Virginia Trust Co. v. Lambeth Realty Corp.

Seawell, J. The plaintiff’s demurrer to the answers of the defendants, setting up usury, apparently is based on the assumption that these defendants in pleading the usury were pursuing an equitable remedy and had taken the offensive. “He who seeks equity must do equity.” The statute itself, however, gives to the debtor, defendant in a suit upon notes tainted with usury, the right to plead forfeiture of all interest- — ■ C. S., 2306 — and makes no condition of previous tender upon such defense. The forfeiture of all interest is one of the law; and only when the debtor must resort to equity to restrain collection of the usurious debt or prevent foreclosure of the mortgage security, thereby becoming, both in the real and technical sense, actor, is it required that he tender the amount of the debt with legal interest. When attacked, he may *530 defend according to tbe terms of tbe statute. Noland v. Osborne, 177 N. C., 14, 97 S. E., 714; Gore v. Lewis, 109 N. C., 539, 13 S. E., 909, and cited cases; Arrington v. Goodrich, 95 N. C., 462. As to tbe usurious lender, there may be a locus 'poenitentiae, and for tbat reason tbe statute is content to place tbe forfeiture of interest on a defensive basis. It follows in tbe train of tbe attempt to enforce tbe usurious interest agreement and is wbat tbe law says it is, a forfeiture incident upon tbe “taking, receiving, reserving, or charging a greater rate of interest than six per centum per annum”; a forfeiture, however, which tbe statute makes available as a defense. On payment of tbe usurious demand, a cause of action arises for tbe recovery of twice tbe amount of tbe interest paid. As to tbe defendant Lambeth Corporation, it has asked no equitable relief against plaintiff except cancellation of tbe debt on account of an alleged fraud; it has not asked tbat plaintiff be restrained from foreclosing its deed of trust or tbe enforcement of its notes, if it cannot maintain itself on tbe issue of fraud. Tbe defense presented to tbe usury charge is a legal defense. Tbe mere fact tbat plaintiff has brought an action involving incidental equitable features, thus choosing, as it bad tbe right to do, tbe atmosphere of tbe proceeding, does not necessarily invest defendant’s assertion of a legal statutory right with tbe character of an equitable claim, independently pursued. With respect to this defendant, it remains to be considered whether plaintiff’s action may be construed in law as one for tbe enforcement of tbe alleged usurious notes in which tbe plea of usury is appropriate. Of this there can be little doubt. Tbe allegations are sufficient to legally justify a judgment against tbe Lambeth Corporation for whatever sum may be found due tbe plaintiff; Knight v. Houghtailing, 85 N. C., 17; McNeill v. Hodges, 105 N. C., 52, 11 S. E., 265; Hendon v. R. R., 127 N. C., 110, 37 S. E., 155; Staton v. Webb, 137 N. C., 35, 36, 47 S. E., 55; and defendant, unless it has made timely assertion of its supposed right, under such conditions, might find itself at tbe mercy of tbe plaintiff at tbe end of tbe trial. Tbe law will not compel it to take tbat chance. Indeed, tbe plaintiff has brought a typical suit for tbe enforcement of its claim against tbe defendant with respect to property conveyed in fraud of creditors, in which tbe enforcement is tbe gravamen of tbe suit and tbe remedy sought is incidental and supplemental. It is competent for it to establish its claim in such a suit, and, with proper procedural protection of its rights, tbe plaintiff in such a suit might have tbe advantage of an equitable levy. Dillard v. Walker, 204 N. C., 67, 167 S. E., 632; Hancock v. Wooten, 107 N. C., 9, 12 S. E., 199; Bank v. Harris, 84 N. C., 206; 14 Am. Jur., p. 696, section 37. *531 We conclude tbat tbe corporate defendant was not required to make tbe suggested tender. As to tbe defendants — C. A. Cannon and Mrs. Laura Cannon Mattes— respectively trustee and cestui que trust under a junior deed of trust, we do not see