7 Wend. 569 | Court for the Trial of Impeachments and Correction of Errors | 1831
The following is the opinion which was delivered in the supreme court:
By the Court,
It is admitted that the notes in question were given by Gomez to Cram for a quantity of rum sold by Cram to him, and that in the hands of Cram, the payee, (before they were discounted by the plaintiff) they were perfect and available notes, upon which he might have maintained an action against Gomez, the maker. The question then is, whether the discounting of these notes by the plaintiff, thus available in the hands of the payee, at a higher premium than the legal rate of interest, was an usurious transaction, which avoided the notes, or whether it was the mere purchase of valid pre-existing securities. The cases of Braman v. Hess 13 Johns. R. 52, and Munn v. The Commission
In the first case the action was brought upon a note drawn by one Williams, in favor of Hess, the defendant, and by him endorsed to Braman, the plaintiff. The defendant offered to shew upon the trial, in mitigation of damages, that the transfer of the note by the endorser to the endorsee, was made on a discount of $90. This evidence was rejected at nisi prius. But upon a motion for a new trial, it was held that it was competent in an action by the payee against the drawer, and by the endorsee against his immediate endorser, to shew what was the real consideration passing between them, and that the plaintiff could recover no more than he had actually paid for the note. The court say, that if this suit was by the endorsee, against the maker of the note, it would not be in his mouth to say the plaintiff purchased it at a discount. But the defendant being the immediate endorser of the plaintiff, the proof offered that the note was purchased for $90 under the face of it should have been admitted. It was not even suggested in that case that the transaction was liable to the imputation of usury, and the observation of the court, that if the'suit, had been against the maker, he could not have availed himself of the fact that the note had been purchased at a discount, shews conclusively, that in their opinion, there could be no usury in the purchase of a pre-existing valid security.
But in the subsequent case of Munn v. The Commission Company, 15 Johns R. 44, this precise question arose,.- was very fully discussed by able counsel, and was deliberately'considered and decided by the court. That was an action of assumpsit, brought by the plaintiff, as endorsee, against the defendants, as acceptors of a bill of exchange : it was endorsed to the plaintiff by Oliver Ruggles, the payee of the bill, at a discount greater than the legal rate of interest, and it was contended that this was an usurious transaction, and avoided the bill. The only doubt which the court entertained upon this point, was whether the bill was available in the hands of Oliver Ruggles, the payee, and whether he could have maintained a suit upon it. J udge Spencer, in delivering the opinion of the court, says, upon a more careful examination of the case
The principle is too well settled to be questioned, that a bill free from usury in its concoction may be sold at a discount; because, as it was free from usury between the original parties to it, no subsequent transaction with another pers on can, as it respects those parties, invalidate it. Had it appeared that Oliver Ruggles had no interest in the bill, but had merely lent his name for the accommodation of Herman Ruggles, the plaintiff’s purchase of the bill would have been u surious, and he could not have recovered u pon it, because until such purchase the bill would have been mere waste paper, and it wou Id have had no existence, or been available, until the plaintiff acquired the title, and that title, being contaminated, and infecting the bill, would be invalid as against all the parties to it. This doctrine is fully sustained by the English authorities, Wiffin v. Roberts, 1 Esp. R. 261; Daniel v. Cartony, 1 id. 274; Parr v. Eliason, 1 East, 92; Lowe v. Waller, Douglas, 736; Ferral v. Shean, 1 Saund. 295, note 1, where the principle is considered, and the cases are collected. See also Ord on U sixty, 103, a. 8 T. R. 391. 3 Esp. R. 22. 1 Holt, 256. Jones v. Davison, note, § 4 and 6.
The doctrine contended for by the counsel for the defendant that wherever the party assigning the note remains liable it is not a sale of the security but a loan, is fully disposed of by the cases in this court to which I have adverted. In Braman v. Hess, 13 Johns. R. the suit was by the endorsee against the endorser, who transferred the note. In Munn v. The Commission Company, 15 Johns. R. Oliver Ruggles endorsed the bill
The case of Lowes v. Mazzaredo, 1 Starkie’s R. 385, also cited in Chitty on Bills, 105, Phil. ed. of 1821, is the only one to be found in which a different doctrine has been held. It was in that case decided that if the payee of a bill of exchange endorses it upon a usurious contract, a bona fide holder cannot afterwards recover upon it against the acceptor. My researches have not enabled me to discover that that case has ever been recognized or followed in England. But whatever may be its authority in Westminster Hall, it cannot authorize a departure in this court from what has been declared in repeated adjudications to be the established law on this subject.
Motion for new trial denied.
The writ of error was argued in this court in the summer of 1830 by C. Baldwin for the plaintiff in error, and by B. Haight for the defendant in error. In December of that year, the cause was called up for decision, and on the members of the court expressing their opinions, the vote stood for reversal nine, and for affirmance eight. There not being a concurrence of opinion of ten members, (the number necessary to a decision of a case in this court,) a re-argument was ordered. In the summer of 1831, the cause was again argued by C. Baldwin and B. F. Butler, for the plaintiff in error, and by B. Haight and A. Van Vechten, for the defendant in error. An analysis of the arguments of counsel is not attempted, as the principles advanced, and the cases cited and commented upon, are very fully considered in the opinions delivered by the members of the court in pronouncing judgment; the Chancellor and Senator Sherman delivering opinions for reversal, and Senators Allen, Beardsley and Maynard, delivering opinions in affirmance of the judgment of the supreme court.
The following are the opinions:
By the Chancellor. The facts in this case are few and simple ; but the questions of law arising out of those facts are of sufficient importance to require the most deliberate exami
Cram, the plaintiff in error, held two promissory notes against Gomez, taken in the usual course of business, payable to his order at four months. A few days after the date of these notes, the payee endorsed and delivered them to his agent, a broker, to raise money thereon. The broker called on Hendricks, the defendant in error, who was the father-in-law of the drawer, and requested him to discount the notes, informing him at the same time that they belonged to Cram, and that they were offered for discount for his benefit. Hendricks discounted them, and gave his check for the amount, retaining to himself a premium at the ra te of 12 per cent, per annum, for the time the notes had to run. This suit was brought by Hendricks against Cram as endorser, the notes , having been protested for non-payment by the drawer. The court below decided that the transfer of the notes was not usurious, as between the endorser and endorsee, and that the latter had a right to recover the amount actually paid by him for the notes, with legal interest thereon.
If the understanding of the parties was that Hendricks should loan to Cram a sum of money on the credit of these two notes, to be refunded out of the proceeds thereof when they became due, with legal interest only, and that he should account to the endorser for the surplus, if any, which should be received from the drawer, there could be no pretence of usury. The judgment of the court below in that case, would unquestionably have been correct. This is probably what was meant by Lord Kenyon in Wiffen v. Roberts, 1 Esp. R. 261, where he says, “ The endorsee, who has only paid part of the amount to the endorser, may recover the whole of the acceptor, and will be the holder of the surplus for the use of the endorser.” On the other hand, where a note, valid in its concoction, and which might be collected by the vendor from any of the previous parties, is bona fide sold at a discount, without any guaranty of payment on his part, if the transaction is not in fact intended as a mere cover for usury, the purchaser may recover the whole amount against the previous parties for his
In the case Ex parte Isbester, which came before Lord Eldon in 1810, I Rose’s Gas. 23, the lord chancellor recognized the distinction between the mere discounting of a bill, with the endorsement of the person to whom the money is advanced, and a sale of the same instrument by a transfer thereof, without guaranteeing the payment by an endorsement. The same distinction is recognized and enforced more at length by Pothier, in the treatise on contract of sale, referred to on the argument of this cause. In discussing the question whether it is lawlul to buy a debt against a third person for less than the amount due thereon, Pothier Traite du Contrat de Vente, Tom 2, pt. 6, ch. 4, art. 6, § 1, this distinguished jurisconsult says, there is no objection to such a purchase, either in law or in conscience, provided the solvency of the debtor is doubtful; and there, is no contract on the part of the seller to guarantee the solvency of the debtor. He also admits that would be legal although the debtor was known to be perfectly solvent, if the vendor did not guarantee the payment. But he insists that in foro conscientice, the purchaser ought not to be permitted to avail himself of the seller’s necessities, to obtain the debt for less than its real value. He also says, if the vendor of the debt becomes responsible that it shall be paid, in that case the purchaser cannot be permitted, either in conscience or in law, to buy the debt for less than the amount due thereon ; that such a purchase is unlawful as a loan upon usury; for if I sell to you for 900 livres a debt of one thousand, which I engage to pay myself if the debtor does not, it evidently is the same thing as if you lend me 900 livres upon my engagement to return you 1000 at the end of a certain time.
In the recent case of Gaither v. The Farmers’ and Mechanics’ Bank of Georgetown, 1 Peters’ R. 37, the supreme court -of the United States decided that the endorsment and transfer •of anote was usurious, altthough it was a valid note as between the payee and the maker. That the note having been transferidas a collateral security on a usurious discount of other motes, the holder could not recover it against the maker, ■and that the endorsement was ineffectual for the purpose
The case of Ruffin v. Armstrong, 2 Hawk’s R. 411, was a suit by the purchaser against the seller, on his endorsement. It was like the present case, with the exception that the person to whom the payee entrusted the note for sale, had in that case express directions not to inform the purchaser to whom the note belonged, but to dispose of it as his own, and the supreme court of North Carolina decided that the sale at a discount, even under these circumstances, was usurious, and that the defendant was not liable on his endorsement. There the court do not question the principle that a bond or note may be fairly sold at a price far below its nominal amount; but they say it is the substance of the transaction which must determine whether it was a purchase or a mere loan or advance of money, whatever it may be called by the parties. That by adding his endorsement, the defendant undertook on his part to repay the money advanced in the event of the obligor’s delinquency ; and that the unequivocal characteristic of a loan is that the borrower is at all events liable for the repayment of the money.
