Case Name: William Parchman vs. Jesse McKinney et al.
Court: High Court of Errors and Appeals of Mississippi
Jurisdiction: Mississippi
Decision Date: 1849-01
Citations: 12 S. & M. 631
Docket Number: 
Parties: William Parchman vs. Jesse McKinney et al.
Judges: 
Reporter: Mississippi Reports
Volume: 20
Pages: 631–640

Head Matter:
William Parchman vs. Jesse McKinney et al.
Where land was sold in 1835, for a consideration partly paid in cash, and the residue in notes on tim,e, and the latter purported to be for money loaned, and to bear an interest of ten per cent; the contract was held to be usurious.
It seems, where a debtor executes his notes for an. usurious loan of money, and executes a deed of trust to secure their payment, and the creditor is about to force a sale to pay the usurious notes, and the debtor files his bill in chancery to enjoin the sale, on the ground of usury, that the debtor, upon an account taken of the usurious dealings between the parties out of w'hich the notes and deed of trust grew, ought not to be charged with any interest.
In this case, the court reviews the principles and reason of the rule, that when a party seeks aid from a court of equity against an usurious transaction, he shall be compelled to pay the money loaned with legal interest; and comes to the conclusion, that under the statutes of usury in this state, this rule does not apply to the case of a debtor, who is forced by the nature of the security he has given for the usurious loan, in the first place, into a court of equity, where only he can obtain relief.
Under the statute (How. & Hutch. 374,) which provides, that if a note founded on any other consideration than loaned money, frauduleritly and deceitfully express therein, that the same is given for money lent, and specify a greater rate of interest than is allowed by the act, and if the fraud be discovered in any suit or action either at law or in equity, no interest shall be allowed, &c. upon such a state of case, if the debtor were compelled to resort to equity for relief against the loan, the chancellor could allow the creditor no interest whatever.
It is a rule both at law and in equity, applicable to usurious loans, that when the debtor sues the creditor to recover back the usury paid, he can only recover the excess over.the lawful interest; yet, it seems this rale does not apply where the transaction is unfinished; where all the money usuriously lent is not yet repaid, and where the debtor seeks relief against any further payment; in such case the debtor will have the right to have the payments previously made by him, though applied by the creditor to the usurious interest, re-applied to the extinguishment of the principal.
If it were otherwise, the debtor would still have the right to have his prior payments appropriated to the extinguishment of principal, unless the interest in the dealings between the parties, is clearly distinguishable from the principal; and unless also the debtor designate when he makes the payment, that he does so in extinguishment of the usurious interest; for although ordinarily, the law applies partial payments to the discharge of interest, it does not so apply them to the discharge of illegal interest.
A decree of the chancellor upon a bill for an account filed by a debtor against his creditor, charging usury, was held to be erroneous, because it allowed legal interest on that portion of the principal yet unpaid; and upon a note given for illegal interest.
Otf appeal from the vice-chancery court at Fulton; Hon. Henry Dickinson, vice-chancellor.
William Parchman states in his bill, that John Parchman on the 4th day of August, 1835, purchased of Jesse McKinney, 559-£s9j¡ acres, in the county of Monroe; and for them agreed to pay McKinney $6500, $2000 in cash; and to secure the balance John Parchman executed to Jesse McKinney his two notes for $2250 each, one due the 1st of January, 1837, and the other due the 1st of January, 1841, purporting on their face to bear ten per cent, interest for money loaned. That to secure the payment of the note due the 1st of January, 1841, the complainant executed a deed of trust to John M. McKinney, trustee, upon trust to sell upon the failure of the complainant to pay at maturity, giving thirty days’ notice of the time and place of sale.
That John Parchman died intestate, and at the January term, 1846, of the probate court of the county of Monroe, administration upon his estate, was granted to complainant, who entered into bond, and was qualified according to law; the defendant claims that there is due him the amount of the note due the 1st of January, 1841, together with interest thereon; and holds two other notes on John Parchman, one for about $>900 and one for about 8400, and which defendant insists are still due and owing. That to enforce the collection of said debts, the defendant had procured the trustee to advertise the land for sale, on the 29th of October, 1846.
That the two notes of §900 and §400 were executed on account of the same transaction, and for interest at an usurious rate, upon said note of §2250, due the 1st of January, 1841; that said intestate was not indebted to the defendant, in any other account, than for the purchase of said land, having had no other dealings with him, except those growing out of said purchase.
