2 Edw. Ch. 267 | New York Court of Chancery | 1834
The objection of usury has been placed upon two grounds : 1st, That interest was reserved to commence on the fifteenth day of May (the date of the bond), whereas, according to the proposals for the loan, the money was not required until the eighteenth, twentieth and twenty-second days of the same month; and, 2nd: That four thousand and five hundred dollars of Nicoll’s old debt was added to the sum actually lent, and was included in the bond and an interest of seven per cent, reserved upon the whole amount-.
I. With respect to the first point. It is not made an objection by the bill that interest was reserved by the contract to commence on a day anterior to the actual loan or advance of the money. In order to give the complainants the benefit of such an objection, they should have put it forward distinctly in their bill. If the money was not advanced and was not intended to be advanced until some time after the day appointed for the interest to commence, then the fact should have been alleged in order that the defendant might have had an opportunity of answering it and, if necessary, of putting in issue the fact of intention to take, by this means, excessive interest. It is true Mr. Lenox has, in his answer, set forth the letter containing the proposals for the loan which, with the additional circumstance of Robert Smith’s becoming a co-obligor in the bond, were the terms assented to and finally agreed upon; and the answer also states that the money was accordingly advanced and paid to Edward H. Nicoll in various sums as called for by him and on different days about the time of the date of the bond and in part before and in part after such date, but on what par
II. I come now to the consideration of the second and more formidable question. Usury consists in stipulating for or in receiving, upon a loan of money or for the forbearance of a debt, a greater rate of interest than is allowed by law. There may be cases where more than the legal rate of interest is reserved and still not be within the statute: as
The exceptions to the rule embrace special and peculiar cases, as where, under some circumstances, the lender can charge commissions for transacting business: Nourse v. Prime, 7. J. C. R. 69.; or where a mortgagee out of possession stipulates for the consignment of the produce of the estate mortgaged to be sold by him on commission: Bun-bury v. Winter, 1 J. & W. 255; Sayers v. Whitfield, 1. Knapp’s R. 133.
Some of the most frequent instances of what are deemed shifts or contrivances to elude the statute are, where the loan is made in a depreciated currency or in bonds, notes or goods of a less value than their nominal amount, as in The Bank of the United States v. Owens, 2. Peter’s Reports, 527;—or, where, in connection with the loan of money and as part of the same transaction, the lender sells to the borrower, while in embarrassed circumstances, lands, goods or other things at a price exceeding their real value and includes the amount in the security for the loan: Eagleson v. Shotwell, 1. J. C. R. 536; Morgan v. Schermerhorn, 1. Paige’s C. R. 544;—or where the advance of money, although exhibiting all the characteristics of a loan, is made to assume the form of a purchase of a rent charge or an annuity payable out of lands and exceeding lawful interest upon the sum advanced: Lloyd v. Scott, 4. Peter’s R. 205. And so, likewise, where the borrowing of money is accom
There is a numerous class of cases of this description which have arisen in the courts and especially in the Irish chancery in the time of Lord Redesdale and Lord Ch: Manners ; but the doctrine of which has been reviewed and in some degree modified by the late Lord Ch: Hart in Moore v. M’Kay, 1. Beatty’s Rep. 282., (reported likewise, but not so fully upon this point, in 2. Molloy’s Rep. 134.) In all the cases to which I have adverted and in others that might be mentioned, the question seems to have been whether the substance of the transaction was really a loan of money or the creation of a debt, whatever might be the form of the contract; and if found to be so, then whether the lender or payee had stipulated for or secured to himself, by means of the loan and arising either from it or from any thing connected with it and forming a part of the same transaction, any profit or pecuniary advantage he would not otherwise have been entitled to exceeding the rate of interest allowed by law. That this is the test, appears likewise from the language of Judge Johnson in Bank of the United States v. Owens, 2. Peters, 537. He says, “ a profit made or loss imposed on the necessities of the borrower, whatever form, shape or disguise it may assume, where the treaty is for a loan and the capital is to be returned at all events, has always been adjudged to be so much profit taken upon a loan and to be a violation of those laws which limit the lender to a specified rate of interest.”
It then remains to be seen whether the case in hand is one coming within this principle. Here was a loan of sixty thousand dollars, to be repaid at all events, with the lawful rate of interest. This is admitted. At the same time one of the borrowers was justly indebted to the lender upon former dealings in a large sum of money—this is not attempted to be impeached.
