Case ID: dc_12/html/0430-01.html
Source: Caselaw Access Project
Author: {"author": "Mr. Justice Cox", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

John F. May vs. Alexander R. Shepherd
    At Law.
    No. 20,320.
    1. A verbal agreement to receive a greater rate of interest than six per cent, for forbearance after a debt is due is void under the Revised Statutes of the District of Columbia, Sec. 715.
    2. A void promise to pay illegal interest is not a valuable consideration for a promise to forbear. It is a mere nudum pactum.
    
    3. While it is perfectly well settled that a valid agreement between a creditor and the principal debtor, giving time after the maturity of the note, discharges the surety, yet the agreement must be a binding one \ otherwise it is a mere voluntary indulgence and no valid defense for the surety.
    4. By the provisions of a deed of trust given to secure a promissory note, the terms of sale in case of default 'were as follows : “ The amount of indebtedness secured by said deed of trust unpaid, with the expense of the sale, in cash, and the balance at twelve and eighteen months.”
    Reid, Not to be construed as depriving the trustees of the power to sell for less than the full amount of the debt, taxes and expenses. A provision in a deed of trust to secure a debt, to have that .. effect should be very clearly expressed. The true construction of this language is, that the trustees should require a cash payment of enough to satisfy the debt, if the purchase money be sufficient for that purpose, and the balance, if any, in two instalments.
    6. S. gave his promissory note, bearing ten percent, interest until paid, to M., and secured the same by deed of trust upon real estate ; subsequently S., for a valuable consideration, conveyed the equity of redemption to W., and paid the interest on the note up to the date of the conveyance. W. then paid the interest until the maturity of the note, when he went to M. and told him that he (W.) had to pay the note, but asked for an extension of one year at the same rate of interest, which was granted. The agreement to extend was not in writing. A subsequent extension was obtained in the same manner. Default having finally been made, the property was sold, but did not sell for enough to satisfy the note. Whereupon S. was sued for the balance, and was held by the court liable for the same.
    Statement oe the Case.
    Motion for new trial on exceptions.
    The declaration consisted, besides the money counts, of a special count on a promissory note dated April 26, 1875, by which defendant promised to pay to the order of the plaintiff $10,000, two years after date, with interest, payable quarterly, at ten per cent, until paid. The interest had been paid up to April 26, 1878, and $8,132.10 of the principal had been paid and credited February 19, 1879. The plaintiff claimed a balance due of $2,684.56, with interest at ten per cent, until paid from February 19, 1879. The note was secured by deed of trust upon real estate, and the trust having been foreclosed by a sale of the property at public auction, the plaintiff became the purchaser, the net proceeds of the sale, $8,132.10, being credited, as above stated, on the note, February 19,1879. This suit was brought against defendant to recover the balance due.
    The defendant, besides the general issue, filed three special pleas, in substance as follows:
    1. Estoppel in pais, because the plaintiff required and received from defendant as security for said note, a deed of trust of real estate, and agreed to its terms and provisions, by which power is given to the trustees to sell upon default made in payment, and that upon such sale.the purchase money sball amount in cash to the amount of the indebtedness secured, with the expenses of sale, that plaintiff required sale to be made under the powers, terms, and conditions of said deed of trust, and at a sale so made, became the purchaser of said real estate, and received a deed therefor, and entered into possession thereof.
    2. That said note was secured to be paid by a deed of trust of valuable real estate, with power to the trustee to sell upon default, and plaintiff' caused said property to be advertised and sold, and purchased at said sale, and said property exceeded- in value the amount of said note, with interest, costs of sale and taxes; wherefore he says that said note is paid and satisfied.
    3. Estoppel by deed, because said note was secured to be paid by deed of trust of even date to Richard Wallach and Andrew B. Duvall, as trustees, (profert) whereby, valuable real estate described, was conveyed with power in said trustees to sell upon default made in the payment of said note, upon the terms prescribed by the deed of trust, to wit: The amount of indebtedness secured by said deed of trust unpaid and the expense of sale, in cash, and the balance at twelve and eighteen months, &c.: and thereafter said trustees, by their deed bearing date February 19, 1879, (profert) conveyed said real estate to plaintiff, and in said deed it is recited that this defendant and his wife made and executed the said deed of trust, and that the trustees in execution of the trusts therein declared, and by direction of the party secured thereby (meaning the plaintiff) made sale of said real estate, at which sale the plaintiff became the purchaser, and that the plaintiff had fully complied with the terms of said sale.
