(- Miss. -, 108 So. 424.) CANAL-COMMERCIAL TRUST & SAVINGS BANK, Appt., V. EARL BREWER. Mississippi Supreme Court (Div. A) — February 15, 1926. (- Miss. 108 So. 424.) Usury, § 1 requiring assumption of additional obligation. 1. For lender to require borrower, in addition to contracting for highest legal rate of interest, to sign as indorser note of another held by lender, and pledge security for both, makes contract usurious, and the indorsement and security therefor unenforceable, under La. Civ. Code 1900, arts. 1893, 2924. [See annotation on this question beginning on page 57.] Evidence, § 529 burden of proof estoppel. 2. Defendant has burden of proof on defense of estoppel. [See 10 R. C. L. 845; 2 R. C. L. Supp. 1090.] Estoppel, § 154 to contest promise. Headnotes 1-6 by MCGOWEN, J. Usury, § 401-effect of renewal note. 5. Contract whereby bank loaned to B. required him not only to give notes bearing highest legal rate of interest, but to indorse note of H. held by it, was not relieved of charge of usury by B.'s giving renewal note; the bank continuing to carry B.'s indorsement of H.'s note, and also to require B. to pay the highest legal rate. [See 27 R. C. L. 250; 4 R. C. L. Supp. 1752; 5 R. C. L. Supp. 1469.] Set-off, §§ 1, 15 cause of action. in case of denial of 6. Set-off, applicable only in case of mutual indebtedness, is not available where defendant makes total denial of complainant's cause of action. [See 24 R. C. L. 858.] On Motion to Correct Judgment. APPEAL by defendant from a decree of the Chancery Court for Coahoma County (Lomax, Ch.) in favor of complainant in a suit to recover possession of certain notes and an amount collected thereon. Affirmed. The facts are stated in the opinion of the court. Messrs. Oscar Johnston and F. H. Montgomery for appellant. Messrs. Cutrer & Smith, Wells, SteTens, & Jones, P. H. Lowrey, and H. C. Holden for appellee. McGowen, J., delivered the opinion of the court: Earl Brewer, as complainant, filed his bill in the chancery court of Coahoma county and sued out an attach ment therein against the CanalCommercial Trust & Savings Bank, a nonresident corporation domiciled and doing business in New Orleans, La., and also naming as defendants C. G. and B. K. Bobo and the Bank of Clarksdale, all in the Second district of Coahoma county, Miss. The bill alleged that the complainant, Brewer, was the owner of notes described as the Bobo and Gates notes, and that these notes were in the hands of the resident defendants, and that he was entitled to the possession of the notes as well as a judgment against the Canal-Commercial Trust & Savings Bank for the amount collected thereon. The bill charged that these six notes (the Bobo and Gates notes) had been by the complainant, Brewer, pledged as collateral security for the payment of his note to the Canal-Commercial Trust & Savings Bank for $325,000 dated February 1, 1921, and held by said bank in accordance with a pledge agreement of same date entered into by and between Earl Brewer and the Canal Bank. The bill charged that complainant had paid his note about June, 1923, and that upon the payment of his note he was entitled to the possession of the collateral pledged to secure same, and that the Canal Bank declined to surrender the Bobo and Gates notes to him upon the payment of the original debt, for all of which the Bobo and Gates notes were pledged as collateral security. The bill was also filed against the Hibernia Bank & Trust Company of New Orleans, La., but upon agreement of parties the Hibernia Bank & Trust Company was released by a decree of the court, and the Bank of Clarksdale, as garnishee defendant, turned over these notes to the clerk of the court as receiver, and the litigation proceeded as though the Canal Bank was the only defendant; it assuming to conduct the litigation as though the Hibernia Bank & Trust Company had no interest in the collateral involved or in the debt upon which the bank claimed to hold the Bobo and Gates notes as collateral. Complainant further charged that the defendant, the Canal Bank, sought to hold his collateral under the written pledge agreement as collateral for the note of W. P. Holland. and that he was not bound by his indorsement of the note of W. P. Holland, which was on its face for $500,000, but which by the pledge agreement of February 1, 1921, was reduced by payment then made by Earl Brewer to $263,000. Briefly stated, the bill charged that the Canal Bank had secured the signature of Earl Brewer as indorser on said Holland note by fraudulent statements made to him by a representative of the bank on the date of his signature thereon; that he was not bound legally by his signature on said Holland note because of the alleged fraud in fact or fraud in law; that he was released in law from any obligation by virtue of his signature on said note or his pledge of his collateral in payment of the said Holland indebtedness. The bill then traced the execution of a note by Earl Brewer for $200,000 to the Planters' Bank of Clarksdale and the placing of the Bobo and Gates notes as collateral for this $200,000 note, which in turn had by Holland, formerly president of the Planters' Bank of Clarksdale, been purchased from his bank and deposited with the Canal Bank at New Orleans as collateral security for his (Holland's) $500,000 note. To state all the pleadings and proof taken in this case would cover an entire volume of our Mississippi Reports, and so we shall set out only the main points and make only such reference as is necessary to a decision of the case. The Canal Bank answered and admitted that it held the Bobo and Gates notes and had sent them to the Bank of Clarksdale for collection, but alleged that it had a right to hold said notes because of Brewer's indorsement on February 1, 