for a consideration of $1,000. However, there was never any substitution of parties plaintiff in that action, nor did the appellant know of such assignment. After judgment had been entered, and during the progress of the present suit, the judgment in the former action was also assigned by Surety Industrial Loan Company to the respondent herein. The present action was begun November 25, 1931. It will therefore be noted that, when this action was commenced, the former action was in progress, although judgment had not been obtained.

Appellant contends, first, that his liability on the thousand dollar note was extinguished and ceased when judgment thereon was taken, and that therefore the judgment only, and not the note, could be the subject of set-off. The statute in this state allowing set-off reads: 'The defendant in a civil action upon a contract expressed or implied, may set off any demand of a like nature against the plaintiff in interest, which existed and belonged to him at the time of the commencement of the suit. * * *' Rem. Rev. Stat. § 266.

As already stated, the present action is upon a contract implied in law. At the time of the commencement of this action, appellant's liability in the former action was still upon the note; no judgment had been taken. Under the findings of the court herein, however, the note then actually belonged to the respondent by assignment, although suit thereon was being maintained in the name of another party. Being the owner of a demand of a contractual nature against appellant, respondent was entitled to have it set off against appellant's present demand. The fact that the note subsequently became merged in a judgment would not defeat the right...