    Upon all of these pleas issue was joined. At the trial, the note having been first offered and admitted in evidence, plaintiff testified that the same was given to him by the defendant for money lent by plaintiff to defendant. The deed of trust by which the note was secured was then offered and admitted in evidence. It was in substance as follows :
    Date, April 26,1875. Alexander E. Shepherd and wife to Eichard 'Wallach and Andrew B. Duvall, trustees. Eecites that Shepherd is indebted to John F. May, $10,000, and has given his promissory note of even date at two years, interest at ten per cent, payable quarterly, until paid, and to secure its payment, conveys lot 17 of Babcock’s subdivision of part of squaare 103, Washington, D. C., upon certain trusts, among which that, upon default made, to sell at public auction, upon 20 days advertisement of terms, &c., “ which said terms of sale shall be as follows, viz., the amount of indebtedness secured by said deed of trust, unpaid, with the expense of sale, in cash, and the balance at twelve and eighteen months for which the notes of the purchaser, bearing interest from the day of sale, and secured by deed of trust on the property sold, shall be taken.”
    The plaintiff further testified, that before the maturity of the note the defendant sold to Gilbert C. Walker and paid the interest that accrued upon the note up to the time of the sale, and thereafter said Walker paid the interest upon said not,e to him up to its maturity ; that upon the maturity of the note, Walker came to him — told him that he (Walker) had to pay the note, and asked that the note be extended for him for one year, and thereupon he extended the note for one year at the same rate of interest; that Walker paid the interest upon the note for the time of the extension, and at its maturity again requested a further extension for one year, but he refused to extend it for a year, but did extend it for nine months, at the same rate of interest ; that no interest was paid for the last extension, and after the expiration of nine months, default being made in the payment of the note and interest, he caused the trustees under the deed of trust to sell the said real estate at public auction as required by the deed of trust, and at a sale so made he purchased the property for the sum of $8,500, and after deducting the expenses of sale and taxes the balance of $8,132.10 was credited upon the note, and the balance, $2,684156, with interest from the day of sale, was due and unpaid ; that the property was duly conveyed to him by Wallach and Duvall, trustees, and he was in possession.
    This was all of the.evidence given in behalf of the plaintiff, who then rested.
    Thereupon the defendant prayed the court to instruct the jury to return a verdict for the defendant, which the court refused. Whereupon defendant, after excepting to the refusal of the court so to instruct the jury, offered in evidence the deed from Duvall and Wallach, trustees to the plaintiff, in substance as follows :
    Deed dated February 19, 1879. Wallach and Duvall, trustees, to John F. May. Eecites that Shepherd and wife had made and executed a deed of trust, dated April 26,1875, conveying the property described, to secure the payment of a certain promissory note, and upon default in payment to sell at auction ; and of the proceeds to pay said note, interest and costs of sale, and to convey the said real estate to the purchaser thereof, all of which will fully appear upon reference to said deed of trust; that default having been made, the trustees, in execution of the trusts declared in said deed of trust, proceeded to make sale, and sold to John F. May, who being the highest and best bidder therefor, at and for the sum'or consideration hereinafter mentioned ($8,500), became the purchaser thereof, and whereas the said John F. May hath fully complied with the terms of said sale, &c., conveys him lot 17, Babcock’s subdivision of part of square 103, Washington, D. C.
    The defendant then prayed the court to instruct the jury that the plaintiff was estopped by his acts in the premises from saying or claiming that the said promissory note was not paid, which prayer the court refused to grant.
    The defendant thereupon prayed the court to instruct the jury that the plaintiff was estopped by the said conveyances from saying or claiming that the note was not paid ; which the court also refused to grant. Defendant then offered to prove that the property sold under the deed of trust and purchased by the plaintiff was, at the time of sale, and now is, at a fair and reasonable estimate, worth $15,000; but the court ruled the proof inadmissible. An offer was then made to prove by the auctioneer who made the sale, that the plaintiff was the only bidder at the sale ; this also the court overruled.
    The defendant then further offered in evidence, and the same was admitted, the deed of defendant to Gilbert C. Walker, in substance as follows :
    Deed dated August 1, 1876. Alexander R. Shepherd and wife to Gilbert C. Walker. In consideration of $30,000, conveys lot 17, in Babcock’s subdivision of part of square 103, subject, however to a certain deed of trust dated April 26, 1875, and recorded in liber 781, folio 431, said deed of trust being for $10,000, covenant against all claims under him “ except the aforesaid deed of trust.”
    No other evidence being offered, the court instructed the jury that the evidence in behalf of the defendant, though believed by the jury, was not legally competent to defeat the plaintiff’s right to recover, to which instruction, and to the refusal of the court to admit the evidence as above offered, the defendant excepted.
    Verdict for plaintiff for $3,163.28 and costs.
    
