Case Summary: CHAS. R. BRIGGS AND WIFE, CLARA SILVIS BRIGGS v. THE INDUSTRIAL BANK OF RICHMOND, et al.

Factual and Procedural Background

Plaintiffs allege that on August 15, 1927 they borrowed $1,700 from the defendant bank. The bank required the plaintiffs to execute sixty notes of $42.50 each, payable monthly, and plaintiffs executed and delivered a deed of trust on land in Guilford County to the individual defendants to secure the notes. Plaintiffs allege they paid twelve monthly installments of $42.50 each and claim the transaction was usurious, asserting that $658.18 represented money in excess of the legal rate and penalty. They asked the court to adjudge $658.18 of the deed of trust and notes usurious and void, to declare it a cloud on their title and remove it, and to adjudge the remaining amount due to be $1,190 payable monthly at $42.50 without interest.

Defendants demurred to the complaint, contending, among other grounds, that the complaint did not state a cause of action for removing a cloud upon the plaintiffs' title. The trial judge sustained the demurrer. Plaintiffs appealed. The opinion was delivered by Brogden, J., for the Supreme Court of North Carolina (filed April 24, 1929).

Legal Issues Presented

If a note secured by a mortgage or deed of trust is tainted with usury, can the makers thereof have the usurious element adjudged a cloud upon the title and removed under the provisions of C. S., 1743?

Arguments of the Parties

Plaintiffs' Arguments

Plaintiffs alleged the loan transaction was usurious and that $658.18 was excess interest/penalty; they sought to have that amount adjudged usurious and void and declared a cloud upon the title, to be canceled and removed, and to have the remaining indebtedness fixed without interest.

Defendants' Arguments

Defendants demurred to the complaint on several grounds, specifically arguing that the complaint did not state a cause of action for removing a cloud upon title under the pleaded statute.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ripple v. Mortgage Corp., 193 N.C. 422, 137 S.E. 156	Describes the statutory remedy for usury (C. S., 2306): forfeiture of the entire interest; the usurer may only recover the principal; if excess interest has been paid, the payer may recover twice the amount paid in an action in the nature of debt.	The court relied on this statement of the statutory remedy to show that usury is remedied by stripping interest from the debt and by potential recovery for excess payments, rather than by cancellation of the security as a cloud under C. S., 1743.
Glisson v. Newton, 2 N.C. 336	Historically held that a bond tainted with usury was utterly void "as is also every security or assurance founded upon it," under the statute then in force (1796).	The court distinguished Glisson on the ground that the statute in force in 1796 contained express provision to that effect; it did not control interpretation of the present statute.
Shober v. Hauser, 20 N.C. 222	Referenced regarding the statute in force in 1796 and its express provision treating bonds and securities founded on them as void.	The court cited Shober as support for the historical statutory context noted in Glisson, to explain why the earlier rule does not govern the present statutory scheme.
Spivey v. Grant, 96 N.C. 214, 2 S.E. 45	Holds that a change in the rate of interest, even if assented to in the deed, affects the obligation only to the extent of the interest and "not the conveyance as a valid act." In other words, usury does not impair the validity of the mortgage or deed of trust.	The court invoked Spivey to support the principle that usury does not affect or impair the obligation and validity of the mortgage or deed of trust securing the note.
Rogers v. Booker, 184 N.C. 183, 113 S.E. 671	States that "The usury did not impair the validity of the mortgage, and only forfeits the interest."	The court used Rogers to reinforce the conclusion that usurious taint on a note does not invalidate the mortgage or deed of trust; the effect is forfeiture of interest only.

Court's Reasoning and Analysis

The court framed the central question whether a note secured by mortgage or deed of trust, if tainted with usury, permits the makers to have the usurious element adjudged a cloud upon title and removed under C. S., 1743. The court explained the statutory remedy for usury under C. S., 2306 as described in Ripple v. Mortgage Corp.: forfeiture of the interest and, where excess interest has been paid, a right to recover twice the amount paid.

The court observed that the note itself is not the cloud upon title; any cloud would be formed by the mortgage or deed of trust. It considered historic authority (Glisson v. Newton and Shober v. Hauser) showing an earlier rule that securities founded on an usurious bond were void under an 1796 statute, but held that those decisions rested on an express statutory provision then in force and thus do not control the present statute.

The court relied on later North Carolina decisions—Spivey v. Grant and Rogers v. Booker—which held that usury does not impair the validity of the mortgage or deed of trust securing the note and that usury "only forfeits the interest." Given those authorities, the court concluded that the plaintiffs' claim seeking removal of a partial invalidity of the deed of trust (i.e., removal to the extent of the usurious charge) was not within the scope of C. S., 1743. The statute, the court said, was intended to remove clouds, not to determine their size or to adjudicate a partial reduction of the secured obligation.

