Mayfield v. Nunn

• Decision Date: 31 May 1960
• Docket Number: No. 44132,44132
• Citation: 239 La. 1021,121 So.2d 65
• Parties: Lucius MAYFIELD, Administrator Pro Tempore of the Succession of Van Mayfield, et al. v. George J. NUNN et al.
• Court: Louisiana Supreme Court

Page 65

121 So.2d 65

239 La. 1021

Lucius MAYFIELD, Administrator Pro Tempore of the Succession of Van Mayfield, et al. v. George J. NUNN et al.

No. 44132.

Supreme Court of Louisiana.

May 31, 1960.

Jerome T. Powell, Robert G. Chandler, Shreveport, for plaintiffs-appellants.

Morgan, Baker, Skeels, Middleton & Coleman, Shreveport, for defendants-appellees.

GARDINER, Justice ad hoc.

This suit was instituted on January 29, 1958 by Lucius Mayfield in his capacity as Administrator pro tempore of the Succession of Van Mayfield, and by Jessie Holmes Mayfield, having for its immediate purpose to enjoin further prosecution of a suit via executiva instituted by defendants George Nunn and Jack A. Martin to foreclose a mortgage on certain real estate for the alleged reason that the mortgage note, signed by Van Mayfield and Jessie Holmes Mayfield, on which some payments had been made, was tainted with usury. Exceptions of no cause or right of action having been maintained by the lower Court, and writs having been refused by this Court, ¹ the foreclosure proceedings were terminated and admittedly are no longer open to attack. A devolutive appeal was perfected from the lower Court's maintaining of the exceptions as to other relief sought, and the matter is now before us for consideration.

The petition's well pleaded factual allegations, which must be accepted as true in disposing of the exceptions, are that on May 29, 1956 the defendants George J. Nunn and Jack A. Martin, at the request of and for the account of Van and Jessie Holmes Mayfield and in order to liquidate the Mayfields' indebtedness of $9,933.70 to the National Bank of Bossier City, secured by three mortgage notes the payments on which were then in default, paid to the bank the said sum; that contemporaneously with that payment, and as a condition for making it, the defendants required the Mayfields to execute a promissory note in the principal sum of $15,000, bearing eight per cent per annum interest from date until paid, payable in $400 monthly installments, secured by an act of mortgage affecting certain real property owned by the Mayfields (the same property which had secured the notes to the bank--the prior mortgages being then cancelled); that the note 'included a bonus' (over and above the indebtedness) of $5,166.30 and, in addition, stipulated eight per cent per annum interest, 'not only upon the debt but also on the said bonus.' It was further alleged that after execution of the mortgage note, Van Mayfield made monthly payments to defendants from July, 1956 though October, 1957, totaling $5,700; that in the foreclosure proceedings (sought to be enjoined) the defendants were claiming the sum of $11,839.13 as still due on the mortgage note, with 8% Interest from October, 1957 until paid, plus 10% Of principal and interest as attorneys' fees. The plaintiffs, asserting that because of the usurious character of the interest charged, no portion of the installments paid can be applied to interest but that those sums must be credited in entirety against the original indebtedness of $9,933.70, leaving a balance due of $4,233.70--rejected when offered to plaintiffs--prayed (aside from the prayer for temporary injunction) that the defendants be duly cited to appear and answer the petition and that after legal delays, etc., there be judgment against them decreeing the 'bonus' and the interest 'from date' to be usurious interest not collectible; prayed also that the payments of $5,700 'be recognized,' that the original amount due of $9,933.70 be reduced by $5,700 and that there be judgment against plaintiffs and in favor of defendants for the remainder, i.e. $4,233.70, with 5% Interest from date of judgment until paid; and for general and equitable relief.

The Trial Judge, having given oral reasons for maintaining the defendant's exceptions of no cause or right of action, on motion for rehearing re-stated, in a memorandum opinion, his appreciation of the case, nothing that the sole issue was whether or not the note in question bore an usurious rate of interest and stating that while in the Court's opinion the rate of interest was unconscionable and was certainly usury in disguise, nevertheless 'in as much as the courts have permitted any amount as a bonus or commission or excess charge to be incorporated in the body, or the principal amount stated on the face of the note, * * * we see no reason for restricting the note to no interest from date * * * and we have been unable to find any case in which this factual situation was presented to the courts.'