      Andrew B. Duvall for plaintiff:
    Before tbe maturity of the note the defendant sold and conveyed said real estate, “subject to said deed of trust,” to G-. C. "Walker, who did not assume the payment of the note in the deed or covenants, nor was its' amount deducted from the purchase money so far as the record shows.
    Whatever may have been the relations established between Shepherd and Walker by this sale and purchase of the equity of redemption in said real estate, we maintain defendant’s relation to plaintiff upon the note remained unchanged ; there was no novation ; defendant was and continued to be the maker of the note ; his liability as such wasever fixed anddetermined; he did.not become Walker’s surety on the note, for Walker was never a party thereto. In equity, as between defendant and Walker, if the latter had assumed in the deed or covenanted to pay the mortgage, especially if the amount was deducted from the price, it may be that* defendant became his surety, but not as between plaintiff and defendant. 1 Hill on Mortg., 827, and cases. Waters vs. Hubbard, 44 Conn., 340, 348.
    Even if Walker, in the deed to him, had assumed payment of the deed of trust, the holder of the note might treat both him and the defendant as principals. Corbett vs. Waterman, 11 Iowa, 86.
    Defendant could have discharged his obligation at any time after maturity of the note by payment; the so-called extension of the note was nudum 'pactum. Defendant could not have been damnified. There is no pretense that Walker was insolvent ; and if he had assumed payment of the note, and was, as between them, primarily liable, defendant could have enfoi’ced that contract without actual payment by himself. Rawson vs. Copeland, 2 Sandf., 284.
    A contract to pay usurious interest constitutes no consideration. 74 Pa. St. 36 ; 10 Ind., 227: 45 N. H. 104, 31 Md., 126.
    It was not competent in this case for defendant to litigate any question as to the manner or sufficiency of the sale made under the deed of trust by the trustees; any such alleged breaches of trust were only cognizable upon a direct issue with them in a court of chancery. The court below, therefore, properly refused to entertain testimony relative to the value of the security, the adequacy of the price obtained, or the number of bidders at the sale made by the trustees. Hill, on Trustees, 518-521 ; Shields vs. Barrow, 17 Iiow., 130-139.
    The note and the deed of trust are for many purposes distinct. Different remedies are administered in different-tribunals for each; different parties are convened. The note may be barred, and yet the trust enforced ; the trust may be void, and yet the note valid; the note may be in judgment, and that barred by limitations, and still it would note extinguish the collateral remedy under the deed of trust, though it had relation to and was intended to secure payment of the same note. Bank of Metropolis vs. Guttsch-lick, 14 Pet., 19-32.
    The deed of trust executed by Shepherd was the customary collateral security for the repayment of money loaned. It was intended as such, and as such it is pleaded by defendant. There is no foundation for the claim now made by him, that he was to be absolutely absolved from any further accountability on the note in the event of a sale under the deed of trust. The terms of sale prescribed in the deed (upon which defendant claims the estoppel) are the mere incidents of the power lodged in the trustees ; the power to sell for cash was inserted solely to prevent any delay in realizing the money upon default in payment of the money.” Markey vs. Langley, 93 II. S., 142.
    The operation of deeds is a question of intention ; the doctrine of estoppel is never carried further than the parties appear from the tenor of the whole instrument to have agreed. The presumption is against rather than in favor of estoppel, and the party relying upon it must show that it results from the particular clause, and is consistent with the tenor and object of the deed.
    There was no error, and the judgment should be affirmed
    
