The plaintiff bank alleged that on the 4 March, 1875, the defendant Lutterloh promised, by his promissory note, to pay his co-defendant, T. J. Jones, the sum of three hundred and fifty-five dollars, sixty days thereafter, with interest at eight per cent from maturity; and that the defendant Jones endorsed the same to plaintiff.
The defendants, answering, alleged that the note was given in renewal of a prior obligation, and that both were usurious; that plaintiff, in taking the renewal note sued on, charged and received from defendants, as interest in discounting the same, eighteen per cent, or one and a half per cent a month; that the note sued on was the last renewal given for the amount of a draft of $400, dated on 8 August, 1871, drawn payable 60 days after date by A. J. Jones, in favor of defendant Lutterloh, on the defendant T. J. Jones, and accepted by him, and endorsed by Lutterloh in blank, which transaction was for the accommodation of said A. J. Jones, who negotiated the note with A. W. Steele Co., at a usurious rate of interest, to wit, eighteen per cent; that a draft in substitution therefor made by defendant Lutterloh, and endorsed by defendant Jones, was transferred by said Steele Co. to the plaintiff, well knowing the same to be usurious; that the obligation while in the hands of plaintiff was renewed by defendants from time to time, the plaintiff at each renewal charging the defendants usurious interest.
The defendants, by way of counter-claim in this action, further alleged that since the date of the original transaction (8 August, 1871), in renewal of which notes were given as aforesaid by them from (144) time to time, including the last one, which is the subject of this action, they have paid to the plaintiff and to Steele Co. on the same, the sum of three hundred and twenty-one dollars and sixty cents, for which they have been allowed as credits on the principal only the sum of thirty-five dollars; and that defendants' claim, as a set-off to plaintiff's demand, a credit for the full amount of the aforesaid *Page 115 payments, and rely upon the plea of usury as a protection against said demand.
The plaintiff demurred to the answer as to the counter-claim, and assigned as cause that the counter-claim was not such as that an independent and distinct cause of action could be maintained against the plaintiff, as the answer showed that the interest paid and alleged to be usurious, was paid by defendants knowingly and with full knowledge of all the facts. The Court sustained the demurrer and the defendants appealed. On 8 August, 1871, A. J. Jones drew a bill for (145) $400, payable at 60 days, on T. J. Jones, who accepted to pay the same, and after endorsement thereof by T. S. Lutterloh, all for accommodation to the drawer, A. J. Jones procured A. W. Steele Co. to discount the same at the rate of eighteen per centum per annum, or one and a half percent per month for the time it had to run.
Afterwards, Lutterloh, with his co-defendant as surety, executed his note to A. W. Steele Co. as a substitute for the original bill drawn by A. J. Jones, and while in their hands several times renewed it at the same rate of interest, and finally it was negotiated to the plaintiff, who had notice of the usurious rate of interest on which it had been discounted and renewed as aforesaid.
On getting into the plaintiff's hands, the statement in the complaint is that it was, from time to time, renewed, how often not specified, at the same usurious rate, until 4 March, 1875, when, just before the going into effect of the act of 1874-'75, Chap. 84, the note, on which the action is brought for $335, was executed.
The defendants allege that since the debt was originally made, in the whole round of renewals to A. W. Steele Co., whilst they were owners, and since then to the plaintiff, there have been paid sums of money for interest making an aggregate of $321.60, of which only the sum of $35 has been applied to extinguish any part of the principal money, and in their defense they make a counter-claim or set-off against the plaintiff for the various sums of interest paid before the execution of the note sued on in this action.
To the counter-claim the plaintiff demurred, on the ground that the sums constituting the same are not such as could be the subject-matter of an independent action, having been paid willingly and with a full knowledge of all the facts, and on the hearing his Honor sustained the demurrer, and from that judgment the appeal is taken. *Page 116
1. Anciently, in England, many doubts were entertained as to (146) the propriety of taking a price or reward for the use of money, in foro conscientiae, 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 ten 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 five 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 tam action to anyone who would sue for the same.
Under such state of the law in England, it was much disputed whether the excess of interest paid beyond the legal rate could be recovered back in a common law action, on the ground that the receipt and payment of it contrary to the statute was a delictum and therein the borrower was equally participant with the lender; but at length is was settled that a distinction was to be taken between statutes passed to protect the weak and necessitous from being overreached and oppressed, and those enacted from motives of policy and general expediency, in the former of which the parties were held as not equally criminal, but in the latter in paridelicto. Comyn on Usury, 5 Law Lib., 211; Clark v. Shee, 1 Cowper, 197;Browning v. Morris, 2 Cowper, 790.