In Foltz v. Mey, 1 Bay’s R. 486, the superior court of common pleas in South Carolina seem to take it for granted that a sale of a note at a discount, with the endorsement of the seller thereon, is as to him usurious, although it was an effective note in his hands. But they decided that in a suit by a subsequent bona fide holder against the maker, the latter could not set up the usury between the intermediate parties to defeat the action, although the plaintiff was obliged to claim through the usurious endorsement. And a similar decision has much more recently been made by the newly organized court of appeals in that state, in the case of Johnson v. King & Jones, 3 McCords L. R. 365. See also the opinion of Judge Nott, in Brown v. Fausset, Harper’s L. R. 82; and of Judge Colcock, in Fleming v. Mulligan, 2 McCords L. R. 175; and of Johnson, J. in Harick v. Jones, 4 id. 402.
In Burt v. Gwinn, 4 Harris & Johns. R. 507, the court of appeals in Maryland decided that where a note was bona fide in its origin, an innocent holder, without notice, might recover thereon, although it had been subsequently transferred up.
In the case of Whitworth v. Adams, which came before the court of appeals in Virginia in 1827, 5 Rand. R. 333, a note endorsed in blank was put into the hands of a broker to raise money thereon. It was sold by him at a discount, without disclosing to the purchaser that he was not the real owner. In a suit brought by a subsequent holder against the maker, three out of the five judges held that the plaintiff was entitled to recover, on the ground that the broker had not guaranteed the payment of the note by endorsement, nor disclosed the fact that he was not the owner selling on his own account. That the purchaser had therefore reason to suppose it was a real sale, and not a mere device to raise money on the note. But they all agreed that if the broker had become liable to refund the money, by endorsing the note, or had disclosed the fact that he was selling it for the payee whose name was on the note, it would have been a clear case of usury. Carr, J. says, “ If the holder of a note transfer it without endorsing it, the transaction is prima fade a sale ; and if it be a real sale, and not a cover to evade the statute, the contract will be valid, though the discount be greater than the legal rate. But if the holder, when he parts with the note, endorses.it, it becomes, substantially, a new security for money borrowed.” Judge Cabel says, “If the holder of a bill, originally payable to bearer, or of a note or bill endorsed in blank, sells it at ever so great a discount, out and out, that is, solely on the credit of the other names upon it, (which implies that he neither endorses it himself, nor makes any other engagement to be responsible for it in case of its dishonor,) such sale cannot be impeached,” &c. Again: he says, “ If the note had passed from the payee to the person who paid the money, on a contract of endorsement, by which the payee received for the bill less than its nominal amount, deducting legal interest, I should
From this review of the cases, it appears that in most of our sister states which have adopted the English usury laws, as well as in the supreme court of United States, and in England, it is held that a sale of a note for less than its nominal amount, on an advance of money or other thing, in the nature of a discount of the note, is usurious between the parties to such transaction, if the seller endorses the note, or otherwise guarantees the repayment of the purchase money. But there is a great conflict of opinion on the question whether any person who was legally bound to pay the note to the seller can take advantage of such usury as a defence. None of the cases however extend to a sale of a note or bill payable at a different place from where the parties reside ; and where the discount or premium is merely intended to cover the difference in exchange between the two places, or the necessary expense of sending to the place where the money is payable, to receive the same, or to make a demand of payment, so as to charge the endorser, even Pothier expressly excepts that case from the operation of the rule of law, as declared by him in the treatise to which I have referred. In all such cases it is a question of fact for the jury to decide, whether the discount was made on that account only, or as a mere cover to an usurious advance of money. 4 Maulé & Sel. 192. 1 Mad. R. 112.
The only case I can find, except the one now under consideration, in which it has been decided that a sale of the note at a discount beyond the legal rate of interest, and with theguar
The case of Braman v. Hess, 13 Johns. R. 52, is relied on as an authority in favor of the defendant in error. In reference to that case it is only necessary to say the question of usury was not raised by the counsel, and probably was not even thought of by the court. The reporter would of course only, state su ch facts as were material to the points before the court For aught we know, it may have appeared on the trial that the drawer of the note resided in a foreign country, or that it was payable at a bank in some of the eastern states. I presume the question of usury was susceptible of some satisfactory explanation, or that the defendant considered himself under an honorary obligation not to raise such an objection. In the
Upon every sale of a note there is an implied warranty on the part of the vendor that it is a legal note; that the parties whose names appear thereon as makers or endorsers are legally holden as such, and that the note has not already been paid. In other words, there is an implied warranty of the seller’s title to the note, unless he gives the purchaser the requisite information to put him on his guard; but if the vendee has such information, he purchases at his peril, and at his own risk. In this case, if the broker had sold the note as his own, without informing Hendricks that the money was really advanced for the benefit of the endorser, the endorsement having been made for an usurious purpose, and not on a legal transfer of the note to the broker, the latter would have been liable to refund the money, either on account of the implied warranty, or of the fraud, if the purchaser could not legally recover of the parties whose names appeared on the paper; and probably the endorser, who had thus improperly obtained the money from the innocent vendee by means of his agent, would also have been liable as for so much money had and received to the use of the purchaser. By the application of these plain and obvious principles of law and natural justice, the laws of the state will be enforced, and innocent purchasers of negotiable paper will be protected against the frauds which are so frequently practiced upon them.
In deciding upon the validity of this contract of endorsement between the present parties, it appears to me to be wholly immaterial whether the note was or was not usurious and void in the hands of the payee. If the note was usurious and void in the hands of the original payee, or was even a forgery, yet if he had endorsed it to Hendricks for a full consideration, the payee could not have set up the invalidity of the note in an action brought against him on his endorsement, although the endorsee could not have recovered against the person whose name appeared on the note as drawer. So on the other hand, if the note was good in its inception, and was a valid security
' It is - said, however, that here was no loan or forbearance of money, within the meaning of the statute; but I apprehend the legal effect of the transaction amounts to a direct loan of the money advanced by Hendricks for the term the notes had to run; and if the money had been received from a bank instead of an individual broker, I think no one could have hesitated in calling it “ a loan or advance of money” on the discount of the notes. Even the parties themselves did not call it a sale of the notes. The witness says he was employed to raise money on the notes; that he called upon Hendricks to discount them for the use of the endorser; and he agreed to discount,'and did discount them at the rate of one per cent, per month. This is the only evidence on the subject, and it is perfectly immaterial by what name thé transaction was called by the parties; for, when its legal effect is ascertained, the law must decide the question whether it was a sale or a loan. The legal efiect of the contract, upon the face of the written agreement, is to transfer the notes to Hendricks, under an obligation on the part of Cram, not merely to refund the amount advanced and the legal interest, but to pay the whole of both notes if they should not be paid by the drawer when they arrived at maturity; and that would have been the amount of the recovery against Cram in this suit, if he had not appeared and defended the same. But as the supreme court say that the endorser may show he has not received the full amount of the note from the endorsee, the legal effect of the agreement, if valid, would be to give the whole amount of the notes to Hendricks if he could collect them of the drawer, ' with a guaranty on the part of Cram that he would, at all events, see that the amount advanced, with' legal interest thereon, should be refunded to the endorsee. This is the definition of a loan as given by Baron Pennefeather, in Byrne v. Kennifeck, 1 Batty’s R. 273, when he was pointing out to the jury the true distinction between a loan and a sale. He says
This case is not properly likened to the warranty of the title or goodness of a chattel on the sale thereof; but it more properly resembles a sale of a chattel under an agreement to warrant the purchaser a higher price therefor on a subsequent re-sale ; and if a man, for the purpose of obtaining money on the sale of a horse, should agree to warrant the life of the horse for a limited period, and that upon a re-sale at the expiration of that time, he should produce sufficient to re-pay the money advanced with ten per cent, interest, over and above all expenses, it wovld in law unquestionably be a usurious loan of the money advanced on the sale.
It is evident from the opinion of the supreme court, with which we have been furnished, that the cause now before us was passed upon there without much examination, in the hurry of business, and under a supposition that the question had already been decided; and as the opinion shows also, under a mistaken supposition, that the decision of the court of king’s bench in Lowes v. Mazzaredo had never been recognized or followed in England. The attention of the court does not appear to have been directed to the distinction between a suit between the parties to an usurious transfer, to enforce the liability incurred by the endorsement, and a suit against another person who was not interested in, or a party to the illegal contract.
