Newton v. Woodley

The opinion of the Court was delivered by Mr. Justice Pope. On the 21st day of November, 1890, the defendant executed and delivered to C. S. McCall the following promissory note or agreement, to wit: “$6,827.60. Bennettsville, S. C, 21st Nov., 1890. On the first day of November, 1895, for value received, I promise to' pay to the order of C. S. McCall, the principal sum of $6,827.60, with interest to be calculated from this date at the rate of eight per cent, per annum, both before and after maturity, discounted and payable annually on the first day of November in every year, including the present; unpaid interest to’ draw interest at the same rate as principal, both principal and interest payable at the Bank of Marlboro. Payments be made in United States gold coin of the present standard of weight and fineness, or its equivalent at the option of the payee. It is further agreed, that if default be made in the payment of any of the installments of interest, aforesaid, at the time and place aforesaid, when and where the same becomes due and payable, then and in that event, the said principal sum of $6,827.60 shall at the election of the legal holder thereof, at once become and be due and payable, anything hereafter contained .to the contrary notwithstanding, such election to be made without notice. This note is secured by mortgage of even date herewith, duly recorded. Jonathan Woodley.” A mortgage of lands was on the same day executed by Woodley to McCall to secure the aforesaid obligation, which mortgage is in full force until to-day. The note arid mortgage were both made payable to Mrs. Katie M. Newton, without recourse, by C. S. McCall. The following partial payments are indorsed on the note: “Received on this note $1,220, December 18, 1890. Received on this note as of December 18, 1890, $2,255. $270. Received from Jonathan Woodley $270, * * * November 23, 1S91. $275. Received $275 on this note * * * November 28, 1892. $273. Received on this note $273, December, 30, 1893. $550. Received $550 on this note, November 23, 1895. $1,930. Received $1,930, * * * December 28, 1896.” — 139 — On the 30th January, 1897, the attorney in fact for the plaintiff prepared a statement or calculation, which showed that the defendant owed the plaintiff $1,949.63. On 28th December, 1896, defendant had a calculation made by Mr. Sternberger, which showed his indebtedness less than plaintiff’s statement. Then his attorney, Mr. T. W. Bouchier, made a calculation, by which the sum of $1,769.32 was found due. This amount of $1,769.32 was tendered to the attorney in fact for the plaintiff in gold coin, in full payment of debt and interest, on the 10th February, 1897. While the amount was declined in full payment, it was offered to take the amount as a credit on the mortgage, which offer the defendant declined. The receipt tendered by plaintiff’s attorney in fact was in these words: “$1,769.32. Received from Jonathan Woodley $1,769.32 on mortgage debt to my wife, K. M. Newton, and if there be no more due on them, I am to- cancel them. If there be any more due, he is to pay it, after proper calculation bjr any one competent to make it. H. H. Newton. February 10, 1897.” Action was commenced by plaintiff against defendant on the 24th day of March, 1897, to foreclose the mortgage and procure decree establishing true indebtedness of defendant to plaintiff, which she alleged at that date to be $2,877, with interest thereon at the rate of eig'ht per cent, per annum from the 18th day of December, 1896, and in the complaint the foregoing facts were substantially set forth. The answer of the defendant really is pointed against the contract as tainted with usury in these words : “'1. That by the terms of the said note, the plaintiff, as assignee, has received and accepted usurious interest by charging eight per cent, interest on the principal sum, and also discount and interest on the interest due in advance, and that by the terms of said note or agreement, the assignee of the plaintiff has made a contract with the defendant to charge him usurious interest, and in pursuance of the same has collected and accepted same, &c.” Seeks to- collect double the amount of $1,500, which he alleges he has paid as usurious interest. Also — 140 — seeks to have -the mortgage declared satisfied by reason of the tender of over $1,700 on 10th February, 1897. ' Plaintiff replied. At the trial it was in evidence that the defendant had been indebted for some years tO' Col. C. S. McCall for over $6,000, which was secured by mortgage of land, and which indebtedness bore ten per cent, per annum. The defendant applied to McCall for a reduction in the interest. McCall, being a merchant, did not wish to do so; but said to Woodley, the defendant, that he thought Mr. H. H. Newton could lend the money at lower interest. When Mr. Newton was applied to, he said his wife could loan the money at the lower rate of interest. That the