Chaffe & Sons v. Landers

STATEMENT. Cockrill, C. J. A. C. Jeffery & Co., on the 5th day of September, 1878, executed in Izard county, • Arkansas, their promissory note for $2,154.33 to John Chaffe & Sons, due January 15, 1879, to bear interest at 10 per cent, per annum from date till paid, in settlement of an account due the latter firm. On the same day A. C. Jeffery, one of the firm of A. O. Jeffery & Co., executed his note for $8,000 to John Chaffe & Sons, due eight months after date, bearing interest at 8 per cent, per annum from maturity until paid, and also executed a mortgage on 509 acres of land in Izard county, in which it was recited that the last note and mortgage were given as collateral security for, and were to become void on payment of the firm note. Jeffery died. The firm note was not paid, and to a complaint to foreclose the mortgage for the amount of the firm indebtedness, the heirs and representatives of Jeffery answered that the second note was tainted with usury, which rendered it and the mortgage securing it void. The court found that the answer was sustained, and the complaint was accordingly dismissed. No proof of the transaction between the parties at the time of executing the notes was taken, the defendant relying solely upon the following clause in the mortgage to sustain the answer, viz.: original indebtedness of A. C. Jeffery & Co. first above mentioned and described, for which indebtedness the said $3,000 note secured by this conveyance is given and held as collateral security, and at the'maturity thereof, if in the meantime the said A. C. Jeffery & Co. shall not have paid their indebtedness to John Chaffe & Sons, Moses M. Greenwood, who is made a trustee for the purpose of this trust, shall proceed, after giving at least thirty days’ notice, by written or printed handbills posted up in at least ten public places in the county of Izard, to sell all the above described lands with all and singular the improvements,, privileges and appurtenances thereto belonging, for cash, and pay, first, the expenses of said sale and this trust; secondly, pay the said $3,000 note to the said John Chaffe & Sons, and the remainder, if any, to be paid over to the said A. C. Jeffery or his legal representatives.” “Now this'deed of conveyance is made upon this con•dition: That whereas the said Augustus O. Jeffery and W. C. Dixon, partners in business at Mt. Olive, Izard county, Arkansas, are indebted to the said John Chaffe & Sons in the sum of $2154.33, for which amount the said John Chaffe .& Sons hold a note against A. O. Jeffery & Co., who are the said Jeffery and Dixon above named and which note ■is to fall due in January, 1879: Now, in ease the said A. C. Jeffery & Co. shall fail or refuse to pay off and discharge said indebtedness to the said John Chaffe & Sons, then a certain promissory note executed by the said A. C. Jeffery •at Melbourne, September 5, 1878, for $3,000, due at eight months from date, and payable to John Chaffe & Sons, with 8 per cent, per annum interest from maturity, shall be in full force against the said A. C. Jeffery, in lieu of the OPINION. Usury: When contract for excessive interest is not. It is not claimed that there was usury in the firm note. Jeffery was severally liable for its payment. The execu-( tion of his individual note in like amount for the same indebtedness would have created no other or different liability. It is clear, from the written agreement of the parties, that it was not the intention that the creditor should ever claim the aggregate amount of the two notes. Jeffery’s individual note and the mortgage securing it, were to stand as collateral security for the firm debt. But to insure the prompt payment of the amount due, the individual note, although given for the firm indebtedness, was executed for an amount largely in excess of the actual debt. The two notes have the appearance of being parts of one transaction. By the arrangement, Jeffery was to have the option of discharging the debt in January, 1879, or at any time before the maturity of his individual note, several months thereafter, by the payment of the amount found due on the settlement with Chaffe & Sons in the preceding September, and legal interest. If he failed to discharge his partnership obligation within that time, then the intention of the parties was that he should be mulcted in an additional sum — that is, the difference between the partnership debt and interest, and the amount specified in his separate note. It was settled a long time ago, in England, that “ wherever it is in the power of a known borrower of money to pay the principal within a limited time without interest, upon non-payment the reservation of a larger sum than the statute allows is no usury.” Floy v. Edwards, 1 Cowper, 112, 115. The language quoted is reported as Lord Mansfield’s, and he cites Hawkins, P. G., c. 82, sec. 19, to the same effect. The doctrine has never been doubted or departed from by the courts of that country, and at an early day it was announced by the Supreme Court of the United States in this language: “ Where a party agrees to pay a specific sum, exceeding the lawful interest, provided he does not pay the principal by a day certain, it is not usury, for the reason that by the punctual payment of the principal, he may avoid the payment of the sum stated which is considered as a penalty.” Lloyd v. Scott, 4 Pet., 205. The same doctrine has been announced and applied by many of the state tribunals, and was recognized by this court in the case of Trader v. Chidester, 41 Ark., 242, 247, where a stipulation in a promissory note to pay an amount over and above the principal and interest as an attorney’s fee, in the event of an action on the note, was held to be a penalty, and for that reason did not render the contract usurious. See, too, Boozer v. Anderson, 42 ib., 167. The rule, generally recognized, is, that wherever the debtor, by the terms of his contract can avoid the payment of a larger sum by paying the amount actually due and lawful interest at an earlier day, the contract is not usurious, but the difference between the two sums is regarded as a penalty. Gaar v. Louisville Banking Co., 11 Bush. (Ky.), 189; Witherspoon v. Musselman, 14 ib., 214; Conrad v. Gibbon, 29 Iowa, 120; Weyrich v. Hobleman, 14 Neb., 432; Wilson Sewing Machine Co. v. Moreno, 6 Sawy., 38; 2 Pars. Const., 116, n. (s.); Pars. N. and B., p. 413; Tyler Usury, 210. But contracts of this character are closely scrutinized, and if what is termed a penalty is intended as a contrivance to avoid usury, the arrangement will be declared usurious. Lord Mansfield thought it necessary to guard against the abuse of the prineiple announced by him, by the declaration often quoted, that where the real intent is a loan, or forbearance of money, and more than legal interest is taken, “ the wit of man cannot find a shift to take it out of the statute.” 1 Cowper, sup.; Sumner v. People, 29 N. Y., 337. But the intention must be manifested either by the written agreement or extraneous proof. In the absence of a showing that it was so intended in this case, we must regard the excess over the amount due simply as a penalty, to be relieved against by the court (Boozer v. Anderson, supra), as the debtor did not relieve himself by paying the smaller sum at the earlier day. The appellants, wisely, do not seek to enforce the penalty, but ask only what is actually due — that is, the amount found due on the settlement, and 10 per cent, interest in accordance with the original agreement between the parties : and the decree must be reversed and the case remanded with instructions to enter a decree for the appellants in accordance with the prayer of the complaint.