Under this distinction, the Court held that in gaming contracts and the like, prohibited by statute, the thing prohibited was done from public policy and general expediency; and so, if parties paid anything under such contracts they did so in equal fault, and could not have remedy to get it back, on the maxim volenti non fit injuria. But in the case of contracts prohibited by the statute against usury, it was to be taken that the borrower in the transaction was not free, but a slave to the lender, and therefore in this case, after payment of the usurious (147) interest, the maxim in pari delicto had no application, and a recovery of the excess might be effected in the action of assumpsit on the count for money had and received.
2. Conformable to this state of the English law was our statute law and the rights of parties prior to 1866; and up to that time the borrower was regarded as under necessity taking away his freedom, and not of equal guilt with the lender. Accordingly, it was provided that the usurious contract should be void and the whole amount forfeited, and the lender be subject to pay double the whole amount if he received the usurious excess, in a quitam action. Rev. Code, Chap. 114.
By Laws 1865-'66, Ch. 24, the Legislature, giving expression to the *Page 117 popular will on this subject, repealed the 114th chapter of the Rev. Code, and in lieu thereof enacted in substance that six per cent should be the legal rate of interest, with liberty to stipulate on a loan of money, but on no other consideration, for a rate so high as eight per cent, provided the rate and consideration were expressed in the obligation, with a declaration of validity to the contract under any circumstances as to the principal money lent, and without any forfeiture except of the entire interest on plea of the borrower, in case of an agreement to take more than six per cent where no rate was named, or more than eight where the rate is named.
Obviously by this enactment a new theory was introduced, and now the view obtained that money, like an article of property or merchandise, ought to be regulated by the market, and the borrower be at liberty to pay for the loan of money on his own estimate of advantage and benefit to himself therefrom, without interference of law further than to fix a rate beyond which interest should not be recoverable in the Courts, and to provide a defense against its collection if the borrower, in the exercise of his option, choose to interpose the plea of usury. (148) Accordingly, under this statute, the contract tainted with usury and formerly held void, is now valid in any and every event for the principal. All penalty for receiving usurious interest recoverable by the party aggrieved, or anyone who would sue for the same, is taken away, and a mere privilege of defense personal to the borrower is provided for, limited to a forfeiture of the entire interest on the note or obligation; and to the end that the defense may be ample and complete, if the borrower in his discretion should resort to it, he is authorized to examine the lender as a witness.
From these terms of the statute, the statutory remedy provided for the borrower extends merely to the defeat of the interest on the note or obligation unpaid, and does not embrace any remedy as to the interest already paid; and it seems to us that in the view of the Legislature the borrower was no longer to be regarded as under such necessity as to take away his free will, but as being competent to act freely, and that therefore if he paid what he need not have paid, he should be barred by this act, and not have remedy to recover it back on the ground of his having paid it willingly and freely. If it was intended that the usurious excess paid should be recovered back, why was not a remedy therefor furnished as is the old law, Rev. Code, Ch. 114, and as provided for in a remedy prescribed for the recovery of double the amount of interest so paid in the act of 1876-'77, Ch. 91?
3. This, our construction of the act of 1865-'66, as to the nonexistence of a remedy to recover usurious interest paid, derives support and confirmation in our view from the course and terms of the Legislature on *Page 118 this subject since: The act of 1874-'75, Ch. 84, re-enacts the invalidity of all contracts tainted with usury on plea of the borrower, and a forfeiture of double the amount lent to anyone who will sue for the (149) same, and the act of 1876-'77, the one now in force, re-adopts the law of 1865-'66, with a forfeiture of the interest unpaid, and a remedy given to the party for double the amount of all the interest paid; and the provision of a remedy in those two statutes extending to usurious interest paid amounts to a legislative construction that no such remedy existed for usury paid under the act of 1865-'66. The interest paid in the case under consideration was all paid, and the note now in suit was given, during the time that the act of 1865-'66 was in force.
4. Applying these views, let us see what is the result. The answer avers the loan originally to have been $400, and interest paid in renewals to A. W. Steele Co., and since to the plaintiff, in all amounting to $321.60, which was applied to the interest, and the overplus to the principal, so that on the day the note now in suit was given, the principal was reduced from $400 to $355; and it then shows forth that the present note was executed on 4 March, 1875, in the interval between the passage of the act of 1874-'75 and the day named for its going into effect; and the demurrer admitting these facts, in point of law, the conclusion is, that payment of interest having been made freely and willingly, and located and applied to the interest as such, and in the settlement with the plaintiff again recognized as payments on the interest, and in small part on the principal at the giving of the note now sued on, the defendants have not the right to recover therefor and be allowed the same by way of counterclaim and set-off against the plaintiff's demand.
We therefore hold that his Honor was not in error in sustaining the demurrer and holding that defendants were not entitled to a counterclaim or set-off for usurious interest paid anterior to the execution of the note in suit under the act of 1865-'66.
Affirmed.
Cited: Cobb v. Morgan, 83 N.C. 213; Webb v. Bishop, 101 N.C. 102;Moore v. Beaman, 112 N.C. 561; Ward v. Sugg, 113 N.C. 493, 497. *Page 119
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