Case ID: ky_116/html/0967-01.html
Source: Caselaw Access Project
Author: {"author": "JUDGE BARKER", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Case 104 — Action by the United States .Savings & (Loan Com-, paky against George Gray on' Notes, and to Enforce Mortgage Lien.
    Dec. 3.
    Gray v. United States Savings & Loan Co.
    APPEAL FROM CLARK CIRCUIT COURT.
    Judgment for Plaintiff and Defendant Appeals.
    Affirmed.
    Building and .Loan Associations — Compromise with Borrowing Member — Pleadings—-Admissions—Denials.
    Held: 1. In the absence -of a rejoinder, -all tbe well-pleaded facts in tbe reply are taken as true, and, in -tbe absence of evidence, the allegations in the answer which -are denied by the reply -are taken as u-ntrue.
    2. A contract between .a Minnesota building association and a borrowing member by which they settled the matter -of usury contained in the -debt, and agreed on the amount due, was valid, where the association in good faith claimed) that the debt was not tainted with usury under the laws of 'Minnesota, which should govern, and several circuit aeraría of Kentucky had so decided, and where ihe borrowing. member coniended that ihe debt was tainted with usury, and was about to prosecute .an appeal tel the Court of Appeals for the 'determination by that court lof that question, .and which that court subsequently settled against tbe contention of the association.
    D. L. PENDLETON and HAZELRIGG & CHENAULT, for appellant.
    BECKNER & JOUETT, fob appellee.
    (No briefs in tbe record.)
   Opinion of the court by

JUDGE BARKER

— Affirming./

In the year 1894, tbe appellee, tbe United States Savings & Loan Company, which was a going concern, with its .bead office at St. Paul, Minn., instituted an action against .appellant to recover judgment against him on two notes— one for $500, and tbe other for $400 — and to enforce a mortgage lien by which their payment was secured. On the 24th day of May, 1894, a judgment was entered as prayed for in the petition. The judgment rendered, with the -accrued interest and costs, amounted, in round numbers, to $1,300. Appellant, although summoned, made no defense to this action, but on the contrary, his counsel consented that it ¡should be entered. Afterwards, on the 27th day of August, 1894, he entered into an agreement with appellee, by which, in discharge of the judgment against him, he executed and delivered to it his note, with Betty Gray as surety, for $1,050, payable on or before June 1, 1895; and, to secure its payment, they executed a mortgage on property belonging to them in Winchester, Ky. There were, after this compromise was made, a number .'of payments, the aggregate amount of which is in dispute, but which appellee admits to have been as much as $271.50. Appellant failed to pay any further upon his uote, and this action was instituted by appellee to recover judgment for the balance due thereon, and to enforce the mortgage lien given to secure it. To this action appellant filed an answer, alleging much larger payments on the note than the amount of the credits given in the petition, and that the claim against him contained a large amount of usury, and also charging fraud and covin in the obtention of the original judgment against him, and in the compromise by which he executed and delivered his note for $1,050 in its discharge. To this answer appellee filed a reply, controverting all of its material allegations of fact inconsistent with those of the petition, and then affirmatively setting forth the following state of facts: That, after the rendition of the original judgment against appellant, he was about to prosecute an appeal therefrom to the 'Court of Appeals, contending that the judgment against him embraced a large amount of usury; that at thht time appellee contended that it was a Minnesota corporation, and that its contract with appellant was a Minnesota contract; that, under and by virtue of the laws of Minnesota, it was valid and binding, and that the amount adjudged in its favor against appellant was properly recoverable under the contract, as construed and enforced by the laws of the State of Minnesota; that the question of the validity of this contract had not at that time been decided by this court, but, on the contrary, had been decided by the circuit court of Clai’k county, and various other circuit courts throughout the^ State of Kentucky, to be a Minnesota contract, and enforceable as such here; that this controversy between appellant and appellee was bona fide, and involved the question of whether or not the judgment in favor of appellee contained usury; that, with this condition of affairs existing, appellee and appellant, in person, and with the aid and guidance of his attorney, Rodney Haggard, an able and efficient counselor, in good faith, and for the purpose of settling and adjusting the differences between the parties, entered into the contract by which the note sued on was executed and delivered by appellant to appellee; that this •contract of settlement and compromise was made in the office of Rodney Haggard, appellant’s counsel, with his aid, assistance, and advice, both he and appellant being present at the time; that all of its terms were fully understood, approved and urged by appellant in person and by his counsel; that it was made and accepted in good faith by appellee, who at once stopped the sale of the property which was advertised for that day, and thereafter’, in good faith, abandoned and released all claims of any sort under the judgment. No rejoinder was made to this pleading, and no proof adduced by the appellant to establish the allegations of payment and fraud, which were placed in issue by the denials of the reply. The case being submitted on the pleadings, a judgment was rendered as prayed for in the petition.