The question as to the right of the maker of a note to set up usury in the subsequent transfer as a defence, is the only one, as I understand the subject, in which there has heretofore been any difference of opinion, or clashing of decisions, in the
It is not the trifling sum of one per cent, a month, taken on the discount of these notes, which renders this case important, but it is the principle which it contains. Nor should the circumstance that the amount of discount was not unreasonable, in any way influence our decision on an important question of law, in which the interests of the whole community are involved. If this transaction was legal, so as to make the seller liable on his endorsement to the purchaser, he would have been equally holden if twenty tintes that amount had been deducted. Once establish this principle, and brokers and money
It is no answer to the charge of usury, in cases like the present, that the endorser, as between himself and his immediate endorsee, is only liable for the sum advanced and legal interest. Such would also be the effect of an ordinary loan of money on the borrower’s own note, if he gave, by way of extra premium to the lender, a note against a third person, to collect at his own risk. Whenever the lender stipulates even for the chance of an advantage beyond the legal interest, the contract is usurious, if the money advanced and legal interest thereon are to be refunded at all events. 5 Dow. & Ryl. R. 116. 17 Yes. R. 46. 3 Barn. & Cress. 273. 1 Moody & Malk. R. 411. In this case the purchaser had the chance of getting the whole amount, including the usurious premium, from the drawer of the notes; and if he failed, the endorser would be liable, at all events, to pay the amount advanced, and legal interest for the use thereof in the mean time. Suppose the endorsements on these notes had specified, in terms, what the counsel for Hendricks now contends was their legal effect as between these parties, the contract would, in that case, have run thus: “ Whereas H. Hendricks has this day advanced to me the amount of this note, deducting a discount at the rate of twelve per cent., I therefore, in consideration of such advance, assign over to him the within note to collect and receive of the maker the whole amount thereof, to his own use; and I agree that if the same is not paid by the maker on the day the note falls due, I will return the amount advanced, and legal interest, provided payment is duly demanded, and notice of the non-payment of the note is given to me by the holder.” This is clearly a stipulation for a contingent profit beyond the legal rate of interest; and accompanied by
I know the usury laws present many hard cases; and that juries, and sometimes even courts, struggle to take particular transactions out of the operation of the statute. I am not, however, prepared to say this is one of those cases. It is evident from the testimony that Hendricks took these notes principally, if not wholly, on the credit of his son-in-law, . and he may have the means of enforcing payment from him, if driven to that necessity, of which a stranger could not avail himself. We all know that in cases of failure, debts due to relatives are us ually first provided for. I know nothing of the circumstances in this particular case; but if the assignment of the notes was not absolutely void, even as against the maker, it does not necessarily follow that Hendricks will lose his money although Cram may not be liable as endorser. But admitting this to be a hard case against the purchaser only, and whatever may be our private opinions as to the policy of the usury laws generally, as judges it is our duty to carry into effect every constitutional law passed by the legislature. We cannot, without an usurpation of their powers, and a violation of our duty, alter the law, or make a decision, which would operate as a virtual repeal, and subject the community to all the evils
I have long thought it would be good policy, and probably a great benefit tó that class of community who borrow money, not for the purposes of speculation, but who are compelled to procure it to prevent a sacrifice of the property, to modify the-usury laws, so as to enable the lender to accept a small premium on the loan beyond the usual rate of interest, without subjecting him to the absolute forfeiture of the whole debt. Various shifts are now resorted to for the purpose of evading the statute, and the borrower is always compelled to pay the extra expense of the contrivance, together with a large addition thereto, to cover the risk or chances of detection and loss. The statute having declared it illegal to receive more than’ seven per cent., many conscientious monied men will not violate the law, and in times of scarcity, they resort to other means of making their capital productive. In such cases, the man who is press ed for money is of course thrown into the power of those who are willing to make the most of his necessities. Perhaps on a loan of money for a limited period, the lender might with safety be permitted to take a contract in writing, stipulating for the payment of one or two per cent, beyond the usual rate, as fixed by law, and to enforce the collection thereof in a court of justice. Even that, however, would be a measure of doubtful policy. But the effect of the decision of this cause in favor of the defendant in error, and without any alteration of the existing law, would be to enable a money lender, by a mere shift or device, to stipulate for any premium his conscience would permit him to ask, and to which the necessities of the borrower might compel him to submit; and by another device, equally easy and safe, the collection of the whole amount might be legally enforced.
The laws of most civilized nations show that they have considered it^unsafe to leave the necessitous borrower in the power of the lender. By the law of Moses, the Jews were prohibited from lending money upon usury to their brethren; though they were allowed to exact any rate of interest which
It has frequently been urged that money is a fair subject of merchandize; that like every other subject of commerce, its value should be left to regulate itself, and that there is no reason why the owner and the borrower should not be permitted to make their own contract for the hire of money, in the same manner as they may contract for the sale or hire of any other kind of property. This is all very well in theory ; but as has been justly remarked, in relation to this subject, by one who had made the trial, “ experience often proves that what appeared to be the soundest calculation of the human mind as to moral causes and effects, is but folly.” Influenced by such reasons as I have often heard urged, the legislature of one of our sister states a few years since tried the experiment of letting the value of money regulate itself. But in the. strong and forcible language of the chief justice of that state, who had himself advocated and voted for the passage of the law, “ a most fearful and disastrous experiment” it has indeed been found in that case. The first volume of the Alabama Reports shows that contracts have been made under that law which have rendered the fictions of a Shakespear’s imagination almost realities. In one case on a loan of $3000, the interest, alone, amounted to $3261 in less than fifteen months. In another, a debt of $4200 was swelled to the enormous sum of $28,770, in a period short of five years. And on some smaller loans the interest exacted was much larger in proportion. 1 Alab. R. 212. To use the figurative language of the great dramatist, who had such intimate knowledge of human nature, the courts of that state have been called upon to mete out to the merciless creditor the pound of flesh, and that too, nearest the heart. Nay, they have found themselves compelled by law, to award to him as it were, the very heart’s blood of the unfortunate debtor, because they found it plainly stipulated for in the condition of the bond. The desire of gain is the same here, as elsewhere; and I trust that
I think the judgment of the court below should be reversed, and that the defendant in error should be left to seek his remedy, if he has any, against the maker of the notes.
By Mr. Senator Allen. It is not disputed, that if a person loan money at a higher rate of interest than seven per cent, the transaction is usurious; but there is a wide distinction between the purchase of a security, that is free from usury in its inception, and the loaning of money. A bill of exchange may be taken to market and sold for any price that can be obtained, and though the price obtained bear no proportion to its value, if it is cashed upon the legal terms of discount, the purchaser is nevertheless not guilty of usury. 4 East, 57. In the present case, it appears to me, the transaction was nothing more than the sale of a security; for although Healy the broker, calls it the discounting of the notes, it only amounted to the retention of a sum over and above the interest that was deemed by the purchaser a sufficient remuneration for the risk he would incur by insuring the solvency for three months of the drawer and endorser.
The act for preventing usury, according to my understanding of it, never was intended to embrace a transaction like the one now before this court; for the terms discount or sak are not even named in its prohibitory provisions. The language is, that no person shall take for the loan of any money more than seven pounds for the forbearance of one hundred pounds for one year, and so for a greater or lesser sum, or for a longer or shorter time; nor take any bond for payment of money to be lent. There is, therefore, no prohibition of the sale of securities, such as those alluded to in this case. That the courts of this state have understood the act as prohibiting absolute loans only, at an interest of more than seven per cent, per annum, and not the sale of a security, is quite evident from the numerous cases in our books. The first case I have found reported, in which the principle was recognized
As I deem the decision of this question important, particularly as affecting the commercial transaction of this state, I have concluded to take a brief notice of a few of the cases commented and relied on by the counsel for the plaintiff in error; and although I have found in the various opinions de. livered by the judges, occasional observations favoring the doctrine attempted to be established by the counsel for the plaintiff, there is but one of the numerous authorities referred
Herman v. Sprigg, 3 Martyn, 190, was relied on as an authority for the plaintiff. The decision in that case was, that contracts, in which usury intervenes, are void ; but the lender may recover back the money loaned. The borrower is not obliged to pay legal or other interest on money received on a usurious contract. This case was decided in the courts of Louisiana, where it is held that the lender may recover back the money loaned, even if the contract was usurious, but the borrower is not compelled to pay any compensation for its use. How is this a decision in favor of the plaintiff, when he contends he is not bound to pay any portion of the money received 1
In Parr v. Elaison, 1 East, 92, the question was, whether usury between the holder of a bill drawn payable to his own order and the person to whom he endorsed it, for a usurious consideration, avoided the bill in the hands of an innocent holder. Lord Kenyon observed, the commerce of this country subsists upon paper credit, but if this action could be maintained, no man would be safe in taking even a bank of England post bill, payable to order, for however just and legal it might be in its inception, if the payee passed it to another for a usurious consideration, it is now contended it would be void in the hands of any subsequent innocent holder, and might be recovered from him. If the bill itself in its original formation is given for an usurious consideration, the words of the statute are peremptory. Here the bill was fair and legal in its concoction, and therefore no advantage can be taken of what happened afterwards, against bona fide holders.
In Daniel v. Cartony, 1 Esp. 274, Lord Kenyon observes, if the note had originally been given on a usurious transaction, or for a usurious consideration, it would have been void even in the hands of a bona fide holder: but usury in any interme
In Wiffen v. Roberts, 1 Esp. 260, it was held that when a bill of exchange is given for money really due from the drawee to the drawer, or is drawn in the regular course of business, in such case the endorsee, though he has not given to the endorser the full amount of the bill, yet may recover the whole, and be the holder of the overplus beyond the sum he has really paid to the use of the endorser ; but where the bill is an accommodation one, and that known to the endorsee, and he pays but part of the amount, in such case he can only recover the sum he has actually paid.
Ferral v. Shaen, 1 Saund. 295, was a suit on a bond for £300, dated in May, and payable in February thereafter. The bond not being paid when due, the defendant for a delay of payment, paid the plaintiff £30, which was much more than the legal interest. He pleaded the statute of usury. The court held if the bond was legal at the time it was made» no subsequent event could make it usurious. Here the bond was not for the payment of money upon, or for usury, but for any thing which appears to the contrary, it was made for the payment of a just debt; and so the bond was good when it was made. An usurious contract afterwards, cannot make a bond void which was good when it was made.
