Court Opinion

ID: 3672797
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:20:38.074576+00
Date Added: 2024-06-11T15:15:57.552526
License: Public Domain

The controversy is as to the disposition of the moneys produced by the trustee's sale of the encumbered land in excess of what is required to discharge the principal sum loaned and interest at the stipulated rate accrued to the sale and receipt of the purchase money.
(57)    The defendants contended that, by the terms of the contract as expressed in the larger bond and more explicitly in the deed, each one of the bonds, those representing future interest as well as the other, became due and is to be paid out of the fund. *Page 73 
The plaintiffs insist upon their right to have the surplus after payment of the sum loaned and interest to the time of receiving the proceeds of the sale applied to their debts, which are secured in subsequent deeds of the same land, the expenses and costs of executing the trusts being of course retained by the trustee.
The solution of the dispute must be found in an examination of the agreement as an entirety, of which the making of the bonds and deed are in execution, and therefore ascertaining the intent of the parties to it.
The manifest and predominant purpose of both in making the loan was to provide ample security for the return of the money and the punctual payment of the successive installments of interest during the term of credit; and to this end the debtor's default is made a condition of its continuance at the option of the lender. The smaller bonds were executed not to create new obligations, but to put the interest in the form of an independent security, capable of transfer and separate enforcement by action. The relations of the one to the other are declared upon the face of each, and those for interest are intended to be of the nature and effect of coupons severed from the principal obligation. They represent and are meant to represent, as do proper coupons, the accruing interest as incident to the loan, and where a full payment is made of this, and its interest-bearing capacity is extinguished, there can be no interest as there can be no further forbearance of which it is the measure of values. Now can the form in which the obligation to pay interest is put be allowed the effect of making the debtor pay interest, when as such none does or can accrue?
The defendants ascribe this result to the fact that bonds therefor are given, and the deed declares upon a failure to pay any one of them, that each shall become a present indebtedness without reference to their character as representing interest. This would be to sacrifice  (58) substance to form and thwart, by literal interpretation of a few words, the clear intent and understanding of both parties in entering into the arrangement under which the securities were issued, and most oppressive in its operation on the debtor. The true and just construction is, in our opinion, that the lender reserves the right, in the contingency mentioned, to terminate the credit and recall what was then due of principal and interest without further indulgence or delay, and in order to this, to require a sale of the land conveyed for its security. This election exercised involves the surrender of all the outstanding interest bonds not required for what was then due, and so will the Court adjudge.
The defendants' contention permits the enforcement of a contract for a much larger rate of interest than the law allows for the loan of money, *Page 74 
since the interest for a period of little short of five years would be taken for the forbearance for less than one-half of that interval. This result the parties must be understood to have contemplated upon a construction of the contract, which admits it, and this is usurious, upon the principle that one cannot be heard to say that he did not intend to do what is the inevitable consequence of the act done. Cheatham v. Hawkins,80 N.C. 161; S. v. Voight, 90 N.C. 741.
But assuming, as the court finds that the putting the interest in bonds was not to secure usurious interest, but for convenience only, that the security might be surrendered as the payments were made, and the entry of successive credits upon the principal obligation obviated, we are constrained to put an interpretation on the transaction that avoids a claim for forbearance beyond the limits of the law.
But it is said that this is a penalty for the nonfulfillment of the contract to pay the stipulated interest with promptness; and if this be conceded it is plainly not recoverable, nor can it be retained against the debtor or his assignees. In penal bonds only the sum due, interest and costs, can be recovered. Code, sec. 934 — a reenactment of 4 Anne, ch. 16, sec. 13.
(59)    The defendants maintained that although the obligation is in effect a penalty for the nonpayment of money against which a court of equity will relieve, none can be sought in the present action, as one at law.
If this were so it would not be a defense under the provisions of the act already referred to, since the equitable rule is introduced into the action at law founded on the contract. But we do not deem this a legal, as distinguished from an equitable, proceeding. The facts set out present a proper case under our former system for a bill in equity to bring a trustee to an account in order to ascertain what remained after a discharge of the trusts and to recover it.
The office of the complaint now is to show the facts upon which the plaintiff's cause of action and right to relief depend, and if sufficient, the appropriate relief is given.
This is the distinctive feature of the new practice which has but one form of action to be pursued. This is decided in Jones v. Mial, 82 N.C. 252, which adopts the views expressed in the dissenting opinion when the same case was before the Court upon a former appeal, 79 N.C. 164.
The case does not fall within the principle which permits a vendor to contract for a sale upon a short credit for a smaller and upon a longer credit for a larger sum, the latter being greatly above the smaller sum and the intervening interest. There is no lending in such case, but a sale upon terms which the vendor is at liberty to make. *Page 75 
Nor would a contract to pay a larger sum, in case of failure to pay a smaller sum by which the obligation would be satisfied, fall within the condemnation of the usury law. This would be as the case before us is, apenalty, as held in Moore v. Hylton, 16 N.C. 429.
We are therefore of the opinion that the law is properly administered in the ruling of the court below, and there is no error in the record.
No error.                                                   Affirmed.
Cited: S. v. Jacobs, 103 N.C. 402; Hood v. Sudderth, 111 N.C. 222.
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