
    Baker v. Jerome.
    
      Action by guardian of insane person—Defense of usury—Incompetency of joint maker of note, in default for answer, to testify for co-defendant.
    
    1. In a joint action on a joint and several promissory note, one of the makers who fails to answer, may, upon a judgment by default after trial, have the benefit of a successful defense of usury set up by his co-defendant.
    2. Where the plaintiff in such action is the guardian of an insane person, the maker of the joint and several note who is in default for answer, is not a competent witness for his co-defendant to facts in reference to a usurious agreement between the makers and payee of the note, which occurred prior to the appointment of such guardian.
    
      Bell, adm’r, v. Wilson, 17 Ohio St. 640, and Baker and Brim, adm’rs, v. Kellog and Nickols, 29 Ohio St. 663, distinguished.
    (Decided December 22, 1893.)
    Error to the Circuit Court of Rake county.
    The defendant in error, Frank J. Jerome, as guardian of Jane A. Dobbs, an insane person, commenced the original action in the Court of Common Pleas of Rake county, against J. R. Eddy and the plaintiff in error, Abel R. Baker. The action was brought to recover a balance due of $1,600, with interest thereon, and was founded on two joint and several promissory notes set out respectively in the first and second causes of action in the petition, and of which the following are copies:
    
      “$1,000.00 Painesville, O., February 8, 1878.
    
    “Six months after date, for value received, we jointly and severally promise to pay to Chas. Chase, or order, one thousand dollars, with interest at the rate of 8 per cent, per annum, payable at the First National Bank of Painesville, Ohio.
    “J. R. Eddy,
    “A. R. Baker.”
    “$800. Painesville, O., April 8, 1875.
    
    “Six months after date, for value received, we jointly and severally promise to pay Chas. Chase, or order, eight hundred dollars, with use at 8 per cent, per annum, payable at the First National Bank of Painesville, O. .
    “A. R. Baker,
    “J. R. Eddy.”
    Sundry receipts of interest were indorsed on each of the notes, and each of the notes was indorsed and transferred by I. Everett, administrator of the payee, Charles Chase, deceased, to the order of E. J. Jerome, guardian of Jane A. Dobbs.
    Eddy and Baker filed separate demurrers to the petition. The demurrers were overruled, and the defendants severally excepted to the overruling of the same, and had leave to answer.
    Eddy filed no answer. Baker answering for himself alone, said:
    “He admits the execution and delivery of the promissory note of $1,000 mentioned in the first cause of action of the petition, but he saj^s that said note was given for a loan of $1,000, made by the said payee, Charles Chase, in his. lifetime to this defendant and the said J. R. Eddy. That before and at the time of making said loan the agreement then made by the said payee and said defendants was, that said loan should be made upon the unlawful and usurious rate of interest of ten per cent., and the said Charles Chase then exacted of said defendants the rate of ten per cent, interest as a part of the terms and conditions of said contract of loan, and the defendants then agreed to pay the same. That said note was made to assume the form of an eight per cent, note and was written with interest payable at the rate of eight per cent, only, for the purpose of evading the usury laws of the state of Ohio, That in pursuance of said agreement for ten per cent., said defendants paid on said note interest at the rate of ten per cent, for the years 1873, 1874, 1875, 1876,1877, ending August 3d of each of said years.”
    For answer to the second cause of action the defendant, Baker, said: “He admits the execution and delivery of the said note for $800 in the petition mentioned by himself and said Eddy to the said Charles Chase in his lifetime, but he says that said note was given in renewal of a certain other promissory note made and delivered by said defendants to said Charles Chase on the first day of November, 1870. That at said last mentioned date this defendant and said J. R. Eddy loaned and borrowed of said Charles Chase the sum of $800, for which they gave him their promissory note of that date, to-wit: for the sum of $800 on the 1st day of November, 1870. That said note was given upon the sole consideration of said loan, and said $800 was loaned to and borrowed by said defendants upon the agreement of said Charles Chase and said defendants that said loan should bear and draw interest at the rate of ten per cent, per annum; and said agreement to pay interest on said money borrowed was a part of the terms and conditions of said loan. This defendant says that, to the best of his knowledge and belief, said note was written at the rate of ten per cent, interest, but he says that if the same was not so written then the rate of interest written in said note was eight per cent, per annum, and was so drawn for the sole and special purpose of evading the usury laws of the state of Ohio, and was so written as a shift and device to procure the payment of the unlawful and usurious rate of ten per cent, interest. That in pursuance of said agreement to pay interest on said loan at ten per cent, this defendant paid on said note of November 1, 1870, interest at the rate of ten per cent, per annum.”
    
