Peoples Bank v. Loven, 172 N.C. 666 (1916)

Dec. 13, 1916 · Supreme Court of North Carolina

172 N.C. 666

THE PEOPLES BANK v. MAGGIE A. LOVEN, Administratrix.

(Filed 13 December, 1916.)

1. Usury — Pleas—Counterclaim—Cross Action.

A plea of usury by a surety in an action against bim on tbe note, by way of counterclaim, is in effect a cross action.

2. Same — Statutes—Principal and Surety — Actions—Counterclaim.

Revisal, sec..1951, providing that in any action brought to recover upon a note, etc., it shall be lawful for the one who has paid usury thereon to plead the penalty as a counterclaim, recover twice the amount of the interest paid, and the forfeiture of the entire interest, should be construed in the light of the history of legislation on the subject, to ascertain the legislative intent; and when so construed it is Held, that when the principal debtor has become bankrupt, after having paid interest at an usurious rate, and the surety is sued on the note, the defendant may set up such payment by way of counterclaim. 8. v. Johnson, 170 N. C., 169, cited and applied.

8. Same — Subrogation.

Where the principal of a note has paid usurious interest to the payee thereof, and the payee sues only the surety, the surety is entitled to all of the defenses of the principal debtor, and he may set up the usury paid by his principal as a counterclaim; for otherwise the payee could collect the usurious interest, and nevertheless recover the whole amount of the debt by suit against the surety alone.

4. Statutes — Interpretation—Existing Law — Presumptions—Reasonable Construction.

In construing a statute, the General Assembly is presumed to have acted advisedly and with knowledge of the meaning of the language of existing law, and it will never be assumed, if any other conclusion is permissible, that the statute is meaningless in giving a right. theretofore conferred by an existing statute still in force.

Civix, actioN tried before Shaw, J., at April Term, 1916, of Avery.

This is an action instituted by tbe plaintiff against tbe defendant, tbe administratrix of J. Gr. Loven,. to recover tbe amount of certain notes executed by J. L. Banner, as principal and indorsed by J. GL Loven. J. L. Banner, wbo bad been discharged in bankruptcy and wbo was not a party to tbe action, bad been charged by tbe plaintiff and bad paid interest at tbe rate of 12 per cent per annum on account of tbe loan evidenced by tbe notes sued on, and during tbe course of tbe dealings paid to tbe plaintiff on said loan tbe sum of $867.10 usurious interest.

Tbe defendant prayed a forfeiture under tbe statute of tbe entire interest on tbe note, that tbe sum paid by J. L. Banner as interest be applied as a credit on tbe indebtedness, and a penalty in double tbe amount of tbe usurious interest paid, to be applied in discharge of tbe indebtedness, and tbe referee to whom the cause was referred and tbe court on exception to tbe report of tbe referee, sustained tbe contentions of tbe defendant, and, granting her prayer, discharged her from liability on tbe notes sued on, tbe payments made on tbe notes and tbe penalties allowed being more than sufficient to discharge tbe indebtedness.

Judgment was entered accordingly, and tbe plaintiff excepted and appealed. -

L. D. Lowe for plaintiff.

S. J. Ervin for defendant.

Ailen, J.

This appeal involves tbe construction of tbe first proviso in section 1951 of tbe Revisal, which reads as follows: “That in ant action brought in ant court of competent jurisdiction to recover upon any such note or other evidence of debt, it shall be lawful fob. the PARTY against weom the aotion is brought to plead as a counterclaim the penalty above provided for, ta wit, twice the amount of interest paid as aforesaid, and also the forfeiture of the entire interest.”' (Emphasis ours.)

Tbe question arising under the proviso is whether tbe surety, who-has paid nothing to tbe payee in a note, can, when sued on tbe note, avail himself, by way of defense or counterclaim, of the penalty of' twice tbe amount of usurious interest paid by tbe principal in tbe note.