That during the lifetime of said Parchman, he paid to defendant, on account of said notes of §2250, the sum of §5300; that these payments were made at various times, from the making of said contract, till the death of said Parchman, and are exclusive of the $2000 paid at the time of the purchase, and which are evidenced by notes found among the papers of his intestate, which are filed with the bill.
That upon a just and legal computation of interest upon said debt, the balance due thereon, if any thing, does not exceed §1125, which has been tendered to defendant by way of compromise, but which he has refused to accept or receive. That the estate is able to pay any balance, if any, which may be due upon said debt; that complainant is ready and willing, and offers to pay whatever the amount is, ascertained upon a just and legal computation.
That at the time of the purchase of the land and execution of these notes, it was corruptly and unlawfully agreed between the defendant and complainant’s intestate, that said intestate should account to and pay McKinney interest at the rate of ten per cent, per annum, upon the amount of said notes, from the 25th of December, 1835, until their maturity, as for borrowed money; that this agreement was made with the fraudulent intent of evading the statute; that the debt has been increased to its present size by charging interest after the rate of ten per cent, per annum, and compounding the same annually; that his intes tate was a plain confiding farmer, and executed the two notes of $900 and $400 upon the representations of defendant.
The bill prays, that an account be taken of the amount due to defendant from the intestate of complainant upon said contract ; also of the payments made thereon; that the deed of trust and notes be delivered up, and the trustee enjoined from selling the land; and for general relief.
The answer of Jesse McKinney admits the sale of the land for $6500; $2000 of which was paid down, and two notes of $2250 each executed for the balance, with William Parchman as security, one of which was due the 25th of December, 1836, and the other the 25th of December, 1837, to bear interest at ten per cent, per annum, from the 25th of December, 1835.
That from time to time, up to the 19th day of October, 1837, the said Parchman paid defendant interest, by executing other notes for the sums due; at which time defendant, uneasy as to the ultimate security of the debt, required of said intestate to execute the deed of trust referred to; and to make the deed of trust and note correspond, surrendered to Parchman the original note, and took another one described in the deed, due on the 1st of January, 1841.
He admits that he holds the note of $2250, and claims legal interest thereon, since the 1st day of January, 1S43, said note being credited with a payment of interest on its back, up to that time; and also that he holds two other notes,.one for $936-15, the other for $415-53, the last dated the 27th day of May, 1844, due one day after date; that he is wholly unable to arrive at any certain sum in cash, which he has received from Parchman, but thinks it amounts to between $3000 and $4000.
The defendant proceeds at length to detail the dealings and transactions touching the notes between himself and the intestate, the various payments made, and when, &c.., and insists that the notes held by him were for balance of principal unpaid, the payments having been made upon the interest in arrear.
The answer of John M. McKinney admits that he is the trustee in the deed, in the bill mentioned, and was, at the instance of Jesse McKinney, proceeding to sell the land therein mentioned, but has declined doing so since the service of the injunction, and disclaims any interest in the suit, except as trustee.
Jesse McKinney also filed an amended answer, detailing the course of dealing between himself and the intestate more particularly, but it need not be set out.
Proof was taken to the effect, that the defendant compounded the interest upon the debt, from the 25th December, 1835, until April, 1844, the time of the last settlement; that when notes were taken for interest, as was the case at the end of each year, these interest notes were to bear interest at ten per cent, as for loaned money; that the principal and interest, as it accrued and became due, were compounded annually at ten per cent, from the beginning to the end of the transaction, in April, 1844; but it is not deemed necessary to set the proof out at length.
At the May term, 1848, of the court, the vice-chancellor ordered an account to be taken, and that, in taking the account, the clerk should allow interest at eight per cent, from the 25th December, 1835; and that when it appeared from the testimony or exhibits, that a note had been given for interest due and unpaid, that interest at eight per cent, be counted from the time it was agreed to bear interest; and that this rule of computation be kept up until the 1st April, 1844, and after that time that interest at eight per cent, per annum upon the balance found due; and that payments found to have been made, be first applied to the payment of interest. From this decree the complainant prayed and prosecuted this appeal.
John Goodwin, for appellant,
Cited H. & H. 374, sec. 14, 15; Planters’ Bank v. Snodgrass, 4 How. 573; Com. Bank of Manchester v. Nolan, 7 How. 521; Taylor v. Matched, 1 How. 596; 2 Com. Law Rep. 434; Walker v. Bank of Washington, 3 How. U. S. 62; 20 Johns. R. 285 ; 2 Bl. Com. 296; 6 Johns. Ch. R. 103.