      The defendant, Baker, further answering, said:
    “That on the 3d day of April, A. D. 1875, said note of November 1, 1870, was renewed by said note in suit mentioned and set forth in said second cause of action; the sole and only consideration was the said note of November 1, 1870, which was then surrendered and given up by said Charles Chase. That said last-named note was in form drawn and written, as to the rate of interest to be paid, at eight per cent., but this defendant says that the said Chase exacted of said defendants interest on said note and renewal loan at the rate of ten per cent., and it was then agreed by and between said Charles Chase and said defendants that said Chase should have and receive, and said defendants should thereafter pay on said note and renewal loan and forbearance of money, interest at the rate of ten per cent, per annum. That said Charles Chase, for the sole purpose of creating a shift and device to evade the statute of the state against usury, caused said note to be so written as to read that the same drew interest at the rate of eight per cent. only. That in pursuance of said agreement for interest at ten per cent, this defendant and said J. R. Eddy paid upon said note interest at the rate of ten per cent, per annum.”
    The plaintiff filed a reply, denying each and every allegation contained in the answer.
    A jury being waived, the cause was submitted to the court upon the pleadings and the evidence.
    On the trial of the cause, the defendant, Baker, to maintain the issues on his part and the allegations of his separate answer, called as a witness in his behalf, the said J. R. Eddy, one of the defendants, but who had failed to plead or answer to the petition, to testify generally in the cause to acts, conversations, and agreements made and had with Charles Chase, the payee and owner of the notes, prior to his decease, and prior to the appointment of the plaintiff as guardian of Jane A. Dobbs. But the plaintiff objected to said witness testifying and giving evidence in relation thereto, on the ground that he was and is an incompetent witness in-that behalf; and thereupon the court sustained the objection and held and ruled, as matter of law, that, the witness was an incompetent witness to testify in the action to any act or thing which occurred between said Chase and the defendants prior to the appointment of the plaintiff as guardian of Jane A. Dobbs, and the witness was excluded from testifying in that behalf. To which ruling and decision of the court touching the competency of said witness to testify generally in said cause in behalf of Baker, the defendant Baker at the time excepted.
    Thereupon the defendant, Baker, by his counsel, put to. the said witness, J, R. Eddy, the following interrogatories,, to-wit:
    
      “ Q. You may state who were present at the time the thousand-dollar note in suit was signed?”
    Objection by plaintiff’s counsel; objection sustained by the court, and the defendant Baker, by his counsel, at the time excepted to the ruling of the court.
    Defendant’s counsel stated that they proposed to prove that said J. R. Eddj^, A. R. Baker and Charles Chase were present.
    
      “ Q. You may state what the talk or conversation was at the time of the execution of this note?”
    Objection; objection sustained by the court, to which ruling the defendant, by his counsel, at the time excepted.
    Defendant’s counsel stated that they proposed to prove that, it was requested of Mr. Chase by said Baker and Eddy to borrow a thousand dollars of him and that he agreed to loan them a thousand dollars, and it was then stipulated and agreed in parol that the note should be drawn at eight per cent, but they should in fact pay ten per cent, interest upon that note.
    
      “ Q. You may state to the court what interest if any, you paid upon the thousand dollar note, up to and until the payment of two hundred dollars on the 3d day of September, 1887—what the amount of interest was that j^ou paid each year upon the thousand dollar note?”
    Objection; objection sustained by the court to which ruling of the court, the defendant, at the time by his counsel, excepted.
    
      Defendant’s counsel stated that they proposed to show that the amount of interest paid each year upon the thousand dollar note was one hundred dollars, and that it was paid semi-annually in sums of fifty dollars each.
    Other interrogatories of like character were put by defendant’s counsel to said witness, J. R. Eddy, for the purpose of establishing the defense of usujy, which were objected to by plaintiff’s' counsel, the objections sustained, and exception taken by defendant’s counsel to the ruling of the court.
    The court, upon the pleadings and evidence found, “that the rate of interest on each of said notes agreed upon between the makers and the payee and stipulated for therein was, and is, eight per cent.;” and that there was due the plaintiff as such guardian, from -the defendants jointly and severally, upon the two promissory notes set out in the petition, the sum of $1,984.18; and adjudged that the plaintiff recover from the defendants jointly and severally the said sum, with interest at eight per cent, per annum from February 18, 1889, and costs. The defendant, A. R. Baker, filed his motion for a new trial which was overruled, to which ruling he excepted. A bill of exceptions setting forth the evidence offered by defendant Baker for the purpose of establishing the defense of usury, and excluded upon objection thereto by the plaintiff, was presented to and allowed by the court.
    The defendant, A. R. Baker, filed a petition in error in the circuit court; and the said J. R. Eddy, on his own motion, and by leave of that court, was made party defendant in error therein. The circuit court affirmed the judgment of the court of common pleas, and the action of the circuit court in affirming the judgment is assigned for error.
    
