Knott v. Jackson

• Decision Date: 30 December 1942
• Docket Number: Nos. 7, 8.,s. 7, 8.
• Parties: KNOTT v. JACKSON et al. JACKSON et al. v. KNOTT.
• Court: D.C. Court of Appeals

31 A.2d 662

KNOTT

v.JACKSON et al.

JACKSON et al.

v.KNOTT.

Nos. 7, 8.

Municipal Court of Appeals for the District of Columbia.

Dec. 16, 1942.

Rehearing Denied Dec. 30, 1942.

Appeals (Consolidated) from the Municipal Court for the District of Columbia, Civil Division.

Action by Walter A. Jackson and others against Dr. C. O. Knott. Judgment for plaintiffs, and the defendant appeals and the plaintiffs cross-appeal.

Affirmed.

RICHARDSON, Chief Judge, dissenting in part.

Mark P. Friedlander, of Washington, D. C. (Herman Miller, of Washington, D. C., on the brief), for appellant.

Philip Wagshal, of Washington, D. C., for appellees and cross-appellants.

Before RICHARDSON, Chief Judge, and CAYTON, and HOOD, Associate Judges.

HOOD, Associate Judge.

Plaintiffs below, Walter A. Jackson, Rebecca M. Jackson, his wife, and Isabell Ware, sued the defendant, Dr. C. O. Knott, for the recovery of alleged usurious interest. The record discloses that in February, 1937, Mr. Jackson sought a loan from Dr. Knott and offered as security a third deed of trust on his home, but the loan was refused on the ground the security offered was insufficient. Later Mr. Jackson, with the consent of his aunt, Isabell Ware, again approached Dr. Knott and offered a second deed of trust on Mrs. Ware's house as additional security for the loan. Dr. Knott examined her house and approved a loan. The record does not disclose the amount of the loan originally sought nor the amount finally agreed upon but on March 10, 1937 Mr. and Mrs. Jackson and Mrs. Ware executed a joint and several note, payable to the order of Marie Toombs, in the principal amount of $980, with interest at 6% per annum, principal and interest being payable in monthly installments of $40 each. This note was secured by a single deed of trust executed by the three makers of the note and covering both the Jackson and Ware homes.

It was contended by plaintiffs, and not denied by defendant, that the payee of the note was but a straw party for Dr. Knott; and though the principal amount of the note was $980 it is conceded by all parties that the amount actually advanced by Dr. Knott was only $697.90. The latter amount was advanced by Dr. Knott in the following amounts and for the following purposes: a check for $112.50 to Mr. Sager as payment on a second trust on the property of the Jacksons, a check for $120.00 to the Bank of Commerce & Savings in payment of a debt of Mr. Jackson, a check for $37.43 to L. P. Stewart to pay a bill owed by Mr. Jackson, checks for $72.74 and $65.01 in payment of taxes on the Jacksons' property, a check for $68.06 in payment of taxes on the Ware property, a check for $209.19 in payment of a bill owing by Mrs. Ware, and the balance in cash which was handed to Mrs. Jackson. The record offers no explanation why the payments were made in the manner above stated rather than by one check to the plaintiffs, though apparently it was by agreement of all parties.

The note and deed of trust were executed in the office of Herman E. Miller, an attorney representing Dr. Knott. Dr. Knott paid him the sum of $50 on account of expenses and fees in this transaction.

Thereafter, up to and including February 8, 1939, the sum of $555.30 was paid on account of the note, $476.34 being applied to principal and $78.96 to interest. This sum was paid by Mr. Jackson and Mrs. Ware, but neither could testify as to the exact amount he or she paid, though Mrs. Ware testified that she paid more than Mr. Jackson.

On March 24, 1939, Mrs. Ware paid the sum of $300, $297.48 being applied to principal and $2.52 to interest. The record does not disclose expressly why she made this payment, how the particular sum was determined, or the negotiations or conversations leading up to the making of the payment. However, upon the making of this payment Mrs. Ware's property was released from the deed of trust given to secure the note.

Thereafter Jackson continued to make various payments upon the note until December 4, 1941, when the note was paid in full.

Obviously the transaction was usurious and the defendant below made no contention to the contrary. The jury rendered a verdict for the plaintiffs in the sum of $330.82. This sum was arrived at by adding the sum of $98.72, the interest charged on the note, and the principal amount of $980, making a total of $1,078.72, and deducting therefrom $697.90, the amount actually advanced, plus the $50 payment to Miller.

