Paulling v. Creagh's Administrators

BRICKELL, C. J. These are cross appeals from a decree rendered by the court of chancery, in a cause wherein the appellant, Paulling, was complainant, and the administrators of Alexander M. Creagh, deceased, and Francis S. Lyon, were respondents. The object of the bill is to open and set aside a settlement of accounts had between Paulling and Alexander M. Creagh in his life, on allegations of fraud, imposition, errors, omissions and usury. There had been mutual dealings between him and Creagh, of which an account was rendered; he had full opportunity of examining, and full knowledge, or the means of acquiring it, of the correctness or incorrectness of the items composing the account. The account was closed by the execution of promissory notes for the balance claimed, and more than two years after executing them, and after Creagh’s death, a deed of trust is executed to secure their payment. This settlement is not conclusive on the complainant; does not estop him from being relieved in equity from any fraud or imposition which may have been practiced on him in making it; or from obtaining the correction of any errors or omissions which may be found to have entered into it. A court of equity has ample authority to open and re-examine an account stated, if there has been mistake, accident, fraud or undue advantage, by which the account is vitiated and the balance incorrectly fixed. — 1 Story Eq. § 523. The jurisdiction is cautiously exercised; only on clear and precise allegations, supported by proof, of fraud, undue advantage, acci — 652 — dent or mistake. — 1 Story Eq. §§ 523-27; 1 Dan. Oh. Pr. 371; Langdon v. Roane, 6 Ala. 527; Cowan v. Jones, 27 Ala. 325 ; Drew v. Rower, 1 Sch. & Lef. 192. When fraud or undue advantage distinctly appears, infecting the whole account, the settlement will he annulled in toto, and the parties remitted to an accounting as if it had not been made. — Barrows v. Rhinelander, 1 Johns. Oh. 550; Vernon v. Vaudry, 2 Atkins, 119 ; Wharton v. May, 5 Ves. 27; Farnam v. Brooks, 9 Pick. 212; Batizeur v. Wyman, 1 McC. Ch. 161. When errors or mistakes only are shown, or when “the fraud or imposition is not shown to affect or stain all the items of the transaction,” the settlement will not be vacated entirely, but the party complaining will be allowed to surcharge and falsify the account. — 1 Story’s Eq. § 523. If a confidential relation exists between the parties, or the one is by force of circumstances peculiarly subject to imposition from the other, the transactions will be closely and jealously scrutinized, and settlements had between them, whereby a balance is found due from the one reposing confidence or subject to imposition, will be more readily opened than a settlement between those dealing with each other at “ arm’s length.” When no fraud or imposition is shown, only errors or omissions, the court confines itself to the correction of these, and as to these the onus probandi rests on the party complaining of them. — Pitt v. Chalmondely, 2 Ves. sr. 565; 1 Story’s Eq. §525; Langdon v. Roane, supra; Cowan v. Jones, supra. As is said by the Master of the Rolls in Brownell v. Brownell, 2 Brown’s Ch. 62, “the laboring oar is upon the party calling for the account.” Or, as it was expressed by Chief Justice Marshall, “the whole labor of proof lies upon the party objecting to the account, and errors which he does not plainly establish can not be supposed to exist.” — Chappedelaine v. Dechenaux, 4 Cranch, 309. In Drew v. Power, supra, it was said by Lord Redesdale, “one rule material to observe in all cases of account is, that where there has been a settlement of accounts and either the account has been signed or a security taken on the footing of the account, a court of equity does not open that transaction and throw it again between the parties as if no such transaction had happened, unless the evidence which is produced (and that evidence founded on charges in the bill) shows the whole transaction to ¡be so iniquitous that it ought not be brought forward at all to affect the party sought to be bound. If the account impeached be a settled account, or if an instrument has been executed on the foot of it, the court expects that the errors should be specified in the bill and proved as specified; otherwise it would be easy to overturn' the fairest accounts and — 653 — those settled in the most solemn manner when there happens to he any complication in their nature.” When an account is stated and settled by the giving an independent security, that security becomes prima facie a debt owing according to its terms. It can not be overturned on merely doubtful or probable testimony that errors intervened in the accounts which were settled, without imparting to all business transactions insecurity and uncertainty. In this case, the complainant produces the account he avers was rendered him by Creagh, and which was settled and closed by his execution to Creagh of four several promissory notes, for the security of the payment of which, after Creagh’s death and more than two years after the settlement, he deliberately executed a deed of trust to the defendant Lyon. Near five years elapsed after the settlement and the giving of the notes, and more than two years after