Rogers v. Rivers

• Decision Date: 09 June 1924
• Docket Number: 24177
• Citation: 100 So. 385,135 Miss. 756
• Court: Mississippi Supreme Court
• Parties: ROGERS v. RIVERS et al. [*]

100 So. 385

135 Miss. 756

ROGERS v. RIVERS et al. ^[*]

No. 24177

Supreme Court of Mississippi

June 9, 1924

(En Banc.)

USURY. Note hearing highest contract rate, interest payable semi-annually, and defaulting interest becoming principal usurious.

Under section 2678, Code 1906 (Hemingway's Code, section 2075) which provides, among other things, that "if a greater rate of interest than eight per centum [per annum] shall be stipulated for or received in any case, all interest shall be forfeited," a note payable at a future date bearing interest at the "rate of eight per cent. per annum from date until paid,... interest payable semiannually and the defaulting interest to draw same rate of interest as principal," is usurious.

SMITH C. J., and COOK and SYKES, JJ., dissenting.

HON. W A. ALCORN, JR., Judge.

APPEAL from circuit court of Quitman county, HON. W. A. ALCORN, JR., Judge.

Action by T. J. Rogers against L. N. Rivers and another. From the judgment rendered, plaintiff appeals. Affirmed.

Affirmed.

Gee & Lowrey, for appellant.

The appellees claim that the note sued on was usurious, because it provided that interest was payable semiannually and defaulting interest to draw same rate of interest as principal. The appellant claims that these provisions in the note did not make it a usurious contract, in the first place, and if it did that the appellee Cox was estopped from defending on that ground, and that the judgment as to him should have been for the full amount of balance due, with attorneys' fees and interest.

Appellant submits that the general rule is that interest payable semiannually, and defaulting installments to bear interest at full legal rates is not usurious, and is permissible. See 22 Cyc. 1525 (2); 39 Cyc. 951, (111), 29 R. C. L., sections 28-29.

The general rule was in effect followed by this court in Palm, et al., v. Fancher, et al., 48 So. 818, holding that where a note provides for interest from maturity at ten per cent per annum and that if interest were not paid annually, it should become principal and bear the same rate of interest, was not usurious, and Merchants & Planters Bank v. Caston, 52 So. 633, holding that a note with interest added in the face of the note at ten per cent per annum from date until due, and providing for interest at ten per cent per annum from maturity until paid, is not usurious. The two cases were decided before the contract rate was reduced from ten per cent to eight per cent per annum. The only difference between these two cases and the case before the court is that here the interest is contracted to be paid semiannually.

At the end of the six months period, or semiannually there was then due one-half of the annual interest, and the interest having been earned it was lawful for the appellee Rivers to contract to pay it then, and in default to pay interest on the amount in default, while in default, this contract is not any more compound interest than the contract involving the two Mississippi cases cited, that the same rule would follow if the interest has been contracted for quarterly, or monthly, just as long as the interest was not required to be paid before it was earned by the principal.

In addition to this the appellant submits that the appellee Cox is estopped from pleading usury because he made the original contract with the appellee Rivers, he being the payee and Rivers the payor, and if he in fact did make a usurious contract, after he transferred the note for value to the appellant, he will not be allowed to claim the benefit of the statute. 27 R. C. L. 65; Henderson v. Hartman, 4 So. 549, 39 Cyc, 1022 (3).

Lowrey & Lamb, for appellees.

The sole question presented in this case is whether a note providing for the payment of the maximum legal rate of eight per cent per annum, which also requires interest payment semiannually, where the note runs for more than six months before maturity, is usurious.

This court has held in several cases that where interest at the full legal rate to maturity is paid or deducted from the principal at the time of the execution of the note, it is usurious. Polkinghorn v. Hendricks, 61 Miss. 366; Hiller v. Ellis, 72 Miss. 701.

This court has also held that where a note runs more than a year a provision for compounding interest annually at the full legal rate is usurious. Perkins v. Coleman, 51 Miss. 298.