      Wm. F. Mattihsly and A. C. Bradley for defendant :
    The several exceptions raise two principal points:
    1st. Whether the defendant was not discharged from any liability on the note sued by reason of the facts, that after he sold to Walker the property described in the deed of trust, constituting the security for the payment of the note, subject to that lien, and -with the agreement on the part of Walker to assume and pay the note, the plaintiff with full knowledge of the sale and of Walker’s assumed relations to the note, collected interest upon it from Walker up to the time of its maturity, and then, at his request, and without the knowledge and consent of defendant, extended the note for one year, at the same rate of interest, and subsequently extended it for a further period of nine months.
    2d. Whether the plaintiff, by agreeing to the terms of the deed of trust, that upon a sale made, the cash payment should be the amount of the debt and expense of sale, by causing the property to be advertised and sold upon those terms, by purchasing at such sale, taking a deed of the property, and reciting that he had fully complied with the terms of sale, by entering into possession of the property, and claiming to hold and own the same under the said sale and deed, is not estopped to say that the note is not paid.
    The note and deed of trust constitute one transaction and must be considered as one instrument. l'Pars. on Con. (5th ed.)5 653 ; Hunt vs. Frost, 4 Cush. 54 ; 60 Mo., 79 ; 31 Me., 243.
    The 'parole extension of the time of payment by May for Walker was sufficient. Jones, Mtg., 1189-90-91 ; 21 N. J., Eq., 338 ; 3 Green. Ch., 141 ; 2 Wend., 587.
    The note bore 10 per cent, interest till paid, and its extension for the same rate of interest, was for a sufficient consideration, and binding. 57 Mo., 101 ; 69 Mo., 539 ; 14 Ohio, 348 ; 15 lb., 298 ; 31 lb., 637.
    Walker purchased from the defendant “ subject to ” the deed of trust; the defendant excepted the deed of trust from bis covenant of warranty, and Walker informed tbe plaintiff that he had assumed the payment of the note, and paid to the plaintiff all the interest upon the note that accrued after the purchase to the end of the extension. Formal words need not be used to show that the purchaser of mortgaged premises assumed the payment of the mortgage. The assumption may be established by circumstances and a parole or verbal promise is sufficient. Jones on Mortg., 760,761j 762; 88 Penn., 450; 22 lb., 680; 13 Allen, 168; 7 Cush., 337-
    In this case, under his assumed relations to the debt, Walker became liable upon it to suit at law by May. Jones on Mortg., 758 ; 7 Cush., 337 ; 2 Nenio, 45 ; 24 N. Y., 178 ; 38 Iowa, 396 ; 3 Ohio, 549 ; 4 lb., 833-4.
    Walker having assumed the payment of the note, the defendant occupied the relation of surety to it as between them ; and the plaintiff being fully informed as to that relation, was bound to conduct himself in accordance with the rights of the surety, and'by extending the time of payment of the note without the knowledge and consent of the defendant, the defendant was discharged from liability on it. Jones on Mortg., 740, 741, 742 ; 56 N. Y., 406 ; 67 N. Y, 96 ; 10 Bligh, N. P. R., 548, 80, 81 ; 36 Mich. 373 ; 73 N. Y., 211.
    The plaintiff holds under a deed which recites that the property was sold in accordance with the terms prescribed by the deed of trust, and that he became the purchaser of such and has fully complied with the terms of sale. The deed of trust prescribed that the terms of sale shall be the amount of the note and expenses of sale in cash, and the plaintiff is estopped to say that the note is not paid. 17 Johns., 161, 166 ; 44 N. Y., 50 ; 12 How., 256 ; 52 Dees, 454.
    A party cannot occupy inconsistent positions, and where one has an election between inconsistent courses of action he will be confined to that which he first adopts. Any decisive act of the party done with knowledge, determines his election and works an estoppel. The plaintiff cannot hold the property and say that the note is not paid. Bigelow on Estop., 503, 504, &c.; 18 B. Mon., 175 ; 12 Met., 405 ; 26 N. Y., 495.
    
