Commercial Finance Co. v. Holder

Annotate this Case

68 S.E.2d 794 (1952)

235 N.C. 96

COMMERCIAL FINANCE CO. v. HOLDER.

No. 740.

Supreme Court of North Carolina.

February 1, 1952.

*795 William S. Mitchell, Winston-Salem, for plaintiff appellant.

Elledge, Johnson & Browder, Winston-Salem, for defendant appellee.

WINBORNE, Justice.

The assignments of error presented on this appeal are based upon exceptions to the rulings of the trial court in respect to the demurrer filed by plaintiff, and appear to be well taken. G.S. § 1-137 (1) and (2). See also Hancammon v. Carr, 229 N.C. 52, 47 S.E.2d 614; Smith v. Gibbons, 230 N.C. 600, 54 S.E.2d 924.

The answer of a defendant must contain a statement of any new matter constituting a defense or counterclaim * * * etc. G.S. § 1-135. Such counterclaim "must be one existing in favor of a defendant and against a plaintiff between whom a several judgment might be had in the action, and arising out of one of the following causes of action:

"1. A cause of action arising out of the contract or transaction set forth in the complaint as the foundation of the plaintiff's complaint, or connected with the subject of the action.

*796 "2. In an action arising on contract, any other cause of action arising also on contract, and existing at the commencement of the action." G.S. § 1-137.

In the light of this statute, it is seen that the cause of action set out in plaintiff's complaint sounds in tort for conversion of funds. Cummer Lumber Co. v. Seminole Phosphate Co., 189 N.C. 206, 126 S.E. 511; Hamilton v. Benton, 180 N.C. 79, 104 S.E. 78; Smith v. Young, 109 N.C. 224, 13 S.E. 735; Bazemore v. Bridgers, 105 N.C. 191, 10 S.E. 888.

And on the other hand, the causes of action set out by defendant, by way of counterclaim, are in contract, and do not arise out of transactions set forth in the complaint as the foundation of plaintiff's complaint, nor are they connected with the subject of the action.

The cause of action set up by defendant in paragraphs 15 and 16, by way of counterclaim, is for the recovery of penalty for alleged usury. G.S. § 24-2. Such an action, being for recovery of a penalty given by a statute, is, under decisions in this State, considered to be an action on contract. Doughty v. Atlantic & N. C. R. Co., 78 N.C. 22; Katzenstein v. Raleigh Hodges v. Wilmington & W. R. Co., 105 N.C. 170, 10 S.E. 917; Carter v. Wilmington & W. R. Co., 126 N.C. 437, 36 S.E. 14; Smoke Mount Industries v. Fisher, 224 N.C. 72, 29 S.E.2d 128; Williams v. Gibson, 232 N.C. 133, 59 S.E.2d 602.

And the cause of action set up by defendant in paragraph 17 is based expressly upon contract.

Hence, applying the provisions of G.S.§ 1-137, subds. 1 and 2, neither cause of action set up by defendant may be properly pleaded as a counterclaim to plaintiff's cause of action. Under sub-section 1 of this statute it is not permissible to plead as a counterclaim a cause of action which does not arise out of the transaction set forth in the complaint as the foundation of plaintiff's complaint, or which is not connected with the subject of the action. And under sub-section 2 of this statute, it is permissible to plead a counterclaim on contract only when the plaintiff's cause of action arises on contract.

Moreover, while the statute, G.S. § 24-2, provides that a counterclaim for usury may be set up in an action to recover upon the note or other evidence of debt, on which the alleged usurious interest has been charged, such a counterclaim may not be pleaded in an action based on other cause of action. See North Carolina Mortgage Corp. v. Wilson, 205 N.C. 493, 171 S.E. 783. There this Court held that since the action was to recover possession of real property the counterclaim was inopportune.

For reasons above stated, the judgment from which appeal is taken is

Reversed.