      Alvord & Alvord, for plaintiff in error.
    By our law no one is excluded from testifying, on the sole ground of interest. Revised Statutes, sections 5240, 5241 and 5242; Cochran v. Almack, 39 Ohio St., 314.
    
      The ruling below was, and its advocates simply reply, that the plaintiff was a guardian. That he was adverse to Baker and Eddy, and that Eddy being a party adverse to plaintiff, is rendered incompetent by the forepart of section 5242 and subdivision one of that section.
    While Eddy was a party to the suit, he was a formal party merely, and not a real party, in the status the case assumed. And we simply assert, because we believe the question is adjudicated, that the rule applies only in cases where the parties intended to be excluded as incompetent, are the real, and not the formal parties, or nominal parties on the record. Wolf v. Cowner, 30 Ohio St., 476.
    The defendant in error is not helped out of this dilemma by the last clause or part of the section. 30 Ohio St., 477; 39 Ohio St., 314, 317. .
    Again, the parties spoken of in section 5242 must be ad- ■ verse in interest, and not merely in their formal status in the case. 30 Ohio St., 476; 29 Ohio St, 663; 22 Ohio St., 221; 18 Ohio St., 73; 41 Ohio St., 368, 371; 8 Record, 360; 3 Bulletin, 590; 9 Bulletin, 294, 295; 17 Ohio St., 640; 22 Ohio St., 208; 24 Ohio St., 402.
    Eddy was always in default. He was in point of fact always a nominal, and not a real party. He never was interested, because it made no difference with him, from the beginning to the end, whether Baker’s partial defense was good or not. He was in for the whole of plaintiff’s claim, in any event.
    It was a case where there might be one judgment against him for the full amount claimed, on default, and judgment againt Baker for a less amount, on contest and trial. Language affords no means to state a clearer case, in reason and common sense, and in law, where the party was not disqualified because he had, first, an interest; second, an adverse interest as a party.
    As to particular cases which are in line with our contention: Bell, administrator, etc. v. Wilson, 17 Ohio St., 640; 29 Ohio St., 663; Rapalje Law of Witnesses, page 43, section 38, and cases cited in the notes; Talmage v. Burlingame, 9 Pa. St., 21; Bank v. Moore, 19 N. H., 564; 1 Ohio St., 313; Rapalje on Witnesses, page 223, section 132.
    
      
      Burrows & Jerome, for defendant in error.
    We claim that the defense of usury set up by the one defendant, enures to the benefit of the other defendant, although he is in default for answer, and that, therefore, the non-answering defendant is interested in the event of the trial and is adverse to the plaintiff guardian.
    The question of the rights or standing of the parties in case a default had been taken, does not arise, as no default was taken, and no judgment was rendered against Eddy for any greater sum than the amount found due by the court, after deducting certain usurious payments found by the court from other evidence. Revised Statutes, Secs. 3183, 5242; Bates’ PL, Vol. 2, page 803; Miller v. Longacre, 26 Ohio St., 291; 5 Am. and Eng. Ency. of Raw, page 496; Sprague, administrator v. Childs, 16 Ohio St., 107, 117.
   Dickman, J.

The record presents for our determination the question, whether in an action by the guardian of an insane person against two joint and several makers of a promissory note, one of the makers, who is in default for answer, may, for the purpose of establishing the defense of usury set up by the other maker, be a competent witness for his co-defendant of facts which occurred prior to the appointment of the guardian. It is provided by section 5242, of the Revised Statutes, that a party shall not testify where the adverse party is the guardian of an insane person, except of facts which occurred subsequent to the appointment of such guardian. But, the fact that one is merely a nominal party will not be sufficient to disqualfy him as a witness, though the adverse party may be a guardian, trustee, executor, administrator, heir, grantee or devisee.

