Lazear v. National Union Bank

52 Md. 78 | Md. | 1880

Lead Opinion

Guasón, J.,

delivered the opinion of the Court.

This suit was instituted on a written guaranty of the appellant to the appellee, which was executed on the third day of Eehruary, 1870, and is in the following words : “ Eor value received, I hereby guarantee to the National Union Bank of Maryland, at Baltimore, all liabilities to said Bank, of Lazear Brothers, now existing, or which may hereafter arise, to the extent of twenty-five thousand dollars, I hereby holding myself liable to said Bank to that extent for all paper that may he held hy the Bank of Lazear Brothers, eithers as drawers or endorsers, in the ■same manner as if endorsed by me, I hereby waiving notice of protest of such paper.”

The first question presented for our determination-is, whether parol evidence is admissible to show that the guaranty was intended to cover only such paper as was received hy Lazear Brothers from their customers living out of Baltimore, and endorsed by Lazear Brothers and discounted by the Bank, and such other paper drawn or endorsed by them as might be discounted for the benefit of Lazear Brothers by the Bank. The rule is very well settled that parol evidence is not admissible to contradict, vary, add to, or subtract from the terms of a written instrument. Where parties have entered into a written agreement, it is only reasonable to supj>ose that they have introduced into the written instrument every reasonable and material term and circumstance; and, consequently, all parol testimony of conversations made by either of them, whether before or after, or at the time of the completion of the contract, will be rejected. 2 Taylor’s Ev., sec. 1035; 2 Greenl. Ev., sec. 275; McElderry vs. Shipley, 2 Md., 25. All oral negotiations or stipulations between the parties, preceding or accompanying the execution of a written instrument, are regarded as merged in it, and the written instrument is treated as the exclusive medium of ascertaining the agreement of the parties to it. Bladen, vs. Wells, 30 Md., 581. This rule should be more rigidly enforced in a case like the one now under consideration, where the Statute of Frauds requires the contract to be in writing to make it valid. Where that Statute requires the contract to be in writing, it cannot be partly in writing and partly in parol. Frank vs. Miller, 38 Md., 460; Moale vs. Buchanan, 11 G. & J., 322.

But it was contended by the counsel of the appellant, that the parol evidence, offered in this case and rejected by the Superior Court, was admissible for the purpose of raising and explaining a latent ambiguity in the guaranty; that is, that there was more than one class of paper, held by the Bank, to which the contract of guaranty might be applied, and that the parol evidence was admissible to show that the parties intended it to apply to and cover only such paper as should be discounted by the Bank for the benefit of Lazear Brothers. Such evidence would have been a palpable contradiction of the plain language of the guaranty, for by its very terms it covers all liabilities of said Lazear Brothers existing at the date of the execution of the contract, or. which might thereafter arise, to the extent of twenty-five thousand dollars, and, to that extent all paper that might be held by the Bank upon which Lazear Brothers were either drawers or indorsers. There is no obscurity or ambiguity in the language employed, nor any uncertainty as to the subject-matter upon which the contract was intended to operate. The guaranty in plain and express language is made to apply to all paper, either drawn or endorsed by Lazear Brothers and held by the Bank, without any distinction as to whether it was discounted for the benefit of themselves or some other party. In other words, the evidence which was objected to and ruled out, could have had no other effect than to limit and restrict the terms of the guaranty, and to show that the language used in it did not mean what it clearly and plainly expressed. The admission of such parol evidence would he a violation of the rule, to which we have adverted, and, therefore, there was no error in refusing its admission for the purpose for which it was offered, or in rejecting the appellant’s prayers numbered one, one-and-a-half, and four.