tbat tbe plea of usury is directly available to tbem at all, considering tbe admitted relations of all tbe parties to tbe subject matter of tbe suit and tbe objectives declared by tbem in tbe litigation. These defendants were not parties to tbe contract between plaintiff and tbe Lambetb Corporation, and are not brought into privity with tbe parties to tbat contract by tbe fact tbat, in part, tbe senior trust deed of tbe plaintiff and tbe junior deed of these defendants cover a common security. Pinnix v. Casualty Co., 214 N. C., 760. Tbe fact, of course, gives certain rights to tbe junior mortgagee, but no rights under C. S., 2306, which statute is for tbe benefit of tbe debtor, who may be also debtor mortgagor. Tbe plea is personal to him. Pinnix v. Casualty Co., supra; Ghormley v. Hyatt, 208 N. C., 478, 181 S. E., 242; Ector v. Osborne, 179 N. C., 667, 670, 103 S. E., 388. Upon tender of tbe amount due, with legal interest, tbe junior mortgagee is let in to plead usury, to tbe extent tbat be may purge tbe debt secured by tbe senior mortgage of usury, when it becomes necessary to ascertain tbe amount of tbe debt secured by tbe senior mortgage to tbe end tbat be may pay it and obtain subrogation. Pinnix v. Casualty Co., supra; Ector v. Osborne, supra. Tbe defendants have indicated no such purpose, have not asked tbat foreclosure of tbe senior mortgage be delayed or restrained for their equitable relief, and have alleged no grounds upon which, under these precedents, they may be permitted to interfere between tbe parties to tbe senior contract on tbe score of usury. Had they laid such a basis for it and sought equitable relief of tbe character mentioned in aid thereof, tender of tbe amount due, with legal interest, would, no doubt, be necessary. These defendants — Cannon and Mattes- — contend tbat tbe right to plead usury ought to be accorded to tbem because tbe usury is a factor in determining tbe total indebtedness of tbe Lambetb Corporation and, therefore, has a bearing on tbe issue of insolvency. But tbe forfeiture of tbe statute, and tbe right to purge a debt of its usury, are not objective devices to be applied in accountancy anywhere usury may be discovered and in behalf of impersonal justice. Their availability depends on tbe relation of tbe parties to each other and to tbe subject matter. What these defendants cannot do directly, they cannot achieve by indirection. Moreover, since tbe plea is one personal to tbe debtor, it might waive it. Ghormley v. Hyatt, supra. Tbe fact tbat tbe debtor has not done so in this instance, while it inures to tbe benefit of tbe defendants Cannon and Mattes, it adds nothing to their right to assert it. *532 In sustaining the judgment overruling plaintiff’s demurrer as to the defendant Lambeth Corporation, we must not be understood as accepting the defendant’s apparent view of the legal effect of the usury, if found. This would not, of course, defeat plaintiff’s action. Formerly, under the old usury laws, the taint of usury outlawed the debt in express terms. Rut, C. S., 2306, substituted for the more drastic law, as a remedy available on defense, forfeiture of interest and the recovery of double the interest when paid. Relief goes no further than that provided in the statute. As against the debt itself, the principles applying to actions brought on contracts made contrary to public policy no longer control, however they may apply to the interest agreement. Moore v. Woodward, 83 N. C., 531, 533; Hughes v. Boone, 102 N. C., 137, 9 S. E., 286; Smith v. Building and Loan Assn., 119 N. C., 249, 255, 26 S. E., 41. The plaintiff will not be debarred of its legal rights because a part of the relief demanded lies in equity, upon the ground that it “does not come into court with clean hands.” Pomeroy Equity Jurisprudence, 4th Ed., section 937; Bank v. Lutterloh, 81 N. C., 144; Pinnix v. Casualty Co., supra. As to defendant Lambeth Realty Corporation, the judgment overruling the demurrer is Affirmed. As to the other defendants it is Reversed.