Court Opinion

ID: 6696467
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:52:56.243543+00
Date Added: 2024-06-11T16:01:15.832940
License: Public Domain

Clark, C. J.,
dissenting: Tbe defendant, R. E. Osborne, the maker of the note sued on, pleaded usury, and alleged tbat the note sued on was part of and grew out of a loan of $1,000 made by the plaintiff to bim on 5 March, 1908, and tbat said loan was made on the express understanding and agreement witb the plaintiff tbat the said Osborne pay 8 per cent interest on said loan, and at the time be received from the plaintiff $1,000 in cash and executed bis note to the plaintiff in the sum of $1,080. Tbe said $80 was embraced in the said note, being* the interest thereon for one year at 8 per cent, wbicb was added to the principal indebtedness. He further averred tbat be bad paid the plaintiff 8 per cent interest on the said loan, beginning 5 March, 1908, for a period of 6 years. And also paid the same rate of interest on the $80 representing the first year’s interest, making thé interest for each of said years $86.40 — a total of $598.40 paid to the plaintiff by reason of said usurious contract. Tbe defendant Osborne further averred tbat be paid the plaintiff by reason of said loan the further sum of $500 in cash, on 9 May, 1916, making a total of $1,098 paid by bim on said loan of $1,000.
It appears on the record, and was admitted by all parties, tbat prior to 9 May, 1916, the plaintiff sued the defendant Osborne and bis sureties on the note of $1,080, dated 5 May, 1908, and tbat after deducting the interest tbat bad been paid the defendant Osborne filed an answer pleading the statute forbidding the collection of more than 6 per cent on loans, and at May Term, 1916, said suit was compromised, and by agreement judgment was signed dismissing the suit. It is admitted by both plaintiff and defendant tbat at the time of the said consent judgment, 9 May, 1916, the defendant Osborne paid the plaintiff the further sum of $500, wbicb was in addition to the annual payments of interest theretofore made by bim to the plaintiff at the aforesaid rate of 8 per cent for seven years, and tbat at the time of said consent judgment the defendant Osborne executed to the plaintiff the note sued on in tbis action, endorsed by J. F. Abel, and tbat be also executed to the plaintiff bis note in the sum of $100 without any endorsement.
At tbe time of tbe payment of $500 in cash, on 9 May, 1916, and tbe execution of tbe said two notes for $500 and $100, there was no con*672sideration passed between tbe parties, but they were renewal notes of the original loan of $1,000 of 5 March, 1908, less payments made. The defendant Osborne in his answer averred that by reason of said contract, knowingly made by the plaintiff to charge him 8 per cent interest on said $1,000 loan made on 5 March, 1908, in law the said loan never bore any interest, and that the different payments made by him by reason of said loan should be, and by law were, applied on the principal indebtedness of $1,000, and that said payments, together with the $500 cash paid on 9 May, 1916, overpaid the plaintiff, and the note now sued on for $500 represents in its entirety unlawful and usurious interest charged and exacted of him by the plaintiff, and that the same is void. The plaintiff, having already more than received her money back, cannot in law correct the note now sued on.
There is no dispute about the above facts, which are set up in the answer and admitted by the reply, which relied upon the statute of limitations, Rev., 396 (2), in bar of the defendant’s right to plead the statute.
The court erred in refusing the defendant’s prayer to instruct the jury that the plaintiff having sworn that by virtue of said contract of 5 March, 1908, she had charged the defendant 8 per cent per annum on said loan, and that pursuant to said contract the defendant had paid the plaintiff up to the date on which the plaintiff admits the payment of $500 in cash on 9 May, 1916, the sum of $1,098, the loan as a matter of law bore no interest, and that the defendant had overpaid the plaintiff. And further, that all payments made by the defendant to the plaintiff by reason of said loan were in law applied on the principal; and further, that the note of $500 sued on in this action, according to the plaintiff’s statement, represents in its entirety illegal and usurious interest' on the original loan, and the defendant having overpaid the original debt, which in law bore no interest, the note now sued on, being for illegal interest on said original loan, the same is void, and that the defendant having pleaded the statute, Rev., 1951, forbidding usury, the plaintiff is not entitled to recover, and further, that in no view of the ease is the plaintiff entitled to recover, and if the jury believed the evidence of the plaintiff, it will answer the first issue “Yes”; the second issue, “In its entirety”; and the third issue, “Nothing.”