Here are four cases decided in the English courts, upon which reliance has been placed by the plaintiff in error, to show that the law in that country is, that an endorsee purchasing or discounting a bill free from usury in its origin, for less than its face, cannot recover of his immediate endorser. But what are the facts ? In the first case, the question decided was, that usury between the endorser and endorsee did not avoid a bill in the hands of an innocent holder. In the second, if there is no original usury in the note, no intermediate transaction can make it void in the hands of a bona fide endorsee. In the third, that the endorsee of a bill drawn in the regular-course of business, though he has not given to the endorser the full amount of the bill, yet may recover the sum he actually paid for it. And in the fourth, if the bond was legal
There were numerous additional cases referred to ; but I am unable to perceive that they have any manner of reference to the question before this court, further than that they were decided to be usurious contracts. The counsel for the plaintiff in error, however, seems to have deemed it necessary to call up every case reported on the subject of usury, from the black letter books of olden times, to the latest English reports received in this country. A great number of the cases alluded to are such as would not create a doubt as to their character ; they do not relate to the sale of a note or other security, given for a valuable consideration, but to loans made on paper, purposely created for the raising of money, at any rate, or terms, upon which it could be had on such security. Such as the following: The King v. Ridge, 4 Price, 50. In this case, Lord Moira drew four bills for £1000 each, payable to his own order, which were accepted by Ridge, one of his household, and endorsed by Moira, and then handed to a confidential friend, who had been in the practice of obtaining money for him through the medium of such bills; he had them discounted, and received for the four bills £3600, which he handed to Moira. The bills were drawn payable in twelve months after date, and the amount deducted was at the rate of ten per cent, per annum. Here the bills were evidently made for the purpose of raising money by loan, and the transaction, therefore, was usurious. Wilkie v. Roosevelt, 3 Johns. Cas. 66. This was an action against the defendant as endorser of a note made by Marks & Co. payable to him. The note was made for the purpose of raising money, and was sent to Goodrich, a broker, who had been in the habit of receiving notes from Marks & Co. for the purpose of discount. Goodrich discounted the note at the rate of three and a quarter per cent, a month, and it afterwards came into the hands of the plaintiff. The court held, that the transaction was originally, and in its inception, usurious, between Marks & Co. and Good
The two cases most relied on by the counsel for the plaintiff in error were Lowes v. Mazzaredo, and Ruffen v. Armstrong; and I will now proceed to notice their applicability to the case before us. Lowes v. Mazzaredo, 1 Starkie, 385, was an action by the endorsees, against the acceptor of a bill of exchange, drawn by G. Lowes to his own order, on defendant, at two months, for £1000, endorsed by G. Lowes to Bloxham, who discounted it for more than the legal interest. Bloxham passed the bill to Ambrose, and he passed it over to the plaintiffs. It was adjudged to be a usurious transaction. This case was much relied on as a decided authority for the plain
Ruffen v. Armstrong, 2 Hawkes, 411, was a joint sealed obligation of three persons, promising to pay Armstrong $911,28, payable on demand, one year after the 13th of September, 1819, with interest from the 10th of December, 1819. Armstrong, being desirous to raise money, and having been informed by his clerk, Halcom, that Ruffen was in the habit of buying notes, he endorsed the obligation to Halcom, and told him to sell it to Ruffen as his own property. He accordingly did sell the note for $600, representing it to be his own, and endorsed it over to Ruffen without recourse to Mm. The money received was immediately handed to Armstrong. The transaction was held to be usurious. This case, as I think, is the only one to be found in the books of reports that has the appearance of deciding the law, in opposition to the law as held by the courts of this state. It arose in the state of North Carolina, and differs from the one before us in the following particulars: 1. The instrument is not properly a note of hand, but a bond or specialty; and 2. It was sold or discounted as the property of Halcom, the clerk of the defendant in the suit, and not as the property of Armstrong, who
It will now be perceived, that after the very laborious researches of the counsel for the plaintiff, they have only been able to furnish a single case in any way analogous to the one before Lthis court, and that a very doubtful one ; and not one solitary case has been adduced from the records of the English tribunals, where the facts of the case or the principle of the decision was the same as that of Hendricks and Cram ; that is, where the note Was perfectly fair and given for a valuable consideration, sold or discounted by the payee, and where the suit was brought by the purchaser against the payee. That some opinions may be found favoring the doctrine contended for by the plaintiff in error, I think
One general principle appears to govern almost all the cases examined, whether decided by the courts of these states or of England, which is, that a note given for a valuable consideration, and free from usury in its origin, cannot be tainted by any subsequent transaction; but a note originally made for the purpose of raising money, and which is sold or discounted for more than the legal rate of interest, is void. The difference between a note made for the sole purpose of raising money, and one given for a valuable consideration, is very obvious. The first in its inception is intended as security for a loan, and represents credit only, not property ; while the other is given for goods or other valuable consideration, and is the representative of money or property as truly as the note of a bank is such representative ; and it might as well be called usury to •sell a.bank note for less than its face, as to call it usury to sell - on the same terms a note representing property. In such a case we might exclaim with Kenyon, in Parr v. Eliason, if this suit can be maintained, no man would be safe in taking a United States Bank post note payable to order.
The principle which the counsel of the plaintiff in error attempted to enforce, that whenever a person receives money and is bound for its repayment, the transaction must be deemed a loan, is, in my view incorrect. The purchase of bills of exchange and drafts, is a mercantile operation of daily occurence and to vast amounts. These purchases are always made of the drawer of the bill or draft, and they are nearly in every instance purchased for a greater amount than their face. If the bill is on a foreign house and comes back protested, the drawer who has received the purchase money is not only liable for the amount of the bill with interest, but ten per cent, upon every hundred dollars in addition. If money is wanted in the city of New-York, Boston, or any of our commercial cities, a draft is purchased, either of one of the banks, or of an individual having funds or money in the place where it is wanted, and the price in all cases is regulated by the
There was no pretence, if I understood the counsel for the . plaintiff correctly, to avoid the notes as against the maker, but that the claim of Hendricks against the endorser was void. I am unable to perceive how this is to be effected in accordance with the provisions of the statute; for if the transaction was usurious, then the statute pronounces the notes to be utterly void; and this is the principle which has governed in several of the cases cited by the counsel for the plaintiff in this court; but how the endorser can be separated from the drawer, when without the endorsement the notes were not negotiable, it is difficult to perceive, especially under the circumstances which attended the act of endorsing. The endorsement was as necessary in the consummation of the transaction as the making of the note, and the act of endorsing is made necessary by statutory provision, in order to a legal transfer of the instrument. Both the drawer and endorser, therefore, under the facts in the case, must be liable for the payment of the notes to the holder, or neither is liable for the payment of the notes to the of the notes had intended to exonerate himself from liability, he would have endorsed without recourse to him; but as he did not so endorse, and sent them into the market free of all conditions, they contained his warranty, and he must be liable for the payment of the amount he received, with interest.
In the purchase of a negotiable security of any kind, the price given must depend on the responsibility of the parties to the instrument. If the seller is not willing to become responsible, he will not add his warranty ; and if he does add it, he knows or ought to know that the law as settled in this state makes him liable for the money he receives for the security, with interest. The drawer or acceptor, in the event of the demand being made of him, has no right to complain by being compelled to pay the amount expressed, as his engagement was that he would pay it for value received; and where then is the hardship of the case ? There is none.
Another objection urged was, that inducements were held out to the trading part of the community, by the facility afforded for raising money by the sale of securities, to enter into ruinous speculations, injurious to themselves, as well as those with whom they deal. We might as well attempt to reason from the fact, that because evils have resulted to some from the free and uncontrolled right a man has over his own property, that the exercise of this right ought to restricted ; but if we are to abrogate all laws that may be construed as holding out inducements to the improvident and unthinking part of the community to act unwisely, there would be many less in the statute book than there now are. To attempt, therefore, to
It has been held, if a contract is susceptible of two construcions, one of which will bring it within, and the other without the statute of usury, the latter construction should be adopted. 3 Cowen, 284. But the question w'hether a contract is in substance a loan, disguised in a shape to evade the law, or a bona fide transaction of another species, belongs to the decision of the jury; and. in Chesterfield v. Jansing, the master of the rolls observed, that whether an agreement was usurious or not, might be determined in two ways: first, by the verdict of a
A very important consideration in deciding upon this question is, the impropriety of overturning the law as it has existed and been generally understood for so many years, and under which not only the contract in question, but numerous others have been entered into. These contracts, We have a right to presume, have been consummated in good faith, and with a knowledge that they were sanctioned by the decisions of the supreme court; and it would seem to be injustice now to declare all such contracts void, and thus deprive the parties of a property legally acquired. If the laW is wrong, it appears to me the proper forum for its amendment is the legislature, and not this court. If the legislature shall deem it proper to amend the law, it Will operate as it ought upon all subsequent contracts, while the decision of this court Would have an ex post facto operation, and reach cases which have been consummated under the sanction of Well considered legal adjudi» cations.
I am of opinion, therefore, that the judgment of the supreme court should in all things be affirmed.
By Mr. Senator Beardsley. The question involved in this controversy is one of vital importance to commercial men, and should be dispassionately considered and settled by this court. If the transaction is usurious, we ought fearlessly to pronounce it such; but if there is a reasonable doubt whether it is usuri» ous within the meaning of the statute, I hold it to be the duty of this court to sustain the judgment of the supreme court. We do not sit here to make law, but to pronounce what the law is; and if there is a defect in the usury law, it belongs to the legislature, and not to the courts, to correct it. When the legislature makes a new law or amends an old one, the enactment applies only to cases arising after the law is made or amended ; but When courts apply the law to new cases, their decisions relate
It will be conceded that the rule adopted by the supreme court is perfectly just and equitable between the parties, and is that which court of equity^always adopt where a party comes into chancery to be relieved from a usurious contract. They require the party to do equity when he asks equity: and before granting relief, compel him to pay the amount actually received, with interest. I do not refer to this rule with a view of contending that in cases of Usury, courts of law ought to adopt it, but merely to show, that being equitable, the party who is brought to this standard has no reason to complain where usury is not clearly established.
The law in relation to usury on this point, has for many Years been considered as Well settled by the decisions of our courts, and I know of no case in this state that militates against the doctrine of the supreme court. The rule is this, that where a note is valid in its inception, it may be sold at a discount beyond the legal rate of interest, and without subjecting the purchaser to the imputation of usury. If he sues the maker, he may recover the full amount; but if he sues his immediate endorser, he shall recover of him only the amount paid, with interest. On the other hand, if a note is usurious in its concoction, the stain of usury accompanies it and renders it void in the hands of a bona fide purchaser. Lowe v. Walter, Doug. 736, 740, &c. So rigid is this latter feature, and so contrary to the common standard of morality, that jurors have struggled with the courts and frequently have sturdily resisted in favor of bona fide holders. Several cases referred to on the argument Were of this description. 2 Bay, 23. 2 Johns. Cas60. id. 66, 206. These show that the sense of the community is against extending the provisions of the usury law beyond its legitimate object; and where a transaction is susceptible of two constructions, one in favor of, and the other against usury: that construction shall be adopted which will give effect to the contract and avoid the usury. 3 Cowen, 284, 5. The modi-fication of our usury law in the revised statutes, 1 R. S, 72, in
Our statute of usury, 1 R. L. 1813, p. 64, declares “ that no person or persons whomsoever shall hereafter take, directly or indirectly, for loan of any monies, &c. above the value of 7 per cent, per annum ; nor take any bond, bill, note or security whatsoever, for payment of money to be lent, or to be due or payable by any means whatsoever, whereupon or whereby more than 7 per cent, shall be reserved.” “ And further, that all bonds, bills, notes, contracts, and assurances whatsoever, and all deposits of goods, or other things whatsoever, for payment of any principal or money to be lent or covenanted, or agreed to be paid, above 7 per cent, shall be void.” To constitute usury, there must be 1. a loan; 2. taking more than lawful interest: 3. a corrupt agreement. Bank of Utica v. Wager, 2 Cowen, 712. 4 Peter’s U. S. R. 205. Ord on Usury, 23, &c. Now to constitute usury, courts have uniformly considered it necessary that there should be a loan of money either express or implied, and where more than the legal rate of interest has been reserved, and it was a loan, they have adjudged it usurious and void; but if the transaction was a sale of an available security, then it was not so. Floyer v. Edwards, Cowp. 114. Lowe v. Waller, Doug. 740. 19 Johns. R. 508. Hence in every case the question is, what is the real substance of the transaction ? not what is its color and form; was it a loan and the intent of the parties to cover usury, or was it an ab_ solute bona fide sale? Thus in Massa v. Dauling, Strange, 1243 which was an action against the endorser of a promissory note of £200, which the plaintiff had discounted at £197, having 3 months to run, and then took another note for the same amount having 3 months more to run on a further discount of £3, Chief Justice Lee left it to the jury to say whether it was a loan or a purchase of the note, and upon their pronouncing it a loan, it was adjudged usurious. This was a question like the one now before this court, between the endorsee and en
The books uniformly recognize the distinction between a sale of securities and a loan of money under the colour of a sale; and this distinction is recognized and spoken of in cases between endorser and purchaser. If, as is now contended, a sale must in all cases be considered in the nature of a loan, where the seller becomes responsible, then I can see no sense in judges recognizing that distinction, where the question is between the purchaser and endorser. It will, however, be found that this distinction is not confined to cases where the seller merely parts with his interest without responsibility, but is recognized in many cases between endorser and purchaser, which I shall have occasion to refer to, as it was in the case already cited from Strange.
