Roe v. Kiser , 62 Ark. 92 ( 1896 )

Hughes, J.,

(after stating the facts.) Without setting out the evidence in detail, we deem it sufficient to say that we have carefully read and examined it, as set out in the bill of exceptions in the case, and think that the preponderance of it sustains the finding of the chancellor that the note given by Roe and Kiser to Felker, and the mortgage given by Kiser to Roe, were usurious and void; it having been shown by parol evidence that, though the note was given to bear interest at the rate of ten per cent, (which is the highest lawful conventional rate of interest in this state), yet there was, at the time *the contract for the loan was made and the note was given, a verbal agreement that Kiser and Roe should pay twenty per cent, interest per annum upon the money forborne to them by Felker, and that this agreement was understood and entered into by both Kiser and Roe. This certainly made this contract and agreement usurious and void.

Paroi evideuce admittedtoprove

This is a case where the contract and agreement . . was illegal, — prohibited by law, — and its terms rested partly in parol and partly in writing. It is objected that parol evidence could not be heard to contradict or, vary the terms of the written contract, which was for ten per cent, interest per annum only. It is a well settled and recognized general rule that parol evidence cannot be admitted to contradict or vary the terms of a written agreement. But this rule is not without exceptions. This rule assumes that the instrument has a legal existence, and is valid. Testimony to show it to b^e void is always pertinent. Illegality of an agreement may be shown, to avoid a writing purporting to evidence it. See 2 Phillips, Ev., p. 684, n. 500, and authorities there cited, and n. 495, p. 673, and cases cited; Wilhite v. Roberts, 3 Dana, 175.

“In an action on a note the defendant may show a distinct parol agreement, made at the time the note was given, to pay usury upon the demand secured by the note, and thus avoid it.” Hammond v. Hopping, 13 Wend. 510, 511; Lear v. Yarnel, 3 A. K. Marshall (Ky.), 420.

The written contract cannot have the effect, in such cases, of merging the parol contract, “for it is only in virtue of its superior obligation that a written contract has the effect of extinguishing the verbal contract upon which it is founded.” Lear v. Yarnel, 3 A. K. Marshall (Ky.), 421; Allen v. Hawks, 13 Pick. 79; Levy v. Brown, 11 Ark. 16. In Levy v. Brown, supra, this court said: “With respect to the admissibility of parol evidence to prove the contract, there can be no doubt; for it is well settled that any matter which shows that a security is void on the ground of its being usurious may be averred and proved, however contrary it may be to the terms of the security,”'(quoting from the Kentucky case). The court further said: “An agreement to pay more than legal interest for money loaned on note, such agreement being made at the time of the loan, is usurious, and renders the note void, though the note on its face be for the amount lent, with the legal interest only.” But if the parol agreement to pay the illegal interest be made after the time of the loan, it would not make the note usurious. Merrills v. Law, 9 Cow. 65.

Right of surety paying principal's usurious debt.

The next question is, did the court err in rendering a personal judgment against Kiser, and declaring a lien in favor of the plaintiff Roe upon the forty-acre tract of land described in the mortgage from Burrestetta to Nance, and ordering the same sold to satisfy the judgment? The claim of Roe to have this decree was based upon the fact that he had become the surety of Kiser on the note of Kiser to Pelker to settle the note given by Nance to Felker, and had taken a mortgage from Kiser to secure him against the payment of the note Kiser had given to Felker with Roe as security, and that he (Roe) had paid said note, and was entitled to enforce the security which Felker had held against Nance, and which had been paid off by the note of Kiser and Roe. The note given by Kiser and Roe to Felker and the mortgage by Kiser to Roe were usurious and void. There was no legal obligation upon either Kiser or Roe to pay the note they had given Felker, and the evidence does not show that Kiser requested Roe to pay the same, but tends to show that he did it voluntarily, knowing that it was usurious and void. This he had no right to do, and thus make Kiser liable to pay the note which he was not legally bound to pay. Had Kiser requested Roe to pay this note, a different question would be presented. As Roe’s right to relief against Kiser depended upon the unlawful transaction in making the usurious agreement by himself and Kiser with Felker, he was not entitled to any relief. He could have no right upon this unlawful and prohibited agreement, and he had no right that he did not seek to trace through and base upon this transaction.

In Trible v. Nichols, 53 Ark. 273, this court, through Chief Justice Cockrill, said: “The general rule is well established that one who, at the request of another, pays off an incumbrance upon the latter’s land, is entitled to be subrogated to the security; and it is also a settled rule that when a valid security is cancelled by means of a subsequent agreement and security which is void for usury, the original security is not invalidated, but equity will revive and enforce it.” But “one who seeks protection under the equitable doctrine of subrogation must come into court with clean hands. It is not applied to relieve one of the consequences of his own wrongful or illegal act. When, therefore, the claim to subrogation grows out of an agreement which is void by reason of usury, it furnishes no basis for the equitable doctrine.”

So much of the decree of the circuit court in chancery as holds the note given by Kiser to Roe void for usury is affirmed. But so much of it as declared a lien in favor of Roe upon the forty-acre tract described in the mortgage from Burrestetta to Nance, and the personal judgment against Kiser, is reversed, and the bill is dismissed for the want of equity.

Bunn, C. J., dissents.