the execution of the deed of trust, before he makes any complaint of the settlement or of the incorrectness of the account. In the meantime he makes payments on the notes, and they have all become due and payable, and the deed of trust executed for their security subject to be closed. The complainant was not of doubtful capacity, but of more than ordinary intelligence, experienced in business transactions, fully capable of detecting any errors or omissions which may have intervened -in the settlement. The account was in his possession, doubtless often examined by him, and he had full opportunities of inquiring into its correctness in any and every respect. The items composing it are few, and all but three, relating to transactions immediately with the complainant of such recent date, that on the mere statement of them he knew whether they were correct or incorrect. Of the three items not relating to transactions with him, two are stated to be for money paid W. B. Hallett and one for money paid Branch Bank of Mobile. The complainant, by a simple inquiry of Hallett and of the Bank, could have ascertained whether these items were correct, if he had doubted their correctness. In all cases of this kind it is material to consider the character of the accounts, whether they are complicated, consist of various items, have been running for a long time, refer to matters of which the party found indebted could not have full knowledge ; when, as in this case, the account is simple, of but few items, in reference to which the party found indebted had full knowledge or every facility for obtaining it, there ought to be greater reluctance in disturbing a settlement, especially after the death of the party to be affected. If the law were otherwise, there could be but little reliance on settlement's voluntarily and deliberately made. — 654 — The bill abounds with most serious allegations of fraud and imposition practiced on the complainant prior and subsequent to the settlement. It is not certain these frauds and impositions, if they existed, can be deemed to have affected the settlement. It is enough to say, however, in reference to these allegations that they are positively denied, and either directly disproved or are without a scintilla of evidence to sustain them.- These allegations not being proved, no ground exists for setting aside the settlement and opening the account. The account must stand, subject to the correction of such errors and omissions as may be distinctly and clearly shown. The first error complained of is, that in stating the account annual rests were made in computing interest on moneys by Creagh advanced to complainant, which it is insisted was grossly erroneous, unjust and usurious. This mode of computing interest is apparent on the face of the account, discoverable on a casual inspection of it. True, the complainant avers his ignorance of it, and that he did not discover it, nor any of the other errors or omissions of which he complains, until late in November, 1854. The allegation is very general, easily made, difficult of disproof, except by evidence of facts and circumstances, from which knowledge is inferrible. If the fact be as averred, the complainant should have gone farther and shown some fact which could have reasonably have superinduced his ignorance — what it was aroused his suspicions and quickened his diligence in examining and inquiring into the correctness of the accounts and the settlement. An allegation of ignorance of material facts, and of subsequent discovery, not thus specific and proved, can not be accepted to relieve from the imputation of laches, when laches is material; or to weaken the presumption of knowledge, when that is the legitimate inference from established facts. — Fisher v. Boosly, 1 Curt. 218; Carr v. Hilton, Ib. 390; Stearnes v. Page, 1 Story, 204, (S. C. 7 How. 829), Farnum v. Brooks, 9 Pick. 212; Martin v. Branch Bank Decatur, 31 Ala. 115. Having this account in • his possession for more than two years after the settlement, with opportunity for its examination — the items being few, of recent date, and all such as the complainant either knew or had full opportunity of ascertaining to be correct, the admission of its correctness, express and implied, by the settlement, and the giving of the notes, can not be weakened by a mere general averment of ignorance and subsequent discovery of errors or omissions. When the complainant accepted the account, with .its computations of interest, and for a balance found due, increased by these computations, gave his promissory notes, it must — 655 — be taken that he assented to the mode in which the interest was computed and promised to pay according to it. If the agreement was usurious, or not supported by a consideration, it is not binding. As a mere incident, interest on interest is not allowed or recoverable. A promise to pay it is not however, usurious or illegal, or without consideration, and the weight of authority is, perhaps, in favor of the validity of the promise to pay it, at law, whether made at or subsequent to the original contract. — 1 Anl Lead. Cases, 650. The claim to such interest is generally regarded by all the authorities as founded in justice, and a note or other security given for it, after it has accrued, will be sustained and enforced.