Person v. Mattson

• Decision Date: 04 February 1916
• Citation: 156 N.W. 780,33 N.D. 49
• Court: North Dakota Supreme Court

156 N.W. 780

33 N.D. 49

ALLEN PERSON v. JOHN MATTSON

Supreme Court of North Dakota

February 4, 1916

Appeal from the judgment of the District Court of Divide County Leighton, J.

Modified with costs on appeal to appellant.

Judgment modified.

C. E Brace and E. R. Sinkler, for appellant.

In cases where usury has been charged and not paid, and the usurer brings an action upon his contract, the illegality of the contract may be alleged as a defense, and if established, the entire interest due upon the contract becomes forfeited, and no recovery can be had upon contract except the principal sum. Waldner v. Bowden State Bank, 13 N.D. 604, 102 N.W. 169, 3 Ann. Cas. 847; Grove v. Great Northern Loan Co. 17 N.D. 359, 138 Am. St. Rep. 707, 116 N.W. 345; Male v. Wink, 61 Neb. 748, 86 N.W. 472; Estey v. Capitol Invest. Bldg. & L. Asso. 131 Mich. 502, 91 N.W. 753; Tomblin v. Higgins, 58 Neb. 336, 78 N.W. 620; Arnold v. MacDonald, 22 Tex. Civ. App. 487, 55 S.W. 529; First Nat. Bank v. McCarthy, 18 S.D. 218, 100 N.W. 14; Exley v. Berryhill, 37 Minn. 182, 33 N.W. 567; Moncure v. Dermott, 13 Pet. 345, 10 L.Ed. 193.

Where the taint of usury has once attached to a contract, it cannot be removed by the introduction of new elements of a purer nature. Marsh v. Robeno, 5 Phila. 190.

A note given in renewal of a usurious note is also usurious. El Paso Bldg. & L. Asso. v. Lane, 81 Tex. 369, 17 S.W. 77; McDonald v. Aufdengarten, 41 Neb. 40, 59 N.W. 765; Knox v. Williams, 24 Neb. 630, 8 Am. St. Rep. 220, 39 N.W. 787; Nelson v. Hurford, 11 Neb. 465, 9 N.W. 649; Walker v. Bank of Washington, 3 How. 62, 11 L.Ed. 494; Judy v. Gerard, 4 McLean, 360, F. Cas. No. 7,571; Eslava v. Crampton, 61 Ala. 507; Bailey v. Lumpkin, 1 Ga. 392.

Where notes are tainted with usury their renewal and adding the usury into the notes will not free the renewal notes from the taint. House v. Davis, 60 Ill. 367; Rudd v. Planters' Bank, 78 Ky. 513; Smith v. Stoddard, 10 Mich. 148, 81 Am. Dec. 778; Grove v. Great Northern Loan Co. 17 N.D. 359, 138 Am. St. Rep. 707, 116 N.W. 345; Citizens' Nat. Bank v. Donnell, 172 Mo. 384, 72 S.W. 925; 195 U.S. 372, 49 L.Ed. 239, 25 S.Ct. 49; Lockwood v. Muhlberg, 124 Ga. 660, 53 S.E. 92.

F. A. Leonard and D. C. Greenleaf, for respondents.

Where one of two separate and independent loans is usurious, the taint does not adhere to the other, although both were between the same parties, closed at the same time and secured by the same mortgage. Jackson v. May, 28 Ill.App. 305; 39 Cyc. 990, 996, 998.

If a new obligation is given in which are incorporated the original usurious indebtedness, the new obligation is not tainted with the original usury. German Ins. Co. v. Fabel, 24 Ky. L. Rep. 1721, 72 S.W. 329; McCraney v. Alden, 46 Barb. 272; 29 Am. & Eng. Enc. Law, 518; Citizens' Nat. Bank v. Donnell, 195 U.S. 369, 49 L.Ed. 240, 25 S.Ct. 49; Rice v. Howland, 147 Mass. 407, 18 N.E. 229.

GOSS J. FISK, Ch. J., dissenting.

OPINION

GOSS, J.

This is a suit in equity to foreclose a chattel mortgage securing two promissory notes of $ 2,000 each, bearing interest at 12 per cent per annum, nonusurious on their face. The appeal is taken upon the findings of fact, which accordingly are accepted as true. The only questions presented are those of law. The consideration for the notes sued upon consisted of two notes bearing 12 per cent interest, one for $ 356 and the other for $ 966, together with cash advanced sufficient to make the total of $ 4,000 at the time the notes in suit were taken. The $ 356 note was admittedly usurious, being a renewal of an earlier usurious note. The usury in the original note and the $ 356 note amounted to $ 45 over and above the 12 per cent per annum exacted. The $ 966 note was an independent transaction and free from usury. And except for the usury contained in the $ 356 note and interest thereon entering into the two notes for $ 2,000 each, said notes are nonusurious. The questions of law presented concern the effect of the usurious note upon said notes in suit. Plaintiff asserts that the $ 356 note should be treated as one transaction, and, from the total amount due on the $ 4,000 and interest at 12 per cent, there should be deducted the $ 45 bonus therein and all interest collected on the original $ 330 note and accrued on the $ 356 note, and a pro rata deduction of 12 per cent interest on the amount of the $ 356 included in the $ 4,000 transaction, altogether amounting to a deduction of $ 218.35 from the face and interest of the two $ 2,000 notes, and that foreclosure be had for the balance of the principal and interest on said notes. And this was the relief granted by the trial court. The appellant claims that, by including the usurious note for $ 356 in and as a part of the consideration of the notes for $ 4,000 given as one transaction, both of said $ 2,000 notes thereby became tainted with usury, and under the statute, § 6076, Comp. Laws 1913, providing that the taking of usury "shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon," the entire interest on $ 4,000 is forfeited on these two notes in suit.

