Osborne v. Fridrich

• Decision Date: 15 December 1908
• Citation: 134 Mo. App. 449,114 S.W. 1045
• Parties: OSBORNE v. FRIDRICH.
• Court: Missouri Court of Appeals

114 S.W. 1045

134 Mo. App. 449

OSBORNE v. FRIDRICH.

St. Louis Court of Appeals. Missouri.

December 15, 1908.

1. BILLS AND NOTES (§ 237)—LIABILITIES ON INDORSEMENT—ACCOMMODATION INDORSER.

An accommodation indorser is in effect a surety.

2. USURY (§ 127) — RIGHTS OF PARTIES — DEFENSES — DEFENSE BY SURETY.

A surety may interpose the defense of usury in an action on a promissory note.

3. CONTRACTS (§ 68) — CONSIDERATION — SUFFICIENCY — COMPROMISE OF DOUBTFUL CLAIM.

The compromise of a doubtful demand or suit is, as a general rule, a good consideration for a promise.

4. CONTRACTS (§ 68) — CONSIDERATION — COMPROMISE —SUFFICIENCY — GOOD FAITH.

In determining whether the compromise of a pending suit is a good consideration for a promise, the good faith of the claimant is material, and, as a general rule, should be the test of its validity.

5. USURY (§ 106) — USURIOUS CONTRACTS — SETTLEMENT OF LITIGATION.

Plaintiff sued defendant as surety on notes carrying usurious interest, and on which the usurious interest already paid was more than the unpaid principal with lawful interest. Usury was not pleaded as a defense, and the suit was settled by defendant executing other notes, which were subsequently renewed by giving others. The settlement notes and their renewals all carried usury. Held, that recovery of the usury exacted before the settlement was not precluded thereby, since it was obvious that the settlement was not of a suit brought in good faith on a claim supposed to be good the usury already paid at that time being sufficient, as plaintiff must have known, to discharge the debt, and hence the settlement was not a good consideration for the notes then given.

Appeal from St. Louis Circuit Court; Jas. E. Withrow, Judge.

Action by E. F. Osborne against John H. Fridrich. From a judgment for defendant, plaintiff appealed. Affirmed.

H. A. & C. R. Hamilton, for appellant.

GOODE, J.

This action is on a promissory note dated November 5, 1906, due two months after date, for the sum of $300, with 8 per cent. interest, payable to A. L. Shoults, signed by respondent John H. Fridrich, and indorsed by Shoults to appellant. The defenses are want of consideration for the note and usury in the transactions out of which it grew. In 1902 Shoults borrowed some money from John H. Vette on a note with Fridrich as surety. This debt ran along until 1904, when cash to pay it was borrowed from C. W. McFarland, Osborne and Fridrich executing a note to McFarland similar to those Vette had taken; that is, with Osborne as maker and Fridrich as payee and indorser. The only conclusion to be drawn from the evidence is that Fridrich was an accommodation indorser, and therefore, in effect, a surety. Weimer v. Shelton, 7 Mo. 237. Osborne was connected with McFarland as a party to the transaction. The indebtedness is traced for two years and four months from the first loan by McFarland and Osborne, and during that time Shoults and Fridrich paid them $482.68, either in money or by incorporating accrued interest in renewal notes. The notes were given for 30 days each, and to renew them $15 a month was charged, plus $2.70. It seems the $15 was a charge for renewal and the balance was considered interest. An action was instituted before a justice of the peace by Osborne on that one of the successive notes which was dated July 16, 1906. Said action was dismissed on the execution and delivery to Osborne of two notes dated September 4, 1906, in which Fridrich was payee and Shoults maker and indorser. One was for $300 and one for $53. On November 5, 1906, the note in suit was given in lieu of the prior note for $300 of September 4th, and with the note in suit were given two other notes for $45 and $47. Thus it appears usurious charges continued after the settlement; for these small notes were for renewal premiums. On these facts the court found a verdict for respondent, having refused a declaration of law requested by appellant to the effect that, if the note in suit was given in lieu of one executed September 4, 1906, which was executed in compromise of an action then pending before a justice of the peace on a prior note, the verdict must be for respondent; also a declaration that even if the court found appellant had exacted usury from Shoults, the maker of the note dated July 16, 1906, on which respondent was indorser, yet if it further found respondent on September 4th, in consideration of an extension of time for the payment of said note of July 16th, assumed the debt and executed and delivered his own note dated September 4th, due 60 days after date, in payment of the prior note, and thereafter executed and delivered the note in suit in satisfaction of the note of September 4th, usury exacted of Shoults constituted no defense to appellant's demand.