— lb. 561. Accounts may be legally settled on the basis of such interest, and an express promise to pay the balance is valid and binding. — lb. In the case of Eslava v. Lepetre, 21 Ala. 530, it is said: “When interest has once accrued due, it becomes a debt. There is no longer, therefore, any objection to an agreement inter partes, that it shall be considered principal, and thenceforth carry interest.” In equity, an agreement made at the time of the original contract, to pay interest on interest, is discountenanced and will not be enforced, not because in itself it is usurious or illegal, but because it is deemed oppressive and tends to usury. “Interest upon interest,” says Chancellor Kent, “promptly and incessantly accruing, would, as a general rule, become harsh and oppressive. Debt would accumulate with a rapidity beyond all ordinary calculation and endurance. Common business can not Sustain such .overwhelming accumulation. It would tend also to inflame the avarice and harden the heart of the creditor. Some allowance must be made for the indolence of mankind, and the casualties and delays incident to the best regulated industry; and the law is reasonable and humáne, which gives to the debtor’s infirmity or want of precise punctuality, some relief, in the same infirmity of the creditor. If the one does not pay his interest to the uttermost farthing, at the very moment it falls due, the other will equally fail to demand it with punctuality. He can, however, demand it and turn it into principal when he pleases; and we may safely leave this benefit to rest upon his own vigilance or his own indulgence.” — Connecticut v. Jackson, 1 Johns. Ch. 17. In this case is clearly stated the rule, supported by authority, that when there is a settlement of accounts between parties, or an agreement for that purpose, after the' original debt has become due, or after the interest has become due, interest on interest will be allowed in equity. — 1 Am. Lead. Cases, 651. In the 'case of Eslava v. Lepetre, supra, while it was declared an agreement — 656 — between mortgagor and. mortgagee, made cotemporaneously with the mortgage debt, that interest as it became due should be converted into principal, was oppressive and unjust as tending to usury, and would not be enforced in equity; yet, after interest had accrued and become a debt, a subsequent agreement converting it into principal, bearing interest, was valid and would be supported. The interest having run in arrear, rests were made in the mortgagee’s account of arrears from time to time, and finally a general account of all arrears, made on the basis of such rests, was stated between the mortgagor and mortgagee, followed by an express promise and an independent security for its payment, which was supported in equity. It follows, there is no foundation for the complaint that the account stated between Paulling and Oreagh is erroneous or unjust, or usurious, because of the mode in which the interest was computed. The interest had accrued, was a debt due, and could be as it was by the agreement of the parties, converted into principal, bearing interest. The next item of the account averred to be erroneous and an improper charge against the complainant, is of $1,505.16, for loss on 101 bales of cotton. The inquiry is not, as seems to have been supposed in the court of chancery and as has been argued here, whether the respondents, by evidence independent and distinct from Paulling’s repeated admissions of the correctness of the account, have shown this item is a proper charge. The “laboring oar” is on Paulling, by evidence of its incorrectness, to show that his admissions were inadvertent or founded in mistake. It is manifest there was a sale of cotton by Oreagh to Paulling, but on what terms is not disclosed, further than by the statement in the eighteenth paragraph of the original bill, that it was at eight cents per pound. It also appears from the testimony of Marshall, that he received from Oreagh 101 bales of cotton to be sold for account of complainant, which were sold and the proceeds of sale paid to Oreagh — that the complainant made inquiries of him and obtained from his books the amount of the proceeds of sale Oreagh had received. This whole matter was capable of full explanation by the complainant, if there be error in it. None has been given, which lessens the force of his- repeated admissions of the correctness of this item and its rejection as a proper charge in the account was error. The remaining items of the account, the correctness of which are disputed, consist of charges for moneys paid for “ State»bonds,” and money paid the Branch Bank at Mobile, for the complainant. Independent of the admissions made by the complainant of the correctness of these items, there — 657 — is no room for doubt on the other evidence that they are just and proper. Nor has the complainant shown by satisfactory evidence he was entitled to any credit not included in the account. A radical error pervading the interlocutory decrees and the final decree, was in opening and stating anew the account the parties settled. In the most favorable aspect of fhe case for the complainant, he was entitled only to surcharge and falsify the account. No fraud or