Pinnix v. Md. Cas. Co

• Decision Date: 01 February 1939
• Docket Number: No. 760.,760.
• Citation: 214 N.C. 760,200 S.E. 874
• Parties: PINNIX et al. v. MARYLAND CASUALTY CO. et al.
• Court: North Carolina Supreme Court

214 N.C. 760

200 S.E. 874

PINNIX et al.

v.MARYLAND CASUALTY CO. et al.

No. 760.

Supreme Court of North Carolina.

Feb. 1, 1939.

Appeal from Superior Court, Forsyth County; F. D. Phillips, Judge.

Action by W. M. Pinnix and another against Maryland Casualty Company and others to restrain foreclosure of a senior mortgage and to have ascertained amount due on notes secured by senior mortgage. From a judgment of the superior court affirming an order of the county court continuing the injunction to the hearing, the defendants appeal.

Affirmed.

The plaintiffs, beneficiary and trustee under a junior mortgage or deed of trust, brought this action to restrain the foreclosure of a senior mortgage having a lien on the same lands, and to have ascertained the amount due on the note secured by the senior mortgage, to the end that it might be paid in protection of plaintiffs' security, and plaintiffs subrogated to the rights of the senior mortgagee.

The controversy as to the amount due arises on the following facts and contentions:

On April 15, 1927, John M. Pinnix and Madye Leak Pinnix borrowed $10,000 from the Carolina Mortgage Company, and secured the note representing the loan by a deed of trust on certain real property in Kernersville, Forsyth County. The plaintiffs allege that $500 of the principal was retained by the Mortgage Company as a bonus or condition of making the loan, or an additional charge of making the loan, and that the Mortgage Company made other unlawful and usurious charges in addition to the lawful six per cent.

Subsequently, on July 1, 1931, the said John M. Pinnix and Madye Leak Pinnix executed to the Carolina Mortgage Company a new note secured on the same property, and representing the balance of indebtedness, due July 1, 1936. The plaintiffs allege that the execution of this note and mortgage securing it was not voluntary but made under circumstances of oppression and duress which made it impossible for the makers to assert their rights with regard to the usury; that the note and mortgage include and bring forward the usury involved in the first transaction, with additional usury of its own.

On the 27th day of June, 1932, the said John M. Pinnix and Madye Leak Pinnix obtained a loan from W. M. Pinnix and made a note to him securing the same on the real estate theretofore conveyed to the Carolina Mortgage Company in security for the loan above mentioned.

The defendant Keswick Corporation, as substitute trustee, advertised and sold the property under the second deed of trust above described on May 20, 1938, and the Central Investment Company became the highest bidder. On May 30th plaintiffs brought this action, setting up in their pleading substantially the facts and contentions above set out and demanding that the legal amount of the debt be ascertained, with forfeiture of all interest, which amount they stand ready to pay.

The defendants deny usury, aver that the second note was made voluntarily and contains no usurious consideration, and plead the statute of limitations, --C.S. § 442 (3), as amended by Pub. Laws 1931, c. 231, --against any claim of usury the plaintiffs may assert.

On the hearing in the County Court, the injunction was continued to the hearing, and on appeal of defendants to the Superior Court of Forsyth County the order of the County Court was affirmed. From this judgment defendants appealed.

W. G. Mordecai, of Raleigh, and Ratcliff, Hudson & Ferrell, of Winston-Salem, for appellants.

Ingle, Rucker & Ingle, of Winston-Salem, for appellees.

SEAWELL, Justice.

1. The plaintiffs, representing a junior mortgage or deed of trust, brought this suit to restrain the foreclosure of a senior mortgage or deed of trust upon the same land until the amount due on the senior mortgage might be ascertained and plaintiffs given an opportunity to pay said amount and be subrogated to the rights of the senior mortgagee. They claim that the note secured by the senior mortgage represents a considerable amount of usury, and demand that the senior claim shall be purged of usury, all interest thereon forfeited, and the amount claimed by defendants reduced to that extent.

The defendants, pointing out that the plaintiffs do not contend for any reduction of defendants' claim except for the aforementioned usury and consequent forfeiture of all interest, say that the item in controversy is thus segregated and relates to usury only, and since they have pleaded the statute of limitations, which upon the record they conceive to be applicable, thematter has become one of law to be settled without a jury, and the court below should have dissolved the injunction.