A party designed to be excluded from testifying by the above mentioned section must be a real and not a mere formal and unnecessary party. Pie must be adverse in interest and not merely in his nominal status. And his incompetency as a witness arises not simply from standing in the position of a party—which alone would not disqualify— but because being opposite in interest, the adverse party is a guardian, or belongs to one of the classes named in the statutes.

In setting up the' defense of usury, it is averred by Baker that, at the time of borrowing the sums of money for which the defendants executed and delivered the two promissory notes described in the petition, it was agreed by and between the payee, Charles Chase, and the defendants, that each loan should be made upon interest, at the illegal rate of ten per cent, per annum; that the payee then exacted of the defendants interest at that rate, as part of the terms and conditions of each contract of loan, and the defendants then agreed to pay the same; that the notes were made to assume the form of eight per cent, notes, only for the purpose of evading the usury laws of Ohio; and that in pursuance of such agreement, the defendants did pay interest at the rate of ten per cent, per annum on the notes.

By section 3183 of the Revised Statutes, payments of money or property made by way of usurious interest, whether made in advance or not, shall be deemed and taken, as to the excess of interest above the rate allowed by law at the time of making the contract, to be payments made on account of principal; and judgment shall be rendered for no more than the balance found due, after deducting the excess of interest paid. But, parties to a bond, bill, promissory note, or other instrument of writing for the forbearance or payment of money at any future time, may, by another section of the statute, stipulate therein for the payment of interest upon the amount thereof at any rate not exceeding eight per centum per annum, payable annually. These enactments impose a limit, beyond which, interest may not be taken without contravening the public policy of the state. In McClelland v. Sorter, 39 Ohio St., 17, the court in enforcing the limitation say: “The legislative intent was that a creditor who stipulates for more than eight per cent, interest, payble annually, should be remitted to simple interest at the rate of six per cent. And it matters not as to the form which the usurious transaction may be made to assume, whether it be plainly written on the face of the bond, or be added to the principal debt, or be paid in advance, or evidenced by a collateral agreement.”

The facts stated by Baker in his answer were sufficient to constitute a usurious contract if established by competent evidence. The plea of usury goes to the validity of the cause of action. To the extent to which the excess of interest paid above the rate allowed by law is deducted from. the principal, the right of action to recover the full amount, of the loan is taken away or impaired for want of consideration. A party defendant, therefore, who is so far interested in the event of the suit as to be entitled to the benefit of a deduction from the principal of all sums paid as interest on the loan in excess of the legal rate, cannot be deemed a nominal party merely, but must be treated as a real party having an adverse interest.

Unquestionably, Baker, by virtue of having such an interest, would have been incompetent to testify as to facts in relation to the usurious contract with the payee, which occurred prior to the appointment of Jerome as guardian. But the relation existing between Baker and Eddy as joint makers of the notes was such, that though in default of answer, Eddy would share in the benefit of a successful defense of usury set up by his co-defendant, and stand with him in the attitude of a party adverse in interest to the plaintiff guardian, and thus disqualified as a witness.

It is contended in behalf of Baker, that Eddy having failed to answer was always in default, and never was an interested party, because, it made no difference to him from the beginning to the end whether Baker’s defense was good or not; that in any event, Eddy would be held for the whole of the plaintiff’s claim on the notes, and that the case was one in which there might be a judgment against him for the full amount claimed, and a judgment against Baker for a less amount, on contest and trial.

No judgment by default was taken against Eddy before trial, and no judgment could have been rendered against the answering defendant and against Eddy on default, after trial, for any greater sum than the balance found due, by competent evidence, after deducting the usurious payments. That is to say, the defendant, in default for answer, had the right to avail himself of the successful defense of usury set up by his co-defendant Baker.

It was held in Miller v. Longacre, 26 Ohio St., 291, that where the makers of a promissory note are sued jointly, an answer by one of the defendants, setting up as a defense that the consideration of the note was illegal interest, inures to the benefit of all the defendants. In that case, the defendants were all served with process, but B. W. Miller alone answered. In his answer he alleged usury. It was held that the defense did not go merely to the exoneration of the answering defendant from liability, leaving a valid cause of action against the other defendants; but to the invalidity of the note, for want of consideration, as a cause of action against any of the defendants. See, also, Sprague adm'r v. Childs, 16 Ohio St., 107, in which is laid down the governing rule for the case of Miller v. Longacre.

If a security is usurious as to one joint contractor, it is to be deemed such as to all'; and each defendant jointly sued is equally interested in every fact tending to prove the usury. Where there is but one issue, like usury, and the fact is established under it in favor of one or more of the joint defendants, it would be difficult, upon reasonable . grounds, to exclude any defendant from its benefit. If the note sued on is tainted with usury, the evil lies at the root of the .action, and a defense available to one joint obligor should inure to the benefit of his co-defendant.

