Summary
In D'Onofrio v. Galliotto, 118 N.J. Eq. 271, the Court of Errors and Appeals held (at p. 274), "The pertinent words of the statute as to payments made before the bringing of suit appear in the same section and are: `* * * if any premium or illegal interest shall have been paid to the lender, the sum or sums so paid shall be deducted from the amount that may be due as aforesaid and recovery had for the balance only.' `The sum or sums so paid' manifestly are premium or illegal interest.
Summary of this case from Neuscheler v. SeeOpinion
Argued February 7th, 1935.
Decided May 17th, 1935.
1. The evidence clearly shows that the obligation in this case was usurious inasmuch as the difference between the face of the obligation and the sum actually received by the mortgagors, or obligors, added to the interest stipulated to be paid, exceeds the rate of legal interest.
2. Under section 2 of the Usury act ( 4 Comp. Stat. p. 5705) the sum or sums that may be deducted from the amount due under a mortgage refers to premiums or illegal interest. The mortgagor or obligor is entitled to a deduction from the amount claimed in the suit of all money paid by him as interest or bonus in excess of the legal rate of six per cent interest per annum on the amount actually lent.
On appeal from a decree of the court of chancery advised by Vice-Chancellor Egan, who filed the following opinion:
"The bill filed herein seeks to foreclose a mortgage. The defendants set up in their answer the defense of usury, and they counter-claim for usury. The defense of usury is timely and is strictly pleaded in accordance with the law. Dunlap v. Chenoweth, 88 N.J. Eq. 496; Ovisiowith v. Federal Tool Manufacturing Co., 94 N.J. Eq. 85; Kobrin v. Hull, 96 N.J. Eq. 41; affirmed, 97 N.J. Eq. 546. "4 Comp. Stat. 1910 p. 5705 § 4, provides:
"`Borrower may file bill in equity. That any borrower of money, wares, merchandise, goods or chattels, may exhibit a bill in chancery against the lender, and compel him or her to discover, upon oath or affirmation, the money or wares, merchandise, goods or chattels, really lent, and all agreements, devices, shifts, bargains, contracts and conveyances which shall have passed between them relative to such loan, or the repayment thereof, and the interest or consideration for the same, and if thereupon it shall appear that more than lawful interest was taken or reserved, the lender shall be obliged to accept his principal money, or the wares, merchandise, goods or chattels or the value thereof, without any interest or other consideration, and to pay costs.'
"Section 61 of the Chancery act ( 1 Comp. Stat. p. 433), provides as follows:
"`Set-offs in foreclosure proceedings. In all suits where the amount due on any mortgage is in issue, all just set-offs shall be allowed in ascertaining the amount due, whether the holder of such mortgage be a party complainant or defendant, in the same manner and to the same extent as the like set-offs are allowed in actions at law.'
"The premises described in the bill of complaint were owned by the defendant Vincenza Galliotto, and Marcello Agnellino, now deceased, her husband by a former marriage, by the entirety. These parties in May, 1929, applied to the complainant for a loan of $3,000 to be secured by bond and mortgage covering the premises for a period of two years. Before granting the loan, the complainant insisted upon receiving and did actually receive from them, for the loan, a bonus of $400; in addition thereto, he charged and received from them six per cent. interest per annum upon the said principal sum of $3,000. On July 17th, 1929, the said Marcello Agnellino died leaving him surviving his wife, the said Vincenza Galliotto, the defendant herein; by reason of her husband's death she became the sole owner of the premises. Subsequently, the said Vincenza Galliotto married Giuseppe, the defendant herein.
"The mortgage became due and payable June 1st, 1931. These defendants, then, were unable to pay the principal and applied to the complainant for a two years' extension of payment; the complainant before consenting to an extension, again demanded and received from the defendants the sum of $300 and, in addition, received interest, at six per cent. per annum, on the principal sum of $3,000. The extension was executed on June 15th, 1931, at the home of the complainant's attorney, who acted for both parties, complainant and defendants.
"I am satisfied that the bond and mortgage and the said extension of the time of payment were given in pursuance of the corrupt intent that influenced the contract for the loan and for the extension of the mortgage, in violation of the act against usury.
