Opinion
3 Div. 295.
December 26, 1917. Rehearing Denied May 9, 1918.
Appeal from Circuit Court, Montgomery County; Gaston Gunter, Judge.
J. Lee Holloway, of Montgomery, for appellant. W. A. Gunter, of Montgomery, for appellee.
The bill in this case is filed by a debtor against a creditor, and seeks relief on the ground of usury. The specific relief sought is, that the evidence of indebtedness, the note or notes and the mortgage to secure the payment thereof, be declared void or paid in full, and canceled, by a court of chancery. The bill alleges the payment of all that is legally collectable, but asks that, if complainant be mistaken touching this fact, there be an ascertainment of the amount due and collectable under the usury laws of this state, with the offer to pay this amount if not already paid.
The bill presents the case of a debtor going into equity and asking affirmative relief by the court on account of an usurious contract. The bill in this case is short. The reporter will set it out in full, that the opinion may be the more easily ascertained.
The bill alleges no contract, legal or illegal, between the complainant and the respondent, but alleges only that respondent now holds and owns the note and mortgage sought to be canceled, and claims that a large sum is yet due from complainant on said note. And while it appears that respondent acquired the note and mortgage from her husband, L. Bernheimer, who is alleged to be dead, the bill fails to allege when, or how, or under what circumstances, she acquired them. The bill also alleges that L. Bernheimer acquired the note and mortgage from the First National Bank of Montgomery, the payee and mortgagee, but is very indefinite as to how he acquired it, merely alleging that by agreement with complainant, and before the demand was past due, L. Bernheimer took up said note by paying the bank the full face value therefor, and that in consideration thereof complainant agreed to pay Bernheimer 10 per cent. interest, for an extension of the loan, and, as evidence thereof, gave to Bernheimer an interest note of $216, such amount being the interest paid by Bernheimer to the bank, at 10 per cent. for one year, and that complainant, ever since 1907, has continued to pay, on said note for $2,160, interest at the rate of 10 per cent.
The allegations of the bill are entirely too vague, indefinite, and uncertain to show that the note and mortgage sought to be canceled were originally infected with usury. While if there was no other consideration for the note and mortgage to the bank for $2,160 than the loan of $2,000 from January 29, 1907, to December 1, 1907, the contract would be usurious, yet, construing the bill against the pleader, there may have been other considerations entering into the contract, so as to prevent it from being usurious — such, for instance, as a charge for preparing the note and mortgage, the recording fee, etc. The allegations are wholly insufficient to show that the original note and mortgage were infected with usury. A copy of the mortgage is made an exhibit to the bill, and this on its face shows a perfectly valid and legal contract. The only direct and positive allegation of any agreement to charge or pay usury was that touching the note and engagement to pay 10 per cent. interest for one year only. So far as the bill informs us, that note has been paid and discharged. The note and mortgage on their face being valid, and nothing appearing to show that this respondent ever knew of any agreement to pay usury, or that she has ever attempted, or will ever attempt, to charge usury, the bill is wholly insufficient. Hence the note and mortgage given by complainant to the bank and now sought to be canceled were not usurious at their inception, but they are sought to be made so by connecting therewith the subsequent agreement between complainant and L. Bernheimer, whereby Bernheimer took up the note and mortgage upon the condition that complainant pay him 10 per cent. interest on the amount paid for the note and mortgage, coupled with the fact that complainant has ever since paid such usurious interest to the holders and owners of said note and mortgage, or (as complainant alleges) until the principal has been paid and the obligation discharged.
The bill is too indefinite and uncertain, however, as to the contract to pay usurious interest, except for one year, in consideration of L. Bernheimer's taking up the note and mortgage from the bank. No specific agreement to pay usurious interest even to L. Bernheimer for more than one year is alleged, though there may be said to be an attempt to show one by implication that usurious interest was paid yearly, but this is not sufficient against demurrer. It must be remembered that on their face the note and mortgage are not usurious, and that they are not sufficiently alleged to have been so, in fact or in law, when they were made, and that the attempt is to have usury ingrafted on them by the subsequent agreement between complainant and L. Bernheimer, and that, upon the evidence solely of a note for interest for one year. It is not alleged that respondent ever held that note, or that the amount of it was ever paid to her, or that she ever had any knowledge or notice thereof; and on demurrer these matters must be construed against the complainant.
Pleadings as to usury are required to be definite and specific, even when asserted as defensive matter, and a fortiori, when set up in a bill praying affirmative relief against usurious contracts by a cancellation of such contracts.
