Rackley v. Pearce

By the Court Warner, Judge. The error assigned in this case is, the charge of the court to the jury. From the record, it appears the defendant, Pearce, executed to the plaintiff two notes — one of which was for the sum of $1522 37, due 1st Jan. 1840 — the other was for the sum of $1200 00, due 1st Jan. 1841. In Jan. 1840, the defendant paid the plaintiff $142 00 on the note then due, and renewed his note for the balance due, at twelve and a half per cent, for the ensuing year. Shortly after the expiration of that year, the defendant paid the plaintiff $1800 00, which was applied to the extinguishment of the renewed note, and the remaining balance applied to the other note, which had not been renewed. It also appears, this last note remained unrenewed for one year longer, at eight per cent., and was then renewed at sixteen per cent., and the note now sued on, is the renewed note. The counsel for the plaintiff in error requested the court below to charge the jury, that the voluntary payment of the usurious note out of the $1800 00, could not be withdrawn from it, and the balance paid on the same, over and above the amount due at the time of the first renewal, applied to the extinguishment of the note which was not tainted with usury ; which charge, the court refused to give, but charged the contrary thereof. The general rule is, when there are distinct demands due by the debtor to the creditor, and a payment is made by the debtor, he has the right to direct the application of the payment; but if the debtor does not make a specific application of the payment at the time, then the right of application devolves on the party receiving the money. — Simpson vs. Ingham, 9th English Com. Law Rep. 28; Smith vs. Screven, 1st M’Cord's Rep. 368. In this case, it appears the payment was applied to the first note, which was extinguished, and the balance of the $1800 00, after extinguishing the first note, was applied to the note now sued on. To the suit on this last note, the defendant has filed the plea of usury and payment; and the question is, whether the amount of usury which the defendant paid, over and above the principal and lawful interest due on the first note, at the time it was paid off and extinguished, could be withdrawn, and applied to the discharge of the note now sued on, under the state of the pleadings disclosed by the record. The first note was paid off and extinguished ; principal, lawful interest, and the usurious interest. The party who paid it, could maintain his action against Rackley, and recover back the amount of the usurious interest so paid. Here are two separate contracts, one of which is paid off and extinguished. On what principle is it, the payment of the one can be considered as the payment of the other ? If the plaintiff is indebted to the defendant for money paid to his use, which he is not entitled in justice to retain, then the defendant could either have brought his action against him therefor; or, if the plaintiff instituted a suit against him, to recover a money demand, as in this case, the defendant could have plead such indebtedness by way of set-off to the plaintiff's action, and on due proof thereof, been allowed the same. If the usurious interest, paid by the defendant [243] in the extinguishment of the first note, can be withdrawn, and applied in discharge of the second note, under the plea of payment, what protection would the record in this case afford Racldey, in a suit by Pearce, to recover back the usury paid him on the first note ? As the indebtedness of Racldey to Pearce is for usurious interest paid by the latter, for which an action might be maintained, we are of the opinion, the defendant should have pleaded his demand to the plaintiff’s action by way of set-off, and that he cannot be allowed the same under the plea of payment. “ A set-olf means a cross-claim, for which an action might be maintained against the plaintiff, and is very different from a mere right to a deduction from, or reduction of, his demand, on account of some matter connected therewith, and which may be given in evidence under the general issue, such as a payment on account, &c. — 2d Saunders’ Plead. and Ev. 786. As there was no plea of set-off filed by the defendant, we are of the opinion, the court below committed error in refusing to give to the jury the instruction prayed for by the counsel for the plaintiff in error, and in giving the contrary instruction. Let the judgment of the court below be reversed, and a new trial granted.