Then can the purchase of the notes in question be considered a loan? for if the bargain was a sale and purchase, it is not within the statute. The notes were vendible property made transferable by statute, and recoverable in the name of the endorsee. They were sent into the market to be sold for cash to the highest bidder, and were valid in their inception There is nothing in the case from which the slightest inference can be drawn that the parties intended it as a loan, or that the idea of a loan ever entered into the mind of either of them; the whole transaction shews the reverse. Cram had sold his
The endorsement of negotiable paper, when offered for sale is to transfer the right of action upon it by virtue of the statute and is in the nature of a warranty that the paper is valid, and will be paid when due. If the paper is valid; and the money is, not paid, the endorser, if duly notified, is liable by his contract to pay; but it does not follow that the sale is a loan in consequence of the endorsement, nor can the maker, if the note was valid, set up usury against the holder who purchased it at a discount in market. 15 Johns. R. 44. 2 Bay, 23. 3 Pickering, 184. 2 McCord, 173. 3 id. 365. 4 id. 402. Judge Spencer, in giving the opinion of the supreme court, in Munn v. The Commis
The leading case in the English courts, relied upon by the counsel of Cram, is Lowes v. Mazzaredo, decided by Lord Ellenborough, in 1816. 1 Starkie, 385. It was an action on a bill of exchange againát the defendant, as acceptor, drawn by G. Lowes on the defendant, payable to the order of the drawer, and was endorsed by Lowes, the drawer, and negotiated by him to one Bloxham, at a discount of 5 per cent, beyond legal interest. By a subsequent endorsement and sale, it was purchased by the plaintiffs upon a fur
The next English case relied upon by the counsel of Cram is Chapman v. Black, 2 Barn. & Ald. 589, decided in 1819, where a bill affected with usury, being in the hands of an innocent holder, he, on being informed of it, took a fresh bill drawn by one of the parties to the original usury, and accepted by a third person for the accommodation of the other; and on the authority of Lowes v. Mazzaredo, it was held that he could not recover against the acceptor. It appears from the case, that the first bill was .made expressly to be discounted, and of course usurious if discounted beyond legal interest. The court say that the plaintiff knew the first bill was usurious when he took the second, and ought to have resorted to the person from whom he received it; otherwise the usurer would retain the money, and the statute be violated with impunity.
The case of Gaither v. The Farmers’ and Mechanics’ bank of Georgetown, 1 Peters’ U. S. Rep. 43, was relied upon as a leading American case against the opinion ,of the supreme court. The bank had made a usurious loan to Corcoran, the owner and payee of Gaither’s note; Corcoran endorsed Gaither’s note, and pledged it to the bank as security for the usurious loan. Corcoran failed to pay, and the bank sued Gai
Ruffin v. Armstrong, 2 Hawk’s R. 411, a case decided in North Carolina, was also relied on as an authority directly in point against the decision of our supreme court. That was an action by the purchaser of a sealed note against the payee of the note, who had endorsed it. The note was given to Armstrong for $911,28, with interest, and was endorsed by him, and put into the hands of his clerk to be negotiated for cash, with directions to conceal from the purchaser the fact that the note belonged to Armstrong. The clerk represented to Ruffin, the purchaser, that he owned the note and sold it for $600, after endorsing it, without recourse to himself as endorser. It did not appear whether the note was made for the purpose of raising money, but the court assumed the fact that although the clerk was an actor in procuring the money, yet in fact it was to be regarded as a sale by Armstrong ; and as he had endorsed- the note, and thereby made himself liable, it was to be regarded as a loan, and usurious. If the court were correct in adjudging it a loan, then the decision that it was usurious may be sustained, and a purchase at a discount of more than $300 showed it oppressively so. It is apparent from the case, that the judges considered the endorsement of Armstrong as constituting a new security for the purpose of raising money, and they apply the doctrine of our supreme court in
Whitworth v. Adams, 5 Randolph, 333, was also cited by the counsel of Cram. In this case the judges seriatim and at great length enter into a general discussion of the law of usury, and many speculations on points not precisely under consideration, are introduced and discussed. It was an action by the endorsee of a promissory note against the maker. The note was made for the express purpose of raising money, w as endorsed by the payee, for whose benefit it was made and delivered to a broker to negotiate, who sold it at the instance of the owner, the payee and endorser, at a discount of 3 per cent, a month. It came to the plaintiff subsequently, and he was considered by the court as an innocent holder, and was allowed to recover, three judges being in favor of the recovery, and two against it. On this state of facts, the note would have been adjudged usurious in this state and in England. The judges, however, also decide “ that an immediate endorsement of a valid note for an usurious consideration, as between endorser and endorsee, will not vitiate the note in the hands of a subsequent honafide holder, without notice of such usury.’’ A majority of them also decide, “ that where a note valid in its inception, is afterwards endorsed by a party to whom it has regularly come, to a third person, at a greater discount than legal interest, such transaction is usurious.” By examining the case, it will be found that the judges did not all agree in the leading propositions; and Judge Coalter, at page 388, approves of the decisions of our supreme court, that the endorsement of a note by the payee, at a discount greater than legal interest, does not, per se, render it usurious, although his honor gives a different reason for his opinion from what was given by our court. I shall leave this case without attempting to reconcile its conflicting doctrines with the decisions of our courts, with simply remarking that part of the propositions are in" accordance with the doctrines contended for by the counsel of Cram, and part against them.
Knight v. Putnam, 3 Pick. 184, also cited, was a case by the endorsee of a note against the maker, and the defence was that the payee, the endorser, had sold it at a usurious discount, and
Lloyd v. Keach, 2 Conn. R. 175, was cited; but on the question whether the sale and endorsement of a note at a discount beyond legal interest in all cases usurious, is an authority rather against the plaintiff in error in this cause than for him. The court decided, 5 judges to 4, that the sale of a note endorsed by the seller at a discount exceeding legal interest is not in all cases usurious, but is prima facie valid ; and that it is incumbent on the party alleging usury, to show the circumstances which bring it within the statute; thus as in thé case of Massa v. Dauling, Strange, 1243, making it a question of fact as to the intent of the parties. A majority of the judges, however, contrary to the decision of Knight v. Putnam, 3 Pick. 184, came to the conclusion that if there had been usury in the sale, the maker might set it up as a defence.
These are the leading cases relied on by the counsel of Cram, although many others were cited which appear to me to have no bearing on the present question. The English cases are long subsequent to our revolution, -and not constitutionally binding on our courts ; and the decisions in our sister states, predicated upon the decisions in Westminster Hall, although entitled to respectful consideration, are not binding as authorities. It has long been decided, that where an instrument is valid in its inception, usury by way of forbearance money in its subsequent stages will not avoid it. Ferall v. Shaen, 1 Saund. 295. This decision is more than 150 years old, and is supported by a great variety of cases, and yet one
I will now refer to some authorities which are supposed to warrant the supreme court in their decision in this cause; and first, Parr v. Eliason, 3 Esp. R. 210,1 East, 92. This was an action of trover by Parr to recover a bill of exchange from the defendants as holders, on the ground of ustiry in his sale and endorsement, which being void, as he contended for usury, no interest passed by the sale of the bill. The cause was decided in 1800, and was the one in which Lord Ellenborough was counsel for the plaintiff. The remarks of Lord Kenyon, who decided against the plaintiff, are so appropriate that I subjoin them : “ There is nothing in this point, and it might be attended with serious consequences if it could be supposed that the court entertained any doubt upon it. The commerce of this country subsists upon paper credit, but if this action could be maintained, no man would be safe in taking even a Bank of England post bill payable to order; for however just and legal it might be in its inception, if the payee passed it to another for a usurious consideration, it is now contended that it would be void in the hands of any subsequent innocent holder, and might be recovered from him.” “ Again, where the bill itself, in its original formation, is given for a usurious consideration, the statute declares it void, and the construction which has been put upon the statute has gone far enough in saying that it shall be avoided in the hands of a bona fide holder without notice; but no case has gone the length now contended for, nor do the words of the statute require it.”