Reuben Davis, on same side.
Lindsay and Copp, for appellees,
Cited Bank v. Sharp, 4 S. & M. 75; McRaven v. Forbes, 6 How. 569; 2 Tern. 171; 2 Atk.- 393; Earl of Suffolk v. Green, 1 Atk. 450; Rogers v. Rathbun, l Johns. Ch. R. 367; lb. 439; Fitzroy v. Gwillim, 1 Term Rep. 153; 2 Cox, C. C. 183; 8 Price, 616; 1 Paige, 429, 554; 3 Wend. 587; 3 Johns. Ch. R. 398 ; Story, Eq. Juris. § 300 - 302; Coleman v. Childress, 6 Yerg. 398; Weatherhead v. Boyers, 7 lb. 545 ; Boyers v. Bod-die, 3 Humph. 666; 2 Johns. Ch. R. 182; 3 lb. 398; Livingston v. Harris, 3 Paige, 532; 9 Yesey, 84; 16 lb. 124; 1 Paige, 544; 11 Wend. 330; 20 Johns. R. 290; 1 Johns. Ch. R. 13, and cases there cited; 1 Hen. & Munf. 4; 2 Atk. 330; 6 Johns. Ch. R. 313; 4 Term R. 613; 2 H. Black. 144; 4 Rand. 408, 411; 1 Binney, 165; 4 Ohio R. 373; 3 N. Hamp. R. 40; 1 Johns. Ch. R. 557; 23 Pick. 167; 3 Johns. Ch. R. 398; 9 Yes. 203; 1 lb. 98 ; 4 Yeates, 220.

Opinion:
Mr. Chief Justice Shaékey
delivered the opinion of the court.
The complainant Parchman filed his bill to enjoin the sale of a tract of land under a deed of trust. The case seems to be in substance this: In 1835, complainant's intestate purchased the land of McKinney for $6500 ; he paid $2000 in cash, and executed two promissory notes for the residue, payable on the 1st of January, 1836, and 1837, expressing to have been given for money loaned, and containing a reservation of ten per cent, interest. Yarious payments, renewals and separate notes for interest were afterwards made, and ultimately a new note for $2500 was given, and also two other notes, one for $900, and and the other for $400. At this settlement the deed of trust was given. Complainant alleges that he has paid between $5000 and $6000, and that respondent still claims the amount of the three notes; but respondent only admits payments to the amount of about $4000. It seems difficult to follow up the various changes and renewals of the securities, nor is it necessary. It is agreed that the original notes were made as already stated ; that the interest was not paid, but a note given for it, also to draw ten per cent, interest, and that this mode of calculating and securing interest was carried on until 1844. That payments made before that time were generally applied in discharge of the interest first. The vice-chancellor made an order that an account should be taken, in which McKinney should be allowed eight per cent, interest, and from that order this appeal was prayed.
There can be no difficulty in deciding, that the transaction was usurious. A similar contract was held to be so in Torrey v. Grant, 10 S. & M. 89. But the question is, shall the creditor be allowed any interest? His right to it is maintained on the principle that the party who resorts to a court of chancery to be relieved against a usurious contract, must pay the principal and legal interest; that the excess above legal interest is the extent to which the court will go in giving relief. That such is the rule adopted and followed by the current of decisions is not to be doubted; but can it be applied to the present case ? The rule originated under the rigid provisions of the statute of 12 Anne, which made all usurious contracts void, and imposed heavy penalties on the usurer; but our law is entirely different. Let us see then how far the reasons which gave rise to this rule, will apply in this altered state of the law. It has its foundation in the discretion which the courts of equity are said to have possessed in granting or withholding relief. On this foundation, and on this only can it rest. The cases in which relief was sought in a court of chancery, were generally, and perhaps invariably, cases in which a remedy at law might have been had, or in which discovery was sought to sustain the defence at law, and hence it has been said that the court was not positively bound to interfere, but has a discretion on the subject, and may prescribe the terms on which relief will be given. Having that discretion, the rule was applied, that he who seeks equity must do equity. It was regarded as against conscience, that the borrower should pocket the money loaned, without being compelled to return what was really due, as that would be to make the statute which was intended to prevent fraud, the instrument of fraud. But at the same time, equity would not assist the lender, as that would be aiding a wrong-doer. See 1. Story, Eq. Jur. 322, § 301, 302; 1 Fonbl. 24, note (h); Rogers v. Rathbun, 1 Johns. Ch. R. 367.
