Parmelee v. Lawrence

• Decision Date: 30 September 1868
• Citation: 48 Ill. 331,1868 WL 5114
• Parties: FRANKLIN PARMELEE et al.v.DANIEL LAWRENCE.
• Court: Illinois Supreme Court

48 Ill. 331

1868 WL 5114 (Ill.)

FRANKLIN PARMELEE et al.

v.DANIEL LAWRENCE.

Supreme Court of Illinois.

September Term, 1868.

OPINION TEXT STARTS HERE

APPEAL from the Superior Court of Chicago.

The facts of this case will be found in the opinion of the court announced at the April term, 1867, in the same case, and reported in 44 Ill. 405. The decree rendered upon the former hearing in the court below was then reversed and the cause remanded, when, upon a second hearing a decree was rendered in accordance with the opinion of this court.

The true relation between the parties was this: Lawrence loaned to Parmelee, Gage, Johnson and Bigelow, partners, doing business under the name of F. Parmelee & Co., the sum of $50,000, at 12 per cent. per annum interest, and to secure its payment, in five annual installments, the borrowers conveyed to Lawrence certain real estate in the city of Chicago, the latter giving back an instrument in the form of a contract of sale, by the terms and legal effect of which he was to reconvey the premises on the payment of the money--thus creating the relation of mortgagors and mortgagee.

The contract was made on the 15th of September, 1856, and the question now presented, is, what rate of interest should Lawrence, the mortgagee, be allowed, in a proceeding to foreclose his mortgage?

Messrs. BECKWITH & AYER, for the appellants, Parmelee & Co., contended that, by reason of the usurious character of the contract, under the law governing the rights of the parties, they were entitled to an abatement of the entire interest reserved, while this court, in their former opinion in the case, held, the mortgagee was entitled to recover interest at the rate of ten per cent., that being the rate which might have been lawfully reserved at the time this contract was made. Counsel ask the court to reconsider that opinion, and present their view of the question as follows:

The appellants, according to the decision of this court, are to be treated as mortgagors, defending a suit by the appellee, as mortgagee, asking a foreclosure of his mortgage; and they set up the defence of usury in their answer, and insist upon the benefit of the laws of this State on that subject, and upon the application of all interest payments heretofore made by them towards the reduction of the principal.

When the loan was made (Sept. 15, 1856,) there were two statutes in force in this State in relation to the rate of interest allowed on contracts. By the statute of 1845, the rate was limited in all cases to six per cent. By a separate and distinct section of that act, all persons were expressly prohibited from accepting or receiving any greater sum for the loan or forbearance of money. And by subsequent sections a penalty of three-fold the amount of the whole interest received was imposed upon any one who should violate the statute.

By the act of 1849, it was enacted that money might be loaned at such rate of interest, not exceeding ten per cent. per annum, as the parties might agree upon. If a higher rate than six per cent. should be reserved in any promissory note or writing obligatory, given for any other consideration than money loaned, it was provided by this act, that the defendant might plead the fact as a defense, and if the issue should be found in his favor, judgment should be rendered for the principal sum mentioned in the instrument and six per cent. interest thereon.

The effect of this act was to repeal so much of the statute of 1845 as declared a penalty for receiving more than six per cent. on contracts other than for money loaned, leaving, however, that penalty in full force in all cases where more than ten per cent. should be reserved for money loaned. This construction of the act has received the express sanction of the Supreme Court, and its decision has been universally acquiesced in by the profession. Kinsey v. Nisley, 23 Ill. 505.

The same construction has also been recognized by this court in a later opinion filed in the present cause, on appeal taken from the original decree.

Such, then, was the state of the law when the contract in question was made. The statute authorized the parties to agree upon any rate not exceeding ten per cent. Any higher rate was positively forbidden, and a penalty of three-fold the amount of the whole interest reserved, was imposed by the law upon any one who should violate its provisions.

The contract for 12 per cent. interest was not wholly void, but it was invalid pro tanto, and cannot be enforced as made.

What, then, is the measure of relief which a court of equity will administer in the case of a creditor seeking to enforce an usurious contract? It is true, where a mortgagor asks relief against an usurious mortgage, he will be required to pay legal interest, on the principle that he who seeks equity must do equity. But where the lender of money, on an usurious contract, resorts to the courts to enforce his securities, a forfeiture of all the interest is the necessary consequence. Snyder v. Griswold, 37 Ill. 217. See also Mason v. Gardner, 4 Brown's Ch. Rep. 436; Fanning v. Dunham, 5 Johns. Ch. 122; Scott v. Nesbit, 2 Brown's Ch. 641; 1 Story's Eq. Jur. sec. 301; Dooley v. Stipp, 26 Ill. 86; Stockham v. Munson, 28 Ill. 51; Safford v. Vail, 22 Ill. 327.