1921, of the Holland $500,000 note; it further said that in addition to hold (Miss. -, ing Brewer's $200,000 note on said date, it (the Canal Bank) held as collateral to the Holland note a certain series of notes called the Glidden-Townsend and McNally notes, which was a series of notes of about $400,000 each, due January 1, 1926, and annually thereafter until January 1, 1930; that Glidden-Townsend and McNally had purchased from the Richardson-May Land & Planting Company two plantations and executed their notes for about $800,000 to the Richardson-May Land & Planting Company, which notes were secured by a first mortgage on these plantations; that the Land & Planting Company discounted these notes to the Planters' Bank, and either at the time or later were indorsed by Governor Brewer and Ed Brewer; that the first half of the series of these notes were pledged thereafter by W. P. Holland, presilent of the Planters' Bank of Clarksdale, to the Missouri State Life Insurance Company, and the remainder of the notes above described were by Holland pledged to the Canal-Commercial Trust & Savings Bank for the payment of the $500,000 note above described. The money was obtained by Brewer by the sale of the bonds of Tchula Stores (Inc.) in the amount of $700,000, which bonds were handled or purchased by the Canal Bank apparently at a profit, and the bank here defends that if it had known that Brewer would contest his indorsement of the Holland note, it (the bank) would not have "financed" the Tchula Stores bond, and pleads an estoppel as against Brewer to assert that the Holland note was not binding and valid. The Canal Bank alleged that the transaction on February 1st by which Brewer took up his note for $200,000, and his cousin Ed Brewer's note for $25,000, and received credit on the books of the bank for $100,000 cash, was a recasting or "revamping" of Brewer's indebtedness to the Canal Bank, and that there was sufficient consideration for Brewer's indorsing the Holland note; denied any charge of fraud. And the Canal Bank filed its crossbill in which it sought to set up: First, that Brewer as president of the Richardson-May Land & Planting Company had dissipated the assets of that corporation, which assets consisted of the proceeds of the Glidden-Townsend-McNally notes discounted at the Planters' Bank, and asked for an accounting as the holder of the notes to become due beginning January 1, 1926, and ending January 1, 1930, for about $400,000; second, the cross-bill sought to have the title to the Bobo and Gates notes vested in the crosscomplainant, the Canal-Commercial Trust & Savings Bank, and, third, the bank sought to have the GliddenTownsend-McNally notes decreed by the court as a set-off as against the claim of Brewer to the Bobo and Gates notes. The chancellor sustained a demurrer to so much of the cross-bill as sought to set up the Glidden-Townsend-McNally notes as a set-off, and to so much of the bill as undertook to have relief upon the affirmative defenses set up in the answer, but held the cross-bill good as to an effort to have an accounting upon the charge that Brewer had dissipated the assets of that corporation, and being insolvent, they were entitled to an accounting upon these Glidden-Townsend-McNally notes, and upon which proof was taken, but, analyzed, the only testimony shedding light upon the transaction which occurred in the making of the loan to Brewer and pledge of these notes in controversy by Brewer was the testimony of Brewer and Gunter, an officer of the Canal Bank. There was sharp conflict between. these two witnesses, and the chancellor held as to the matters alleged of fact in the original bill of complaint that the burden of proof was upon the complainant, and that there was no fraud shown because that burden had not been met. On the other hand, the chancellor held that on an affirmative defense of estoppel there was no estoppel, be cause the burden was upon the Canal Bank, which was represented by Gunter throughout this transaction. The chancellor further held that the charge that there had been dissipation by the bank of the securities supporting the Holland note was not sustained. The chancellor held that the sole consideration supporting the indorsement by Brewer of the W. P. Holland note was the loan of $325,000 made on February 1, 1921, by the Canal Bank to Earl Brewer, and that the Canal Bank having charged on the said $325,000 the full highest contract rate of interest permitted by law in addition to the indorsement by Brewer of the Holland note rendered said indorsement usurious, unlawful, invalid, and not binding on Brewer; that the evidence offered by the Canal Bank was insufficient to support the plea of estoppel; that the pledge contract dated February 1, 1921, signed by Earl Brewer and the Canal-Commercial Trust & Savings Bank, was not intended to secure the payment of the liability of Brewer as indorser on the Glidden-Townsend-McNally notes. The decree of the court below thereupon awarded the possession of the Bobo and Gates notes to the complainant, Earl Brewer, and rendered a decree for $51,960, the amount collected on the collateral between the time of payment, about June, 1923, and the date of hearing by the Canal Bank. The pledge agreement about which this lawsuit clusters recites as follows: That "the party of the first part is borrowing (italics ours) from the party of the second part the sum of $325,000.00, and the party of the first part is depositing in addition to other collateral," etc. Then follows a long description of collaterals which are described as being listed in "Exhibit A," and after reciting that they were pledged to secure a note that was executed for $325,000, uses this language: "And is also pledged as collateral to secure the balance of $268,540.83 owed by W. P. Holland to the party of the second part on which note the party of the first part is indorser, and is also intended to secure any other indebtedness that the party of the first part may owe to the party of the second part. The note of W. P. Holland indorsed by the party of the first part is also secured by certain collateral, a list of which is hereto attached marked 'Exhibit B' as a part of this contract." This pledge contract was signed by Earl Brewer and by the CanalCommercial Trust & Savings Bank, by E. F. Gunter, vice president. Exhibit A to the contract was a list of securities put up by Earl Brewer in support of the pledge contract. Exhibit B represented a list of secur ities furnished by Gunter to Brewer on that date which Holland had placed as collateral security for his $500,000 note. This Exhibit B being a lengthy list, we only mention three items: First, the Glidden-Townsend-McNally notes referred to in the statement of pleadings; also special attention should be called to this it n, certificate No. 5,000 shares preferred stock in Yazoo-Delta Mortgage Company; also the right, title, and interest in a certificate of deposit held by W. P. Holland for $155,000 in the Planters' Bank of Clarksdale, Miss., it being recited in the pledge agreement that Mrs. Florence T. Holland had $50,938.72 interest in the certificate of deposit. On the witness stand Brewer contended that Gunter, representing the bank, told him that this $500,000 worth of preferred stock in the Yazoo-Delta Mortgage Company had been paid for by the bank a few days prior to this transaction, that the money had been furnished by Gunter for the bank, and that the money of the Yazoo-Delta Mortgage Company was then in the vaults of the bank, and that the stock was perfectly good, when the truth was that Gunter had already depleted the capital stock of the Yazoo-Delta Mortgage Company by turning over to it frozen assets consisting of farm lands owned by the Planters' (— Miss. —, 108 So. 424.) Bank at Clarksdale, and that the security at the time was worthless. He also contended that the certificate of deposit was not then in the bank, and that the Canal Bank permitted Holland and others to dissipate this security which on its face appeared to be a certificate of deposit in a going bank for $100,000. The chancellor having found the facts against this contention of complainant, it is here urged that the mere listing of a certificate of deposit in a bank in Mississippi and of preferred stock in a corporation propagated by the defendant bank constitutes a fraud in law, even if Gunter made no representation that it was his duty as pledgee to Brewer as pledgeor to reveal the true state of facts, but these very serious questions are pretermitted by us in view of the fact that this case is solvable by the laws of Louisiana, and the laws of Mississippi are not involved in view of the conclusion which we have reached. Mr. Gunter testified that he "required" Brewer to sign the note of Holland, which note had been executed nearly 30 days before Brewer indorsed it, and was indorsed by Brewer without the solicitation or knowledge at the time of Holland, the maker of the note. As to the consideration for the Holland indorsement, the pledge agreement states positively that Brewer was borrowing and necessarily the bank was lending the sum of $325,000. There was no other consideration save the making of this loan, and we are not relegated to the oral testimony of the shrewd lawyer and astute banker in their battle of words upon this, the crucial point in the case, because it was at the time reduced to writing. Was the chancellor correct in holding the pledge contract for the payment of 8 per cent. interest and the signing of Holland's note a violation of the usury laws of Louisiana? Section 1893 of the Louisiana Civil Code 1900 provides: "An obligation without a cause, or with a 47 A.L.R.-4. false or unlawful cause, can have no effect." Section 2924 provides: "Legal Conventional Interest: Rate. Penalty for Usury. Interest is either legal or conventional. Legal interest is fixed at the following rates, to wit: At five per cent. on all sums which are the object of a judicial demand, whence this is called judicial interest. And on sums discounted by banks, at the rate established by their charters. The amount of the conventional interest cannot exceed eight per cent. The same must be fixed in writing; testimonial proof . . . is not admitted in any case. Except in the cases herein provided, if any person shall pay on any contract a higher rate of interest than the above, as discount or otherwise, the same may be sued for and recovered within twelve months from the time of such payment." It will be borne in mind that this indorsement was required of Brewer on the making of this loan and was made by Brewer without the knowledge or consent of Holland, the maker, some time after its execution. We set out at length the controlling case from Louisiana, New Orleans Canal & Bkg. Co. v. Hagan, 1 La. Ann. page 62: "The material facts of this case are as follows: On the 22d May, 1839, John Hagan executed a notarial act of mortgage in favor of the Canal Bank and the Exchange Bank, for loans made to him by these corporations respectively, being $20,000 by the Exchange Bank, and $12,000 by the Canal Bank. Two notes were given by Hagan for these amounts, each payable at one year from the date of the act; the one of $20,000, to the order of the Exchange Bank, bearing seven per cent. per annum interest, from date till final payment, and the one of $12,000, to the order of the Canal Bank, bearing interest at 8 per cent. per annum, from date until final payment. Hagan acknowledges the receipt of the full amount of the respective loans in cash, on the day on |