Henderson v. SECURITY MORTAGAGE AND FINANCE CO.

Annotate this Case

160 S.E.2d 39 (1968)

273 N.C. 253

Melvin HENDERSON and wife, Beatrice W. Henderson v. SECURITY MORTGAGE AND FINANCE COMPANY, Inc., and Joseph H. Wernick and wife, Pauline F. Wernick.

No. 690.

Supreme Court of North Carolina.

March 20, 1968.

*44 Alston, Alexander, Pell & Pell, Greensboro, for defendant appellants.

Hoyle, Boone, Dees & Johnson and Harry Rockwell, Greensboro, for plaintiff appellees.

LAKE, Justice.

It is alleged in the complaint and admitted in the answer that Security is a corporation. Nevertheless, it is apparent from the record, including the testimony of Wernick, himself, that throughout the entire series of transactions with and concerning the plaintiffs, Wernick made no effort to keep, or pretense of keeping, his interest and activities separate and apart from those of the corporation. Wernick and his wife were its only stockholders. There is nothing to show her interest was other than nominal. The corporation was a mere device or puppet in Wernick's hands.

The mere fact that one person (two in the present case) owns all of the stock of a corporation does not make its acts the acts of the stockholder so as to impose liability therefor upon him. G.S. § 55-3.1; Wall v. Colvard, Inc., 268 N.C. 43, 149 S.E.2d 559; B-W Acceptance Corp. v. Spencer, 268 N.C. 1, 149 S.E.2d 570; Whitehurst v. FCX Fruit and Vegetable Service, 224 N.C. 628, 32 S.E.2d 34. However, when, as here, the corporation is so operated that it is a mere instrumentality or alter ego of the sole or dominant shareholder and a shield for his activities in violation of the declared public policy or statute of the State, the corporate entity will be disregarded and the corporation and the shareholder treated as one and the same person, it being immaterial whether the sole or dominant shareholder is an individual or another corporation. 18 Am.Jur.2d, Corporations, §§ 14-17; 18 C.J.S. Corporations § 7b; Fletcher, Cyclopedia Corporations, §§ 41, 41.1 and 45. As Sanborn, J., said in United States v. Milwaukee Refrigerator Transit Co., C.C., 142 F. 247, 255, "[W]hen the notion of legal entity is used *45 to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons." The present record fully justifies the action of the trial court in treating Security and Wernick as one and the same so as to impose upon it and him, alike, liability for the payment of the statutory penalty for the exaction of usury in the transactions with the plaintiffs.

It is undisputed that on 29 March 1963 the plaintiffs were the owners in fee simple of the house and lot, subject to three deeds of trust, the first securing an indebtedness to American, the second and third securing notes given to Security, there being no contention that the note secured by the third deed of trust was ever held or owned by anyone other than Security. At that time, the plaintiffs executed a deed conveying the fee simple title to Security, and, contemporaneously therewith, Security entered into the so called "rent" agreement with the plaintiffs. By it Security contracted to reconvey the house and lot to the plaintiffs upon their payment of the above two notes and the advances made by Security to American for the benefit of the plaintiffs. These two documents must be construed together. Their effect is that of a mortgage by the plaintiffs to Security. Hardy v. Neville, 261 N.C. 454, 135 S.E.2d 48; O'Briant v. Lee, 214 N.C. 723, 200 S.E. 865. "If there is an indebtedness or liability between the parties, either a debt existing prior to the conveyance, or a debt arising from a loan made at the time of the conveyance, or from any other cause, and this debt is left subsisting, not being discharged or satisfied by the conveyance, but the grantor is regarded as still owing and bound to pay it at some future time, so that the payment stipulated for in the agreement to reconvey is in reality the payment of this existing debt, then the whole transaction amounts to a mortgage, whatever language the parties may have used, and whatever stipulations they may have inserted in the instruments." 3 Pomeroy, Equity Jurisprudence, 4th ed., § 1195, quoted with approval in O'Briant v. Lee, supra.

One of the debts secured by this combination of deed and "rent" agreement was the note for $280 held by Security and also secured by the third deed of trust. There is no showing of a default in any provision of the "rent" agreement, which had the effect of extending the time for paying the note. On the contrary, the testimony of Wernick, himself, is that the "rent" payments were kept current. Thus, at the time of the purported foreclosure of the third deed of trust, and the resulting conveyance of the house and lot to Wernick by the trustee therein, all payments upon this obligation had been made by the plaintiffs according to the agreement of the parties. Wernick, having engineered the purported foreclosure with knowledge that there was no default in the payment of the indebtedness secured by the deed of trust, could not, by purchasing at the foreclosure sale, acquire a good title as against the demand of the plaintiffs for reconveyance upon the payment of their indebtedness pursuant to the "rent" agreement. Furthermore, he thereafter continued to collect from the plaintiffs the "rent" payments and apply them pursuant to the "rent" agreement. He also refinanced the indebtedness to American for the benefit of the plaintiffs, according to his testimony. He thus continued to recognize the rights of the plaintiffs in the property under the "rent" agreement after the purported foreclosure sale.

