First National Bank v. McCarthy

100 N.W. 14, 18 S.D. 218, 1904 S.D. LEXIS 44

• Court: South Dakota Supreme Court
• Decided: June 8, 1904
• Status: Published

Opinions

Corson, P. J.

This is an action for the foreclosure1 of a mortgage, in which usury and certain othér defenses were’ pleaded by the defendants Patrick and Maggie McCarthy,' who alone appealed from a judgment in favor of the plaintiff and from an order denying their application fdr a Uew-trial.

This beingj.an action in equity, triable by the court, its,: charge in submitting certain issues to a jury, thé conduct of counsel in. argument before the' jury,- and- the* conduct of the jury, are ...not subject to review.- Assignments of .error.- relating thereto demand no considera tion,. It was wholly within the discretion of the court whaty if any, issues should be submitted. The findings of the-juTy were merely advisory. Upon the court rested the duty aftd’jresponsibility of idetermining thé facts, and this court must review its decision precisely as it would if“ no'jury had been impaneled. Apland v. Pott. 16 S. D. 185, 92 N. W. 19.

Admitting the execution of Ihe note and mortgage in suit, appellants contend (1) that such note was a renewal of former notes, which were tainted with usury, and that under the law applicable to such a state of facts sufficient payments were shown to substantially extinguish the indebtedness; and (2) that, the plaintiff having attempted to procure a tax title to the mortgaged premises, and not having paid the taxes assessed thereon for the purpose of protecting its security, according to the terms of the mortgage, the circuit court erred in adding such taxes to the sum found to be due the plaintiff.

