Blakeley v. Adams

Opinion op the cotjbt by JUDGE BUR.NAM. This action was brought by the appellee, John O. Adams, against W. II. Blakeley and wife, Hettie S. Blakeley, upon a note for $0,908.35, dated April 3, 1900, and due one year after date, and secured by a mortgage upon three separate tracts of land. He alleges that the consideration of the note was the payment by him of judgments which were rendered against him as security for the defendants in the case of J. C. Adams v. W. H. Blakeley, etc., in favor of P. J. Potter & Son for $1,550, the Warren Deposit Bank for $830. Potter, Matlock & Co. for $497, T. J. Smith & Co. for $411.76, and the Warren Deposit Bank in its case against N. Tl. Thompson for $552.48; that to secure the payment of the notes the defendants executed and delivered simultaneously a mortgage on certain tracts of real estate belonging to the appellant Hettie, which he seeks to enforce.' The appellant Hettie S. Blakeley admits the execution of the note and mortgage, and alleges that it was for money paid by J. C. Adams as security for her husband, W. H. Blakeley, but alleges that she was a co-security of plaintiff for her husband on all of the debts paid by him, and that no personal judgment was ever rendered against her on any of them, and charges that each of the debts contained a large amount of usury, which had either been paid or added to the principal at the renewal, and prays that all — 401 — the claims be purged of usury. Appellee interposed a general demurrer to the answer, which was overruled, and subsequently tiled a reply, in which he says that on the 5th day of May, 1899, he instituted a suit in the Warren circuit court as surety for Hettie S. and W. H. Blakeley, requiring the payees in the notes upon which he was surety to collect same and to 'enforce a mortgage .given to protect him as surety; that the defendant Hettie tiled ■her answer in that suit, and asked the court to refer the rase to the master commissioner to ascertain upon what notes plaintiff was bound, both for her and her husband, and which were covered by the mortgages executed by' her; that the commissioner reported that he was bound on all of the notes which went to make up the obligation ■sued on, and this report was confirmed without objection. And he pleads that she is now estopped from denying that she was bound thereon. And in the second paragraph of his reply, he alleges that in the former suit an agreed judgment was entered, in conformity with the master commissioner’s report. In the third paragraph he denied that there was any usury in the debts which made up the nuv.e sued on, but says that, even if they contain usury, appellant is estopped from claiming or pleading it by the execution of the obligation sued on. The affirmative averments of the reply were denied by rejoinder, and appellant denies that she is estopped from pleading usury by the execution of the note. A general demurrer was sustained to the rejoinder, which was carried back to the answer, and a judgment rendered in accordance -with the prayer of plaintiff’s petition. The law is well settled that a surety to a contract tainted with usury can avail himself of the defense of usury to the same extent — 402 — that his principal could, and if he pays such debt .with knowledge of its usurious character he can not recover such usury from the principal, but cam only recover what li e creditor could have recovered either against the principal or surety. He stands in no better attitude, but is entitled to recover such usury back from the creditor if he so-elects. See Brandt, Sur., 215; Jones v. Joyner, 8 Ga., 562; Mims v. McDowell, 4 Ga., 182; Whitehead v. Peck, 1 Kelly, 140; Kirkpatrick v. Wherritt, 46 Ky., 388. In the latter case it was expressly held that a surety who had paid usury for his principal had the right to sue for and ¡‘«claim it from the creditor, unless he had been repaid it by his principal. And this court in a long line of decisions has held that the renewal of a note tainted with usury is not a payment of the usury, and that limitation as to it does not then begin to run. See Rudd v. Bank, 78 Ky., 513; Fitzpatrick v. Apperson’s Ex’x, 79 Ky., 272 (2 R., 249). But it is contended that, by the execution of the note sued oil by appellants to appellee in payment of the various notes taken up by him as surety, they have lost their right to have ilie usury ymrged from the notes; and to support this contention we are referred to the cases of Breckenridge v. Churchill, 26 Ky., 11, Stone v. McConnell, 62 Ky., 54, Clark v. Rodes, 75 Ky., 13, Kendall v. Crouch, 88 Ky, 199 (10 R., 993) 11 S. W., 587, McCrae v. Gunter’s Ex’rs (14 R., 5) 18 S. W., 1034, and Mann v. Bank, 104 Ky., 852 (20 R., 1033) 48 S. W., 413. The facts in the case of Breckenridge v. Churchill were as follows: Gwathmey and Anderson owed Churchill $2,-596. Churchill was indebted to Alexander S. Bullitt, as guardian of Elizh Prather, and at his instance Gwathmey executed his note to Bullitt with Breckenridge' as his surety, in consideration of the note of Anderson and — 403 — Gwa thine,y and in discharge of the debt due by Churchill to Bullitt. Gwathmey became insolvent, and Breckenridge was compelled to pay to appellee the whole amount ■of the note. He thereupon filed a bill in chancery against Churchill and Bullitt to obtain relief in consequence of the usury contained therein. It was held that the execution of the new note to Bullitt was a payment and discharge of the Churchill note, and that, the