The verdict of the jury establishes that nothing is owing by the plaintiffs to the defendants upon their counterclaim; that is, upon any of the obligations secured by the combination of absolute deed and "rent" agreement, which, as above shown, was a mortgage in effect. Therefore, there was no error in the judgment declaring the plaintiffs to be the owners of the land and requiring Wernick and his wife to execute a deed to them, unless there was error otherwise *46 in the proceeding below. In Oliver v. Piner, 224 N.C. 215, 29 S.E.2d 690, this Court, speaking through Schenck, J., said:

"There being no evidence of a breach by the parties of the first part in the performance of the conditions in the deed of trust authorizing a foreclosure thereof, the deed from the party of the second part, the trustee, joined in by the party of the third part, the cestui que trust, who was likewise the assignor of the last and highest bid at the foreclosure sale, to the plaintiffs is rendered void * *."

There was no error in the refusal of the trial court to order Home Federal to be made a party to this action. Neither the plaintiffs nor the defendants attack the validity of the note held by Home Federal or the deed of trust securing it. The plaintiffs, in their complaint, recognize the validity of this obligation, and of the deed of trust securing it, and state that they are to assume the obligation upon the conveyance of the house and lot to them by the defendants. Home Federal asserts no right other than its rights under this note and deed of trust. It has no interest in the controversy between the parties to this action and its presence in the action is not necessary to the adjudication of that controversy. The judgment below must be, and is hereby, modified, however, so as to provide, in accordance with the prayer of the complaint, that the deed to be made by the defendants shall provide for the assumption by the plaintiffs of the obligation to Home Federal as distinguished from the present provision in the judgment that the land is to be conveyed to the plaintiffs, subject only to the deed of trust securing that obligation.

This Court has frequently stated that the elements of usury are these: (1) A loan or forbearance of money; (2) an understanding that the money loaned shall be returned; (3) payment or an agreement to pay a greater rate of interest than that allowed by law; and (4) a corrupt intent to take more than the legal rate for the use of the money loaned. Preyer v. Parker, 257 N.C. 440, 125 S.E.2d 916; Bank of North America v. Wysong & Miles Co., 177 N.C. 380, 99 S.E. 199; Doster v. English, 152 N.C. 339, 67 S.E. 754.

By hypothesis, one who makes no loan but, as broker or agent of the borrower, finds a lender and procures the making of a loan by him, has not received usury when he collects a fee for his services. If, however, the lender, himself, charges a commission in addition to the maximum rate of interest permitted by the statute, such charge is usury. Arrington et al. v. Goodrich et al., 95 N.C. 462. "A profit, greater than the lawful rate of interest, intentionally exacted as a bonus for the loan of money, * * * is a violation of the usury laws, it matters not what form or disguise it may assume." Doster v. English, supra.

The court below correctly instructed the jury as to the elements of usury and as to the nature of a broker's services. In its charge it stated the contention of the defendants that, as to the $1,800 note, the difference between the face of the note and the amount received therefor by the plaintiffs or paid out for their benefit was a commission charged by Security as a broker and not a bonus exacted by it as lender. We find no merit in any of the exceptions to the charge, either as to its contents or as to the alleged omissions therefrom. As to whether the defendants acted as a broker in the $1,800 matter, there was a conflict between the testimony of the plaintiffs and that of the defendants. The jury accepted the plaintiffs' version.

The plaintiffs' evidence was to the effect that in return for their note of $1,800 they received only $1,200, the note providing for interest on $1,800 at 6% from date. The plaintiffs' evidence is that for their note for $280, payable in 28 weeks, they received only $140. The defendants do not contend that in this second *47 transaction they acted as broker. Taking the plaintiffs' evidence to be true, as must be done upon a motion for judgment of nonsuit, it is clearly sufficient to show a charge of interest in excess of the maximum rate allowed by the statute. G.S. § 24-1.

G.S. § 24-2 provides that the charging of usury results in "a forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid thereon." It further provides that in event a greater rate of interest than that allowed by law has been paid, the person so paying usury may recover twice the amount of interest paid. G.S. § 1-53 provides that an action to recover the penalty for usury paid must be brought within two years, and an action for "[t]he forfeiture of all interest for usury" must also be brought within two years.

The right of action to recover the penalty for usury paid accrues upon each payment of usurious interest when that payment is made, each payment of usurious interest giving rise to a separate cause of action to recover the penalty therefor, which action is barred by the statute of limitations at the expiration of two years from such payment. Ghormley v. Hyatt, 208 N.C. 478, 181 S.E. 242, 108 A.L.R. 618; Farmers' Bank & Trust Co. v. Redwine, 204 N.C. 125, 167 S.E. 687; Sloan v. Riedmont Fire Insurance Co., 189 N.C. 690, 128 S.E. 2; See also Annot., 108 A.L.R. 622, 623, 633.