Our present usury statutes are largely but re-enactments of the national banking act, defining usury and penalizing its taking by national banks, U.S. Rev. Stat. §§ 5197, 5198, Comp. Stat. 1913, §§ 9758, 9759. This was for uniformity that there should be substantially the same usury laws for state and national banks and private individuals as well. It was thus necessary to adopt substantially the Federal banking act as our usury statute, because, so far as the operation of national banks is concerned, "the definition of usury and the penalties affixed thereto must be determined by the national banking act, and not by the law of the state. Farmers' & M. Nat. Bank v. Dearing, 91 U.S. 29, 23 L.Ed. 196. In that case it was held that a law of New York forfeiting the entire debt for usury was superseded by the national banking law, and that such law was only to be regarded in determining the penalty for usury." Haseltine v. Central Nat. Bank, 183 U.S. 132, 133, 46 L.Ed. 118, 119, 22 S.Ct. 50. And the same is true in equity suits in foreclosure. Schuyler Nat. Bank v. Gadsden, 191 U.S. 451, 48 L.Ed. 258, 24 S.Ct. 129. The Federal national banking act imposing this penalty was enacted in 1864, repealing the former penalty imposed by congressional act in 1863 (12 Stat. at L. 665, chap. 58), providing for a forfeiture of the entire principal and interest, evidently in harmony with the then existing usury statutes of New York and some other states. The act of 1863 was a penalty, and the present statute, adopted a year later, was no less a penalty. 11 Enc. U.S. S.Ct. 852, and cases cited. And our statute likewise penalizes for the taking of usury, but, in entire harmony with the Federal act, the penalty applies only to the interest, and not to the principal evidenced by the note. "The penalties laid down by the statute, therefore, are the only ones that can be considered, as the rule is that the terms of the statute govern as to that question." Grove v. Great Northern Loan Co. 17 N.D. 352 at 352-359, 138 Am. St. Rep. 707, 116 N.W. 345. But in applying the usury statute it must not be overlooked that it contemplates penalizing by a declared "forfeiture of the entire interest which the note . . . carries with it or which has been agreed to be paid thereon." The penalty is imposed in explicit terms as a forfeiture of the entire interest agreed to be paid or carried by the note. With this as the penalty for the taking of usury, the only inquiry left open is whether the note is usurious. Brown v. Marion Nat. Bank, 169 U.S. 416, 42 L.Ed. 801, 18 S.Ct. 390. "The forfeiture declared by the statute is not waived or avoided by giving a separate note for the interest or by giving a renewal note in which is included the usurious interest. No matter how many renewals may have been made, if the bank has charged a greater rate of interest than the law allows, it must, if the forfeiture clause of the statute be relied on and the matter is thus brought to the attention of the court, lose the entire interest which the note carried or which has been agreed to be paid. By no other construction of the statute can effect be given to the clause forfeiting the entire interest which the note, bill, or other evidence of debt carries or which was agreed to be paid, but which has not been actually paid." Consult Fowler v. Equitable Trust Co. 141 U.S. 384, 35 L.Ed. 786, 12 S.Ct. 1. Also Farmers' & M. Bank v. Hoagland, 7 F. 159, and Danforth v. National State Bank, 17 L.R.A. 622, 1 C.C.A. 62, 3 U.S. App. 7, 48 F. 271 at 271-276, declaring that "the statutory forfeiture is not a part of the interest, but all of it. 'The entire interest which the note, bill, or other evidence of debt carries with it or which has been agreed to be paid thereon' is comprehensive language. It would be difficult to employ broader terms. The legislative intent, we think, was utterly to destroy the interest-bearing capacity of the instrument. The interdiction of a recovery of interest by the transgressing bank is salutary, and full effect should be given to it. These views have prevailed in the courts." Citing First Nat. Bank v. Stauffer, 1 F. 187; First Nat. Bank v. Childs, 133 Mass. 248, 43 Am. Rep. 509; Alves v. Henderson Nat. Bank, 89 Ky. 126, 9 S.W. 504, 3 Browne Nat. Bank Cas. 452. This language adopted by the Federal courts in passing upon this question was evidently adopted from a construction of the Federal banking act in Schutt v. Evans, 109 Pa. 625 at 625-628, 1 A. 76, where the following is found: "It will be noticed that the act of Congress strikes down...