Wiffen v. Roberts, 1 Esp. R. 261, was an action against the drawer of a bill for £86, on which the plaintiff had advanced but £29. It was held, that as it was anacoommodation bill, he should' recover only £29, he knowing it to have been such a bill; but on a note or bill given in the fair course of trade, he should recover the whole amount. On the authority of this case, the supreme court decided in Braman v. Hess, 13 Johns. R. 52, that where a valid note was sold at a discount, the endorsee or purchaser could not recover from his immediate endorser any more than he had paid for the note. The same principle had been previously intimated in Brown v. Mott, 7 R. 361, on the au
The cases of Munn v. The Commission Co., Munn v. Herman Ruggles, Munn v. Oliver Ruggles, 15 Johns. R. 57, were' brought on a draft drawn by Herman Rugglesíox his own benefit, on the agent of the commission company, for $4500, and accepted by him as their agent. Oliver Ruggles endorsed the draft, and it was subsequently discounted on a deduction of $137,25 by Munn. The draft was adjudged valid in its inception, but it was objected that Munn could not recover on the ground of usury. The court gave judgment in favor of Munn in the three suits, as follows: against Herman Ruggles, the drawer, for $4500 and interest; against the commission company, the acceptors, for $4500, with interest; and against Oliver Ruggles, the endorser, for the sum actually received, $4362,75, with interest. The same point was then under consideration that is. now submitted to this court, and in those cases the question was considered, as well as it respected the drawer acceptor and endorser, and the principle applied to each. The court say, “ where a bill or note is valid as between the drawer or maker and payee, so that the latter can maintain an action against
In Rice v. Mather, 3 Wendell, 62, the supreme court reiterate the same opinion as in the present cause, and in the present suit they have reviewed the question and authorities, and the very able and lucid opinion of Judge Sutherland shows that the question was well examined and duly considered.
In Gould’s edition of Espinasse’s Nisi Prius, part 1 p. 74, it is said, “ a man may bona fide purchase a note at a discount beyond legal interest, even at 25 or 30 per cent., and at the lowest rate he can, without incurring the penalty of usury,” 1 Dali. 216. 2 id. 92. A bona fide sale of a note at a discount is not void on the ground of usury. Foltz v. Urry, 1 Bay, 486. Payne v. Trezzant, 2 id. 23.
In Jones v. Davison, 1 Holt, 256, A. employs B. to get a bill discounted, and agrees to give him a sum of money beyond legal interest. B. procures C. to discount it, who requires B. to endorse, but takes only legal interest. B. pays the avails to A., deducting the part he was to retain. In an action brought by the endorsee of C. against A. the drawer, held that he could not allege usury. In this case, Chief Justice Gibbs doubted the correctness of former decisions which adjudged usurious notes void in the hands of bona fide holders, and intimated a wish that the question might be reserved and brought before the court. In a note to this case, the following language is used: “ A man may sell a bill at any price, if there be no shift or device. If he endorses it, it then becomes a question for the jurv, whether it was not a
In the case of Lloyd v. Scott, 4 Peter’s U. S. R. 205, Judge McLean discusses the question of usury at large. The question was on the purchase of an annuity of $500 per annum for $5000, and alleged to be usurious. After defining usury, and stating its ingredients, and among them that a loan express or implied was indispensably necessary, he remarks : “If it were a bona fide purchase, there is an end of the question of usury.”
In South Carolina the construction put by our supreme court upon the statute of usury appears to have been fully adopted. In Fleming v. Mulligan, 2 McCord’s R. 173, which was an action by an endorsee against endorser, on a note made for the accommodation of the maker, and sold at a discount beyond legal interest, the court held it void, on the authority of 15 Johns. R. 44. But Justice Colcock, in giving the opinion of the court, says ; “Where a note made bona fide for a valuable consideration is brought into market, it may» like any other property, be sold for less than its value. It is then always a question of fact for the jury, whether the note is one of that character, or made to evade the statute.” This was in reference to a question between endorsee and endorser, and the judge made no allusion to the principle maintained in some cases in other states, that an endorsement of a valid note-may be operative to pass the note, but usurious as against the endorser. In Johnson v. King & Jones, 3 McCord’s R. 365, the same court establish these propositions : “ It is not usurious to sell or buy a negotiable paper, founded on a legal consideration, for less than its nominal value. Where a note on a legal consideration is drawn to order and endorsed, no matter how often it has been polluted in the hands of intermediate holders, it is still valid in the hands of a bona fide holder.” In arriving at his conclusions in this cause, Judge Johnson, who gave the opinion of the court, makes use of language so appropriate, that I subjoin two extracts. At page 368, he
A review of these authorities, with many others referred to on the argument, have resulted in a perfect conviction to my mind that we ought to adhere to the decision of the supreme court. We ought to sustain it, because I do not believe the legislature ever intended to prevent the sale of a valid endorsed note, at a discount beyond legal interest, when'the sale was not a device to cover Usury. We ought to sustain it, because» from an acquiescence in it for many years, it has been considered the settled law of the land, and our citizens have made contracts on the strength and credit of it. It should not, therefore, give place to any strained construction of the statute of Usury, or plausible judicial theories in speculating on that statute. If the question was now for the first time agitated, and altogether untrammelled by decisions, I think the opinion of the supreme court might be sustained on principle; and were it now a question of legislative expediency, I do not believe a contrary enactment would be wise or salutary. If it Were conceded that the court of king's bench considered the decision in Lowes v. Mazzaredo as sound law, we ought to look at the consequences and weigh the reasons for that decision, before we servilely respond to the decisions of Westminster Hall. If the opinions of sound and learned men have an influence in our decisions, I know of no tribunal on this or the other side of the water, whose adjudications more pre-eminently commend themselves to our respectful consideration than those of our supreme court, under such men as Chief Justice Thompson, Chief Justice Spencer, Judges Van Ness, Platt and Yates; and when I find their deliberate opinion upon a great principle approved of by their successors, our present judges, and sanctioned by Chancellor Jones and two learned Senators in this court, and sustained by repeated decisions in the enlightened Courts of South Carolina, I cannot bring myself to believe that they have mistaken the law. Thus, while respectful attention should be given to the decisions of
On the argument of this cause, one of the counsel for the plaintiff in error expressed a strong conviction that a valid note, endorsed at a discount beyond legal interest, could not be recovered, even by a bona fide holder, against the maker. This appears to be the opinion of Lord Ellenborough in Lowes v. Mazzaredo, because, as he said, the endorsement could not be dismissed for one purpose and retained for another ; and it is so understood by some of the judges in our sister states, where that decision has been recognized as sound law. This appears to me to be correct, if it can be established that an endorsement of a valid note at such a discount is usurious—it follows as a necessary consequence from the other doctrine ; because, if every endorsement is to be regarded as a bill of exchange, and constituting a new contract, then the endorsement, being usurious, is void, and no one can derive title under it, it being the same as if the payee’s name was not on the note. The statute declares all contracts void that are tainted with usury, even in the hands of a bona fide holder, and courts have uniformly held them so. Lowe v. Waller. Doug. 736. It was under an impression that an usurious endorsement was to be regarded as no endorsement, and that the interest in the bill remained in the endorser who had endorsed at a discount, that the action of trover was brought in Parr v. Eliason, 3 Esp. 210. 1 East, 92, where Lord Kenyon so ably and successfully exploded this doctrine. Now take a case similar to the one he puts; suppose the United States Bank issues a post note payable to my order, which I endorse over at a usurious discount;
A construction of the statute that would prevent the recovery of a valid note by a bona fide holder, merely because usury might have intervened in the transfer, appears so unjust that some of our American courts have repudiated the doctrine of the English court so far as to give effect to the endorsement, for the purpose of transferring the note, but not as creating a liability on the part of the endorser. Learned opinions may be found each way ; but I am at a loss to comprehend how a transaction that is void for usury, and the statute, can be void for one purpose and valid for another, thus partaking of an amphibious character. Among those who have recognized the decision of Lowes v. Mazzaredo to a certain extent as sound law, a great diversity of opinion exists as to what effect an endorsement at a discount shall have. In Knight v. Putnam, 3 Pick. 184, it was held that the purchaser, who had purchased at a discount from the endorser, could recover against the maker, but it was remarked by the judge, that the endorser might set up the sale at a discount as a defence. In Lloyd v. Keach, 2 Conn. R. 175 it was held that the maker might object to a recovery where the purchaser had purchased at a usurious discount, directly the reverse of the case in Massachusetts ; and an examination of the cases referred to, particularly those from Virginia, will show that many opinions at variance with each other.
Immense sums of money in our commercial cities are passing in the shape of bills, notes and acceptances, and their value, from a thousand circumstances, must necessarily vary. By overturning the opinion of the supreme court, capital, which may have been invested in good faith, under what has been considered the law may be lost, or put in jeopardy. We may subject parties to the penalties of usury where no usury was intended, and all to enable one who, on receiving the price agreed upon, has endorsed a valid note, and thus by his name, given a guaranty of its purity, to take advantage of his own wrong ; to pocket his ill gotten pelf, and shelter himself under a technical case of usury, from refunding the money which he has actually received. I am not prepared to sanction such injustice, and am for affirming the judgment of the supreme court.
By Mr. Senator Maynard. There are two statutes bearing upon this case, to which it is the duty of courts to give effect; one, the statute against usury: the other making promissory notes negotiable.
