FOLEY VS. EQUITABLE INVESTMENT CO.

Interest-Agreement to pay interest above legal rate-Act of May 28, 1858, P. L. 622-Borrower may apply excess interest upon principal.

An agreement to pay interest in excess of the legal rate is voidable and under the Act of May 28, 1858, P. L. 622, the borrower or debtor is not required to pay the creditor the excess over the legal rate, and it is lawful for such borrower or debtor at his option to retain or deduct the amount of the excess from the debt, and it is immaterial in what form or pretense the usurious interest is covered in the contract.

When judgment is entered upon a note given pursuant to such a contract, the Court will open the judgment and permit the defendant to show the amount of excessive interest paid to the plaintiff which the defendant had a right to retain and deduct.

Rule to open judgment, No. 488, February Term, 1918. С. Р. Erie County. Brooks, English & Quinn, for Plaintiff.

S. Z. Moore and Gunnison, Fish, Gifford & Chapin for Defendant.

Whittelsey, J., August 4, 1919.

It appears from the evidence that on the 24th day of April, 1905, and prior thereto, Frederick M. Jackson and John Waldron, were doing business as the Household Loan Company. They were engaged in loaning money at a high rate of interest, from twentyfive to forty and fifty per cent, for which they took notes from persons to whom the money was loaned. Jackson and Waldron carried on the business until sometime in 1908, when Orton W. Albee became a member of the partnership, and the business was continued by Jackson, Waldron and Albee until January 27, 1913, when the Equitable Investment Company, the defendant herein, was incorporated and continued to carry on the business until the money loaned by the plaintiff to the partnership and the defendant corporation amounted to thirty-four thousand three hundred ($34,300) dollars, for which the note on which the judgment in this case was entered, was given. The incorporators, in the Equitable Investment Company, were the same persons as under the partnership, namely, Frederick N. Jackson, John Waldron and Orton W. Albee; and each had the same interest in the capital stock of the corporation as he had in the partnership. There was no lapse or break in the business carried on at the time of the incorportaion. It was conducted the same as before.

Foley vs Equitable Investment Co.

The evidence tends to show that the plaintiff Foley has received from the partnership and from the defendant, a large amount of interest in excess of the amount fixed by law as the lawful rate, and the defendant claims that this excess should be credited on the judgment in this case. The plaintiff does not deny that he has received interest in excess of the lawful rate, but denies the right of the defendant to retain and deduct any such excessive interest from the debt in question, for the reason he alleges, that the parties are in pari delicto, and that in such case the rule in equity is to leave the parties as it finds them, — that is, in this case, the money borrowed from Foley upon which the partnership and the defendant corporation have paid to him an excessive rate of interest, was loaned by them to outside parties at a still greater rate; and that in such cases the rule in equity is to leave the parties where it finds them.

In our opinion the case at bar does not come within the rule as stated. It would seem that a contract for the payment of interest in excess of the legal rate is not prohibited by law. The right of the parties to make a loan where the rate of interest contracted for exceeds that established by law seems to be especially recognized by the Act of May 28, 1858, P. L. 622, fixing the legal rate of interest for the loan or use of money; but it is provided in that Act that the borrower or debtor shall not be required to pay the creditor the excess over the legal rate, and it shall be lawful for such borrower or debtor at his option to retain and deduct the amount from any debt. Thus it seems that it was not a crime for Foley to receive the excessive interest, nor was it a crime for the parties to pay it.

Estate of Selser and Brother, 141 Pa. 529.
Nicholson's Appeal, 20 W. N. C. 339.

But the debtor, the defendant in this case, has exercised the option given it by the Act of Assembly to retain and deduct the excess from the amount of the debt claimed by the plaintiff as the contract for the payment of the excessive interest was not void but only voidable at the option of the defendant.

In our opinion what the defendant and the partnership did with the money borrowed from the plaintiff is immaterial in this case. If they loaned it at a greater rate than the lawful rate fixed by law, the borrowers have a right at their option to retain and deduct the excess from the amount of the debt. Not only can the defendant make defense against the usury by virtue of the Act of Assembly, but it is also entitled to relief in equity.

Story's Equity Jur. 10th Edition, Sect. 301 and 302.
Rogers vs. Rathburn, 1st Johnson's Chancery, 367.
Fanning vs. Dunham, 5th Johnson's Chancery, 152.

Foley vs. Equitable Investment Co.

It is immaterial in what form or pretence the usurious interest is covered in the contract. No contract, however framed, is good if the ultimate effect would be to receive more than the legal rate of interest.

Earnest vs. Hoskins, 100 Pa. 551 (559).
Miller vs. Irwin, 85 Pa., 376.

Campbell vs. Sloan, 62 Pa. 481.

We are not now undertaking to decide whether or not the defendant has a right to retain or deduct from the judgment in this case the excessive interest paid by Jackson, Waldron & Albee to the plaintiff Foley on the debt assumed by the defendant corporation. That question can be considered and determined at the trial of the case. To permit the defendant to show the amount of excessive interest paid to the plaintiff, which the defendant has a right to retain and deduct, the judgment must be opened, and the defendant let into a defense.

