Jefferson Standard Life Ins. Co. v. Dattel

• Decision Date: 22 April 1936
• Docket Number: No. 8039.,8039.
• Citation: 83 F.2d 504
• Parties: JEFFERSON STANDARD LIFE INS. CO. et al. v. DATTEL.
• Court: U.S. Court of Appeals — Fifth Circuit

83 F.2d 504 (1936)

JEFFERSON STANDARD LIFE INS. CO. et al. v. DATTEL.

No. 8039.

Circuit Court of Appeals, Fifth Circuit.

April 22, 1936.

Hugh F. Causey and L. C. Hallam, both of Cleveland, Miss., for appellants.

A. B. Sparkman, of Cleveland, Miss., for appellee.

Before FOSTER, SIBLEY, and HUTCHESON, Circuit Judges.

SIBLEY, Circuit Judge.

Bertie Dattel bought from J. W. Cutrer land mortgaged by him to Jefferson Standard Life Insurance Company, and assumed the mortgage debt as a part of the purchase price. She later contended that under the law of Mississippi, in which state the land lay and the transactions occurred, the mortgage debt was usurious and no interest was due, and that she had overpaid the principal; and in a state court of equity she sued the insurance company to cancel the mortgage as a cloud on her title. The suit was removed to the federal court, where usury was denied, estoppel asserted against Mrs. Dattel to attack the debt she had assumed, and cross-relief prayed by foreclosure of the mortgage. On agreed facts, a decree was rendered finding usury, that Mrs. Dattel had not assumed the usurious interest nor deducted it from the purchase price, and that she could recover such interest as she had paid by offsetting it against the principal assumed by her, and that, having discharged her assumption in this wise and by payment into court of a balance, the mortgage be canceled. The insurance company appeals, the main assignments of error being that there was no usury under the state statute as interpreted by the Supreme Court of Mississippi when the mortgage was made and none under changes in the statute and its altered interpretation since, and if there be usury, that Mrs. Dattel assumed the interest notes as well as the principal notes, and is estopped to set up usury, the debtor Cutrer alone having that right.

The main facts are these: On March 20, 1923, Cutrer made the trust deed securing his notes then given for a principal of $7,500, that sum being paid to him. Each principal note recites that it draws interest at 8 per cent. per annum from date payable semiannually until paid, and that interest before maturity is represented by ten interest notes attached and bearing interest from their maturity. The last principal note for $6,000 and the last interest note matured March 20, 1928. The trust deed itself set forth each principal note by amount and date of maturity, and stated that they drew interest from date at 8 per cent. payable semiannually of each year until paid, and that the interest was evidenced by ten interest notes, stating the amount and maturity of each, and that each bore interest after maturity at 8 per cent. payable semiannually. The face of the interest notes aggregated $2,700. On November 8, 1923, Cutrer delivered to Mrs. Dattel his deed conveying the land to her "in consideration of $12000 to be paid by party of the second part, of which amount the sum of $1500 is cash in hand paid * * * the sum of $3000 is evidenced by the thirty promissory notes of the party of the second part to the party of the first part * * * and the remainder of said amount, to-wit, the sum of $7500, is evidenced by that certain deed of trust executed by the party of the first part in favor of Jefferson Standard Life Insurance Company * * * which said sum as evidenced by said deed of trust, together with the interest accrued and accruing thereon, the party of the second part assumes and agrees to pay as and when the same shall become due and payable according to the tenor and effect thereof." The deed also retained a vendor's lien "to secure the payment of the above mentioned purchase money as hereinbefore stated." Cutrer paid the first interest note of $300. Mrs. Dattel paid the others as they fell due through March 20, 1928, amounting to $2,400, together with $3.75 of interest on one that became overdue. She paid also four principal notes, but the fifth for $6,000, which was due in March, 1928, she by consent of the insurance company began to pay semiannually $200, with 8 per cent. interest paid semiannually. No new notes were taken. After a default in this arrangement, the insurance company was seeking to enforce a power of sale, when this bill was filed.

The case falls into two periods, the first ending March 20, 1928, when the last principal and interest notes matured; the second covering the later time when Mrs. Dattel under some new arrangement was paying the $6,000 principal note. During the first period she was paying as they matured notes which she had assumed to pay as part of the price of her land. She cannot set up usury in them. She stands not as a mere purchaser of property fighting off an incumbrance which she does not owe. The whole point is that she has specially assumed to pay this incumbrance. To show that a court of equity will not aid a purchaser to avoid for usury a definite obligation which he has agreed to pay as a part of the purchase price we need add little to what we said in Norton v. Commerce Trust Co., 71 F.(2d) 136. In confirmation, we find the law thus stated by the Mississippi court: "The authorities seem to be practically uniform in support of the doctrine that a vendee of mortgaged property who assumes and agrees, as a part of the purchase price of the property, to pay a fixed and definite balance due according to the terms and provisions of the mortgage, cannot set up the defense of usury in the mortgage debt. The rule seems to be different, however, where the agreement is to pay `what was legally due,' or the `balance due.'" Mortgage Security Corporation v. Hartman, 158 Miss. 535, 130 So. 739, 740. The Mississippi cases relied on by appellee to sustain the thesis that every purchaser of incumbered land may assert usury against the incumbrance are all reconcilable with the rule just quoted. The decision reached in the Hartman Case was that the grantor who made the debt was the proper person to question it for usury, and he being a party before the court, the inquiry might be entertained. This, too, is in accord with the general rule stated by us in the Norton Case, that usury is normally a personal defense to be asserted or waived by the person who borrowed the money. It is distressed borrowers whom usury laws seek to protect from oppression. A purchaser freely agreeing to pay a fixed incumbrance acts from no necessity. What he thus pays is from his standpoint not borrowed money, but purchase money. It is paid to the incumbrancer because the seller has appointed this mode of paying the purchase price. The incumbrancer receives it not as the money of the purchaser, but of his original debtor. Under the Mississippi statute and most others, there is no prohibition against paying a usurious debt if the borrower's notion of honesty and of maintaining his credit leads him to desire to pay it. If he has bound a purchaser of his property to pay it for him, he has a right to expect performance, and he alone can justly excuse the purchaser. If usury is thus paid, the seller and not the purchaser has the right to recover it. Hough v. Horsey, 36 Md. 181, 11 Am. Rep. 484; 10 R.C.L., Estoppel, § 10; 27 R.C.L., Usury, §§ 83, 89, 91, 92. The only question here is, What did Mrs. Dattel agree to pay?

If her assumption had been only of $7,500 and interest, lawful interest might be supposed intended. But it is of $7,500 "as evidenced by said deed of trust together with the interest accrued and accruing thereon * * * according to the tenor and effect thereof." We are of opinion...