The interests of a commercial community require that such notes should be the subject of sale and transfer, so as to be valid and available in the hands of the holders, and that is the purpose of the statute giving them their negotiable quality. To purchase a note, is a perfectly legal transaction ; to purchase it for less than its face, is forbidden by no principle of law or morality. Whether there be in such a sale and transfer a violation of moral obligation, must depend upon the fact whether one party shall or not take an undue advantage of the circumstances or necessities of the other. To constitute a violation of the statute against usury there must be a loan,
In searching for lights to enable us to determine its true character, our view is first directed to the decisions of own our judicial tribunals. In 1816, a case precisely similar as to facts was presented to our supreme court. Braman v. Hess, 13 Johns. R. 52. There, as here, the action was by the endorsee against the endorser. A note of $343 had been transferred upon the extravagant discount of 90 dollars. The court held that the endorser should be permitted to prove the amount of discount, and the endorsee was entitled to recover the real consideration for the transfer, the amount paid and the interest upon that sum. There was no discussion in that case of the question of usury, but the court said that the maker of the note could not be permitted to prove in a suit against him that the note was transferred upon a discount, which, with the decision upon the other point, necessarily implies that the transaction was in no respect usurious. This decision can be sustained only on the principle that the transaction was a sale of
These decisions did not purport to give a new construction to the statutes, but it was deemed an exposition of the law as it had long been settled in England. I shall not scrutinize the English authorities which were then examined, and seem to warrant and sustain the judgment to which they led ; but to attain a clear view of the progress of decisions, it is necessary to refer to one which, in its consequences, led to the assertion of a contrary doctrine. In 1800, the case of Parr v. Eliason was decided in England. The question was the same as is now presented in this case. Valid paper had been discounted at a premium higher than the legal rate of interest. It was contended that the transaction was usurious. The court would not hear the counsel in support of its legality ; and Lord Kenyon declared that the commercial prosperity of England depended upon its credit, which was sustained by negotiable
The consequences of the contrary decision in England are easily ascertained. The alarm felt by Lord Kenyon when the doctrine was first advocated by Mr. Law, extended itself to the whole kingdom, when he, as Lord Ellenborough, and his associates, gave it the establishment of a judicial decision. We have judicial authority for the fact that" the effects of the decision in the case of Lowes v. Mazzaredo were soon felt on the negotiability of commercial paper, and the legislature were obliged to interpose.” Such was the shock given to the negotiability of bills, that the act of 58th of George 3d, (less than two years after the decision,) was passed to restore public confidence.” The act, it has been well remarked, “ almost entirely excludes negotiable paper from the operation of the statute against usury.” It is very immaterial, therefore, whether the case of Lowes v. Mazzaredo be followed in England or not. The legislature have so limited the range its operations, that its application cannot be frequent, or its effects extensive. It may not be inappropriate to remark, that the decisions cited upon the argument in this case,from Massachusetts and Kentucky, were made in construction of statutes not now in existence. They have given place to others of far milder‘provisions.
We are now asked to make a dangerous innovation upon what has been deemed the settled law of the state. If the statute requires it, our duty impels us to make it. But it should be clear and palpable that an erroneous construction has been given, before we abrogate deliberate and solemn ad
It is essential to ascertain the legal effect of such an endorsement. When the transfer is by the payee, as in this case» the endorsement is necessary to give the vendee title. It is admitted that the endorsement may be special, and the vendor thereby protected from responsibility entirely, or limited to such as the law would permit and sanction. We must therefore ascertain the nature of the endorsement, and thence determine the extent of the guaranty which it creates or implies. When endorsements are made in blank, the law defines their liabilities. It has done so in this case. The reasoning in support of the doctrine, that such a guaranty renders the transaction
We shall not have a full view of the subject without tracing the effects of the doctrine insisted on still farther. If the transaction under consideration be Usurious, and the endorsement consequently void, what becomes of the note ? On this point opinions are certainly not harmonious. The advocates of the doctrine do not agree; some insisting that the usurious endorsement has a retrospective operation, and makes the note void until it is cleansed of its acquired impurity ; others maintain that the endorsement only is contaminated, and the note remains valid and available. Let us ascertain the consequences resulting from each of these alternatives. If the note be made void, then the maker is absolved from the performance of a legal contract by another contract between other parties, and with which he had no concern. Usury therefore is made, in its consequences, to avoid not only the contrast which is supposed to be usurious, but another antecedent contract, admitted to be free from its contamination. This surely gives to the statute unwonted potency; a power to destroy valid and lawful contracts, to prevent or punish those that are forbidden.
Upon the other supposition, that the endorsement only is void, whose property is the note ? Can the usurious endorsee, who obtained possession of it by a corrupt agreement, make good title to it through a void endorsement? This would give to his contract a character abhorrent to the purity and the sanctity of the law, and make it half corrupt—half legal—wholly void, and yet possessing the essential qualities of validity. But if this view be- incorrect, and the usurious endorsee cannot make title to the note, it results that the note remains the property of the vendor and endorser, and that he can maintain trover for it against the unlawful possessor to whom he transferred it, if he can acquire possession of it, he can collect the amount of the maker, who cannot resist payment. But the vendor has sold it once, and received the consideration for it, which can never be recovered back, because it was acquired by a corrupt agreement, a void contract; he will therefore, without scrapie, keep that, because the law protects him and
Many cases were cited on the argument in support of the doctrine contended for by the plaintiff in error. Let us en-quire whether it has the sanction of authority. The case of Churchill v. Suiton, 4 Mass. R. 156, in which is the quoted remark of Chief Justice Parsons, does not sustain it, because no such point was decided. In that case two questions were presented: 1. Whether the endorsers were competent witnesses to prove the contract usurious ; 2. If they were, whether from their testimony as disclosed in the case made by agreement, the contract was usurious. The court decided that the endorsers were incompetent witnesses, and then expressly declared that it was unnecessary to decide the other question. The chief justice, however, proceeded in a course of remark upon the point not decided, and said, with more brevity than illumination, “ that if a sale under such circumstances is not to be considered to be usurious, it is not easy to conceive what sale is within the statute.” That was the case of a note made expressly for the purpose of raising money, and sold at an illegal discount. The transaction was clearly usurious, and if that circumstance had been adverted to, it would have furnished abundant ground for the opinion indicated for other reasons. It does not follow, from the language of judges upon points not decided, that they would decide according to the indication, if decision were necessary; or if they did, that they would not be able to give other and better reasons for their judgment, especially when better reasons were obvious and abundant. The distinction between accommodation and business paper was afterwards taken in the same court. It is sufficient to take from that case the weight of authority, that the point was not decided, and it may be remarked that the decision is not authority, in this state, for any purpose, our decisions being opposite on the point decided.
In Whitworth v. Adams, 5 Randolph, 333, the action was by an innocent holder against the makers of a promissory note, made for the accommodation of the payee, and sold for him, by a broker, at a discount of three per cent, a month to a person who had not knowledge that it was made to raise money, who transferred it without endorsement. It was decided that the transaction was not usurious. It is immaterial whether that decision was right or wrong, because it is manifest that the question presented in this case did not exist in that; but Judge Colton, who was of the majority in reference to the decisions in this state on the point now in question, said, “It has been held in New-York, and is supposed there to be the doctrine in England, that-a sale even by the payee, whose endorsement is necessary to make the paper negotiable, at a greater discount than legal interest, is not per se usurious. I strongly incline to think that this doctrine is correct. As between the payee and his immediate endorsee, the liability is no greater than in the case of an ordinary note. It may go no farther, and if the money is not paid by the maker or drawee, the holder can only recover from his immediate endorser the sum he paid for the note or bill.”
The case of Gaither v. The Bank of Georgetown, 1 Peters, 37, does not conflict with the decisions in this state. That
Nor is it perceived that there is any thing in the case of Lloyd v. Scott, 4 Peters, 205, applicable to the facts or principles involved in this. There was a loan of five thousand dollars, and the borrower gave to the lender a deed, securing to him a rent charge of five hundered dollars a year upon certain real estate, with a right to distrain for such rent, and containing a- covenant for the release of the rent charge, upon payment of the five thousand dollars after five years. The court were opinion that it was a loan upon greater than legal interest, with intent evade the statute, and decided that the contract was usurious, and that the grantee of the borrower, of the lands upon which the rent was charged, could set up the usury in an action of replevin brought for certain articles
In the case of Lloyd v. Keach, 2 Conn. R. 175, the suit was against the maker of a business note, by the endorsee, to whom the payee had endorsed and sold it, at a discount greater than legal interest. There it was contended that the transaction between the payee and the endorsee was usurious, and consequently that the endorsement was void, and conveyed no title to the holder. The majority of the court held the transaction not usurious, and Chief Justice Swift declared the rule to be, “ that a note may be sold at any discount, but though there be a sale in point of form, if it be merely colorable, to evade the statute, and in substance a loan, then it will be usurious.” “ The warranty will be an item of evidence to ascertain the nature of the transaction.” According to that decision, sucha transaction was prima facie a sale, and valid. The intent was held to be a question of fact for the determination of a jury. The court were divided, but the distinction between the accommodation and business paper does not appear to have received attention, certainly not from the minority.
In the case of Ruffen v. Armstrong, 2 Hawks, 411, the suit was by the endorsee against the payee, and the transaction was held to be usurious between them, although effected through an agent. A note of upwards of $900 had been sold for $600. It was treated as accommodation paper, and the transaction pronounced usurious. The court were aware of the distinction between accommodation and business paper, and confine their decision and remarks to that of the first description. One judge cited the opinion-of Judge Spencer, in relation to accommodation paper, and declared that every po
I shall not particularize more of the cited cases. Most of them appear to have no direct bearing upon the points, or application to the questions under consideration. In general those decisions were, in cases of unquestionable loans, secured in a manner evasive of the statute, with intent to reserve interest higher than the legal rate ; or they were in actions instituted upon accommodation paper, and the transactions clearly usurious, although presented to the courts under various aspects. The distinction between accommodation and business paper has not in all cases been regarded, but whenever it has been, the decisions hive not been essentially variant from those in this state. 2 McCord, 173. 3 id. 365. 4 id. 402. It is true, there is not a uniformity in the decisions on the subject of usury. The English decisions are not in unison, and the American are not harmonious. Courts have taken different views, and judges have reasoned differently, and come to variant and even opposite conclusions. These conflicts of opinion were unavoidable, and the judgments to which they led are not to be reconciled ; but the decisions of courts are not more variant in the construction of the statutes than opinions upon the subject of usury.