ORDER.

And now August 4, 1919, the rule to show cause why judgment should not be opened and the defendant let into a defense is made absolute; and an issue is ordered to try how much is owing by the defendant to the plaintiff after deducting the interest in excess of the lawful rate which has been paid to the plaintiff; the note to stand for plaintiff's declaration and the petition to open judgment to stand as the answer of the defendant in the case.

SCARLETT v. MILLCREEK TOWNSHIP SUPERVISORS.
Roads-Ejectment-Act of June 19, 1901, P. L. 573.

When a public road is laid out by viewers and their report confirmed by the Court and the same is opened with the track within the lines of such road as originally laid out, such lines shall remain the boundary lines of such road, unless the location of such road has been or may be changed by due course of law.

In order to invoke the rule laid down in the case of Furniss v. Furniss, 29 Pa. 15, and avoid the Act of 1901, P. L. 573, the defendant must show either that the road was not laid out by viewers, or that the report of the viewers had not been confirmed by the Court according to law, or the width thereof fixed and the road ordered opened, or that the same was not opened with the road-bed or track thereof traveled by the public located within the lines of such road as originally laid out, or that the location of the road had been changed by due course of law.

Rule for new trial, 78 September Term, 1916. C. P. Erie County.

Gunnison, Fish, Gifford & Chapin for Plaintiff.

L. E. Torry, Esq., for Township Supervisors.
Brooks, English & Quinn for Erie Lighting Company.
Rossiter, P. J., July 31, 1919.

This was an action of ejectment brought by the plaintiff, Robert H. Scarlett, against the Erie Lighting Company and the Township Supervisors of Millcreek Township to recover two and six hundred forty-two (2.642) thousandths acres of land situate at the northwest corner of the Ridge and McCreary Roads, in Millcreek Township.

The plaintiff claimed title by purchase; one of the defendants, the Erie Lighting Company, by answer filed and in open Court, disclaimed any rights other than those obtained through the Road Supervisors to place its poles on part of the land; the Supervisors, while filing no disclaimer, claimed title to only a small portion of the land, viz, about five and one-tenth (5.1) feet wide at the Ridge Road by about two and thirty-seven (2.37) hundredths feet wide on plaintiff's north line and about four hundred twenty-five and one-quarter (425.25) feet long.

The record offered and admitted in evidence (Road Book "B,” page 22) shows that in 1833 the McCreary Road was laid out by viewers, their report confirmed, and the road ordered by the Court to be opened fifty (50) feet wide. This was not disputed.

The plaintiff proved title out of the Commonwealth and in himself by various conveyances. This was not disputed.

The defendant showed that the traveled track of the McCreary Road had diverged to the west from a point about nine Scarlett v. Millcreek Township Supervisors. hundred (900) feet north of the Ridge Road, until where it reached the Ridge Road it was about five and one-tenth (5.1) feet west of the point of divergence. This was not disputed.

The Act of June 19, 1901, P. L. 573, Sect. 1, reads as follows: "Be it enacted, etc., that in all cases where public roads in this Commonwealth have been or may hereafter be laid out by viewers, and the report of such viewers has been or may hereafter be confirmed by the Court according to law, the width thereof fixed and ordered to be opened, and the same has been or may hereafter be opened with the roadbed or track thereof traveled by the public located within the lines of such road as originally laid out, such lines shall be and remain the boundary lines of such road, unless the location of such road has been or may be changed by due course of law."

This Act, it is said in Waldershmidt vs. Glenfield Boro, 60 Superior, 538. was passed to relieve the severity of the rule laid down in Furniss vs. Furniss, 29 Pa. Page 15.

When the plaintiff rested his case he was entitled to a verdict unless his proofs were overcome by countervailing proof; and the burden of the evidence of such countervailing proof was on defendants. 16 Cyc. 936; Modern Law of Evidence, Vol. 2, page 1142, Sect. 971; Long vs. Eisenhart, 31 Pa. 387; See also Hartman vs. Pgh. Inclined Plane Company, 11 Superior 438; also 61 N. Y. 322.

Defendants sought to meet this burden by showing that the traveled track of the McCreary Road diverged, and this fact alone they urged avoids the Act of 1901 (super), and invokes the rule laid down in Furniss vs. Furniss (super), viz, - that the boundaries of the McCreary Road are to be located by measuring twenty-five (25) feet from the center of the track traveled by the public; and measuring twenty-five (25) feet from the center of that portion of the traveled track, which diverged, will throw the west boundary line of the McCreary Road into plaintiff's land about five and one-tenths (5.1) feet at plaintiff's north line; and that therefore that strip of land belonged to the township of Millcreek. But to this proposition we do not agree, for in order to invoke the rule in the Furniss case and avoid the Act of 1901, defendant would have to show further, either that the road was not laid out by the viewers, or that the report of the viewers had not been confirmed by the Court according to law, or the width thereof fixed and the road ordered opened, or that the same was not opened with the road-bed or track thereof traveled by the public located within the lines of such road as originally laid out, or that the location of the road had been changed by due course of law; as the law undoubtedly is that 'omnia praesumuntur rite et solenniter esse