The existence of such indebtedness would of itself form
It has been, not inaptly, put in argument:—suppose, instead of one bond for sixty-four thousand and five hundred dollars there had been two bonds given upon eifecting the loan, one by Dowdall for thirty thousand dollars with Nicoll as surety and the other by Nicoll as principal and Dowdall as his surety for thirty four thousand and five hundred dollars—couíd there be a doubt of the obligee’s right to enforce the payment of both bonds 1 and with respect to the latter, would the fact of its covering an antecedent debt, even under the circumstances, furnish any grounds for impeaching it as usurious 1 This proposition seems me to admit of but one answer: that it would not. If the prior debt had grown out of usurious loans or was founded upon any illegal con
I am satisfied, as the matter stands between Robert Len-ox and Edward H. Nicoll, that there is no ground for imputing usury to the transaction.
But it is said : that so far as Dowdall was concerned, the case has a different aspect; and it is contended that towards him the terms of the loan were oppressive—that the four thousand and five hundred dollars was a premium—that whether it be considered a premium or an old debt of Ni-coll’s, still, advantage was taken of Dowdall’s necessities to draw him in to assume it; and in either point of view the contract must be deemed usurious with respect to him. From what I have already observed it seems to me impossible to draw this conclusion, provided Captain Dowdall came into the arrangement and signed the bond knowing the additional sum to be an antecedent debt of Nicoll’s: for, then he must be viewed as a surety voluntarily binding himself for the debt of another and, like any ordinary surety, not entitled to set up objections affecting the consideration of the instrument and which even the principal debtor would not be at liberty to urge.
There is no positive evidence of Dowdall’s knowing or being aware of the fact that the four thousand five hundred dollars included in the bond was for money already owing by Nicoll. But the inference is and I think the court is bound to presume that he was acquainted with the fact. The written application for the loan expressed it; and although it was drawn up and signed by Nicoll alone, the proposition equally concerned Dowdall and was made as if proceeding from both of them ; and as the terms proposed were accepted and Dowdall subsequently united with Nicoll in carrying the agreement into effect and corresponding in form with the proposal, I think it must be presumed, in' the absence of any evidence to the contrary, that he understood
Nor is there any thing in the circumstance that the borrowers in their private agreement treated the four thousand and five hundred dollars as a premium for the loan, (agreed to be borne by them in certain proportions) which can affect the rights of Mr. Lenox. If it were a pre-existing debt, they could not change it into a premium by calling it so. It remained the same notwithstanding any appellation they might choose to bestow for their own convenience or views. There is no pretence of Mr. Lenox’s ever having assented to any change in its character or name.
Viewing the bond in the way I am compelled to believe it was understood and intended by Dowdall, as well as by the other parties to it, as a security for the loan and for the antecedent debt of Nicoll combined and not a covering of a premium, and considering Dowdall a borrower as well as Nicoll— then, according to my judgment, the transaction cannot be construed into usury or an evasion of the statute as between Lenox and Dowdall any more than between the former and Nicoll. It is true that in addition to Dowdall’s responsibility for the sum actually lent with interest, Mr. Lenox had him bound for the four thousand and five hundred dollars : but this was money justly owing and Dowdall assumed it as surety in the same manner that Robert Smith became surety for both Dowdall and Nicoll in the same bond* It, therefore, comes back to the old question as regards Nicoll; and after due reflection, 1 cannot say there is any principle or rule of law which would go to exonerate Dowdall on the ground of illegality in the transaction which would not, at the same time, go to exonerate Nicoll.
There is no evidence showing that Dowdall was in such a state of distress or embarrassment as would probably induce a man to agree to hard and oppressive terms of a proffered loan in order to relieve his wants. His condition was not that of a debtor pressed by his creditors and his property about to be sacrificed by forced sales or his person imprisoned and whose anxiety or eagerness to obtain the means of relief would, in some measure, deprive him of the faculty of
I consider this a sound conclusion and which may be applied to the present case. And as there is no such evidence before me and as I consider there can be no such legal presumption from the nature of this particular case, there is no ground for relieving the complainant’s testator from the portion of the bond.
. This disposes of the objections which go to the avoidance of the bond. Still, supposing it valid, there is then another point insisted upon by the complainants as a ground for partial relief against the defendant Lenox—and it is this: that he should be left to look to Edward H. Nicoll and Robert
The bill must be dismissed as to the defendant Robert Lenox: but being exhibited by executors and not without some reason furnished by the appearance of the transaction with their testator, the defendant must bear his own costs. The bill must likewise be dismissed as against Messrs. Haggerty, Austin & Co., but with costs to be paid by the complainants or out of any funds belonging to them in the hands of these defendants. As they are mere stake-holders, they are, at all events, entitled to their costs. ■
With respect to the other two defendants Edward H. Ni-coll and Robert Smith: it has been submitted whether the bill should be retained against them for the purpose of adjusting the accounts between them and the complainants as