Read v. Flaketown Graphite Co.

Appellant brought this action to recover the balance due on a promissory note. Appellee pleaded the facts shown by the plea on file. Demurrer to this plea being overruled, appellant took a nonsuit, reserving the question raised by the court's ruling for decision in this court.

The ruling under review means that all payments of interest in excess of the statutory rate, whether made in pursuance of the original contract or by subsequent agreement, must be deducted from the principal — this because the statute (section 4623 of the Code) holds the following language:

"Nor shall the borrower of money at a usurious rate of interest ever in any case in law or equity be required to pay more than the principal sum borrowed, and if any interest has been paid the same must be deducted from the principal and judgment rendered for the balance only."

And appellee argues that, if the statute were otherwise interpreted, its purpose would be defeated, because short-time loans, and usurious interest for extensions, would become the rule. But our judgment is that in the case presented by the plea — a case in which the integrity of the original contract is not questioned — payments of interest in excess of the statutory rate should be credited first upon the interest at the lawful rate and any remainder upon the principal; this for the reason that the statute does not intend to impair contracts which at the time of their execution are wholly free of offense against the statute. This conclusion is supported by the reasoning of our cases. Thus in Van Beil v. Fordney, 79 Ala. 76, it was decided that, when the original transaction is not usurious, the subsequent agreement to pay illegal interest — or, we will say, the payment of illegal interest — in consideration of forbearance will not impart to the original contract the taint of usury, so long as it remains in force without renewal, discharge, or cancellation. In such case as this, the payment or promise to pay usury is wanting in consideration, and the original contract is not thereby affected. Dismukes v. Weed's Ex'rs, 203 Ala. 64, 82 So. 24; Bernheimer v. Gray, 201 Ala. 462, 78 So. 840; Compton v. Collins, 190 Ala. 499, 67 So. 395; Nance v. Gray, 143 Ala. 234,38 So. 916, 5 Ann. Cas. 55; Woodall v. Kelly, 85 Ala. 368,5 So. 164, 7 Am. St. Rep. 57; Allen v. Turnham, 83 Ala. 323,3 So. 854. It is so held in other jurisdictions. 39 Cyc. pp. 992-994. We conclude, therefore, that the provision of section 4623 of the Code, requiring that "if any interest has been paid the same must be deducted from the principal," means any interest on an usurious contract; but the contract on which this action is brought, for aught appearing in the plea, was not usurious. On that contract defendant is entitled only to general credits for the sums paid.

Reversed and remanded.

ANDERSON, C. J., and GARDNER and MILLER, JJ., concur.