Pearson v. Bailey

LIGON, J. The questions intended to be raised by the first and second assignments of error, may all be considered under the third. There certainly exists no reason why the Chancellor, at the hearing, or at any other period of the litigation in the court below, should have dismissed the bill for want of equity. Its allegations make out a clear case of usury, practiced through a series of years in every variation in the form of the contract between the parties ; and we presume that no authority need be cited to sustain the jurisdiction of the Court of Chancery under such circumstances, and especially when we add the furth er fact, which appears by the bill, that the usurer, holding a mortgage security for his debt with the power of sale, is proceeding to sell the mortgage premises, when it is alleged that he has already received his principal debt with legal interest. The answer of James M. Pearson, the principal actor in the usurious contract, does not deny the rate per cent which was agreed on between himself and Bailey when the loan was effected, as it is charged in the bill, but admits that it was stipulated that the borrower was to pay at the rate of 16 per cent, per annum for the loan, which was reserved in the notes given at the time; but he seeks to avoid the force of our statute against usury, by averring in his answer that the money loaned by [542] him to Bailey was not his own, but belonged to a Mrs. David in the State of Georgia, who had deposited it with him for the purpose of loaning out, and that ho has been compelled to repay it to her. This, we apprehend, will not be allowed to change the nature of the contract; it is as clearly usurious when made by him under pretence of agency for another, as though he stood alone in making the loan to Bailey. In such caso, the plea of agency can avail nothing, in removing the unlawful character from the transaction. The law forbids the making of a usurious contract, and no ono has the power to give authority to another to do an unlawful act. The parties, in such cases, are all principals. But, in this case, it does not appear that Mrs. David ever directed James M. Pearson to lend her money on a corrupt and usurious agreement: liis authority, according to liis own showing, was to lend it out; and this must be held to mean only such loaning as is sanctioned by law. if ho should go farther, and loan it on a usurious contract, ho exceeds his authority ; and if it is not afterwards sanctioned by liis principal, and loss results, lie is liable to her. But no consideration arising out of the relation of the principal and her agent would divest the loan of its usurious character, or deprive the borrower of his right to set it up against the lender, in any proceeding against him to enforce the illegal contract. Neither does the renewal of the note, or change of the form of the contract, alter the character of the original transaction. Jackson v. Jones, 13 A. R. 121. If it is usurious in its inception, the taint abides in it, and will affect it throughout all its renewals and mutations, and follow it into whose hands soever it may go, unless the holder receives it through the fraud of the maker. In this case, it is admitted, as well as proved, that interest at the rate of 16 per cent, por annum was contracted for at the making of the loan, and execution of the original notes. On the first renewal, 12] per cent, per annum was agreed upon between the parties. The interest accruing at both these rates entered into the last notes of $208 each, which are secured by the mortgage, under which James ÍVL Pearson was proceeding to sell when the bill in this case was filed. The mortgage itself is therefore tainted with usury, and cannot be allowed to stand as [543] a security for any more than tho balance (if any) really due on the original debt, and 8 per cent, per annum interest thereon. Jackson v. Packard, 6 Wend. 415. This sum must be ascertained by deducting the payments, and computing the interest by the rule prescribed in the statute. — (Clay’s Digest 283 § 1.) At law, the recovery could only extend to the principal debt, without interest; but when tho borrower comes into chancery for relief, as he seeks equity, ho will be made to do equity by paying the principal, with legal interest. If, on this accounting, it should be found that a balance is due the lender, the mortgage must stand as a security for that balance only. If nothing is found duo, the mortgage should be cancelled, or a perpetual injunction should go against all proceedings on both the notes and mortgage. It is, however, insisted that Mary Pearson is the holder of the notes secured by the mortgage, without notice of the corrupt agreement with which they are tainted. This does not, of itself, deprive Bailey of his right to set up the usury against her. Something more is required before this result will follow. Although the answers are artfully obscure as to the manner in which these notes came into her possession, still it does not fairly appear, either by them or the proof, that -Bailey had any connection with her receiving them, and certainly no such connection as will estop him from relying upon the usury against her. She cannot, therefore, be allowed to stand on higher ground with respect to them, than James M. Pearson, the payee, and there can bo no doubt, that, as between him and complainant, the notes and mortgage arc void, except as a security for the balance of the principal debt, and legal interest. Such was the conclusion of the Chancellor, and his decree is consequently aliinncd. On the final hearing, the bill should be dismissed as to Lyle and wife, who disclaim all interest, and have taken no active part in the defence. Let the costs, both of this court and the court below, be paid by James M. Pearson,