Now mark the difference. Our statute docks the interest only, and leaves the right to the principal unimpaired ; and it inflicts no punishment on the lender. With regard to the discretion of the court in a case like this, it is certainly not clear that it can have any, whatever may be said in ordinary cases, unless indeed we say, that in every case a court of chancery has no other rule than discretion. The complainant had no remedy at law. The parties had provided a summary remedy, to be pursued without the aid of a court. If there was any illegality in the contract, it could only be set up against remedy in a court of chancery. From the peculiar character of a deed of trust, and the mode of proceeding to enforce it, relief against it is a subject of original and primary chancery jurisdiction; and it is also exclusive, for a court of law cannot reach it. This party then is not to be treated as though he had been negligent in making his defence in another tribunal. He stands on the same ground that a defendant does, who is making his defence at law when sued on a usurious- contract. He makes his ground of relief in the appropriate tribunal, the only tribunal that can hear it, and at the first opportunity. He is not therefore a proper object for such terms as the court in its discretion may think proper to impose. But again, it is not against conscience for him to seek this remedy. He has not the money of the defendant, there was no loan of money. But above all, the statute made to prevent usurious contracts is protected ; its end and object accomplished ; it is not made the instrument of fraud. The general rule is, that courts of equity must follow the law, and they cannot depart from it without some obvious reason. For these reasons it would seem, that the general rule, requiring the party to pay the principal and legal interest, cannot apply in this case. And this accords with the opinion of the chancellor in Monks v. Morris, 4 Hen. & Mun. 463, which was a very similar case. The bill was brought for relief against deeds of trust, which the trustee was about to carry into effect, on the ground of usury, and against the same objections here raised, the party was held not to be entitled to interest.
Perhaps this question might have been made to rest entirely on a fair construction of the statute. H. & H. Dig. 374. After providing the rate of ten per cent, interest for a loan of money, and so expressed on the face of the instrument, the statute proceeds, " Provided that if any contract, bond, or note, founded on any other consideration than the bona, fide loan of money, shall fraudulently and deceitfully express therein that the same is entered into or given for money lent, and specify a greater rate of interest than is allowed by this act, if such fraud or deception shall be discovered in any suit or action either at law or in equity, no interest or premium whatever shall be allowed or recovered on such fraudulent contract, bond, or note, but the principal sum only shall be recovered." This provision seems to be sufficiently broad to extend to actions brought by either party, and it expressly extends to courts of equity, and thus furnishes a law for those courts, and we have precisely the description of case described by the statute; one that fraudulently and deceitfully expresses on its face that it was given for money lent.
The only ground for any doubt in the case is, whether the debtor, having made sundry payments of interest, is now entitled to have those payments applied to the principal, as it is a rule both at law and in equity, that nothing but the excess can be recovered back. 1 Story, Eq. Jur. § 302; Fitzroy v. Gwillim, 1 Term Rep. 153; 1 Fonbl. 246, (note k). The recovery of the excess may be had in an action for money paid, which being an equitable action, courts of law apply the equity principle, and will not allow a party to recover back what he has voluntarily paid, without paying that which he might legally have contracted for. But the principle does not seem to be applicable in the present case, as it is exhibited by the record. In the first place, the transaction is, to a certain extent, yet an open one, or the contract to pay the money is yet in part executory; the transaction is unfinished. When an illegal contract is executed, the consideration cannot, in general, be recovered back; but when the action is in disaffirmance of an illegal executory contract, the money paid may be recovered. 2 Comyn on Contracts, 109. This principle is not entirely inapplicable in the present case, as the money or consideration has not been entireJy paid.
But a second reason is, that by the renewed contract the principal and interest seem to have been mixed up. There is no distinguishing between that which was principal and that which was interest, so far as the record shows. But a still more conclusive reason is, that it does not appear whether the payments made were intended by the party who made them as payments of principal or of interest It must be made to appear that they were made as payments of interest; for although it be true that by law partial payments must be first applied to the interest, and the party receiving them would have a right so to apply them, yet this would not be the case with illegal interest. The law does not apply payments to illegal purposes..
The decree is wrong for another reason. It gives a right to recover legal interest, yet unpaid, on the principal due, when the law cuts off all interest, as the party contracted for ten per cent. And it gives legal interest also on a note given for interest. If that note.was taken for illegal interest, or for interest on a contract drawing more than eight per cent, it is void.
Decree reversed', and cause remanded.