In the absence of a rejoinder, all of the well-pleaded allegations of fact in the reply are-to be taken as true; and, in the absence of evidence to support them, all of the allegations of payment and fraud in the answer which were controverted by the reply must be taken as untrue. The question, then, for adjudication, is whether or not the compromise made between the parties litigant, as set forth in the reply, can be upheld. There is a wide difference between- a compromise by which a debtor agrees to pay in settlement of his debt a less amount of usury than that claimed by the creditor, ¡where there is no dispute between the parties as to the usurious character of their contract, and a compromise by a debt- or of a contract which he claims contains usury, but the usurious nature of which the creditor in good faith disputes.

The crucial question in such matters is always whether there is in good faith a controversy between the parties. The line between these two classes of cases sometimes becomes exceedingly fine, but it is none the less real for that reason. In the case of Taylor v. Patrick, 1 Bibb, 168, it is said: “The compromise of a doubtful right is a good consideration to found a contract on, and it is immaterial on whose side the right ultimately turns out to be, as it must be on one side or the other, because there can be but one good right to the same piece of property.” In the case of Fisher v. May’s Heirs, 2 Bibb, 448, 5 Am. Dec., 626, in which one party undertook to dispute and uproot a settlement made with the other, for I’easons set forth, the court said: “This is certainly no ground for relief. There can be but one superior and equitable right. If, therefore, the solemn compromise of the parties about property of doubtful title is made to depend on the question whether the parties have so settled their dispirte as the law would have done, then it may he truly said that a compromise is an unavailing and idle act, which questions even the power of the parties to bind themselves.” _ In the case of Creutz v. Heil, 89 Ky., 429, 11 R., 652, 12 S. W., 926, the following admirable rule governing the question tader discussion was laid down: “It seems that the inquiry is whether the party relying on the agreement had reasonable and proper cause for believing that the question was doubtful, and that the right might ultimately prove to be with him. In other words, it is sufficient that there was an honest claim •on his part, asserted without fraud, and that there was a real ground for dispute. If the point is so clear that it can only be answered in one way, the compromise would be invalid, as wanting a consideration to uphold it. The adequacy of the consideration can not -be inquired into, but the want of any consideration whatever may be inquired into. The verdict of a jury or the decision of a court depends in a greater or less degree upon the human understanding as to what is right and equitable in a given state of case; but when the given state of case has received such judicial' interpretation as to admit of no question, supposing that the judicial mind will continue to run in the same channel (and such supposition should always be indulged in), then there can arise, in a legal and equitable sense, no consideration for a compromise of such matter. It is only in reference to such matters as counsel learned in the law or courts might differ, although the right ultimately turns out to be wholly on one •side, that constitutes a valid consideration for compromising such matters. The question of such consideration can not be measured; hence its adequacy will not be inquired into.’-’