"It was early declared in this state that usury is a personal defense, and can only be interposed by the borrower, his legal representative or heir at law. 'Usury is a defense personal to the party agreeing to pay it, or those who stand in his place as representatives.' Fenno v. Sayre, 3 Ala. 458. That doctrine was ever afterwards adhered to Harbinson v. Harrell, 19 Ala. 753; Gray v. Brown, 22 Ala. 262; Cain v. Gimon, 36 Ala. 168; McGuire v. Van Pelt, 55 Ala. 344; Griel v. Lehman, 59 Ala. 419; Butts v. Broughton, 72 Ala. 294. When usury is interposed as a defense, the facts which constitute it must be specifically set forth. Speaking on this subject, and quoting from Tyler on Usury, we said: 'That the debtor "must in his answer or plea, both at law and in equity, set up the usury specifically, stating distinctly and correctly the terms of the usurious agreement, and the amount of the usurious premium." And the pleader is cautioned to make this defense, "bearing in mind always, that the courts are more rigid and technical in their practice in cases of usury than in ordinary cases of equity jurisdiction." ' Munter v. Linn, 61 Ala. 492. This doctrine has been ever since followed in this court. Bradford v. Daniel, 65 Ala. 133; Security Loan Ass'n v. Lake, 69 Ala. 456; Masterson v. Grubbs, 70 Ala. 406; Burns v. Campbell. 71 Ala. 271; Kilpatrick v. Henson, 81 Ala. 464 [1 So. 188]; Welsh v. Coley, 82 Ala. 363 [2 So. 733]; Woodall v. Kelly, 85 Ala. 368 [5 So. 164, 7 Am. St. Rep. 57]." Moses v. Home B. L. Ass'n, 100 Ala. 465, 467, 14 So. 412, 413.
When one claims to have made usurious payments, the law requires that he set out in his plea distinctly and correctly the terms and the nature of the usurious agreement and the amount of payments made, which are claimed to be usurious, and the proof must correspond with the averment. Nance v. Gray, 143 Ala. 234, 38 So. 916, 5 Ann. Cas. 55.
When the original transaction or contract is not usurious, a subsequent agreement to pay illegal interest in consideration of forbearance, etc., does not impart to the contract the taint of usury. Nance v. Gray, supra.
A negotiable paper valid in the hands of the original holder may be bought and sued on as any other chattel at its real or supposed value, and the transfer of such instrument at a discount greater than legal interest is not usurious, although the transferor may have indorsed it, and such discount does not deprive the transferee of the protection of a bona fide purchaser. Woodall v. People's Bank, 153 Ala. 576, 45 So. 194; King v. People's Bank, 127 Ala. 266, 28 So. 658.
As there is no sufficient allegation that the first contract, evidenced by the note and mortgage sought to be canceled, was usurious in its inception, the question remains, To what extent was it made usurious by the subsequent agreement to pay usurious interest thereon? The general rule is that a contract not usurious in its inception is not made usurious by a subsequent agreement to pay more than lawful interest as for an extension of the time of payment. Van Beil v. Fordney, 79 Ala. 76; Tutwiler v. Nat. B. L. Ass'n, 127 Ala. 103, 28 So. 654; 1 Jones on Mortg. 647; Tyler on Usury, 172; Webb on Usury, § 24.
"As respects mortgages, it is said in 1 Jones on Mortgages, § 647: 'When a mortgage is free from usury in its inception, no subsequent usurious contract in relation to it can affect the mortgage itself. It is only the subsequent contract that is affected by the usury.' In those states where the statutes declare a usurious contract void in toto, the current of authorities is that a debt, legal in its inception, will not be destroyed by a subsequent usurious agreement, although it may be thereby formally satisfied and discharged, and the security surrendered, but that on the subsequent security being annulled and avoided, the first is revived, and may be enforced on the ground that a valid, subsisting contract is not affected by a subsequent invalid agreement. Allen Trammell v. Turnham, 83 Ala. 323, 325 [3 So. 854]; Real Estate Tr. Co. v. Keech, 69 N.Y. 248 [25 Am. Rep. 181]; Swan v. Summers, 2 Green (N.J.) [14 N.J. Law] 509; Hammond v. Smith. 17 Vt. 231; Johnson v. Johnson, 11 Mass. 359; Patterson v. Birdsall, 64 N.Y. 294 [21 Am. Rep. 609]; Tyler on Usury, 111; 3 Par. on Con. 115." Van Beil v. Fordney, supra, 79 Ala. 83.
It therefore follows that the bill in this case is defective in the several particulars which were pointed out by special demurrer, and is in its present condition insufficient, and that the trial court erred in overruling the demurrer thereto. A decree will be here rendered sustaining the demurrer.
Reversed and rendered, and remanded. All the Justices concur.