Case Name: McClelland v. Sorter
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1883-01
Citations: 39 Ohio St. 12
Docket Number: 
Parties: McClelland v. Sorter.
Judges: 
Reporter: Ohio State Reports, New Service
Volume: 39
Pages: 12–18

Head Matter:
McClelland v. Sorter.
On the 27th of April, 1872, the plaintiff loaned to defendant the sum of $2,500 on an agreeement for interest at the rate of ten per centum per annum, payable annually, and, in pursuance of the agreement, took from defendant two promissory notes for $1,250 each, payable in one and two years, with stipulations therein for interest at the rate of eight per centum per annum, payable annually, secured by mortgage; and at the same time took from defendant two side notes for the additional two per cent, interest agreed upon, which side notes, amounting to $209, were paid. Held: on proceedings to enforce the mortgage, the plaintiff, under the statute of May 4, 1869, commonly called the eight per cent, interest statute, was entitled to a decree for $2,500 with interest at the rate of six per cent, per annum, less the $209 so paid, and no more.
Error to the District Court of Lake county.
The original action was brought by one Preston A. Metcalf against Zebulon A. Sorter, John McClelland and others to marshal liens, &c., on certain real estate of defendant Sorter.
McClelland, by answer and cross-petition, set up a mortgage executed by Sorter to-himself, on the 29th of April, 1872, to secure the payment of the promissory notes of same date, for $1,250 each, payable in one and two years with interest at the rate of eight per cent, payable annually.
Sorter alleged usury, which McClelland denied.
The court of common pleas found and stated the facts and the law separately as follows: “ And now came the above named John McClelland and Zebulon P. Sorter, by their respective attorneys, and this cause came on to be heard upon the cross-petition of the said McClelland and the answer of said Sorter and reply of said McClelland and exhibits and testimony, and was argued by counsel. On consideration whereof the court do find as matters of fact that the two notes in the answer and cross petition of said John McClelland set forth, were given for money loaned to said Sorter by said McClelland on the 29th day of April, 1872. That the sum loaned to said Sorter was the full sum of $2,500. And that said loan was made upon the verbal agreement of said Sorter and said McClelland at the time of making said loan and as part of the agreement for said loan, that Sorter should pay and McClelland should receive interest on said loan at the rate of ten per cent, per annum, to be paid annually, and at the same time and as evidence of said agreement to pay ten per cent, interest on said loan ; the said two notes for $1,250, each payable in one and two years from date, were made and delivered to said McClelland by said Sorter, drawing interest at eight per cent, to be paid annually, and for the remaining two per cent, of said agreed rate of ten per cent, interest, the said Sorter at the same time and as part of the said transaction and loan, made his two side notes in writing for the amount of two per cent, on eacli^ of said notes from their date until they respectively matured, said side notes not bearing interest. And the court further finds that at the same time said Sorter made and delivered to said McClelland said mortgage specified in said cross petition to secure the payment of said two notes for $1,250 each and specifying the same rate of interest as contained in said notes. And the court further find that afterwards said Sorter paid said notes for extra interest of two per cent, and other extra and usurious interest upon said loan, in all to the amount of $209.00, which sum was paid on the 22d day of October, 1877.
“ And thereupon the court find as matter of law from the foregoing facts found, that the said loan is a valid and legal loan of $2,500 upon the valid and legal rate of interest at 8 per cent., to be paid annually, and do hold and rule as matter of law that said John McClelland is entitled to recover said $2,500 and interest thereon at the rate of 8 per cent, per annum to be paid annually less the sum of $209 paid as aforesaid, and that the said rate of 8 por cent., from the foregoing facts, is not illegal or usurious. And the court further finds that there is due to said McClelland from the said Zebulon P. Sorter on the notes and mortgages in said cross petition specified, the sum of $3,536.66.”