The court refused the above instructions prayed by defendant, and charged the jury that a judgment having been rendered upon the original note, as above stated, the defendant was estopped to set up the defense of usury in this action. This was error both because the judgment did not pass upon the question whether there was usury or not, but the judgment was a consent judgment which is simply an agreement of the parties, and has no effect beyond such agreement. Bank v. Comrs., *673119 N. C., 226, where the subject of consent judgments is fully discussed and the Court says: “Consent judgments are in effect merely contracts of parties acknowledged in open court, and ordered to be recorded.” Suck judgment has the same effect exactly of a contract between the parties, and no more. And this agreement under which the new note for usurious interest was given has certainly no effect greater than if the usury had been paid in cash, and if paid in cash, the defendant was not only not estopped, but was entitled to recover back twice the amount of the interest paid.
Rev., 1951, provides: “The taking, receiving, reserving, or charging a greater rate of interest than 6 per cent per annum, either before or after the interest may accrue, when knowingly done, shall be a forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid thereon. And in case a greater rate of interest has been paid, the person or his legal representatives or corporation by whom it has been paid, may recover back twice the amount of interest paid, in an action for debt.”
If payment in cash had been made, the debtor, instead of being estopped, would have been entitled to recover back double the amount paid. . Certainly, therefore, the plaintiff cannot recover on this note, which is given in lieu of cash, since the note on which usurious interest had been paid had been overpaid, after deducting the payments of interest and payment of $500 in cash at the time (9 May, 1916), when the note sued on was given.
In Faison v. Grandy, 126 N. C., 827, and cases there cited, the Court held: “A note tainted with usury retains the taint in the hands of a subsequent holder. The forfeiture of interest is the decree of the law, and therefore a note embracing a usurious consideration is void as against the maker, even in the hands of a purchaser before maturity for value and without notice.” In the present ease the transaction is between the same parties, and the alleged renewal note is liable to the same defenses as if the original note was still outstanding.
This note in its entirety is a promise to pay interest, and void by virtue of the usury statute, there being nothing due upon the original note at the time this note was given.
In Riley v. Sears, 154 N. C., 517, the Court said: “In its practical operation, and as a matter of fact, the lender in very little over two years from the time the repayment was to begin, received back his $12,000, and in addition $2,627; so that, if this was a loan, as the parties termed it, he had already received, when these notes now sued on were given, the principal sum and nearly twice the amount of interest allowed by law. These notes, therefore, being given for an additional amount claimed, are based entirely on a usurious consideration, and no recovery *674thereon can be had. Faison v. Grandy, 126 N. C., 827, and Ward v. Sugg, 113 N. C., 489.” The present case exactly “on all fours.”
The above authority is directly in point, for, according to the plaintiff’s own statement, the note sued on in its entirety represents an additional amount, which in its entirety is for usury. The law applied the payments made for the seven years on the principal, since under the statute the note bore no interest, and the additional sum of $500 paid in cash overpaid the note. The note now sued on was given without consideration, and in its entirety represents the illegal interest, and the court should so have instructed the jury.
According to the law as laid down in Ward v. Sugg, 113 N. C., 489, the note in question is not only void, and no recovery can be had thereon, but even if this note had been endorsed to an innocent holder in due course it would have been void. No agreement of the parties, whether recorded as a consent judgment or otherwise, could change this. Ward v. Sugg, supra, has been followed and approved in many cases cited in the Anno. Ed.
In Covington v. Threadgill, 88 N. C., 186, it was held that “A contract made in violation of penal statutes is illegal and will not be enforced by the courts, and where such contract furnishes the consideration of another promise the latter will also' be deemed illegal, even though it may be partially supported by other and legal considerations.” In this case there was no other consideration than the original illegal consideration, and the note is held not by an innocent party taking before maturity and for value, but is made between the original parties.
The illegality of usury cannot be waived by the- agreement of the parties, not even bj payment, and a consent judgment cannot be an estoppel when the agreement itself continues and renews the original illegal contract.
The former action having been merely a consent judgment dismissing the action, cannot be an estoppel on the defendant against whom it adjudged nothing, even if it could be held an estoppel on the plaintiff.
Walker, J., concurs in dissent.