Counsel for plaintiff-appellants, contending that their petition factually sets forth a case of usury under the laws of this State, submit that Article 2924 of the Revised Civil Code-LSA, comprising our law on usury, treats discount as prepaid interest; that also falling within the category of prepaid interest are sums deducted from the amount of a note before the proceeds are delivered to the maker; and that in adopting Article 2924 of the Code the lawmakers intended to legalize the discounting of notes and the sale of discounted notes on the theory that the amount of the discount constituted prepaid interest up to the date of maturity; but that if Article 2924 be construed to allow the collection of interest From date of note upon prepaid interest, the result would be in conflict with Article 1939 of the Civil Code-LSA prohibiting interest upon interest--unless capitalized within the meaning of the law. ²

Counsel for defendant-appellees, in defense of the ruling on their exceptions, contend as their major premise that 'discount' is distinct from 'interest,' since discount is said to entail the gauging by the creditor of the element of risk, the gamble of capital, the chances of gain or the probabilities of loss; from which it follows that Article 1939 of the Civil Code-LSA prohibiting the recovery of interest upon interest is totally inapplicable; and particular emphasis is placed on a paragraph of Article 2924, which is said to be more appropriate to the instant case and to be devoid of restriction as to when the interest begins to run.

A study and analysis of the various paragraphs of Article 2924 ³ reveal that the law declares interest to be either legal or conventional; legal (or judicial) interest is fixed at 5%; as to sums discounted at banks, the interest is at the rate established by their charters; conventional interest cannot exceed 8%, and if a higher rate is paid, as discount or otherwise, the same may be sued for and recovered within two years from the time of such payment--except in two instances, the one set out first being devoid of restriction as to when interest begins to run (this being the provision on which defendants rely), the other, in almost identical terms, with a proviso that interest be not more than 8% Per annum after maturity until paid; and the question presented in the case before us is whether or not the obligation signed by the Mayfields for $15,000, which included a 'bonus' of somewhat more than $5,000, with interest stipulated at 8% From date, falls within either exception, or whether it has characteristics which are prohibited under the laws relating to interest. The two paragraphs, having originated in substantially their present wording as Act 161 of 1856 (appearing as the first exception) and Act 62 of 1860 (appearing as the second--see footnote 3), were incorporated in the Revised Civil Code upon its adoption in 1870. Legislative history for the decade following 1850 is almost non-existent; assuming that enlightenment might be had from the House and Senate Journals for the years 1856 and 1860 (we are informed that the whereabouts of only one copy of each of these publications is known), they could not be obtained. We therefore turned to the jurisprudence of the period for assistance in an interpretation of the meaning of the provisions.

One of the earliest cases dealing with the subject, decided in the year 1860, stated that 'The Act of March 20, 1856 (Act 161 of 1856) had in view the sale of notes and other written obligations, their discount or sale, for the purpose of raising money, and nothing more.' Crane v. Beatty, 15 La.Ann. 329. Twice during the course of succeeding months the above construction of the 1856 statute was repeated and approved: Weaver v. Maillot, 15 La.Ann. 395, and Campbell & Strong v. Hilliard, 15 La.Ann. 537. ⁴ In a subsequent case involving a promissory note carrying interest 'from date' at the rate of 10%, the provisions of the 1856 Act were applied to reduce the interest to 8%; Williams v. Halsmith, 1865, 17 La.Ann. 200. Several cases considered both the 1856 and 1860 Acts; for example, in Weaver v. Kearny & Blois, 1865, 17 La.Ann. 326, 327 the Court said: 'The evident object of the Legislature in passing these acts was that there should be no stipulation for interest exceeding the rate of 8% Unless the parties contracting for a greater rate of interest on a valid claim should add the interest to the claim in making the amount of the written obligation.' In Tarver v. Winn, 1866, 18 La.Ann. 557, 558, where the Court had for consideration a suit on a note providing a large sum would be paid in the future as damages or interest in case of failure to make payment at maturity, the...