note now sued upon was drawn by Mr. N ewton as the attorney for his wife, and the transaction-of the 21st of November, 1890, although carried out in the name of C. S. McCall, was really that of Mrs. Katie M. Newton, the plaintiff. Also that Woodley had the papers read over to him before he signed them, and that he is a gentleman of intelligence. Really the contention between these parties is in a nutshell; it all turns on the power of a lender of money to contract for the loan of money at eight per cent, per annum, interest each year to be paid in advance, just as a discount, and if it is not so paid, to bear interest at eight per cent, per annum. When the Circuit Judge heard the case, he decreed that it was a legal contract between plaintiff and defendant; that it was free from usury; that the tender would, therefore, fail; that the counter-claim for double the excess of interest would also fail. He referred the case to the referee to compute the interest. Defendant now appeals, raising substantially these questions: First. That the Circuit Judge erred in not sustaining the question raised by defendant, that the rate sued upon was usurious, a. Because said note by its terms called for annually nine instead of eight per cent, interest, b. That the law does not allow greater interest than eight per cent., whether by discount or otherwise, c. Because it is not lawful to contract for the payment of the highest interest in advance, and for the payment of interest on unearned inter — 141 — est unless paid in advance, d. Because the purpose of the lender was to receive more than the hig'hest interest allowed by law. Second. Because the contract called for the payment of interest at eight per cent, per annum for twenty-one days in advance of -the loan, and such was usury. Third. Because the counter-claim was not allowed. Fourth. Because defendant should not have been refused the right to amend his answer by alleging that the tender of payment made by defendant was a full tender of what was then due, and was made unconditionally, and was refused. 1 It was the duty of the Circuit Judge to construe the contract, it being in writing; he did so, and his construction is not appealed from. He held: “It is agreed on all hands that the character of the transaction in this cause must be judged by the written obligation. That instrument is practically free from ambiguity. It is dated 21st November, 1890, and provides for the payment of $6,827.60- on 1st November, 1895, with interest to be calculated from this date at the rate of eight per cent, per annum both before and after maturity, discounted and payable annually on the first day of November in every year, including the present, unpaid interest to draw interest at same rate as principal (italics mine). The mortgage embodies-the following language, ‘with interest discounted at eight per cent, per annum payable annually/ which is practically that used in the obligation. The words italicized are not entirely apt. The last is manifestly used to express ‘past due’ interest; the second refers to a day of payment already past, and must be held to refer in this case to 21st November, 1890; the first expresses a repugnancy, to wit: interest discounted, but the meaning is manifest. Upon the whole, I take it to- be reasonably clear that the contract stipulates for the payment of interest at the rate of eight per cent, per annum on $6,827.60; that interest for the first year should be due and payable on the day the obligation was made, that is to- say, in advance, and so on for each successive year; that in the event of the non-payment of the interest as stipulated, it — 142 — should thereafter bear interest at the same contract rate.” It seems to us that the Circuit Judge has grasped themeaning of the terms employed in setting forth the contract of these parties. Now to pass upon the question of usury in the different phases of that question as presented by the grounds of appeal, we must first recall the language of our statute, which is : “No greater rate of interest than seven per centum per annum shall be charged, taken, agreed upon or allowed, upon any contract arising in this State for the hiring, lending or use of money or other commodity, except upon written contracts, wherein by express agreement a rate of interest not exceeding eight per cent, may be charged. No person or corporation lending or advancing money or other commodity upon a greater rate of interest shall be allowed to recover in any Court of this State any portion of the interest so unlawfully charged; and the principal sum, amount or value so lent or advanced without any interest, shall be deemed and taken by the Courts of this State to be the true legal debt ormeasure of damages * * to be recovered * Rev. Stat, 1390. This language of our statute has been uniformly construed by our Courts to permit the charging and receipt at the date of the loan, of the annual interest on the principal