Our contention is that under our statute as construed by our courts, any scheme by which the lender obtains and the borrower pays more than eight per cent per annum to be collected at the maturity of the note, or at the end of the annual period, is usurious, and that the provision for payment or compounding, in the alternative, does not make any difference. In other words, the lender gets something in addition to eight per cent per annum, and the borrower pays something in addition to eight per cent per annum, just as truly where the interest is paid and received before the end of the year, as where it is added to the principal and draws interest.

We are not prepared to say that we are in line with the majority of the decisions in our contention. Neither are the courts of this state in line with the majority of the decisions in holding that it is usury to collect the whole legal interest in advance. Most of the text-writers hold that this may be done and most of the courts, so far as we have found, are to the same effect. But if we understand the rule in this state, it is thoroughly established that any scheme by which the lender gets more than eight per cent per annum for his money, is usury, and it makes no difference whether he gets a rate exceeding eight per cent, or interest on a sum exceeding the actual principal, or interest for a shorter period than one year or whether he gets the full interest and the use of this interest for a year or a part of a year before maturity of debt.

As examples of the many unsuccessful efforts to defeat the usury laws in this state, we call attention to: Bank of Manchester v. Nolan, 7 H. 508; Crofton v. New South B. and L. A., 77 Miss. 166; Hyde v. Finley, 26 Miss. 468; McAllister v. Jerman, 32 Miss. 142; Robb v. Halsey, 11 S. & M. 140; Coulter v. Robinson, 14 S. & M. 18; Brown v. Nevitt, 27 Miss. 801; Armor v. Bank of London, 86 Miss. 658; Union National Bank v. Fraser, 63 Miss. 231; Warmack v. Boyd, 63 Miss. 488; Rozell v. Dickerson, 63 Miss. 538.

The Nebraska court and the Texas court seem to have drawn clearly the distinction which we are here insisting upon. The Nebraska rule is stated in the note to Palm v. Fancher (Miss.), 33 L. R. A. (N. S.) 303. See, also, Brown v. Crow (Texas), 29 S.W. 653; Crider v. San Antonio, etc., 35 S.W. 1047.

ANDERSON, J. SMITH, C. J., dissenting.

OPINION

ANDERSON, J.

Appellant sued appellees Rivers and Cox in the circuit court of Quitman county for a balance due on a certain promissory note executed by appellee Rivers to appellee Cox, and by the latter transferred to appellant, and recovered a judgment for the balance of the principal due on said note, the court having instructed the jury that interest could not be recovered because the interest stipulated for in said note was usurious, from which judgment appellant prosecutes this appeal.

The only question in the case is whether the note sued on provides for usurious interest under our statute.

The note is dated May 24, 1920, and is due December 1, 1920, and draws interest at the "rate of eight per cent per annum from date until paid, . . . interest payable semiannually and the defaulting interest to draw same rate of interest as principal." There is no claim that any hidden device was resorted to cover usury, but simply that the note provides on its face for usurious interest under our statute.

Section 2678, Code of 1906 (section 2075, Hemingway's Code), provides, among other things, that contracts may be made, in writing, for the payment of interest for as great as eight per cent. per annum, but that if a greater rate of interest than eight per cent. per annum shall be stipulated for or received all interest shall be forfeited and may be recovered back whether the contract be executed or executory.

It will be observed that the note sued on provides for the payment of interest at eight per cent. per annum, the highest contract rate, and that the interest shall be payable semiannually, and if not paid when due compounded and become part of the principal.

It has been long settled in this state that interest at the highest contract rate cannot be reserved in advance; that to do so renders the contract usurious. Bank v. Nolan, 7 Howard 508; Hyde v. Finley, 26 Miss. 468; Polkinghorne v. Hendricks, 61 Miss. 366; Hiller v. Ellis, 72 Miss. 701, 18 So. 95, 41 L. R. A. 707.

In Polkinghorne v. Hendricks, Chief Justice CAMPBELL, who wrote the opinion, said that interest paid in advance was payment of principal to that extent. Where the contract provides for interest at the highest rate with rests at shorter periods than annual rests, and in default of payment of interest the latter to become principal and bear interest at the same rate, is the contract usurious? We think so, because under the decisions of this court above referred to such a contract simply provides for the payment of interest in advance. The statute provides that not more than eight per cent. per annum shall be contracted for or received. The statute contemplates annual rests and payment of interest at each rest. Payment before that time is payment in advance; it...