Churchill v. Cole

Poland, J. I. We have spent no time in the examination of the ground taken by the orators’ counsel, that the legal rate of interest on the note executed by Cole to the orators was not fixed and governed by the law of this State, in consequence of the orators being non-residents of the State at the date of the note and ever since. As the note was executed and delivered here, and payable generally, and no evidence in the case that any particular place of payment was understood or agreed upon between the parties, it would seem to us pretty difficult to maintain that the contract for interest must not he governed by the law of the lex loci contractus. But we do not find it necessary to decide any thing on this point. II. Is the defendant, Underwood, entitled to have what the defendant, Cole, has paid the orators on the mortgage note above the legal rate of six per cent, interest, deducted in making up the decree, upon the facts appearing on the report of the master ? The questions arising upon this part of the case have been to a considerable extent before the court at the present term, in the case of Ward v. Whitney,* so that little need he added to what has been already said in that case. The note of Cole to Mrs. Churchill was given only for the [96] sum actually loaned to Cole, and legal interest, so that any agreement for the payment of usurious interest was separate and distinct from the note, and the payment of it would not in law he a payment upon the note itself, as it would he if included within the note. But the defendant, Underwood, claims that as the endorsements of the annual interest on the note show the actual amount paid, and that the amount was more than the lawful interest, this legally effects an application to the principal of the note to that extent. But we think that the whole language of the endorsement must be taken together to show the intent of the parties as to the application of the money paid. That clearly shows that the money paid was paid as ■interest, and that the parties as between themselves never intended it to apply upon or extinguish any part of the principal of the note. The sum paid, being stated, furnishes ample evidence of the amount paid by Cole and received by the orators, but it proves it to have been paid as seven per cent, interest, and not in extinguishment of any part of the note. The open and undisguised manner in which the endorsements of the interest were made, show that there was no apprehension by the orators that they were taking unlawful inter-, est, but probably this is of no legal importance. In our judgment the legal effect of these endorsements, made in the manner and with the intent apparent upon their face, is the same as if receipts had been given in the same words by the orators to Cole, or the legal interest only had been endorsed, and the payment qf the excess proved by any legal evidence. The conclusion is that the note remained a valid, legal security for the amount of the principal, against Cole, and he had such a right as the statute gives to a party paying usurious interest to recover it back by suit, or to set it up when sued by the creditor as a defence to that extent in reduction of the debt. The defendant, Underwood, claims that he being a subsequent mortgagee of the premises from Cole, had such a privity of estate with Cole, that he has the same right to set up usury in the prior mortgage debt that Cole himself would have, and cites many authorities to show that such is his legal right. Under the former law in this State oh the subject of usury, (which is still the law in many of the States,) by which the [97] security itself was void if the contract was tainted with usury, the defence could not only be made by the debtor in the usurious contract, but by any one who was privy to him in estate or by contract or representation. Under that state of the law, undoubtedly a subsequent mortgagee might set up as a defence to a prior incumbrance, (the payment of which he had not assumed,) that it was usurious and void. All or nearly all the cases cited by the defence are cases of this character, and arose under similar usury laws. But our present law is totally different. The security is not affected, hut the right is given to the party paying the usury to recall it at his option. This is regarded as a right purely personal in the debtor, and though the statute gives him an action in form in assumpsit, still it is given as a penalty, and as for a tort. It does not pass to his assignee, if he becomes bankrupt or insolvent, and cannot be attached by his creditors by trustee process. In Short, the statute intended that he only should enforce it, or those standing in the same legal right with him, by his assent. The result is that Cole could release or refuse to enforce this penalty if he chose to do so, and having elected to release and discharge it, we think the defendant Underwood cannot make it available to his defence. The result is that the chancellor’s decree is affirmed, and the case is remanded to be perfected in the court of chancery. Footnotes [*] See ante, page 89.