The first contention rests on the alleged fact that the note in suit was merely a renewal, its sole consideration being a preexisting indebtedness. Notwithstanding the rule that findings of a trial court on disputed questions of fact are always pre sumptively right, and must stand unless the evidence clearly' preponderates against them, it is life duty of this court, in cases tried by a court or referee, to review the evidence, whenever the question of its sufficiency is properly presented, for the purpose Of ascertaining whether or not there-is a clear preponderance against the findings of such .court or referee. Farwell v. Sturgis Water Co.. 10 S.D. 421, 73 N. W. 916; Williams v. Williams, 6 S. D. 284, 61 N. W. 38; Randall v. Burk Township, 4 S. D. 337, 57 N. W. 4. Regarding the executiom!of the note in suit the learned circuit court found as follows: . ‘‘That said note of July 22, 1891, for the sum of $5,000, executed and delivered by the defendants Patrick B. McCarthy and Maggie McCarthy to the plaintiff, the First National Bank of Rapid City, South Dakota, was so made, executed, and delivered by said defendants, and was received 'by said plaintiff, as a new and original indebtedness and obligation, and not as a renewal or continuation of any prior existing indebtedness or obligation of the said defendants Patrick McCarthy or Maggie McCarthy, or either of them, or any other person, firm, or corporation.” This finding clearly conflicts with conceded facts and a fair and reasonable view of the entire evidence. The record contains a copy of the note. It was for $5,000, payable to the order of the plaintiff six months after date, with interest at 12 per cent, per annum, dated July 22, 1891, signed by each of the appellants. The record also contains the copy of a note for $5,000, payable to the order of the plaintiff 12 months after date, with interesi^at 12 per cent, per annum, dated May 22, 1889, signed by each of the appellants and one Michael McGuire. Plaintiff’s president, who had formerly been its cashier, and who was personally acquainted with nearly all of the numerous transactions disclosed by the evidence, testified on cross-examination as follows: “Q. Was the note of July 22, 1891, a renewal of or a substitution of this note of May 22, 1889? A. I don't so regard it. Q. Did it represent the same indebtedness so far as McCarthy was concerned? A. McCarthy was on the note with these parties for that amount. Q. If McCarthy and Tighe had not signed any of these notes, this note of July 22, 1891, and May 22, 1889, is the same indebtedness of McCarthy? A. No, sir; it is not the same indebtedness. It is an indebtedness of different parties. Q. Why do you say it is not the same indebtedness, so far as McCarthy is concerned? A. When two individuals come in there and make a loan, and a third party comes in, and says ‘We want to get money to take up this loan, and want to get the other people off, and we want you to let us have the money to pay off this note, and get these other people off,’ and in'this case we did that, and let McCarthy have the money to pay off this note and give this security. Q. When the note of July 22, 1891, was signed by McCarthy and wife, did you pay McCarthy any money — your bank? A. We placed the amount to his credit. The transaction was this: Mr. McCarthy may have drawn— Q. What did he do? Did you pay him any money? Did he get a nickel? A. I don’t think the actual cash was handled, but the proceeds of that note were turned to McCarthy’s credit, and paid for the other note. Q. Was any money placed to Mr. McCarthy’s credit that day on the books of the bank? A. I would have to look. Q; Did he have any account on uhe books of the'bank on that' date? A. I will look. What'date? Q. July 22, 1891. A. It may not have gone through the actual transaction. ■ Q. It was not in actual money ? A. The transaction was just the same. It was not imaginary, money. Q. State your best recollection,' if you have not McCarthy’s account here. Was any credit given to McCarthy at the bank at the time he and his wife signed the note of July 22, 1891, for $5,000? A. I don’t remember whether the account was credited on the book or not. Q, At the time the note of May 22, 1889, for $5,000. signed by McCarthy and wife and McGuire, did you pay them any money that day? Did you pay them $5,000 when they signed that note? A. It is not very likely that we made a transaction in which we turnéd the'mone'y out at one window and in at the other.” This witness also stated that the same record was made in the bank when a note was “paid in cash” as when it was “paid by a new note.” Thus it clearly appears that the indebtedness represented, by the note of May 22, 1889, constituted the consideration of the note in suit. Such indebtedness, its amount augmented by interest, reduced by payments, remained when the latter evidence thereof was executed; The transaction on July 22,1891, did not involve the delivery of any money, and we are unable to discover any competent evidence tending to prove that the parties intended the new note to be regarded as a payment of the old one. The transaction was not unusual. It is easily understood. The bank held the.pastt due note of May 22, 1889. To avoid carrying past-due paper, and improve its security, the amount remaining unpaid, according to the bank books, was ascertained, and appellants were induced to sign a new note for that amount, securing the same with a mortgage on their homestead, the name of McGuire being omitted from the new note. Nothing more was done; nothing more was intended to be done.. The nature- of the transaction is to be ascertained from what -was said and done by the parties at .the time, not from the personal opinions of interested witnesses. The need of accuracy in the.use of language and of nice discrimination between facts and concluí sions of witnesses, when dealing with such a transaction, is. strikingly illustrated by reference to plaintiff’s testimony touching certain subsequently executed,notes. On July 1,.1896,;-appellants executed two notes, one for-$5,000 and one.for $675.^ 50, the aggregate of these sums being - the amount shown by the bank’s books to be then due on the note in suit. The president of the bank stated: “At the time this Exhibit A [note in suit] was paid or renewed by Exhibit G and Exhibit D [ notes of July 1, 1896], Mr. McCarthy was present, but as to whether he figured .it up or not I could not say.” If the note of July 22, 1891, paid the note of May 22, 1889, then the note's of July 1, 1896,--paid the note of July 22, 1891, the indebtedness secured by the mortgage sought to be foreclosed was extinguished, and-the lien of such mortgage no longer exists — a conclusion the plaintiff would certainly not desire to concede. It seems clear to us that both transactions should be regarded as renewals. They were such in fact. If the note of -May 22, 1889, was tainted with usury, the note of July 22, 1891, was not purged of such taint, even if the parties at the time intended such result, which does not appear. The promise of a debtor to pay illegal interest, however often repeated, is not in itself sufficient to avoid the consequences of a usurious contract. As the decision of the learned circuit court cannot stand without the support of the finding heretofore quoted, and such finding is against the clear preponderance of the evidence, the judgment appealed from will have to be modified.