Under the decision in Weimer v. Shelton, supra, respondent, as surety for Shoults, was entitled to interpose the defense of usury to the action instituted before the justice of the peace on the note of July 16th. The defense was not used, as the case was settled and dismissed without a trial in consideration of the execution and delivery of the two notes to Osborne, wherein respondent took the position of maker and Shoults that of payee and indorser. In other words, the positions of the parties to the notes of September 4th, and those of November 4th given to renew them, were the reverse of what they had been on the previous notes. The usury exacted after the settlement of the case before the justice, if credited on the principal note, would not suffice to discharge it; and appellant was entitled to a judgment for something, unless the prior usury should likewise be credited on the note in suit by virtue of the statute. Rev. St. 1899, § 3709 (Ann. St. 1906, p. 2077).

Appellant insists this cannot be done, because, as said, the dealings subsequent to the settlement were entirely detached from previous dealings and stood on a distinct consideration; whereas, respondent says the prior usury had wiped out the debt, and there was no consideration for the notes of September 4th. This is on the theory that our statutes made all the prior agreements to pay usurious interest void. Rev. St. 1899, §§ 3708, 3709, 3710 (Ann. St. 1906, pp. 2077, 2078). Not only is usury prohibited, and a defendant when sued for a debt allowed to plead it in defense, and have the amount paid for interest in excess of what should have been paid at the lawful rate credited on the principal, but now, if usury is paid, it may be recovered back by the borrower or his personal representatives. Rev. St. 1899, § 3708 (Ann. St. 1906, p. 2077). The lender can in no case recover more than the principal with lawful interest after deducting the usurious interest (section 3709), and a pledge or mortgage of personal property for a usurious debt renders the lien invalid. Moreover, usury to the extent it was carried by the appellant is a misdemeanor. 2 Ann. St. 1906, § 2358. Under these statutes, it has been held contracts to pay usurious interest are void as to the usury charged, a ruling made prior to the enactment of some of the most stringent provisions of the statutes. Farmers', etc., Bank v. Harrison, 57 Mo. 503; Vandergrif v. Swinney, 158 Mo. 527, 59 S. W. 71, 81 Am. St. Rep. 325; McDonnell v. Ass'n, 175 Mo. 250, 272, 75 S. W. 438, 97 Am. St. Rep. 592; Arbuthnot v. Ass'n, 98 Mo. App. 382, 72 S. W. 132. If respondent and Shoults had interposed the defense of usury to the action before the justice, that case must have been defeated, because the usury already paid would have discharged the debt. Instead of doing so, they settled the action by giving a new note with Fridrich as maker, which appellant says is valid for the reason stated supra.

Respondent answers that the demand filed with the justice was destitute of any merit, and therefore its settlement could not be a consideration for a new contract, likening the case to Long v. Towl, 42 Mo. 545, 97 Am. Dec. 355, Briscoe v. Kinealy, 8 Mo. App. 76, and Sullivan v. Collins, 18 Iowa, 228. In the first case actions before a justice for damages against the defendant for purchasing ore from miners who worked on the plaintiff's land had been settled and dismissed on the execution of a writing obligatory, wherein the defendant agreed to pay a penalty of $500 if he paid third persons a greater price for ore than plaintiff was paying, and to sell plaintiff at a certain price all ore thereafter purchased by him. In an action brought for breach of the stipulations it was held there was no consideration for the agreement, because the suits instituted before the justice of the peace were on wholly unfounded demands, which could form no adequate consideration for a promise. It should be remarked that the purchases of ore which gave occasion for the actions before the justice occurred when defendant was not bound by...