"The evidence clearly shows that the original mortgagors and the said Joseph Galliotto obligated themselves to pay a sum in excess of that actually received by them; and that the difference between the face of the obligation and the sum actually received by the mortgagors, or obligors, added to the interest stipulated to be paid, exceeds the rate of legal interest; and the obligation, therefore, is usurious. Bennett v. Hadsell, 23 N.J. Eq. 174; Brolasky v. Miller, 8 N.J. Eq. 626; Riley v. Hopkinson, 82 N.J. Eq. 469.
"Section 2 of the statute against usury reads as follows:
"`Forfeiture of all interest; deduction from recovery. That in all cases of suits at law or in equity to enforce any note, bill, bond, mortgage, contract, covenant, conveyance or assurance, which shall be hereafter made for the payment or delivery of any money, wares, merchandise, goods or chattels lent, and on which a higher rate of interest shall be reserved or taken than was or is allowed by the law of the place where the contract was made or is to be performed, the amount or value actually lent without interest or costs of suit, may be recovered, and no more, and if any premium or illegal interest shall have been paid to the lender, the sum or sums so paid shall be deducted from the amount that may be due as aforesaid, and recovery had for the balance only.' (Rev. 1877, page 519.)
"Section 4 of the same act permits a borrower to exhibit a bill in equity against the lender and if it should appear that more than lawful interest was taken reserved, the lender shall then be obliged to accept his principal money, without any interest or other consideration, and to pay costs.
"The defendants have exhibited their bill of compaint in the nature of a counter-claim; they, therefore, have observed the spirit of the act. The defendants having pleaded and established usury, the complainant can, therefore, only recover the amount actually loaned, without interest. Dunlap v. Chenoweth, supra; Kobrin v. Hull, supra.
"The complainant is entitled to a decree in foreclosure, but the defendants should be credited on the principal sum with the first payment of $400 made in June, 1929, at the time of the execution of the bond and mortgage, and with the two years' interest from June 1st, 1929, to June 1st, 1931, paid by them to complainant amounting to $360; they should likewise be credited with the payment of the bonus of $300 paid on account of and at the time of the extension of the mortgage, and with the payment of two years' interest from June 1st, 1931, to June 1st, 1933, paid by them to complainant and amounting to approximately $360. I shall advise an order in accordance with these findings."
Mr. Dominick M. Acocella, for the complainant-appellant.
Mr. William V. Azzoli, for the defendants-respondents.
The decree appealed from is affirmed for the reasons stated in the opinion filed in the court below by Vice-Chancellor Egan except in the respect following, which will require modification.
The decree erroneously gives credit to the defendants for the full amount of interest, legal as well as illegal, already paid to the complainant on the usurious loan. The statutory provision (An act against usury, 4 Comp. Stat. p. 5705 § 2) is that in suits to collect under a usurious contract "the amount or value actually lent without interest or costs of suit may be recovered and no more," and there are numerous decisions in consonance therewith. But of course the lender does not sue to recover that which has already been paid to him. The pertinent words of the statute as to payments made before the bringing of suit appear in the same section and are: "* * * if any premium or illegal interest shall have been paid to the lender, the sum or sums so paid shall be deducted from the amount that may be due as aforesaid and recovery had for the balance only." "The sum or sums so paid" manifestly are premium or illegal interest. Interest up to and including six per centum per annum on the amount actually lent is not illegal; consequently the deduction to be credited on that account is the usurious interest paid in excess of that percentage. Kohn v. Kelly, 76 N.J. Eq. 132, and cases therein cited; Frankel v. Major, 9 N.J. Mis. R. 96; Colleran v. Wall, 116 N.J. Eq. 284. Interest paid on so much of the mortgage amount as represented bonus and not money loaned was illegal and is to be applied as a credit if in conjunction with other interest moneys it totalled to more than six per centum per annum of the real sum.
For modification — THE CHIEF-JUSTICE, PARKER, LLOYD, CASE, BODINE, DONGES, HEHER, PERSKIE, VAN BUSKIRK, KAYS, HETFIELD, DEAR, WELLS, JJ. 13.