The defendant appealed from the judgment entered on the verdict and the plaintiffs have taken a cross-appeal.

The cross-appeal is based upon the refusal of the trial court to rule that the case came withint he provisions of the so-called Loan Shark Law, ¹ which provides that the person violating the provisions of the act shall forfeit all interest, and in addition thereto shall forfeit a sum equal to one-fourth of the principal sum. We think the trial court was correct in this ruling. The Loan Shark Law is not a usury statute, but an act licensing, under limitations and restrictions, the lending of money in small sums upon personal security; ² and was intended to apply only to persons making small loans upon personal security as shown by the fact that the amount of such loans is limited by the act to $200. ³ The actual amount loaned in this case, nearly $700, can hardly be called a small loan and is far above the figure fixed by the act.

In an attempt to bring this case within the act, plaintiffs below offered the testimony of one Lewis, who identified four notes representing loan from Knott to the witness, in amounts varying from $30 to $93, made between November 14, 1936, and July 20, 1938. Such evidence, plus the making of the loan here in issue, is not sufficient to warrant a finding that Knott was engaged ‘in the business of loaning money’ within the meaning of the act. ⁴ Plaintiff also offered in evidence other notes payable to Marie Toombs but since the witness testified that Marie Toombs lent money herself, the court properly refused to admit those notes in evidence against Knott.

The contention made in the main appeal, in substance, is that a claim for the return of usury is a personal right and that to maintain a joint action for usury there must be proof of joint payment or payment out of joint funds, that since there was no proof in this case of either joint payments or payment from joint funds the plaintiffs below could not maintain a joint action; that Mrs. Jackson, made no actual payments and therefore could not maintain a separate action; that Mr. Jackson did not prove that he paid more than he actually received and therefore could not maintain a separate action; and that Mrs. Ware was the only one who might have claimed usury but that her cause of action is barred by the one year limitation of our usury statute.

Our Code provision, § 28-2704, relating to the recovery of usury paid, provides that if a person shall take or receive unlawful interest, the person ‘paying the same shall be entitled to sue for and recover the amount of the unlawful interest so paid,’ provided said suit be begun within one year from the date of such payment.

Appellant cites a number of cases to the effect that usury can be recovered only by the party paying it. Illustrative of these cases is Kendall v. Vanderlip, 2 Mackey, D.C., 105, where an accommodation maker, when sued on the note, attempted to set off usurious interest paid by the party accommodated, whose name did not appear on the note, and the court, denying such right of set-off, said: ‘Now, in this case, the illegal interest was paid by Terry, for whose accommodation these notes were made, not by the maker of the notes; and it is very plain that the maker cannot maintain a suit against Kendall to recover money paid by Terry, a third party, out of his own pocket.’

The case most heavily relied upon by appellant is that of Timberlake et al. v. First National Bank, 5 Cir., 43 F. 231, 235, where suit was brought to recover alleged usury, and on a demurrer to the pleas the court said: ‘The fifth plea alleges that T. C. King & Co. were the successors of Timberlake & Nance, and that whatever amount of interest was paid, if any, over and above the interest allowed by law, was paid by T. C. King & Co., who alone are entitled to recover the penalty therefor. Section 5198 [12 U.S.C.A. § 86] confers the right to recover the penalty to the party paying it, or to his legal representatives, so that this plea sets up a valid defense to this action if sustained by the proof.’

Other cases of a similar nature are cited by appellant. ⁵ These cases hold that one cannot recover usury not paid by him and consequently that one joint maker cannot recover illegal interest when it was paid by the other maker. And in some of the cases it is held that where one joint maker pays all the illegal interest he may sue therefore in a separate action without joining his co-maker as a co-plaintiff. But such cases, in our opinion, do not sustain the proposition that joint makers of a note may not maintain a joint suit for recovery of usury. Plainly one joint maker should not be allowed to recover that which he did not pay, since his co-maker, not being a party to the action, might also sue and thus force defendant to pay twice for the same usury. In the present case, all parties no the note are in court and defendant cannot be prejudiced by a joint judgment. One determination of the usury paid has been made, and one judgment entered. Defendant will be compelled to pay that judgment and no more.

The case most nearly in point, relied upon by appellees and conceded by appellant to be contrary to his contention, is that of Alston et al. v. Orr, Tex.Civ.App., 105 S.W. 234, 236. In that case, three brothers applied for a loan which defendant agreed to make, provided their father would sign the note with them. The father and sons signed a joint and several note but the father received no money and made no payments on the...