The statute pleaded became effective April 1, 1931, and reads as follows:

"§ 442. * * * 3. The forfeiture of all interest for usury: Provided, however, this section shall not apply to the counties of Cherokee and Clay."

The defendants' note became due July 1, 1936. This action was brought May 30, 1938.

There is considerable controversy between counsel as to the beginning point or time when the statute begins to run, if applicable at all. It is conceded that a difference in the application of the statute might follow accordingly as we might adopt the theory that the junior mortgagee stood in the shoes of the debtor with reference to his right to plead it or, on the other hand, might plead it as a right independent from that of the debtor.

We might say here that if we adopt the first view, it would be easy to arrive at the conclusion that the action is barred, since a comparison of the dates above set out shows that the debtor's cause of action, if he had any, accrued more than two years before this action was brought; if we adopt the latter view, it would reasonably follow that the plaintiffs' cause of action, if they had any, is not barred. They had no cause of action until they came into relation with the subject by taking the second mortgage; but defendants' mortgage was not then due and did not become due until July 1, 1936. Since usury does not accelerate the payment of the principal, plaintiffs could not have compelled the defendants to accept payment before their note became due; and we do not understand how the plaintiffs could have prosecuted an action, the mere purpose of which would be to declare a status and, so to speak, put it on ice, so that plaintiffs might use it when occasion arose. We might, therefore, arrive at the conclusion that plaintiffs' cause of action is not barred.

But we do not think it advisable to pursue an academic discussion of this question, since we think the junior mortgagee has heretofore been permitted to exercise a privilege to which he is not in equity entitled. It seems clear, too, that much of the difficulty in applying the statute of limitations invoked in this case arises from the confusion thus produced.

2. The right of a junior mortgagee to resort to injunction to stay a foreclosure proceeding under a senior mortgage having a lien upon the same land, until a bona fide controversy as to the amount due on the senior mortgage has been ascertained, is not questioned. When that controversy is narrowed down to a question of usury in the senior mortgage debt, the courts which have passed upon usury statutes similar to ours are not agreed as to whether the junior mortgagee should be let in at all to raise the question of usury.

We think on examination of the authorities, our own decisions as well as those of other jurisdictions having similar laws will lend to the conclusion that our present discrimination between the mortgagor and the junior mortgagee is not sufficiently supported.

Basing their reasoning on the ground that the usury laws are enacted for the benefit of the borrower and are personal to him, and those in privity with him, a great number of jurisdictions refuse to allow the junior mortgagee to raise the question at all; others, while permitting this question to be raised by the junior mortgagee upon other grounds, notably that of public policy, do not give him the benefit of the statute creating penalties and forfeitures, but permit him to come in only upon the tender of the legal amount due, with the lawful rate of interest. Our own courts while demanding of the mortgagor, and those in privity with him, a tender of the principal amount due, with six per cent interest thereon as a condition precedent of raising the question of usury, permit the junior mortgagee to attack the senior mortgage without any tender, and secure a forfeiture of all interest. Broadhurst v. Brooks, 184 N.C. 123, 113 S.E. 576.

It is not contended anywhere that there is any privity between the junior mortgagee and the borrower or mortgagor in the senior mortgage; but an examination of the North Carolina authorities will show that this rule is seated upon the theory that C.S. § 2306, which in most other jurisdictions is considered to raise a right personal to the borrower, makes the promise to pay interest in a note tainted with usury absolutely void for all purposes and incapable of any effect anywhere it is encountered. Ward v. Sugg, 113 N.C. 489, 18 S.E. 717, 24 L.R.A. 280; Ripple v. Mortgage Corp, 193 N.C. 422, 424, 137 S. E. 156; Federal Reserve Bank v. Jones, 205 N.C. 648, 650, 172 S.E. 185. It must be said that the two last cited cases merely follow Ward v. Sugg, supra, as a precedent; and none of them deal with the rights of the junior mortgagee, but the theory on which Ward v. Sugg, supra, was decided is the sole support for the privilege accorded the junior mortgagee in Broadhurst v. Brooks, supra, of demanding forfeiture of all interest.

The premise to this conclusion that C.S. § 2306 makes any promise to pay money utterly and unconditionally void and of no effect under any circumstances where the transaction is tainted with usury is not tenable; and the position that any part of C.S. § 2306 can be borrowed to aid the junior mortgagee in the matter of usury in a contract to which he is a stranger is so thoroughly against the...