      The 4th and 5th exceptions show that the property was worth more than sufficient to pay the debt, and that the plaintiff bought in at such bid as he saw fit to make, and in view of the terms of the deed of trust the evidence was admissible to show payment of the debt by the sale.
   Mr. Justice Cox

delivered the opinion of the court:

On April 16, 1875, Mr. Shepherd borrowed $10,000 from Or. May, giving his own note for the full amount, three years after date, and, at the same time, executed a deed of trust to certain trustees, reciting this indebtedness, and authorizing among other things, “ upon default made, to sell at public auction, upon twenty days’ advertisement of terms, &c., which said terms of sale shall be as follows, viz., the amount of indebtedness secured by said deed of trust, unpaid, with the expense of sale, in cash, and the balance at twelve and eighteen months, for which the notes of the purchaser, bearing interest from the day of sale and secured by deed of trust on the property sold, shall be taken.”

A little more than a year after the execution of the deed, on August 1, 1876, Shepherd and wife conveyed the equity of redemption to Albert C. "Walker, the consideration named being $30,000, and the conveyance being subject to a certain deed of trust, dated,” &c., and containing a covenant against all other claims. When this transaction took place, Shepherd paid the interest on his note up to the time of his conveyance to Walker, and Walker paid the interest until the maturity of the note, and then came to May and told him he had to pay the note, but asked for an extension for one year. This was granted, at the same rate of interest. Walker paid the interest for the time of the extension, and, at maturity, requested a further extension for a year, and got it for nine months at the same rate. There was no payment after the last extension, and at the end of the nine months, May got the trustees to sell, as required by the deed, at public auction, and bought the property for $8,500. After deducting the expenses of the sale, the balance was credited on the note, and the balance of $2,684.56, due on the note, with interest from the day of sale, was sued for. Upon this state of facts, the defendant prayed the court to instruct the jury to return a verdict for him, but,the court refused, very properly, because that would have been to take the case entirely from the jury, after all the facts were before them affecting the plaintiff’s right to recover and to defeat that right. There was no question about the note having been given, or as to the handwriting,' but the instruction asked was substantially that the facts proven were not sufficient. But the defendant also contends that there were facts enough, taken together, before the jury tending to show that, although the deed from Shepherd to Walker had no provision that Walker would assume the payment of the note secured on the property, yet, in point of fact, such was the understanding, and this was supposed to be made out by circumstances. Shepherd paid the interest quarterly up to the time he sold to Walker, and Walker told May he would have to pay the note, and procured an indulgence. It is contended that this gave May a right of action against Walker upon his verbal promise to pay the note, as if Walker, for sufficient consideration, had personally become indebted to May, and perhaps the weight of authority is in that direction. It is further contended by the plaintiff that, if this was so, the effect was to make Walker the principal debtor from that time, and Shepherd a mere surety for the payment of the debt, although the arrangement was made by parol. And it is further contended that May would not afterwards be allowed to make any arrangement with Walker, his principal debtor, which would operate to the prejudice of Shepherd, thus become a mere surety. It is yet further contended that the extension of time granted to Walker was a benefit both to debtor and creditor, and though for the same rate of interest was for a sufficient consideration, but on this point there is a conflict of opinion. But, conceding all the other points contended for by the defense, wms this agreement a valid one between Walker and May for forbearance? The agreement was verbal that Walker should pay interest at the rate of ten per cent, on f1,000 first for one year and then for nine months in consideration of May’s giving time during those respective periods. The Maryland statute is substantially that of Ann, by which an agreement to pay more than ¿66 for a forbearance of ¿6100, or at that rate, for more than one year, was absolutely void. If that was the arrangement, neither principal or interest was recoverable. Under the Maryland statute, in case of an extension of a contract for legal interest for a longer time at a higher rate than legal interest, the new agreement is void, although the original contract is still valid; and this whether the new agreement be written or verbal. The law in the Revised Statutes is thus laid down for this District:

