Holden Land & Live Stock Co. v. Inter-State Trading Co.

233 U.S. 536, 34 S. Ct. 661, 58 L. Ed. 1083, 1914 U.S. LEXIS 1220

• Court: Supreme Court of the United States
• Decided: May 4, 1914
• Docket: 354
• Status: Published

Opinions

Mr. Justice Hughes

delivered the opinion of the court.

This suit was brought by the Holden Land and Live Stock Company and Howard M. Holden in the District Court of Shawnee'County, Kansas, to have certain conveyances which were absolute on their face, and the accompanying contracts, decreed to be mortgages, and for an accounting in order to ascertain the amount of the indebtedness thereby secured. It was also alleged that usury had been exacted by the creditor (the National Bank of Commerce of Kansas City, Missouri), and upon this ground it was prayed that in taking the account the debtor should be charged only with the principal and that the entire interest should be adjudged to be forfeited under §§ 5197 and 5198 of the Revised Statutes.

The principal facts and the nature of.the litigation are succinctly stated by the Supreme Court of Kansas, as follows (87 Kansas, 221, 222, 223):

“On June 6, 1901, the Holden Land and Live Stock Company executed to the Mutual Benefit Life Insurance Company a mortgage for $90,000, due in five years, upon a- tract of land in Shawnee county, containing about 5,603 acres, of which it was the record owner. On July 1, 1901, the Holden company executed a note to Howard M. Holden for $82,000, secured by a second mortgage on the same tract. This note and second mortgage, with other security, Holden at once transferred to the National Bank of Commerce of Kansas City, Missouri, to secure his note to that bank for .$80,000 bearing the same date, due in one year and drawing eight per cent, interest, which was subsequently renewed. Holden had personally purchased a tract of land in Missouri, borrowing a part of the amount necessary for the purpose from the bank. To secure the bank the deed was made to one W. H. Win-ants. Afterwards it was agreed that he should hold the title as further security for Holden’s note to the bank. In May, 1904, Holden caused to be executed to the InterState Trading Company, deeds covering the tracts in Kansas and Missouri, less parts of the former that had been sold, most of the proceeds having been applied to cutting down the incumbrances. On February 13, 1908, Holden and the Holden company brought an action against the bank and the Inter-State Trading Company, alleging in substance that the deeds had been' given by way of security for the indebtedness owing to the bank, and asking, if this should be found to have been paid in full, a decree quieting title; otherwise, a decree declaring title to be held under the deeds as security for whatever balance should be found due. The defendants maintained that the deeds were intended as absolute conveyances, and operated as such. The court found, in accordance with the report of the referee before whom the case was tried, that the defendants were precluded, by their course of dealing with the plaintiffs, from claiming the absolute title to the land; that the plaintiffs should be allowed to redeem it by paying the defendants what they had in it, amounting at the time the action was begun to $81,091.93, this including the first mortgage, which the bank had .purchased; judgment was rendered that if the plaintiffs should pay this amount (which had been reduced to $65,233.67 by sales of land made during the litigation) within six months, their' title should be quieted; that if they failed to make the payment within that time they should -be barred of all interest in the land; The defendants appeal on the ground that the court should have denied the plaintiffs any relief whatever. The plaintiffs appeal upon two principal grounds: (1) that in the accounting they should not have been charged with interest on the note given to the bank, because by the exaction of usury all interest thereon had been forfeited; and (2) that.the first mortgage should not have been enforced against them otherwise than by a foreclosure and sheriff’s sale.”

The Supreme Court of the State decided in favor of the plaintiffs in error upon the second question. Approving the findings made in the trial court, it was concluded that the relations between the parties were in effect those of mortgagor and mortgagee and that the appropriate remedy was a foreclosure and sale; Accordingly, the judgment was modified so as to provide that the lien upon the Kansas land should be enforced in this manner.

The court affirmed the judgment in other respects; and because, in fixing the amount to be paid in order to redeem the lands in question, the court did not require the forfeiture of all interest, this writ of error is prosecuted.

The question at once arises whether, in view of the character of the suit and the basis of the ruling, the judgment is subject to review in this court. The action, it will be observed, was not one brought by the bank to enforce the payment of the indebtedness, thus involving the application of the statutory measure of the bank’s legal right. Nor was the debtor availing himself of the exclusive remedy afforded by the statute in cases where usurious interest has actually been paid to a national bank (Barnet v. National Bank, 98 U. S. 555; Stephens v. Monongahela Bank, 111 U. S. 197). While the plaintiffs insisted that interest should be forfeited, still they were suitors in equity seeking to be permitted to redeem the lands which had been conveyed; and the decision was placed distinctly upon the ground that the relief sought should be granted only upon the equitable condition that the plaintiff should be charged with the principal of the debt and legal interest. Upon this point the Supreme Court of Kansas said (87 Kansas, 221, 233, 234):

“Usury was charged and collected upon the Holden note. By the national banking act the exaction of usury destroys the interest bearing, quality of a debt. The referee decided that the plaintiffs were estopped from claiming the benefit of that provision. Nothing was said about usury until the present action was begun. Whether or not an actual estoppel has arisen, it was proper under the circumstances, in view of the equitable relief sought, that the plaintiffs should be charged with the principal and legal interest.

'“When the borrower appears in any capacity in a court of equity asking affirmative relief against á usurious contract to pay money such relief will, in the absence of statute providing otherwise, be granted him only upon condition of his doing equity, that is, tendering the money actually due. . . . The rule . . . applies when the relief sought is the reformation or cancellation of a deed, or mortgage, or other instrument, evidencing or securing a. usurious debt, or an injunction against threatened damaging action by the creditor, or in fact, whatever be the character of the relief sought. ... In case the usurious interest has been reserved, or paid in advance, the amount equitably due is the principal debt less the usurious excess of interest paid. In the absence of statute providing otherwise if the contract for the usurious interest is still executory the sum equitably due is the principal debt with legal interest thereon.’ (39 Cyc. 1010-1012.) ”

The judgment thus rests upon an independent or non-Federal ground which was adequate to sustain it. The court applied a familiar equitable principle in defining the basis upon which extraordinary aid would be given. “A court of equity is not positively bound to interfere in such cases by an active exertion of its powers; but it has a discretion on the subject, and may prescribe the terms of its interference.” Story, Eq. Jur., §301; Fanning v. Dunham, 5 Johns. Ch. 122, 142, 143; Tiffany v. Boatman’s Institution, 18 Wall. 375, 385. It is manifest that the plaintiffs were not proceeding by virtue of any Federal right in seeking to have the conveyances which had been executed in the form of absolute transfers of title declared to be mortgages; and it was competent for the court, whose intervention was desired for this purpose, to demand that its conscience -be satisfied by the doing of equity on the part of those who asked it.

The decision involves simply the exercise of the equitable jurisdiction in accordance with the jurisprudence of the State, and the ruling which prescribed the conditions of relief is not reviewable here.

The writ of error must be dismissed.

Dismissed.