If the appellee, instead of seeking affirmative relief, were simply defendant to a bill brought to redeem, his claim to interest must, upon the facts of this case, be limited to six per cent.

The legal rate of interest was six per cent., with permission, under the act of 1849, to contract for a rate not exceeding ten per cent. for borrowed money. But the parties contracted for a rate not allowed by law, twelve per cent. This contract can not be enforced as made, nor can the court make a new contract for the parties, but will leave their rights to be determined by the law,--that is, the legal rate must govern. Ferguson v. Sutphen, 3 Gilm. 570; Bishop v. Williams, 18 Ill. 101; Shirley v. Welty, 19 Ill. 623; Heacock v. Swartwout, 28 Ill. 291; Mapps v. Sharpe, 32 Ill. 13; Sutphen v. Cushman, 35 Ill. 186; Farwell v. Meyer, 35 Ill. 40; Woodworth v. Huntoon, 40 Ill. 131. From these cases it must be considered the doctrine of this court, that a mortgagor, seeking to redeem from an usurious mortgage, will be required to pay only the principal sum due, with six per cent. interest. And if these are the hardest terms imposed on a complainant seeking equitable relief in such cases, the court will certainly inflict no harsher terms on a defendant who is asking no relief. But even if the case of Snyder v. Griswold is no longer to be followed or considered as authority in this State, there is still error in the decree now before the court for review. That decree has allowed the complainant interest at the rate of ten per cent. from the date of the contract, which is four per cent. more than he is entitled to under any rule hitherto recognized by the Supreme Court.

Are the rights and obligations of the parties to this contract at all changed by the passage of the act of February 28, 1867?

That act provides, that in all suits, upon written contracts made while the interest law of 1849 was in force, and prior to the passage of the act of January 31st, 1857, wherein a higher rate of interest than 10 per cent. was reserved, and when the fact of usury is insisted upon in the pleadings and proved, the creditor shall forfeit all the excess of interest above the rate it was competent for the parties to contract for at the time, and no more; and that no portion of the interest which the debtor may have voluntarily paid upon his contract, shall be deducted from the principal. This suit was pending at the time that act was passed. To give the act operation upon the rights of these parties, is to permit the legislature to assume and exercise judicial functions, which it is not competent for that body to do. Sedgwick on Stat. and Const. Law, 163-7; 1 American Law Register, 28; Taylor v. Porter, 4 Hill, 140; Powers v. Bergen, 2 Seld. 366; Wilkinson v. Leland, 2 Pet. 657; Conway v. Cable, 37 Ill. 90; McDaniel v. Correll, 19 Ill. 228; Marsh v. Chestnut, 14 Ill. 227; Lane v. Dorman, 3 Scam. 241-3.

This act is invalid, not only because it is not within the rightful attributes of legislative power, but there are also express constitutional restrictions which prohibit all such invasions of private right.

Our State constitution provides, that no person shall be disseized of his freehold, liberties or privileges, or be in any manner deprived of his life, liberty or property, but by the judgment of his peers or the law of the land; and also that no law impairing the obligation of contracts shall ever be made. Similar prohibitions are contained in the constitution of the United States.

Under the first of these clauses, it is secured to these parties that their rights shall be ascertained judicially. It cannot be done by mere legislation. Taylor v. Porter, 4 Hill, 140; Lane v. Dorman, 3 Scam. 243; Sedgwick on Stat. and Const. Law, 537-9.

The other clause was specially designed to protect private contracts from legislative encroachments. It includes all contracts without exception, whether executed or executory. It prohibits all legislation which impairs their obligation.

It has been also held, and is said by the Supreme Court of the United States to be the settled doctrine of that court, “that the laws which subsist at the time and place of making a contract, and where it is to be performed, enter into and form a part of it, as if they were expressly referred to or incorporated in its terms. This principle embraces alike those which affect its validity, construction, discharge and enforcement.” Van Hoffman v. City of Quincy, 4 Wal. 550; Planters' Bank v. Sharpe, 6 How. 327; Ogden v. Saunders, 12 Wheat. 257; Green v. Biddle, 8 Wheat. 84; Sturges v. Crowninshield, 4 Wheat. 137; Bruce v. Schuyler, 4 Gilm. 275.

It is well settled that a contract wholly void in its...