The plaintiffs' evidence shows that 11 payments of $59 each were made on the $1,800 note more than two years prior to the commencement of this action, and that of each such payment $9.00 was allocated by the defendants to interest, the plaintiffs apparently assenting to such allocation. The right of action to recover the penalty for these payments, aggregating $99, was, therefore, barred by the statute of limitations at the time this suit was instituted. As to the note for $280, however, all of the evidence indicates that the only payments made more than two years prior to the institution of this action were allocated by the defendants to the principal and were, in the aggregate, less than the principal actually advanced to the plaintiffs on that loan. Consequently, no right of action on account of interest paid upon the $280 note was barred by the statute of limitations when this suit was instituted.

The deed and "rent" agreement of 29 March 1963 were, in effect, a renewal of the $1,800 note and the $280 note. In the "rent" agreement the plaintiffs made a new promise to pay these notes "in full," including the usurious interest therein provided. At that time the controversy concerning usury had not developed. Such a renewal of the original obligations does not constitute a settlement of the plaintiffs' right to invoke the statutory remedy for usury so as to purge the renewal contract of the taint. Guaranty Bond & Mortgage Co. v. Fair Promise A. M. E. Zion Church, 219 N.C. 395, 14 S.E.2d 37; Hill v. Lindsay, 210 N.C. 694, 188 S.E. 406.

It is undisputed that the plaintiffs made the monthly payments provided for in the "rent" agreement from its date to the commencement of this action. Nine such payments appear to have been made more than two years prior to the commencement of this action. It is clear from the record that after a substantial portion of these payments by the plaintiffs to Security was paid over by Security to American for the account of the plaintiffs, the remainder was retained by Security for application to the plaintiffs' obligations to it. However, the record does not show that Security made any allocation of such remainder between principal and interest or between the $1,800 note, the $280 note and the money previously advanced by Security to American. That being true, the law will allocate those payments to the lawful and valid obligations of the plaintiffs rather than to interest illegally charged. The aggregate of such payments made more than two *48 years prior to the institution of this suit, after subtracting the amounts paid over to American, was less than the total of such lawful obligations. Consequently, the record does not show any payments of interest more than two years before the institution of this action, except the $99 above mentioned. There is, therefore, ample evidence of usury paid within two years prior to the institution of this action and, consequently, the motion for judgment of nonsuit upon the action for the recovery of the penalty for such usury was properly overruled.

There was no error in admitting the testimony of Wernick, on cross examination, as to other similar transactions with other borrowers at about the same time as those with the plaintiffs. This evidence was competent on the question of the existence of a corrupt intent to exact usury, which is an element of the plaintiffs' right of action. See Stansbury, North Carolina Evidence, 2d ed., § 92.

The jury found that the amount of usurious interest paid by the plaintiffs to Security was $2,189.50. In his charge to the jury, the trial judge stated three times that the plaintiffs contended the total amount of usury paid by them to the defendants was $2,189.50, and that the plaintiffs contended the jury should answer the issue in that amount. He instructed the jury that, on the other hand, the defendants contended that no usury had been charged or paid. The record does not show that any error in the statement of the parties' contentions was called to the attention of the court by either party.

The above figure does not appear, as such, at any other point in the record. Apparently, it is a figure used by counsel for the plaintiffs in their argument of the case to the jury. We have not been favored by either party with a statement analyzing and summarizing the statistical data contained in the numerous exhibits and oral testimony relative to the several transactions involved and the numerous payments made on account of each of them. No error in the jury's computation has been called to our attention by the defendants. However, it is apparent that the jury, in determining the amount of usury paid, included those payments aggregating $99 which, as above shown, were made more than two years before this action was instituted and, as to which, the plaintiffs' right to recover the statutory penalty was barred. The judgment should, therefore, be modified by deducting from the amount of recovery adjudged the sum of $198, this being double the amount of the interest payments as to which the statute of limitations had run. The amount which the plaintiffs are entitled to recover of the defendants is, therefore, hereby reduced from $4,379 (the amount of the judgment below) to $4,181.

In summary, the judgment below must be, and is hereby, modified by reducing the amount of recovery for usury paid to $4,181, and by modifying that part requiring the execution of a deed to the plaintiffs by Wernick and wife so as to direct that such deed shall provide for the assumption by the plaintiffs of the indebtedness to Home Federal secured by the deed of trust executed to it by Wernick and wife, above mentioned. As so modified, the judgment is affirmed.

Modified and affirmed.

HUSKINS, J., took no part in the consideration or decision of this case.