In my judgment, the majority opinion does not touch, discuss, or expressly decide, the real issue in this case, for which reason it has arrived at an erroneous conclusion. I am therefore compelled to dissent. *Page 350
At the outset, and for the sake of clearness, I desire to add to the statement of facts appearing in the majority opinion that the note here in question on its face bore but 6 per cent. interest; the alleged usurious interest being paid by virtue of an oral side agreement. The only issue which I think the case presents is how the payments heretofore made by the maker of the note here in question to the original payee are to be treated. My reading of the Kentucky authorities is that payments on an alleged usurious note are not regarded or treated in law as having been made by way of usurious interest until the principal of the debt and legal interest have been fully paid. Until that time all payments are first applied by the law, no matter how the parties treat them, on legal interest, and then on the principal, and it is not until the principal and legal interest have been discharged that usury begins. There is a long line of cases in this state establishing this principle, illustrated by the case of Crenshaw v. Crenshaw, 24 Ky. Law Rep. 600, 69 S.W. 711. In this very case before us, the maker of the note could not have recovered from the original payee of the note the alleged usury which the maker claims now to have paid. Had he attempted any such suit, we would at once have said that he was not entitled to recover it, although the statute specifically says that excess of interest may be recovered from the payee thereof. We would unhesitatingly have credited what he had paid first on the legal interest and then on the principal. Therefore we have here the situation that whatever payments the maker of the note has heretofore made are not to be treated as usury, but as payments on legal interest and principal, and there is no excess which the statute says is void until that principal and legal interest are discharged, a state of case not here present. We simply have presented a case of a note fair on its face, upon which payments have been made unknown to a transferee for value. Treating her as the majority opinion does as a holder in due course, I am of the opinion that the conclusion is inescapable that she takes free from the defense of such payments, for it is elementary that a holder in due course takes free from the defense of payment to the original payee. The working of the majority opinion simply comes to this: That what the maker of the note has paid to the original payee by way of so-called usurious interest is to be credited on the principal and legal interest of the *Page 351 note now held by a holder in due course who took in ignorance of such payments. If that is not charging her with payments made, I am utterly unable to understand what it is. The majority opinion silently overrules the long-established doctrine in this state above noted. Something is said in the majority opinion about the policy back of these usury statutes. But it must also be remembered that the holder of this note is a bona fide purchaser; that by the majority opinion she must suffer due to a conscious act of the maker of this note in agreeing to so-called usury which he now charges against an innocent party who took the maker's note that appeared fair on its face. It is just as shocking to the conscience to have an innocent party thus suffer as it is to have the maker of this note subject to perhaps the oppressive tactics of an original Shylock payee. The present holder of the note is no Shylock, and her predicament has been brought about by the maker of the note executing it and putting it into circulation. Surely we ought not to hunt for expedients to relieve the maker of a note of his at least moral obligation not to harm an innocent person. I am authorized to state that Perry and Ratliff, JJ., concur in these views and this dissent.