Davis v. Converse

Poland, Ch. J. The claim of the defendant Converse, that the orator’s note is illegal and void as to him, on the ground of the agreement by Allen, the principal, to pay more than legal interest thereon, which was not known by the surety at the time of executing the gote, is settled against him by former decisions of this Court; Richmond v. Standclift et al., 14 Vt. 258; Bank of Middlebury v. Bingham et al., 33 Vt. 621. If this were otherwise, it would seem quite too late for the defendant to make the objection, after allowing the bill to be taken as confessed against himself, upon the accounting before the master, The questions now before the Court in the case, arise upon the master’s report, in respect to deductions claimed against the mortgage note, for usurious interest paid by Allen, the principal. Allen, the principal on the note, not being a party to the mortgage, is not made a defendant in this bill-of foreclosure, and as the usurious, interest he paid was not included in the note itself, and therefore, when paid, was not endorsed upon the note, the orator claims that no part of such payments can be applied to reduce the sum due the orator, which the defendant Converse must pay to redeem the mortgaged premises. It is claimed by the orator [506] that the decisions in this State go to the extent of holding, that if a suit were brought by the orator On this note against Converse alone, he could not set up in defence such payments of usurious interest by his principal, and that he cannot be in any better condition in this proceeding to foreclose the mortgage given by him. Whatever difficulties there may be in the way of a surety, when sued alone in an action at law, setting up offsets or counter claims in favor of the principal against the creditor, we think they do not apply here. Converse mortgaged his land to the orator to secure Allen’s 'debt, and in any proceeding in equity to foreclose the mi ittgage, Converse should be allowed to redeem by paying what is justly due upon Allen’s debt to the orator. Properly Allen should have been made a party defendant iu the suit, for the reason that he might be a necessary party to the accounting before the master, and had the objection been taken in time the court would probably have compelled the orator to have brought him in. But the objection not being made in the outset, the court will proceed without him, provided a decree can be i lade which will properly protect the rights of the parties- already before the court. If Allen were a party, as he should have been, then' it is not claimed but that he would have the right to claim that all payments of usurious interest made by him to the orator, which he Could legally compel the orator to rej ay, should be deducted from the mortgage debt; and the orator by omitting to make • Allen a party, ought not himself to obtain 'any advantage thereby, provided his own rights can be secured. The usurious payments made by Allen to the orator not being for usury included in the note, and so not endorsed upon the note, created á legal ground for Allen to sue and recover the same from the orator, and this without regard to whether the note given the orator .for the. money borrowed and the lawful interest, had been paid or not. To allow Converse to have the payments applied in' deduction from the orator’s debt, and at the same'time leave the orator liable to an a ition by Allen for the same, would be manifestly-unjust. But it appears, to us that Allen by coming before the master and claiming to have such payments applied toward [507] the extinguishment of the mortgage debt, and having them so’ applied, effectually precludes all claims by himself to again recover the same by action, and furnishes conclusive tecofd evidence for1 the orator’s protection against any such action. A portion of these payments of usurious interest by Allen were made more than six years before the time of hearing before the master, where fur the first time, as appears, any Claim was ever set up against the orator for such payments, or any claim to have them applied against the mortgage debt. The orator insists that all claim for these payments, either by action, or by way of deduction, is barred by the statute of limi-* tations, and that only those' payments made within six years can be allowed. 1 his depends wholly upon the character of such payments* whether they were really payments upon the debt when made, or Whether they created an independent substantive claim in favor of Allen, the party paying then;, to be enforced by suit, or if allowed against the mortgage debt, they come in rather as an equitable set-off, than as a payment. If they are to be treated Us payments upon the debt, when made, then, of course, they are wholly unaffected by the statute of limitations ; if they are of the character of a counter claim* or set-off, and Allen’s right under them is to stand upon the same principle, as if he was endeavoring to enforce if by an action* then all beyond six years are bound by the statute. That Allen bas the right to treat these payments as creating an independent substantive cause of action in his favor, and to enforce the same' by an action against the orator, and to refuse to allow them to be applied as payments upon the debt, is conceded, but it is claimed that he is entitled to his election, to treat them in that manner, or as payments upon the debt. This must be determined by a reference! to former adjudica-* tions of the court, where the subject of such payments has been considered. It seems now to be settled by repeated decisions, that where usury is included in a note or other security, and when paid is endorsed -upon the note, it is to be considered as a, payment upon the note itself, and no action can be maintained to 1-ecover back the usury paid, so long as there remains due an/ [508] part of the principal, and lawful interest, but that where the security is only for the principal and legal interest, and the unlawful interest is either put into a separate obligation, or rests in a verbal agreement, so that when paid it is npt endorsed upon the note, but is paid as usury eo nomine, it is otherwise, and a right of action accrues immediately to sue and recover it back, though the lawful debt is still unpaid. Grow v. Albee, 19 Vt. 540 ; Nelson v. Cooley, 20 Vt. 201; Day v. Cummings, 19 Vt. 496; Nichols v. Bellows, 22 Vt. 581; Ward v. Whitney, 32 Vt. 89. In many of the cases this right to recover back usury paid has been said to be a personal right in the party paying, which no other could enforce for him, and sometimes it has been treated as being rather in the nature of a tort than a contract. Whether this latter view be well founded or not, it shows clearly that the right has been fully regarded as an independent claim in the party making such payment, and disconnected from the original debt. And though it has been held in many of the cases, that in an action for the debt itself, or to enforce a mortgage security for the debt, such payment may be set up as a defence to that extent) yet this is no more than might be done with any other valid claim the debtor might have against the creditor) and by no means proves that the debtor has the right in all cases, and in all respects to treat it as strictly a payment upon the debt. We are not aware of any case where it has been held that such payment could be set up by way of defence, tq any greater extent, than it could be enforced by an action to recover it back. It is said that in Ward v. Sharp, 15 Vt. 118, the defendant was allowed to claim a deduction of usury paid, where his right to recover it back was barred by the statute, but it will be seen by a reference to that case, that the item of usury claimed to be thus barred, was usury included in the note itself, and under all. our decisions, would be a proper payment upon the debt itself. We are not aware of any reported case, where the precise point here raised, has been decided, but we have been furnished with the manuscript opinion of Judge Royce, in the case of Boynton v. Nash, decided iu this county in 1851, in which he holds, that [509] the statute of limitations is a good bar to a claim founded upon such usurious payments, even in equity, and the record of the case shows that judgment was given in accordance with such opinion. This decision seems to us to be in harmony with the general’ tenor of all the decisions upon the subject of such payments, while to hold that the debtor may, after he has allowed his claim to sleep until it is barred by the statute, set it up as a payment upon the debt, would conflict with the spirit of numerous adjudged cases. Nor do we see that there is any good ground for the debtor to claim that he is harshly treated, when he is allowed to deduct to the same extent that the law would afford him redress by action. And it seems to us that the general purpose and spirit of the statute of limitations, as a statute of repose, and a protection against stale and unjust claims, is as justly and fairly applied to such a claim as any other, and that, such, payments not made on the debt itself, and where evidence of them rests in parol, may as reasonably be expected to be set up without jus foundation as any. The decree of the chancellor is reversed, and the case remanded with directions to deduct the payments of usurious interest made by said Allen to the orator within six years before the time of taking the account before the master, (October 7th,.1861,) and after making such deduction, to enter a decree of foreclosure for the orator in the usual form. The orator to be allowed no costs in this court, and the defendant’s costs in ,this court to be deducted from the decree.