It is undisputed that appellant Patrick McCarthy executed and delivered to the bank on August 22, 1887, four promissory notes for $1,000 each, wherein he promised to pay interest thereon at 18 per cent, per annum from date until maturity. At that time the highest lawful rate of interest under the laws of Dakota territory, where such notes were executed, was 12 per cent, per annum (Laws 1887, p. 401, c. 207); hence such notes were usurious. (Rev. St. U. S., §§ 5197, 5198, [IL S. Comp. St. 1901,p. 3493]); and if the indebtedness then contracted continued by means of renewal notes down to the execution of the note of May 22, 1889, and constituted the consideration thereof, the note in suit is tainted with usury, it being, as we have shown, a renewal of the 1889 note. If the note in suit is tainted with usury, the amount, if any, of plaintiff’s recovery thereon, depends on the law of Congress relating to usurious contracts of national banks, in the application of which state courts are bound to follow the adjudications of the United States Supreme Court. Farmers’ Bank v. Oliver, 55 Neb. 774, 76 N. W. 449; Robbins v. Muldrow, 39 Kan. 112, 18 Pac. 64; National Bank of Auburn v. Lewis, 75 N. Y. 516, 31 Am. Rep. 484; Holden v. Cosgrove, 12 Gray 216; Bridge v. Hubbard, 15 Mass. 96, 8 Am., Dec. 86; Steele v. Whipple, 21 Wend. 103; Reed v. Smith, 9 Cow. 647; Tuthill v. Davis, 20 Johns. 285; Mathews’ Adm’r v. Traders’ Bank, (Va.) 27 S. E. 609; First Nat. Bank v. Plankinton, 27 Wis. 177, 9 Ain. Rep. 453; Snyder v. Mt. Sterling Nat. Bank, (Ky.) 21 S. W. 1050; Brown v. Marion Nat. Bank, 169 U. S. 416, 18 Sup. Ct. 390, 42 L. Ed. 801; Farmers’ & Mechanics’ Bank v. Hoagland, (C. C.) 7 Fed. 159; Boydv. Engelbrecht, 36 N. J. Eq. 612; Taylor v. Morris, 22 N. J. Eq. 606; 27 A. & E. Ency. Law 967, 968. The only penalty necessarily attaching to the exaction of illegal interest under the banking law of the United States is the forfeiture'of all interest to be paid under the contract. The interest paid, however, may, in certain cases, be counterclaimed as against the amount due upon the instrument if the action is brought within the time limited by statute;' and the statute of limitations applies as well to the defense as’ to actions brought to recover for usury exacted. Faison v. Grandy, 128 N. C. 438, 38 S. E. 897, 83 Am. St. Rep. 693; Harrell v. Blount, 112 Ga. 711, 38 S. E. 56; First Nat. Bank v. McInturff, (Kan. App.) 43 Pac. 839; First Nat. Bank v. Turner, (Kan. App.) 42 Pac. 936; Walsh v. Mayer, 111 U. S. 31, 4 Sup. Ct. 260, 28 L. Ed, 338; Brown v. Second Nat. Bank, 72 Pa. 209; Carter v. Moses, 39 Ill. 543; Davis v. Converse, 35 Vt. 506. In' the case at bar all the payments of interest were clearly barred by the statute of limitations, and, unless payments were made by thé’ defendants upon the principal, and properly applied upon the same, such payments cannot inure to the benefit of the defendants in this action.