Judgment having been rendered in accordance with the above findings,. Sorter filed his petition in error in the district court, wherein the following judgment was rendered:
“ This day this cause came on for hearing upon the peti tion in error, the transcript duly certified and the original papers and pleadings from the court of common pleas of Lake county, and was argued by counsel. On consideration whereof the court find that there is error therein, apparent upon the record, to the prejudice of the said plaintiff in error. It is therefore considered by the court that the decree of said court of common pleas be, and the same is hereby reversed and held for naught, and that the said plaintiff in error recover of said defendant in error his costs in this proceeding expended, taxed $7.66. And the court, further proceeding to render such decree as the said common pleas court ought to have rendered herein, find that said John McClelland is entitled to recover from t*he said Zebulon P. Sorter on the note and mortgage in his cross petition set forth, the sum of $2500, together with simple interest thereon at the rate of 6 per cent., from and after the 29th day of April, 1872, less the sum of $209 paid by the said Sorter to the said McClelland on the 22d day of October, a. d. 1877. And the court further find that there is due to said McClelland from the said Zebulon P. Sorter, on the notes and mortgage in his cross petition specified, the sum of $3,191.74.
“ It is therefore considered by the court that the said John McClelland recover from said Zebulon P. Sorter the said sum of $3,191.74.”
This proceeding is prosecuted in this court to reverse the judgment of the district court, and to affirm the judgment of the court of common pleas.
/S. O. Griswold, for plaintiff,
insisted that in Ohio there is not and never has been, since the original enactment of the statutes, which now appear in the Revised Statutes, sections 3188 and 3182, any penalty imposed for the taking of usury so called ; that the notes sued on evidenced a legal contract; and that the side notes were void, and as evidencing a void agreement, in no way entered into or became a part of the substance of the agreement as expressed in the two notes for $1,250 each. They were instruments complete in themselves. The agreement to pay ten per cent, interest was without legal force or validity, but at the same time the par ties agreed in writing for the payment of money at a future time, and in that writing was a stipulation for the payment of interest at a legal rate. This stipulation is as valid as that for the payment of the money, and is unaffected by the void action of the parties.
Horace Alvord and George W. Aloord, for defendant in error,
claimed that there was but one contract, entire and indivisible. State v. Board of Education, 35 Ohio St. 519; Lee v. Peckham, 17 Wis. 394. That when a statute authorizes a higher rate of interest than a certain given rate allowed by the general law, an agreement, in any form, for interest in excess of such higher rate, will, as'between individuals, render the contract for interest void, and the lender may recover his debt and six per cent, interest, and no more. Claypool v. Sturges, 10 Ohio St. 440 ; Bunn v. Kinney, 15 Ohio St. 40 ; Samyn v. Phillips, 15 Ohio St. 218; West v. Meddock, 16 Ohio St. 417; Ohio ex rel. v. Board of Education, 35 Ohio St. 519; Swartwout v. Payne, 19 Johns. 294; 10 Am. Dec. 228; Gillmore v. Woolcock, 13 Wis. 659 ; Lee v. Peckham, 17 Wis. 394; Morton v. Rutherford, 18 Wis. 313; 2 Parsons on Cont. 390; Willard v. Beeder, 2 McCord, 369; Lear v. Yarnel, 3 A. K. Marsh. 419 ; Merrills v. Law, 9 Cow. 65; Macomber v. Dunham, 8 Wend. 550; Hammond v. Hopping, 13 Wend. 505; 7 Wait’s Actions and Defenses, 611, and authorities there cited; Nickerson v. Babcock, 23 Ill. 561; Monroe v. Foster, 49 Ga. 514.

Opinion:
McIlvaine, J.
The statute of May 4, 1869 (sections 3179, 3180, 3181 and 3182 of Revised Statutes) provides that the parties to any bond, bill, promissory note or other instrument of writing for the forbearance or payment of money at a future time, may stipulate therein for the payment of interest upon the amount thereof at any rate not exceeding eight per centum per annum payable annually, and that judgments on such bond, bill, promissory note or other instrument of writing should bear the same rate of interest until paid; but, it further provides, that in all other cases where interest is allowed, " the creditor or creditors shall be entitled to interest at the rate of six per centum per annum, and no more." And the statute of February 18,1848 (section 3183 of Revised Statutes), makes all payments of interest in excess of the rate allowed by law to be payments on account of principal, except as to bona fide indorsers before -maturity.
