Johnson v. Hull

1. Recourse lecurity.valia Ma'NSFidhd, J. The original agreement of the parties fixed no rate of interest except by stipulating that the highest legal rate should be paid for the use of the money. Under that agreement the money was advanced for the defendant, and the lots were conveyed to the plaintiff as a security for its re-payment. Thus fqr, the transaction was without any suspicion of usury, and is unquestionable in its legal consequences. It imposed upon the defendant an obligation to restore the money borrowed, with leg'al interest, and invested the plaintiff with the title to the lots as security for his debt. If nothing' further had been done by either of the parties, it is clear that the defendant could not have resisted a recovery of the debt, or have compelled the plaintiff to re-convey the lots until he had satisfied it. The loan and the security being complete and valid, neither of them was affected by the usurious rate of interest inserted in the note and mortgage subsequently executed for the same debt, unless the unlawful interest was contemplated by the original agreement; and there is nothing to show that it was. Humphrey v. McCauley, 55 Ark. 143; Tillman v. Thatcher, 56 Ark. 334; Marks v. McGehee, 35 Ark. 217; Dotterer v. Freeman, 14 S. E. Rep. 863. In the cases of Brakefield v. Halpern, 53 Ark. 345, and Lowe v. Loomis, ib. 454, cited by appellant, the transactions between the parties were void for the usury which attached to them from the beginning, the sums borrowed having been obtained from the lenders through express agreements to pay interest at an unlawful rate. The facts in the case of Trible v. Nichols, 53 Ark. 271, also cited by the appellant, were very different from the facts presented here. There the ruling is that an equitable right of subrogation cannot arise where it can only be established by resorting to an agreement void by reason of usury. Here the plaintiff is under no necessity of relying upon either the note or mortgage in which the excessive interest is stipulated for, and his claim is founded upon a contract clearly separable from both of those writings. The circuit court was therefore right in adjudging that the absolute deed to the plaintiff was a mortgage securing a valid debt. But it was error to allow interest on the debt at the rate of ten per cent, per annum and to decree to plaintiff the recovery of the lands. We are satisfied from the proof that it was the intention of the parties that interest should be paid at ten per cent; but their agreement to that effect was oral, while a statute of this State, according- to the interpretation given to it in Matlock v. Purefoy, 18 Ark. 492, required it to be in writing in order to make it binding as a contract to pay interest at a rate above six per cent. See Gould’s Dig. ch. 92, sec. 2; Mansf. Dig. sec. 4733.* The two sections are substantially the same, and in Wallis v. Lehman, 36 Ark. 569, a case arising- under the latter section, the court appears to adhere to the construction of the previous decision. Following these cases, the plaintiff’s recovery should have been the sum loaned with interest thereon from the date of the loan at six per cent, per annum ; and this should have been adjudged a lien on the land, to pay which it should have been condemned to be sold under the practice in foreclosure, proceeding's. 2. Rate oi unwritten. agreement. Reversed and remanded with directions to enter a decree for $73 with 6 per cent, per annum from October 15, 1885, and to foreclose the mortgage for that amount. Footnotes [*] Mansf. Dig. sec. 4733, provides: “The parties to any contract, whether the same be under seal or not, may agree in writing for the payment of interest not exceeding ten per centum per annum on money due or to become due.”