This brings us to a consideration of the second part of the proposition of appellants — that the debt was extinguished by reason of these payments. On the trial the following question, among others, was submitted to the jury: “Q. No. 3. What amount, if any, of payments was made by the defendants Patrick B. McCarthy and Maggie McCarthy, or either of them, as general payments upon the said indebtedness, without any direction as to the application thereof? A. Not any.” The court, in its findings of fact, referring to the verdict of the jury, says:' “The court hereby approves said verdict, and the findings of the jury therein, and adopts the same, and hereby embodies the same in these findings of the court as findings of fact number 11. ” It will thus be seen that there was a finding of the jury that no money was paid as general payments upon said indebtedness, and this finding is fully and distinctly approved by and made a part of the findings of the court. Unless, therefore, there was a preponderance of the evidence against these findings, they are conclusive upon this court. There was some conflict in the evidence in regard to some of the payments made by McCarthy, but, as we understand the evidence, McCarthy admitted that a very large number of the alleged payments made were understood by him to be made as interest, and not upon the principal. It clearly appears from Mr. Halley’s testimony that no payments made by Mr. McCarthy were made to be applied upon his indebtedness generally, except such as were to be applied upon some special note held by the bank not connected with the $4,000 loan. It further appears from the evidence that there were many transactions between the bank and McCarthy between the years 1886 and 1892, and that numerous small notes were given by McCarthy, and subsequently paid by him; but there certainly is no preponderance of evidence in favor of McCarthy’s theory that he paid large sums into the bank from time to time, to be applied generally upon his indebtedness, and, considering the fact that he was at all- times in arrears with his interest,. it .is not reasonable to suppose that payments made by -McCarthy-were intended to be applied upon the principal, or .that Mr.'Halley, as the cashier of the bank, understood that such payments were to be applied thereon, so long as there was overdue interest unpaid. After a careful review of the evidence-upon this question, we are unable to-say that there is any preponderance of evidence in favor of the defendants as against the findings of the jury and court, and the plaintiff is therefore entitled to recover the original loan of §4,000, made in 1887.