In Morrison v. Stoner, 7 Iowa, 494, Morrison sued Rosenberger and Stoner upon a joint note. Rosenberger set up a usurious contract in relation to the note. It was said by Woodward, J.: “ In the case at bar, both contractors are in court. If the one pleads a matter which goes to the validity of the contract, or which is a defense for both, in its nature, on the whole or a part, .and succeeds, the books hold that the other, even though in default, takes the benefit of it.”

Sutherlin and Maxwell v. Mullis, 17 Ind., 19, was an action by Mullis against the appellants upon a promissory note made by the latter to the former. The defendants answered separately: 1st, usury; 2d, want of consideration. Maxwell afterwards withdrew his answer. Sutherlin offered his co-defendant as a witness in his behalf, but his testimony was rejected on the plaintiff’s objection. The court in the opinion said: “If Sutherlin succeeded in his defense, no damages could be assessed against Maxwell, on his default. The answers of Sutherlin, we have seen, were usury and want of consideration. If he succeeded on either of these, it would defeat the note, not only as against himself, but also as against Maxwell. Although Maxwell made default, yet the entire record would show that there was no good cause of action against him.”

Numerous authorities in the same line might be cited in illustration of the rule, that one of two joint defendants who is in default for answer, or against whom judgment has been rendered as on default before or after trial, may have the benefit of a successful defense of usury set up by his co-defendant in the action.

It is urged by counsel for the plaintiff in error, that- the question as to the competency of Eddy as a witness is determined by the cases, Bell, administrator, v. Wilson, 17 Ohio St., 640, and Baker and Brim, administrators, v. Kellogg and Nichols, 29 Ohio St., 663. But those cases are readily distinguishable from the case now under consideration. It is assumed in behalf of the plaintiff in error, that the relation existing between Eddy and Baker was that of principal and surety, and it is sought to establish an analogy between the above entitled cases and the case at bar. The record discloses no evidence,, in writing or by parol, that Eddy and Baker were to each other in the position of principal and surety, and the answer of Baker, as repugnant to that idea, alleges that the promissory notes upon which the action was founded, were given for money loaned by Charles Chase to himself and Eddy.

In the first of the above cited cases, the action was. brought by Bell as administrator of the payee of a promissory note, against the makers, one of whom was principal and the other surety. No defense was made by the principal, but the surety answered, and set up an alleged agreement between the principal and the payee for an extension of the time of payment. It was assigned for error, that the principal maker was admitted as a witness for the surety to prove the agreement; but it was held that the principal was a competent witness, and that the court below did not err in permitting him to testify. It could not well be said that the principal was a party adverse in interest to the plaintiff administrator, within the meaning of the statute. He was in default for answer, and subject to the rendition of a judgment by default. But, if upon his testimony, the surety could obtain his discharge, by reason of an agreement to extend the time of payment, such discharge would not work a discharge of the principal, and his liability as maker of the note would still continue without diminution.

The same distinguishing principle is manifest in the second of the cases above referred to by counsel for plaintiff in error. Baker and Brim, administrators, brought their action against Kellogg1 and Nickols, upon a promissory note made by the defendants to the intestate. Nickols made no defense. Kellogg answered, that he signed the note as surety, and that after the maturity of the note he had served a written notice upon the plaintiffs, requiring them forthwith to commence an action on the note, and that the plaintiffs did not bring the action within a reasonable time thereafter. On the trial to a jury, Kellogg offered his co-defendant Nickols as a witness, and proposed to prove by him that he, Kellogg, was surety on the note. The plaintiffs objected to Nickols as a witness, on the ground that he was incompetent under the 313th section of the civil code (Revised Statutes, section 5242), being an adverse party, and the plaintiffs being administrators. The objection was overruled, and the witness and his testimony were admitted, and the plaintiffs took exception. As said in Fewlass v. Abbott, 28 Mich., 270: “The release of the surety, whether erroneous or not, could in no wise prejudice the defendant or affect his liability as principal, and he will not, therefore, be heard to complain of it.” The court, therefore, properly held, that Nickols, as a party, was not adverse in interest, but merely in his nominal status, and hence was a competent witness in behalf of the surety as against the plaintiff administrators.

It follows from the views which we have expressed, that the judgment of the circuit court should be affirmed, and judgment is rendered accordingly.  