Holding and Implications

Affirmed. The trial court's sustaining of the defendants' demurrer was affirmed.

Implications: As applied here, the court held that an usurious charge on notes secured by a mortgage or deed of trust does not, under the present statutory scheme and precedent, provide a basis to maintain a suit under C. S., 1743 to remove a cloud on title to the extent of the usurious charge. The proper statutory remedy for usury is the forfeiture of interest (and potential recovery for excess payments) as described under C. S., 2306, and the mortgage or deed of trust remains valid for other purposes. The opinion does not announce a broader new rule beyond these applications to the parties' claims.

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CHAS. R. BRIGGS AND WIFE, CLARA SILVIS BRIGGS, v. THE INDUSTRIAL BANK OF RICHMOND, JOHN D. BROWN AND G. C. HAMPTON, JR., TRUSTEE.

Quieting Title A a — Usurious charge on notes secured by mortgage not ground for suit to remove cloud on title to extent of interest.

An usurious charge of interest on notes does not affect the validity of the mortgage or deed of trust securing them, C. S., 2306, and a suit brought to remove a cloud upon title to the lands under the provisions of C. S., 1743, to the extent of the usurious charge of interest on the notes cannot be maintained.

Plaintiffs allege that on 15 August, 1927, they borrowed from the defendant bank the sum of $1,700, but that said defendant required them to execute sixty notes in the sum of $42.50 each, payable on the first day of each month until the entire sum had been discharged; that in order to secure the payment of said notes plaintiffs executed and delivered to the individual defendants a deed of trust upon certain land in Guilford County. Plaintiffs further allege that they had paid twelve monthly installments of $42.50 each, and that the transaction was usurious in that the sum of $658.18 represented money in excess of the legal rate and the penalty allowed by law. Plaintiffs demand judgment "that the sum of $658.18 of the aforesaid deed of trust and notes be adjudged to be usurious and void; that the same be declared a cloud upon the title of plaintiffs and be canceled and removed; that the amount which is due upon said notes and deed of trust be adjudged to be $1,190, payable monthly at the rate of $42.50 per month, without interest," etc.

The defendants demurred to the complaint upon several grounds, and in particular that the complaint did not state a cause of action for removing the cloud upon the title of plaintiffs.

The trial judge sustained the demurrer, and the plaintiffs appealed.

BROGDEN, J.

If a note secured by a mortgage or deed of trust is tainted with usury, can the makers thereof have the usurious element adjudged a cloud upon the title and removed under the provisions of C. S., 1743?

The remedy prescribed by law for usurious transactions is thus stated in Ripple v. Mortgage Corp., 193 N.C. 422, 137 S.E. 156. "In North Carolina the penalty, as prescribed by statute, for taking, receiving, reserving, or charging for the use of money a sum in excess of interest at the legal rate is forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid. The forfeiture will be enforced against the usurer, when he seeks to recover upon the usurious contract or transaction. His debt will be stripped of all its interest-bearing quality, and he will be permitted to recover only the principal sum loaned. If a sum in excess of interest at the legal rate has not only been charged by the lender, but has also been paid by the borrower for the use of money, then the person, or his legal representative, or the corporation by whom the same has been paid, may recover twice the amount paid in an action in the nature of action for debt." C. S., 2306.

It is manifest that the note is not a cloud upon title. The cloud, if any, is formed by the mortgage or deed of trust. It was formerly held in Glisson v. Newton, 2 N.C. 336, that a bond tainted with usury was utterly void "as is also every security or assurance founded upon it." But the statute in force in 1796 when the decision was rendered, contained express provision to that effect. Shober v. Hauser, 20 N.C. 222.

In construing the present statute upon the subject of usury it has been held that the usury complained of did not affect or impair the obligation and validity of the mortgage or deed of trust securing the note. Thus, in Spivey v. Grant, 96 N.C. 214, 2 S.E. 45, the Court declared: "Nor can the change in the rate of interest, assented to by him, made in the deed, impair its force as to him. Had it remained, it would have only affected the obligation to the extent of the interest, not the conveyance as a valid act." To the same effect is the utterance in Rogers v. Booker, 184 N.C. 183, 113 S.E. 671. "The usury did not impair the validity of the mortgage, and only forfeits the interest."

Plaintiffs do not contend that the deed of trust is entirely invalid, but that it is partially so. C. S., 1743, does not apply to such a fact situation. The statute was intended to remove clouds not merely to determine their size.

Affirmed.

BRIGGS v. BANK