loaned, no matter what might be the interest allowed by law, whether seven or eight or ten per cent. For illustration, one lends $1,000 on twelve months, at eight per cent, per annum; the interest for one year is $80; and when the borrower receives his $1,000, it is diminished by $80, taken by the lender as his interest. Now, if this amount of interest so taken out of the $1,000 is placed at interest at eight per cart., it will yield $6.40 — thus showing that the borrower has not only received $920, when he is paying interest on $1,000, but that the interest on the $80 which was taken from his $1,000 as the annual interest, paid in advance, yielded up to the maturity of his loan $6.40 as the interest. We repeat, that all the decisions of our Courts sanction the collection of the interest in advance of its accrual. It may have started with the banks in the first instance, but it is now — 143 — general. If the interest may be deducted in cash, why may not the contract stipulate for such deduction, and the borrower settle the cash for interest by his note? Thus, suppose $1,000 is loaned and the borrower agrees to pay interest in advance at eight per cent., which is $8o, and the lender agrees to allow the borrower to give him his separate note' for $8o, at eight per cent, interest.. Is not this legal ? Does the actual payment of the annual interest in cash, in advance, make any distinction in law between the illustrations ? We cannot see it. If, then, it is both legal to deduct the annual interest in advance and on the date of the loan; and if it is also legal to give a note for such annual interest in advance at the same rate of interest the principal bears, why may not the borro wer and lender contract in the same instrument that the interest shall be payable in advance, and if not so paid, said annual interest shall bear interest until,paid at the rate of eight per cent, per annum ? The case at bar presents this very question, and it seems to us that the very, recent case decided by this Court, to wit: Savings Bank v. Parrott, 30 S. C., 61, is decisive of this question. It was decided in December, 1888, and held: That inasmuch as the note in that case provided for annual interest at ten per cent., but did not provide that the interest on the interest should run at ten per cent., that it was usurious to charge such ten per cent, interest on the interest. It is very apparent that the only reason given in this decision why the interest on the interest at ten per cent, was not collectible, was the absence of such a stipulation in the paper writing itself. Our citizens have a right to base their dealings with each other upon the declarations of this Court, especially in the matter of the proper construction of our statute law. In order that there may be no doubt as to what Bank v. Parrott, supra, held, we will quote the exact language on that point: “But did the bank have the right to discount the interest at ten per cent. ? We think not. The usury law before cited is very positive and peremptory, that ‘no greater rate of interest than seven per cent, shall be charged,’ &c., except upon a written contract — 144 — wherein, by express agreement, a rate of interest not exceeding ten per cent, may be charged, &c. The note in this case in writing did contain an ‘express agreement’ that the interest should run to the maturity of the note at the rate of ten per cent, per annum; but we do not find in it any express agreement that the interest on the interest should run at ten per cent.” (italics ours). “The contract rather excludes that idea; for it is to pay $2,000, with interest from date at the rate of ten per cent., without any mention whatever of interest on interest, which, in legal effect, was not to bear interest at all until the maturity of the note, and then, as part of the principal, to bear interest only at seven per cent. It seems to us that in the absence of such ‘expresswrittenagreementf the bank was without authority to charge a discount of ten per cent, upon the interest, and that such charge, at least tO' the extent of three per cent., the excess over seven, the lawful interest, was usurious” (italics ours). In the case at bar, Mrs. Newton has placed herself squarely upon this construction of the statute as to usury, and has stipulated in the express written agreement that the interest should bear interest at eight per cent. If this conclusion be correct, does it not dispose of all the questions raised by the appeal ? If it was not usurious, the tender would not hold, nor could there be any counter-claim for excess of interest. My opinion is that the judgment of this Court should be: It is the judgment of this Court, that the judgment of the Circuit Court be affirmed and that the action be remanded to the Circuit Court. But the members of the Court are equally divided. Therefore, under the Constitution, the Circuit Court judgment stands affirmed. Mr. Justice Gary dissents.