It is further contended that, the plaintiff having attempted to procure a tax title to the mortgaged premises, and having paid taxes assessed thereon for the purpose of protecting, its security according to the terms of the mortgage, the circuit court erred in adding such taxes to the sum found to be due the plaintiff. The mortgage in suit was in the usual form of-.a mortgage deed, and contained the usual clause with reference to the payment of taxes upon the mortgaged premises,, providing, among other things, that the mortgagors should pay said taxes before the same became delinquent, and, if they neglected soto do, the mortgagee might pay the same,, and add the amount of such payment to the mortgage debt, and. said mortgage should stand as security for the repayment thereof, .with.interest at the rate of 12 per cent, per annum until paid. Concerning the taxes the court made the following finding: “That the defendants Patrick B. McCarthy and Maggie McCarthy further failed to comply with the terms of said promissory notes dated Februaiy 17, 1896, and of said mortgage, by failing and neglecting to pay the taxes legally assessed upon said mortgaged premises for the years 1890 to 1899, both inclusive; and that heretofore, and op. March 23, 1898, the plaintiff paid the taxes so assessed and delinquent and unpaid upon said premises, for the purpose of protecting its mortgage security therein, for the year 1890 in the sum of $174.20, for the year 1891 in the sum of $189.20, for the year 1892 in the sum of $208.11, for the year L893 in the sum $157.01, for the year 1894 in 1ihe sum of $141.71, for the year 1895 in the sum of $133.47, for the year 1896 in the sum of $151.13, and for the year 1897 in the sum of $142.18; and that on May 26, 1899, the plaintiff also paid the taxes on said mortgaged premises, for the purpose of protecting its mortgaged security therein, in the sum of $99.73 for the year 1898, andón February 16, 1900, in the sum of $43.64 for the first half of the taxes thereon for the year 1899, and on September 19, 1900, plaintiff likewise paid $43.63 for the last half of the taxes on said mortgaged premises for the year 1899 — all of which payments were made for the purpose of protecting the plaintiff’s mortgaged security. ” -As we understand the record, it was conclusively shovm that the payment by t)ie plaintiff on March 23, 1898, referred to in this finding, was in fact a purchase by the plaintiff of certain tax certificates held by the county, upon which a tax deed to the mortgaged premises was procured by the plaintiff on June 11, 1898; that oh June 20, 1898, the plaintiff commenced an action in the nature of ejectment to recover possession of the premises, alleging that it was seized thereof in fee; that the appellants, defendants in that action, appeared and answered; and that on October 4, 1900, the plaintiff, without notice, procured an order dismissing such action without prejudice. It was further conclusively shown that on a former trial of the present action judgment was rendered in favor of the plaintiff on May 4,1897; that on June 19, 1897, the mortgaged premises were sold on execution issued upon such judgment, and purchased by the plaintiff; that an order granting a new trial was affiimed by this court on July 11, 1900 (Bank v. McCarthy, 13 S. D. 356, 83 N. W. 423); and that after the remittitur was sent down, the plaintiff served a supplemental complaint, wherein it alleged the payment of these taxes for the purpose of protecting its security under the terms of the mortgage. As the bank paid no taxes prior to the commencement of this action, and caused a tax deed to issue, it certainly had no intention'of acting under the clause in the mortgage relating to taxes until after a new trial was ordered and affirmed on appeal, as heretofore stated. Its evident purpose was to secure title to and possession of the mortgaged premises as speedily as possiole. But that is not material. The question is not what motives prompted the plaintiff's conduct, but what was the legal effect of such conduct on the rights of the parties. While the authorities aré conflicting upon the subject, we believe the rule should be, in this state, where the mortgagee has merely a lien on the mortgaged property, that, so long as the relation of mortgagor and mortgagee exists, the latter cannot, as against the former, acquire title to the property by means of a tax sale, where, under the terms of the mortgage, he is permitted to pay the taxes assessed against the land, and add the amount so paid to his claim. Finlayson v. Peterson, 11 N. D. 45, 89 N. W. 855. This conclusion is in harmony with the principles announced by this court in Safe Deposit & Trust Co. v. Wickhem, 9 S. D. 341, 69 N. W. 14, 62 Am. St. Rep. 873; Id., 9 S. D. 515, 70 N. W. 654. Under the rule we have stated, in an action by the plaintiff against the appellants for possession of the property, founded on its tax title, it would be conclusively presumed that its dis bursements on account of taxes were made to redeem and protect the property. No reason exisis why the same presumption should not prevail in this action. It ;was appellants’ .duty to pay the taxes when due. The plaintiff had the option t.o pay at any time after they became delinquent, or not at all. .The additional burden resulting from delay in interest, penalties and costs must be borne by the appellants, if they retain the property. Of course, the plaintiff cannot charge the .appeb hints with sums not actually and necessarily expended. ■ As the tax deed was inoperative as to the appellants, the cost of its procurement and recording should not be allowed'to the-plaintiff. While the plaintiff was not inquired to take care of the taxes before it did, whiLe it cannot be held responsible for interest, penalties, and costs resulting from the failure of both parties to pay promptly, it is entitled to recover only, such sums as were necessary to protect its security at the time of making its disbursements; and this, we understand, is all that was allowed by the court below. The attempt by plaintiff to obtain possession of the property by xneans of the .ejectment action pending the proceedings, to foreclose its mortgage may not have been commendable conduct, but it did appellants no harm beyond the expense of appearing and filing their answer. Such attempt certainly did not operate to invalidate the lien of the mortgage, any more than would, the commencement and dismissal of an action to obtain possession of mortgaged property where no tax title was involved.

The facts in the case having been fully found by the trial court, we do not deem it necessary that another trial be had. It is therefore ordered that the judgment of the court below be modified by striking therefrom the amount recovered upon the note in excess of $4,000, and that a judgment be entered by the circuit court in favor of the plaintiff for the sum of §4,000, the amount originally loaned by the plaintiff, and also for all taxes, paid as found by the circuit court, with interest-thereon to the date of the judgment, and that the mortgaged premises be sold to satisfy the same in the manner provided by law;, and the judgment, when so modified, is affirmed. • It is further ordered that, as the judgment of the court below is modified, neither party will recover of the other any costs on this appeal.