The doctrine now contended for is traced, with clearness and certainty, no further than the case of Lowes v. Mazzaredo, the history of which has been given. That may have led to some confusion in the decisions in this country, and it did require at the time, in the country in which it was pronounced, the exertion of legislative power to prevent its threatened calamities. I have treated the case of Lowes v. Mazzaredo as analogous and in point, because it was so considered upon the argument, and the language employed in the decision so im
Extracts were also read upon the argument from a celebrated elementary writer, (Pothier,) in support of the plaintff’s doctrine; that writer, certainly of rare intelligence, says; “ When the seller of the claim guarantees that it shall be duly paid, it cannot be lawfully purchased, either in the forum of conscience or according to the rules of law, for a price less than the sum due. Such a purchase can no more be lawful than a usurious loan; for when I sell you a claim for lOOOlivres for 900, which I engage to discharge myself if the debtor does not; it is evident that it is the same thing as if you lend me 900 livres, upon condition of my paying you 1000 at the end of a certain time.” These remarks are made without reference to any particular statute of usury, and the writer proceeds to specify exceptions to this general rule, in which the purchase would be lawful, if not conscientious. Without discussing the question whether the two cases supposed are the same, against which something might be said, and names of authority arrayed, it is evident the writer contemplates that the vendor shall guarantee the payment of the whole amount of the claim which had been sold for a less sum ; and that is the transaction which he pronounces to be contrary to law and good conscience. His remarks do not apply to the case of a guaranty to pay not the whole amount of the claim sold, but only the sum paid for it. Upon his own principles such a transaction would be honest and lawful. The two transactions are suceptible of easy illustration. To raise money, a man sells a horse worth one hundred dollars for eighty, and covenants that at the expiration
Courts and individuals sometimes speak of Usury laws with a sort of idolatrous veneration, as though they were of divine origin or essence—the main protection of property, and chief Safe-guards of civil society. One judge has declared that they “ have prevailed in all civilized countries and in all times.’’ Language of such bold and imposing import is apt to influence the mind without perception, and hurry it to conclusions' without conviction. Opinions acquire, from long transmission, the attributes of wisdom, and continue to command assent rVithout investigation, because they have been embraced with unanimity. The mind fails to grasp- and estimate the changes wrought in the condition of mankind, and clings to old maxims and rules long after the reason for them has ceased to exist.
This review, comprising the most of commercial Europe-, shews, by the test of actual experience, the judgement of mankind upon the policy or utility of statutes against usury. On the continent generally, they are a dead letter. In some states there are none, in others they are obsolete and wholly neglected ; and where they do exist, the facility of evasion, by means of a bonus or premium actually paid and not forbidden, renders them inoperative. Generally, they are confined to mortgage securities, while mercantile operations are left unshackled to the agreement and mutual interest of the parties. England is the only country in Europe where usury laws with severe penalties exist or are enforced with rigor, and there it is said the actual price of money is greater than on the continent.
In this country, there is also much diversity of opinions. Several of the states have usury laws, forfeiting the security and subjecting the usurer to penalties, copied substantially from the English statute. Such was the law in Massachusetts, but it has been repealed, after an existence of more than 40 years, and its place supplied by an act forfeiting only treble the amount of interest exacted. In New-Hampshire and Pennsylvania the securities are not made void, and securities for the payment of money may be purchased at any discount, with in-curing the penalties of usury. In Rhode Island, only the interest is forfeited; the principal is recoverable, and the statute is seldom if ever enforced. In Missouri, the legal rate of interest is six per cent., but the parties may contract for ten, and
This enquiry might be extended farther with a similar result. It has been indulged to an extent sufficient to illustrate the fact that the opinion and the action of the whole civilized world are in favor of relaxation in the legal provisions, affecting the price and the use of money. The doctrine asserted requires a counter action of this general and powerful tendency, by increased rigor, in their construction. Opinions are also discordant as to the provisions which should receive legislative sanction, where the principles of restraint and regulation are adopted. It is less surprising, therefore, that diversities and contradictions should exist in judicial decisions. Uniformity under such circumstances cannot, be expected, It is impracticable, and all attempts to produce it must be fruitless.
Whatever may have been the necessity for statutes against usury at the time of their first enactment, or their immediate use, they were made for other times, and a far different condition of the world. They came into existence before commerce had produced revolutions in business and property, and in the social condition. They were not enacted to regulate transfers of negotiable paper, but existed long before promissory notes were made negotiable by statute. Before distant communities had learnt to increase their comforts by an interchange of commod-. ities; when manufactures, as á great and distinct occupation, were unknown; the avocations of men few and simple, and a vast proportion of the aggregate amount of property consisting of real estate—before paper had become the representative of money, extending its capacities, and performing its uses. At that period the dealer's in money were few, and those chiefly belonging to a proscribed race. Religious intolerance stimulated and sustained the policy of restriction. Indeed, the stat
In my opinion the transaction in review was a sale of the note, and not a loan of money; but if a loan, that there was no agreement in fact or law for the payment of unlawful interest, and that the judgment should be affirmed.
The language of the statute of usury is; “ No person shall take any bond, bill, note or security whatever for payment of money to be lent, or to be due or payable by any means whatever, where there shall be reserved or taken above the rate of seven per cent, per annum.” The statute pronounces all such securities void, and forbids the resort to any shift, means or contrivance to evade its provisions. This language appears plain and clear, and its provisions so broad that one can hardly suppose it possible for a question to arise on a simple transaction of passing a paper security or note from one person to another, at a discount of more than seven per cent.; yet such is the case, arising out of the ingenuity of man, which is never greater than when prompted by considerations of interest. Probably one reason why so many refined questions have been raised on this subject, is the propensity of entering into the policy of the law—a consideration that belongs more properly to the legislature ; yet parties enter into it, and judges have often adverted to it in the course of their reasoning. In some cases, and to a certain extent, it is probably unavoidable. The policy of the law is assailed by a certain portion of the community as the circulating medium becomes limited, and speculations
I have paid some attention to this case, and particularly so, because the decision of it one way will go further to affect the operation of the statute, and open a wider door to- usury, than any case that has come before this court. If any of the provision of this law require modification, let the proper authority apply the remedy on the application of those who complain, and not let in be done by a species of judicial legislation. After examining all the authorities referred to, I have come to the conclusion, and 1 could come to no other, that this is a direct case of usury, plain and palpable between the parties in this suit, tangible by the defendant on the contract of endorsement, and comes within the latter, meaning and intention of the statute.
Admitting the note to be a fair business note, and available in the first instance, the endorsement of it is a separate agreement between Cram and Hendricks. Although endorsed in blank, the terms of that agreement are well understood and settled in law ; and every endorsee may fill it up, or write it out whenever it becomes necessary. The plaintiff below, Hendricks, has set out the terms of it in his declaration. It was on this endorsement that the note was discounted, and the money loaned; and Cram became bound by the terms of his endorsement to return that loan, if the drawer of the note did not. It was as clearly a loan as it would have been had he given his own note. Whether I say to a man, let me have a hundred doEars and I will give you my note, or I will give
Can the transaction in this case be called a sale of a note ? This ground was assumed in argument by the counsel for the defendant, but it was not, in my opinion, supported by authorities which bore out the position which they took. There are cases in which a note may be sold, and more than legal in-' terest taken, as stated in some of the authorities, but these aré few and depend on peculiar circumstances. There does not appear to be any general principle settle as to a sale of a note, except in two particulars. The first is where the owner of the note sells without endorsing it, (except merely to pass the title,) or guaranteeing the re-payment of the money. " Second. Where thé note so sold is attended with some risk or hazard, not of an ordinary nature, and it is for such risk or hazard, which the buyer is willing to assume, that a greater rate of interest has been permitted. 4 Mass. R. 159. 1 Greenleaf, 167. 1 Holt, 256. A man may take a fair bona fide note into market and sell it for what he can get, provided he does not endorse it; the presumption is, that he sells it oil account of some hazard, or doubt of the ability of the party to pay. If he endorses it, it is a loan; but there are no peculiar circumstances attending this case to take it out of the every day practice of discounting a note.
The case of Munn v. The Commission Company, 15 Johns. R. 44, was referred to, to shew that a note might he sold, and
There has not been produced a single case, nor is there one to be found in the books, in point with the case now before us; not a reported case in England or this country, where a suit was sustained by the endorsee against his immediate endorser, between whom the usury was proved ; not a case where the open violator of the statute comes into court and asks for judgment against the other party to the usury. A host of cases have been produced and referred to about and upon the subject of usury, and not one to be found in favor of the plaintiff below. What then is the only thing, for I cannot call it a case or a report of a case, that looks that way T It is a nota bene, at the end of the report of Munn and the Commission Company, 15 Johns. R. 44, saying “a judgment was entered in the suit of Munn against Oliver Ruggles, for $4336but nothing in the report referring to it. From its terms it must have been added by the reporter, and is not the language of the judges-. There might have been an agreement, as is sometimes the case between the parties, that the other suits on the note or bill abide the event of the first. But however it may have got there, it cannot, in my opinion, be considered as any authority, or case decided or reported. The case of Munn v. The Commission Company, was a suit against the company, who stood in the place of Gomez, the maker of the note, and was not the case of endorsee against immediate endorser. That case appears to have been decided upon the authority of a prior case of Braman v. Hess, a case that says nothing about usury or the státute of usury; and it was contended by counsel, and very properly, I thought, that it ought never to have been reported, much less quoted as an authority in any case of usury. No defence of that kind was set up; it is reported without having been argued, and I cannot see that it settles any thing on this subject. If it did relate to. usury at all, like the usurer’s bargains, nothing appears on the face of it. . Yet this case has been the theme of argument, when very probably it had no reference to usury.
The American cases I think are equally clear on this point. In 5 Randall’s Virg. R. 233, the court say, “ A valid note in its inception, endorsed by a party to whom it has regularly come, and he passes it to a third person who takes usury, the transaction is void.” This is very similar to the present case. The note was valid, but the endorsement void, as between endorser and endorsee. So 7 Martyn’s Louis. R. 408. The note was drawn by Morgan to Saul, who endorsed it to Price, the defendant. Price, as second endorser, passed it to Astor, who retained more than legal interest. This was a valid note in its inception; it was drawn in New-York, and the court de
Anticipating what the decision will be, I beg leave to enter my protest against a confirmation of the judgment in this case. I am for reversing.
On the question being put, “ Shall this judgment he reversed ?” the members of the court voted as follows :
For reversal—The Chancellor, and Senators Hubbard, Rexford, Sanford, Sherman, Throop, Warren, and Westcott—8.
For affirmance—The President of the Senate, and Senators Allen, Armstrong, Beardsley, Bronson, Conklin, Deitz, Dodge, Foster, Gere, Lyndb, Mather, Maynard, M’Lean, Talmadge, and Todd—16.
Whereupon, the judgment of the supreme court was affirmed, with single costs.
[Remainder of the Cases in Error in next volume. }
Lorsque le vendeur d’une creance la garantit bien payable, elle ne pent en cecas, dans le for interieur ni dans le for exterieur, etre licitement achetee pour un prix moindfe que la somme due; un tel achat ne doit pas etre plus licite qu’un pret usuraire; car lorsque je vous vends pour neuf cents livres