assignee having received- the first note from his assignor for a valuable consideration, it was not contaminated with usury, as by taking the new note he discharged' the surety and released his assignor from liability. In Stone v. McConnell it was held that where a grantor assigned to her ward on- his arrival at age a note on which usurious .interest had been paid to her, and which one of the obligors subsequently took up by executing a new note to the ward, in .an action by the latter on the new note the defendants could not set up usury paid the grantor. In Clark v. Rodes it wns held that, as between the maker and payee of a note, a judgment thereon in favor of the assignee against the maker which released _the assignor from liability on his assignment wms equivalent to the execution of a newr note by the maker to the assignee, and that the right of the maker to sue the original payee and recover usury contained in such note accrued at the time the judgement was rendered against him. It will be observed) that, in all these cases, the assignee was an entire stranger to the original transaction between the payee and obligor, and acquired the obligation for a valuable consideration, and it was held that the renewal of his obligation by the maker to the assignee released the assignor and was a new contract with a new party, which merged his claim for usury. The facts in the case at bar are — 404 — wholly different from those in any of these cases. There is no question of the rights of a party who was a stranger to the originad transactions, and who has acquired the original notes for a valuable consideration. Xo new parly was introduced by the execution of the last note; no new consideration passed. The payee in the previous notes wars simply dropped out, and the name of Ihe former surely substituted therefor. This arrangement did not deprive appellee of any of the rights previously enjoyed by him, and created no new equities in his favor against the appellants, In Fitzpatrick v. Apperson’s Ex'x, 79 Ky., 272 (2 R., 249), it was held that the mere change of the payee or a part of the obligors by renewal was not a payment of usury, and, if usury in the: old debt be carried into the new obligation, so as to constitute a part of the 'sum agreed to be paid by it, the usury should be extract-' ed on plea of the debtor. And the same doctrine was announced in Kendall v. Crouch, 88 Ky., 199 (10 R., 993) (11 S. W., 587); Shirley v. Stephenson (20 R., 767) (47 S. W., 587); Hart v. Hayden, 79 Ky., 346 (2 R., 359). In the latter case it was held that, if the fact that the claim was tainted was disclosed by the record, the chancellor should purge the claim of such usury, 'although the debtor refused to make the defense. It is very earnestly insisted, however, that the question here involved was decided in McRae v. Gunter’s Ex’rs (14 R., 5) (18 S. W., 1034), and Mann v. Bank, 104 Ky., 852 (20 R., 1033), 48 S. W., 413. An examination of these cases will show the facts to be wholly different. Tn McRae v. Gunter’s Ex’rs, the surety on a note wduch was secured by a mortgage paid it off at the express request of the principal with the accrued usurious interest, and took a'mortgage from the principal to indemnify him; and it was held that the usury would not — 405 — be purged at- the instance of the junior mortgagee, who -occupied no better attitude than the original debtor, and that the original debtor, when he indemnified the- surety, had a remedy for his usury against the original creditor. The facts in the case of Mann v. Bank were very similar. In that case the debtor, Mann, sold a tract of land owned by him to Minims, the surety, in consideration that the surety would pay off a debt to the bank on which he was bound. He did so, and Mann thereupon instituted' a suit against the Bank of Ellcton to recover usury which he had paid on the notes taken up by Mimms. It was held that he w-as entitled to recover against the bank for usury previously paid by him to it on the debt so paid by his surety. It is not pleaded in this case that the appellant Hettie S. Blakeley or her husband ever’ requested appellee to take up the notes on which he was bound) as their security. On the contrary, it appears from the reply filed in the case that the judgment’s were rendered against the appellee in a suit instituted by him for their- settlement against the creditors, and no judgment was ever rendered against Hettie S.. ‘ Blakeiley. No question of usury was involved in that case. The only purpose in the -reference to the master commissioner was to ascertain the debts on which the appellant Hettie was bound, which were covered by the mortgages in which she united. If a principal requests his surety to pay a debt, which contains usury, or stands by and permits him to do so in ignorance of the fact that it contains usury, and thereafter executes his own obligation to the surety, he can not rely upon the defense of usury in an action against him by the surety for indemnity; nor can a principal set off, against a note which has been paid by his surety, previous usurious interest paid by -him to the creditor to — 406 — which the surety had no notice. But if usury was knowingly paid by appellee, the mere fact that appellants sub-' sequently executed a note therefor will not estop him from relying upon this defense. For reasons indicated, the judgment is reversed, and cause remanded for proceedings consistent with this opinion. Whole court sitting. 'Judges Paynter, White and Hobson dissent.