Considering the proviso alone, the first impression would naturally be that as a surety has paid nothing, be has no right of action against, tbe payee, and as a counterclaim is in effect a cross action (Whedbee v. Leggett, 92 N. C., 469), and as tbe right given in tbe proviso to the-party against whom tbe claim is brought is by way of counterclaim,. that it was not intended to embrace.tbe surety; but we cannot deal with tbe proviso by itself, but must place it in its proper setting, knowing that frequently tbe historical development of legislation indicates clearly tbe public policy to be subserved, and leads to a correct understanding of tbe legislative mind and intent.

“We should also construe tbe entire, statute, and keep in mind constantly that tbe general legislative intent is a key to its meaning, and a statute should be considered also as an entirety with reference to tbe whole system of which it is a part.” Roberts v. Mfg. Co., 169 N. C., 34.

Let us then see what has been the public policy in reference to usury as shown by previous legislation.

“Anciently, in England, many doubts were entertained as to the propriety of taking a price or reward for the use of money, in foro conscieniiw, 'and at one time it was held to be a misdemeanor and indictable as such, on the idea that it was an iniquity and criminal. Afterwards the taking of interest was impliedly authorized by 37 Hen. VIII., which fixed on 10 per cent as being the ultimate limit to which the lender might go, and by different enactments the rate was changed from time to time, until at last the legal rate was fixed at 5 per cent as the ultimatum, at which it has ever since stood and now stands, with a statutory declaration of invalidity of every contract or security tainted with usury and a qui tarn, action to any one who would sue for the same.” Bank v. Lutterloh, 81 N. C., 146.

In the twelfth year of the reign of Queen Anne (1714) an act was adopted by Parliament on which the first act. in North Carolina relating to usury was modeled (ch; 28, Laws 1741), the principal differences between the two being that the North Carolina statute increased the rate of interest in the English statute from 5 to 6 per cent, and decreased the penalty from treble to double the amount of money, etc., paid. See 39 Cyc., 890.

This act of 1741 provided that when a greater rate of interest than 6 per cent was charged, the contract should be utterly void, and that the party charging such rate should forfeit double the value of moneys, wares, merchandise, and other things so lent, bargained, exchanged, or shifted, "one-half of which should belong to the State and the other half to him or them that will sue for the same by action of. debt.” (Italics ours.)

This was reenacted in chapter 117 of the Revised Statutes and by chapter 114 of the Revised Code of 1856, and continued in force until chapter 24 of the Laws of 1865 and 1866.

This last act repeals chapter 114 of the Revised Code and enacts that 6 per cent shall be the legal rate of interest, with the right to stipulate on a loan of money for 8 per cent, and provides further that the contract in any event stall be valid as to the principal sum, and that the only forfeiture shall be the interest on the plea of the borrower..

This last act was not changed until chapter 84 of the Laws of 1874 and 1S75 was enacted. This act provided for a legal rate of interest at 6 per cent, and declared that when a greater rate was charged that the contract was void and that the lender would be guilty of a misdemeanor. It also provided for a forfeiture of double the value of the goods, money, etc., exchanged or lent to any one, who should sue for the same.

This act continued in force until chapter 91 of the Laws of 1876 and 1877 was enacted. This last act recites that it is enacted because of a decision of the Supreme Court of North Carolina based.on a decision of the Supreme Court of the United States deciding that the penalties imposed by the usury law then existing could not .be enforced against National banks. This last act- substantially readopted the law of 1865 and 1866, with a forfeiture of the interest and a remedy given to the party who had paid the usurious interest or his legal representative to recover back double the amount of the usury paid in an action of debt.