The admitted facts show- that, at the time the compromise under consideration was entered into, there was a bona fide controversy between the parties litigant; that at that' time the contract between them had been upheld by the circuit c'ourt in which it was then depending as valid and binding; that the other circuit courts had so held, and this court at that .time had made no ruling adverse to that position. It may be said, therefore, that there was a real controversy between the parties, the ultimate outcome of which, if carried to this court, could not then be known. This was evidently believed by the counsel for appellant, who was a man of high rank and standing in his profession, or he would not have advised his client to make the compromise. These is no more reason why a contract as to the usurious nature of which there is a genuine dispute should not be compromised, -than if it related .to any other question of disputed legal right. In the case of Cynthiana Loan & Building Association v. Florence (107 Ky., 636; 21 R., 1403) ; 55 S. W., 207, where there was a dispute between the borrowing member and the corporation, and they had settled and adjusted their differences, the court, Jn upholding the settlement, said: “The parties, to avoid litigation, had a clear right to agree on what this amount was; and a compromise of such matter, if-made, as alleged in the answer, fairly, deliberately, and with the advice of counsel, can not be disregarded. By the arrangement appellees not only had their note canceled and the mortgage on the land released, but got rid of all liability as stockholders in the association, and terminated all connection with it, or liability to it or to its creditors thereafter. The law delights to uphold compromises, because they keep down strife and prevent litigation. 'The reasons which allow usury paid upon a compromise tobe recovered have no application to a compromise, made in good faith, of other matters not tainted ’ with usury, and for which a legal liability existed.” In the case of United States Building & Loan Association v. Denny, (23 R., 2109), 66 S. W., 662, it was said: “The court is of the opinion that the contract between the association and its borrowing member, by which they settled the matter of usury contained in its debt against him, and in which they agreed upon the price to be paid by the association for appellee’s stock in it, and allowed as a credit upon the debt, was a meeting of the minds of the parties competent to contract about those matters. The controversy existing between them, and the problematical value of the stock, .were sufficient consideration to support the agreement. If .was a contract in every essential. It was such a contract that had the value of the stock of appellee been greater than was allowed in his settlement, he would have been compelled to accept the settlement, and to have specifically performed it.” In the case of Latham v. Glasscock, 10 Ky. Law Rep., 77, in .an opinion by the superior court, it was said: “As the issue was made as to the usury in the note sued on, and the parties, after the issues were joined, compromised the matters involved in the action, whereby it was agreed that the judgment should be rendered for plaintiff for a certain amount which was considerably less than the amount claimed, and the judgment was so entered, this judgment as effectually disposed of the question of usury as if. the court' had, upon the trial -of the issues joined, rendered judgment for the, same amount.” The case of Cynthiana Building & Savings Association v. Ecklar (23 R., 1467), 65 S. W., 335, is not inconsistent with the cases here cited. In that case there was no dispute on the question of usury. It was a mere compromise, which had the effect of causing the creditors to remit a part of the usury, and the debtor agreeing to pay the balance, together with the principal debt. There is no magic in the word “usury” which forbids a question as to its existence being settled between the parties, the same as any other disputed and doubtful claim. In the case at bar, at the time the compromise was made, it was doubtful as to what would be the ultimate outcome of the claim on the part of the corporation that its contract was a Minnesota contract, valid and binding by the laws of that State, and which should be valid and binding here.

iThis court had made no ruling upon that question, and at that time the judicial utterance of the circuit court ¡was in favor of the contention of appellee. Subsequently this court has settled the question adversely to the contention of appellee, but this does not render nugatory the settlement between the parties. There is no more reason now to upset the settlement, in favor of appellant, because this court has finally decided adversely to the claim of the appellee, than there would have been to upset it in favor of the appellee, ¡so as to permit it to collect the full amount of the judgment originally rendered, if this court had adjudged the contract to have been a Minnesota contract, enforceable by the laws of this State. As has been well said, it does not matter upon iwhich side the right ultimately appears to have been, if at the time the settlement was made there was a bona fide controversy between the parties, about which lawyers and courts ¡might differ.

For these reasons, the judgment of the circuit court is affirmed.