imposition being shown, the whole right to relief, so far as the matters embraced in the account are involved, being dependent on proof made by the complainant of errors or omissions existing in it, the account should have been taken and established as a stated account. If an omission of credit was shown, it should have been added; or if an improper charge was found, it should have been deducted, leaving the account in all other respects intact. — 1 Dan. Ch. Pr. § 6678. Into this error the court of chancery was induced, doubtless, by the opinion pronounced in this cause when it was here at a formef term. Prom that opinion we are constrained to dissent. It does not seem to us supported by the evidence, or in accordance with well established legal principles. The statute (B. C. § 3510,) compels us to depart from it and to render judgment according to the law, as we believe it should have been originally declared. That opinion denies the settlement the parties had made — the complainant’s acquiescence in it — his recognition of it, not only by payments on the notes, but by the deed of trust, which approaches very near, if it is not in fact, a confirmation of it, all force or validity. It seems the court regarded the parties as standing in relations of confidence — • that Creagh was Paulling’s trustee or agent, or confidential friend, to aid him in extrication from his pecuniary embarrassments. The confidence reposed, and that confidence was kept, was that Creagh would advance the money necessary to relieve the property of Paulling from the claim of the bank, and by indulgence enable him, if possible, to repay the money and retain the property. The relation Avas the ordinary one of debtor and creditor,' the creditor having security for his debt. All the transactions, so far as found in the record, are free Bom the slightest trace of fraud or imposition, and we can scarcely conceive of a more dangerous precedent than that which would be established, if a settlement deliberately made, acquiesced in, recognized, standing for several years, should after the death of one of the parties, be opened and annulled without proof of actual fraud or imposition. Indeed the evidence, so far from proving or tending to prove fraud or imposition, impresses us with the conviction Creagh was — 658 — a lenient, indulgent' creditor, becoming such at the solicitation of the' complainant, when others had refused to aid him, and he was in peril for the want of pecuniary assistance, of losing a large and valuable real and personal estate. No advantage was taken of the necessities of the complainant, no effort' to oppress him, or to hinder him in acquiring the property he -was anxious to save. Security for the payment of the debt, by the title of the property held by the bank, was all that was required of him. Such was certainly the complainant’s own view, long after the settlement, and when, it is not too much to say, he either knew or was negligent in not having full knowledge of all the matters now the subject of complaint,, and when free from all influence Creagh could exert. Not only his verbal declarations to some of the witnesses, expressive of his gratitude to Creagh, but the indorsement in writing made and signed by him on one of the memoranda (now produced by him) used in the settlement, by which he enjoins his personal representatives and his children “faithfully to pay the debt,” are conclusive evidence such was his view. We think it satisfactorily appears, that to each of the notes executed by the complainant, was added the sum of one thousand dollars, in excess of legal interest. This is the item of $4,000 stated, not in the account which was settled, ■ but in the memorandum last referred to, as for indulgence. Being an excess of legal interest, though the complainant voluntarily promised its payment, and repeated the promise, and on the paper showing it, made the indorsement requesting his personal representatives and his children, in the event of his death, to pay it, it is usurious and its recovery forbidden by the statute. The complainant was entitled to its > deduction from the notes. That deduction being made, the notes must remain as valid debts, on which the complainant is entitled to credits only for payments made after their execution. On this basis the court should order an account taken, and in taking such account the computations of interest should be made according to the- statute, and not according to the mode prescribed in the former opinion. Eor the balance found due from the complainant, a decree should be rendered in favor of the administrators of Creagh, and a sale of such of the property embraced in the deed to Lyon as has not perished, should be ordered for its payment. The costs should be taxed against the complainant. The only relief to which he is entitled, is from this item of usurious interest, of which he gave the administrators no information, and did not request or claim its deduction before filing his bill. On the assignments of error by Paulling, the decree could — 659 — not be disturbed. But on the assignments by Creagh’s administrators, the decree must be reversed and the cause remanded for proceedings in conformity to this opinion. The costs of each appeal must be taxed against Paulling.