This last statute was reenacted in the Code of 1883 and is to be found in sections 3835 and 3836, and as amended by chapter 69 of the Laws of 1895, is now section 1951 of the Eevisal, which, as material to this inquiry, reads as follows: “The taking, receiving, reserving, or charging a greater rate of interest than 6 per cent per annum, whether before or after the interest may accrue, when knowingly done, shall be a forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid thereon. And in case a greater rate of interest has been paid, the person or his legal representatives or corporation by whom it has been paid may recover back twice the amount of interest paid, in an action in the nature of an action for debt: Provided, that in any action brought in any court of competent jurisdiction to recover upon any such note or other evidence of debt, it shall be lawful for the party against whom the action is brought to plead as a counterclaim the penalty above provided for, to wit, twice the amount of interest paid as aforesaid, and also the forfeiture of the entire interest.”

It is thus seen that in England the taking of illegal interest was condemned, that the practice was regarded as hurtful to the State, and that the penalty was not given alone to the borrower, but to any one who would sue for the same, for the reason that as the borrower was under the control and domination of the lender, he frequently would not sue, and if the policy of the Government to prevent usury was’ to be maintained it was necessary that the right to sue should be by the popular or qui tam action.

It also appears tbat tbis policy was adopted in. tbis State in colonial days, tbat it was retained when North Carolina became a State, and tbat it was continued in force until 1866, a period of 125 years.

Tbe act of 1865-66 marks a notable change in tbis policy growing out of tbe conditions existent just after tbe War Between tbe States, when there was little or no money in tbe State to be bad at any price, and consequently tbe penalty was abolished, and tbe only forfeiture was of tbe interest.

In 1874-5 there was a return to the policy existing prior to 1866; tbe penalty of double tbe amount of money, etc., was restored, and was given to any one who would sue for tbe same.

Again there was a change by tbe act of 1876-7 which retained tbe penalty, but restricted tbe right of action to tbe party paying tbe usurious interest; but tbis change was not brought about because of any doubt as to tbe wisdom of tbe policy tbat bad theretofore prevailed, but, as recited in tbe act, on account of a decision of tbe Supreme Court of tbe United States bolding tbat tbe penalties could not be enforced against National banks.

It was under these conditions tbat tbe act of 1895 was passed, and if we follow tbe plain language of tbe statute it but confers on all who are sued on tbe usurious contract, principal and surety, tbe right of action tbat existed for more than a hundred years in favor of any one who would sue.

Tbe statute says "in any action” brought "in any court” to recover on tbe usurious contract "the party against whom the action is brought” may plead "as a counterclaim the penalty above provided, for, to wit, double the amount of interest paid.”

The defendant, a surety, is one “against” whom tbe action is brought, and is within tbe language of tbe statute, and, when tbe policy of tbe State is considered, within its spirit, and tbe rule is, “If a statute plainly expresses the legislative purpose and meaning on its face, it must be enforced exactly as it stands, and without any regard whatever to tbe result which will flow from it; and there is then said to be no reason for a construction of it.” S. v. Johnson, 170 N. C., 691.

Tbis construction also conforms to tbe general principle tbat tbe surety is entitled to all tbe defenses of tbe principal debtor, and it is a necessary construction if tbe penalty is to be enforced, as otherwise tbe lender may collect usurious interest from tbe principal and then sue tbe surety alone and recover on tbe usurious contract tbe whole of tbe principal sum due.

Again, tbe General Assembly is presumed to have acted advisedly and with a knowledge of tbe meaning of language and of existing law (S. v. Lee, 164 N. C., 533), and it will never be assumed, if any other conclusion is permissible, tbat it bas done a vain and foolish thing; and if we were to adopt the construction contended for by the plaintiff and hold that the amendment of 1895 only confers the right on the party who has paid the usurious interest to plead the penalty, it gives no new right and is meaningless, because the penalty could be pleaded by him as a defense and a counterclaim before the act of 1895. Cobb v. Morgan 83 N. C., 213.

The case of Meares v. Butler, 123 N. C., 206, throws no light on the construction of the statute, because, although decided after the amendment of 1895, it makes no reference to the change in the law, probably because the contract then before the Court was executed prior to the amendment.

We are therefore of opinion that his Honor gave a proper construction to the statute.

Affirmed.