Hall v. Mortgage Security Corp. of America

Regardless of other considerations, I am of the belief that our statute precludes the application of the doctrine of laches in this case. The question of usury was raised by the borrower at a time when a part of the usurious debt was unpaid by bringing a suit to enjoin sale under a trust deed made by the borrower to secure that debt. I think that the statute clearly authorizes such a suit to be brought by the borrower at any time before full payment of the usurious debt.

Approaching the problem by indirection, I think there could be very little doubt but that if the position of the parties were reversed and the noteholders were suing the borrower to recover the balance of the usurious debt, the borrower could interpose the defense of usury without regard to limitation or laches. Code 47-6-7, among other things, provides (emphasis supplied):

"Any defendant may plead in general terms that the contract or assurance on which the action is brought was for the payment of interest at a greater rate than is allowed by law. * * * Upon such plea the court shall direct a special issue to try and ascertain: * * * (d) if a verdict be found for the defendant upon the plea of usury, judgment shall be ordered for the plaintiff for the principal sum due, with interest at the legal rate, and, if any interest has been paid above the legal rate, the excess over and above that rate, shall be entered as a credit on the sum due; * * *."

This statute clearly intends that any defendant may, when sued upon the usurious contract, plead usury and be entitled to credit against the amount of the principal any usurious interest that has been paid. The right to make the defense is manifestly intended to be coextensive in point of time with the right of the lender to maintain his suit to recover the debt or the remaining balance of it. This purpose of the statute, of course, cannot be carried out if laches is permitted to preclude the defense of usury on the part of the borrower before the entire debt it paid.

If, under the statute, the borrower is so protected in the matter of his defense of usury against the suit of the lender, it would be entirely illogical if the borrower's affirmative right against the lender were not equally protected. To my mind, the statute makes it clear that he is so protected.

Code 47-6-8 reads in part as follows (emphasis supplied):

"Any borrower of money * * * may exhibit a bill in equity against the lender, and compel him to discover upon oath the money or thing really lent, and all bargains, contracts, * * *; and, if it appear that more than lawful interest was reserved, the lender shall recover his principal money or other thing with six per cent interest only, but shall recover no costs. If property has been conveyed to secure the payment of the debt, and a sale thereof is about to be made, or is apprehended, an injunction may be awarded to prevent such sale pending the suit.* * *"

It will be observed that in this section, again, the only limitation placed upon the right of the borrower to bring his suit for affirmative relief is the fact that the debt remains unpaid, and, in the event it is secured by mortgage or trust deed, no sale has taken place. It will be observed further that the plaintiffs in the suit at bar are exactly within the terms of the statute.

Both these statutes, I think, should be read in the light of the fact that formerly there was a limitation of one year upon the right to recover paid usury. (Code of Virginia 1860, Chapter 141, Title 42, Section 8.) That limitation has been repealed, apparently in accord with a legislative purpose to permit the collection of usury to be defeated at any time, and to throw no restriction in the way of recovering usury that has actually been paid excepting the general statute of limitations.

I think, also, that it is highly important to remember the broad distinction between our statute which makes an usurious transaction absolutely void as to the excess of interest, and statutes differently worded, as is that of Virginia, which simply make the consideration illegal as to the excess. The broad rights conferred upon the borrower by our statute conform to the fact that the usurious part of the transaction is rendered an absolute nullity. To say that laches bars the defense of usury (and I think that even where it is affirmatively asserted by the borrower, it is tantamount to a defense) is, in effect, saying that the contract which the statute renders absolutely void may nevertheless be enforced.

Of course, I realize the hardship upon the defendants, who were not parties to the usurious contract and had no knowledge of it, that would be worked by establishing what I regard as the necessary construction of our statute. But this Court has recently reiterated its former holding to the effect that a note in the hands of an innocent purchaser for value may be purged of usury, and has disapproved the case ofKessel v. Cohen, 104 W. Va. 296, 140 S.E. 15, insofar as it held to the contrary. Artrip v. Peters, 114 W. Va. 819,174 S.E. 524. If the defense of usury follows negotiable paper in spite of the negotiable instruments law, then it does not seem to me that laches can be held to bar it in the face of a statute plainly providing for its assertion and making no restriction as to time.

It would seem that under the rule laid down in the principal opinion that an innocent holder of negotiable paper tainted with usury could show that prior parties to the paper were insolvent, and be able to maintain the defense of laches because the borrower had failed to assert his statutory right until a time when the innocent purchaser could not be made whole by a recovery against the original lender. Of course, if the borrower could collect direct from the original lender, there would be little use of the rule permitting usury to be purged as against paper in the hands of an innocent holder.

It is quite true that in the case of Societe Fonceire v.Milliken, 135 U.S. 304, 10 S.Ct. 823, 34 L.Ed. 208, the United States Supreme Court held that the lapse of approximately two years from the date of a judgment at law would bar the right of the borrower to have the judgment purged of usury. It will be observed that in this case the court was dealing with ajudgment at law that had been rendered almost two years before it even sought to purge it of usury. Even under these circumstances, however, the court was particular to point out that its holding was independent of statute. It used this language: "Obviously, defendant was proceeding under the statute, which we have seen has no application; and independently of statute, delay unexcused is fatal."

For the reasons stated, I respectfully dissent from the holding of the Court in the fifth point of the syllabus and from the discussion of that proposition contained in the principal opinion.