“ Sec. 713. The rate of interest upon judgments or decrees, and upon the loan or forbearance of any money, goods or things in action shall continue to be six dollars upon one hundred dollars for one year, and after that rate for a greater or less sum or for a longer or shorter time, except as provided in this chapter.
“ Sec. 714. In all contracts made, it shall be lawful for the parties to stipulate or agree in writing that the rate of ten per centum per annum or any less sum of interest shall be taken and paid upon every one hundred dollars of money loaned or in any manner due and owing from any person or corporation in the District.
“ Sec. 715. If any person or corporation shall contract to receive a greater rate of interest than ten per cent, upon any contract in writing or six per cent, upon any verbal contract, such person or corporation shall forfeit the whole of the interest so contracted to be received, and shall be entitled only to recover the principal sum due to such person or corporation.”

It seems plain that the verbal agreement to receive a greater rate of interest than six per cent, for forbearance after this note was due, was simply void under the statute. Cases were cited from Ohio and Missouri bearing on this question. In Missouri it is settled that an actual payment of usurious interest in advance for forbearance will sustain the promise, but they distinguish plainly between actual payment and an executory agreement to pay, the latter being no consideration for the promise to forbear. The cases in Ohio seem to hold the promise to pay usurious interest a good consideration for forbearance on the ground that under a State statute such a promise is valid for the legal interest and void only for the excess. All the cases recognize the doctrine that a void promise to pay illegal interest is not a valuable consideration for a promise to forbear. It is a mere nudum factum. The law is perfectly well settled that a valid agreement between a creditor and the principal debtor giving time after the maturity of a note discharges the surety. But that agreement must be a binding one; otherwise, it is merely a voluntary indulgence, and no valid defense for the surety. Hence, as has been said, assuming the positions of the defense to be correct, this extension granted by May to "Walker is no valid defense for Shepherd. It is true that the note bore 10 per cent, interest until paid. But after the maturity the creditor could exact and the debtor could pay at any moment. Sere was a new agreement having the same effect as if the money had been paid and then reloaned for a definite time. The defendant further relied on the terms of the deed, claiming that under the provisions for the sale of the property, the trustees had no power to sell for less than the full amount of the debt and taxes and expenses; and that, inasmuch as the sale had realized for less, and May had gone into possession, he was estopped from averring nonpayment of the debt, or any balance of it,1 and was chargeable with the entire amount of it. But this seems not a fair construction of the deed. It is very improbable that any creditor would enter into a contract to lend money with the understanding that, if the security depreciated, he would lose all of his debt, or have to accept the security in full satisfaction of it. Such an understanding, therefore, must be very plainly expressed in the deed. The provision relied upon does not apply to the power to sell, but to the distribution of the proceeds, between cash and credit payments, to the extent of the debt. It assumes that the property will sell for more than the debt, and it is plain that that was the opinion of both parties at the time. If tbe construction contended for were correct, then in case of the depreciation of the property, the creditor would have to take it in full satisfaction of the trust, or surrender his debt altogether. The true construction of the provision in question is that the trustees should require a cash payment of enough to satisfy the debt, if the purchase money were sufficient for that purpose, and the balance in two instalments. Undoubtedly the trustees so regarded it, and May’s contract was according to that understanding. If they were wrong, the sale might be set aside. Biit no different contract could be made for May by the court as would be done by charging him with the full amount of his debt as if he had bought on those terms. It would only follow^ that the sale might be set aside. It is said that May is in possession, but he only took possession on certain agreed terms and, if there was no right, there is no lawful possession. We could not require him to hold on different terms,he must be put to his election to surrender or take the property at the full amount of his' debt, with the taxes, &c. Therefore, the facts which were proven in defense did not furnish a defense to the action, and a •prima facie case being made out by the plaintiff, the judgment below must be affirmed-.

{ Decided April 3, 1882.

} The Chief Justice and Justices Cox and James sitting.