Union National Bank v. Fraser

Cooper, C. J., delivered the opinion of the court. We concur with the Chancellor in the opinion that the note sued on and all those of which it is the successor were but items in the running account kept by Snider against the defendants, and so intimately connected with all the other debits and credits that it is affected by all the usurious dealings between the parties. The Chancellor rightly directed the commissioner to purge the whole [238] account of all usury. There was no error, therefore, in the order of reference to which the complainant could except. But the usury which had been charged and paid was not, under the circumstances, a mere set-off against the note, against which the statute of limitations of three years would run; all sums which had been so £>aid were by operation of law payments on the account, and against payments no statute of limitations runs. It was error to limit the time in which payments so made should be allowed the defendants as credits on the note. Only so much can be credited on the note as might have been on the account from which it arose. It was also error to purge the account only of the usurious interest. The statute, Code of 1880, § 1141, declares : “ And if a greater rate of interest than ten per cent, shall be stipulated for in any case all interest shall be forfeited.” It is a mistake to suppose that one may take a note stipulating for ten per cent, interest on its face and at the same time orally stipulate for a greater rate of interest and collect the same under the agreement, and when a plea of usury is interposed evade its effect by appealing to the form of the note. The statute inflicts the penalty of the loss of all interest where there is a stipulation for a rate exceeding ten per cent., and whether this stipulation is in or out of the note, whether in writing or by parol, the statutory penalty will result. It is what is done and not how it is done that is to be regarded. The commissioner should have been instructed to charge against the defendants only the principal of the indebtedness and to credit thereon all payments made, disallowing any interest on the sums advanced after November 1, 1880. ' The l’esult of such an account, it is manifest, would show that at the time of the notice of the assignment of the note there was nothing due from the defendants to Snider. The fact that in the note the payees promise to pay the note “ without defalcation or discount, and waive all defense to the payment of this note in the hands of a bona fide purchaser or holder,” does not preclude them from availing of the defenses allowed by the statute. The negotiability of promissory notes is regulxted by the statute, and not by the contract of the parties evidenced by the instrument. But for the statute the note in common form [239] would have held the makers to the payment of the sum secured by it to any person who should take it in the usual course of business without notice of the want of consideration or of the set-off' held by the makers; the stipulation that it should be paid without default or discount, and that all defenses against a bona.fide holder for value should be waived, would have been surplusage, adding nothing to the terms of the instrument. The attempt here is to repeal the statute as to this particular note by a contract that its provisions shall not prevail. This it was not competent for the parties to do. Allein v. Bank, 3 S. & M. 48. Reversed on eross-appeal and bill dismissed.