Although neither principal nor lawful interest is forfeited in case of usurious contract under this legislation, it is clear that such contract, as to all interest in excess of the rate allowed by law, is void. It was decided in Goode v. Sutton, 29 Ohio St. 587, that in an action, where it appears on the face of the petition, that usurious interest has been stipulated for, .the court, on its own motion, where no defense is set up as to usury by answer or otherwise, may refuse to enter judgment for more than the balance found due after deducting the excess of interest paid over and above the legal rate, or if the usurious interest stipulated for has not been paid, to refuse to enter judgment for more than the amount found to be due by computing interest at the rate allowed by law.
And under the act of March 14, 1850, commonly called the ten per cent, interest law, which was similar to the act of May 4, 1869, above referred to, except that it authorized the parties to stipulate in the bond, bill, note or other instrument of writing for a rate of interest not exceeding ten per centum yearly, it has been held repeatedly, that where the rate of interest stipulated for in a written instrument exceeded ten per cent., or where the rate stipulated for was ten per cent, on the principal sum named therein, which sum embraced a part of the interest contracted for, the judgment thereon should not exceed the amount found to be due upon a computation of interest at the rate of six per cent, per annum. Bunn v. Kinney, 15 Ohio St. 40; Samyn v. Phillips, Id. 218; West v. Maddock, 16 Ohio St. 417. Thus, it is made to appear that the policy of this legislation is to prevent the enforcement of usurious contracts, to the extent of the usury contracted for, as if the statute had declared usurious contracts to be illegal or criminal.
. The contention of the plaintiff in error however, is, that the promissory notes involved in this controversy are strictly within the terms of the statute, to wit, for the payment of the sum of money actually loaned, with interest at the rate of eight per cent., payable annually. By this contention, it is conceded that the side notes for two per cent, additional interest were void, and that the amount paid thereon should be treated as payment upon the principal of the notes. This theory assumes that there were two contracts between the parties — one lawful, the other unlawful. The fact, as found by the court of common pleas, is, that there was but one contract between the parties, namely, the loan of $2,500, with interest at the rate of ten per cent, payable annually. If this contract had not been re.duced to writing, the loan, under the statute, would have been at the rate of six per cent, interest. If it had been reduced to writing in the form in which it was made, the rate of interest collectible would have been six per cent, and no more. These propositions are not denied. The question, then is, Can the effect of the last proposition be evaded by the mere device of writing so much of the contract as was authorized by law, upon one piece of paper1, and that part of the contract which shows a violation of the statute, upon another ? Surely not. Such device is a fraud upon the statute. The true meaning of the statute, is, that when parties stipulate for interest at a rate not exceeding eight per centum per annum payable annually, they may bind themselves by putting such stipulation in the bond, bill, note or other instrument of writing. The legislative intent was that a creditor who stipulates for more than eight per cent, interest, payable annually, should be remitted to simple interest at the rate of six per cent. And it matters not as to the form which the usurious transaction may be made to assume, whether it be plainly written on the face of the bond, or be added to the principal debt, or be paid in advance, or evidenced by a collateral agreement. In West v. Maddock, supra, the plaintiff loaned defendant $2,000, and on that consideration alone, took his note for $2,500 with interest at the rate of ten per cent. This note, on its face, was strictly within the letter of the statute then in force. The plaintiff was restricted to $2,000 and interest at the rate of six per cent., although the rate of interest stipulated for in the note was within the letter of the statute. Nor was the vice of that transaction in the stipulation to pay interest upon unearned interest merely. Undoubtedly the same judgment would have followed if the stipulation had been limited to the payment of interest upon $2,000 of the principal sum named,-namely, the actual amount of the loan. The stipulation for the payment of interest at the rate of ten per cent., was violated by reason of the fact that the real contract was for a rate of interest greater than ten per cent., and such is the exact statement of the legal question in this case. True, the contract here was evidenced by two written instruments instead of one, but these evidenced a single contract, whereby the lender of money exacted from the borrower a promise to pay, in satisfaction of the loan, a greater sum of money than the statute authorized — a usurious contract, in consequence of which the statute remits him to the rate of six per cent, on the sum actually loaned.
The case of Ohio ex rel. v. Perrysburgh, 35 Ohio St. 519, has been referred to and relied on by both parties. There is nothing in that case which conflicts with the foregoing decision. The question in that case was as to the validity of certain bonds issued by the defendant under the act of May 13, 1868. The question of interest involved in that case arose under that act, and was not controlled, in any manner, by the act of 1869, which has been considered in this case.
Judgment affirmed.