It was contended, that the guaranty is void, because usurious interest was demanded and received hy the Bank upon the notes now held hy it, and the non-payment of which is the foundation of this suit. The United States Banking Law authorizes Banks, organized under its provisions, to receive the same rate of interest that is allowed hy the laws of the States in which such institutions are located, and no more, and provides that, if more is demanded and received, the whole interest shall he forfeited or that twice the amount of interest so paid may he recovered hy the person paying it, or his legal representatives, provided suit for that purpose he brought within two years from the date of the usurious transaction. See ch. 3, secs. 5197 and 5198 U. S. Revised Statutes. There is no provision, however, declaring an usurious contract void. While, as a general rule, contracts, which are in violation of the common or statute law, are void, yet this rule does not apply to cases like the present. In most of the States there are laws regulating the rate of interest, and yet we have been referred to no case, and have found none, in which a contract has been declared void, hy reason of the fact, that a greater interest than that allowed hy law, has been received under it, unless the law itself has provided, that the taking of illegal interest shall render the contract void. This Court, in the case of Lester vs. The Howard Bank, enforced the contract, notwithstanding the Bank had made the loan to Purvis, its President, in violation of the terms of its charter, and in that case this Court said, “ cases are to he found, arising under contracts made in violation of a statute, in the application to which of the general rule, Courts have been governed by the plain and obvious purposes of the law; and, in such, it has been repeatedly held, that an action would lie against a party receiving money under such a contract, upon a promise implied by law to refund it.”

In the case of Fleckner vs. U. S. Bank, 8 Wheat., 355, Mr. Justice Stoey, in delivering the opinion of the Court, says: “The taking of interest by the Bank beyond the sum authorized by the charter, would, doubtless, be a violation of its charter, for which a remedy might be applied by the Government; but as the Act of Congress does not declare, that it shall avoid the contract, it is not perceived how the original defendant could avail himself of this ground to defeat a recovery.” See also Bandel vs. Isaac, 13 Md., 224, to same effeet.

We think it very clear, that the demand and receipt by the Bank of usurious interest upon the notes, offered in evidence, does not avoid the contract between the appellant and the appellee. There was therefore no error in the refusal to grant the third, fifth, fifth and a half, eighth, ninth and tenth prayers of the appellant, nor in refusing his motion to withdraw from the jury the notes which had been offered in evidence subject to exception. But it was also contended, that the usurious interest, received by the Bank upon the discount of paper, upon which Lazear Brothers were drawers or endorsers, should be recouped or set off against the amount of the notes offered in evidence. It must be borne in mind, that none of the paper of Lazear Brothers discounted by the Bank, was discounted for the benefit of the appellant, and that none of the usurious interest, taken by the Bank, was paid by him. 'It was paid by Lazear Brothers and Schurtz & Co., and they, and not the appellant, have been the sufferers by tbe exaction of illegal interest. If tbe notes had been discounted at the rate of interest prescribed by law, the appellant would have been in no better situation than he is now, for, if bound at all, he would have been liable for the amount of the notes, with legal interest thereon from the date of their maturity to the time of the trial of the case. But it has been frequently held that no one, except the party, who has paid it, can recover the usurious interest paid. Smith vs. Exchange Bank of Pittsburg, 26 Ohio State Peps., 152; Scott vs. Leary, 34 Md., 395; and Hough vs. Horsey, 36 Md., 184. It will be found too that sec. 5198 of the Banking Act, gives the remedy in such cases to the party, who has paid the usurious interest, and to his legal representatives, provided, they bring suit to recover it back within two years from the date of the usurious transaction. It was optional with the parties, who paid it to the appellee, to institute proceedings for that purpose or not, and they have not thought proper to do so within that time and they are, therefore, now without remedy.

The Superior Court of Baltimore City was, therefore right in excluding from the consideration of the jury the statement, of the interest paid, as' set out in the third exception, and in rejecting the appellant’s twelfth prayer.

The appellant’s seventh prayer is based upon the theory, that the note of Lazear Brothers for five thousand dollars, dated June 22nd, 1872, which was obtained by the appellee from Winchester & Son, note and bill brokers, was not discounted but purchased; that such purchase was not authorized by the Banking Act, and, consequently, that the appellee obtained no title to the note, and was not entitled to recover upon it. Sub-sec. seven of the Act enumerates the powers which are conferred upon institutions, organized under the law, and provides that such institutions “shall have, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes,- drafts, bills of exchange and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security; and by obtaining, issuing and circulating notes according to the provisions of this title.”

A corporation has no other powers than such as are specifically granted, or such as are necessary for the purpose of carrying into effect the powers expressly granted. This rule of law is so well settled that we need refer to no other case than that of Weckler vs. First National Bank, 42 Md., 591. The only power to buy and sell, with which National Banks are clothed, is the authority given by chap. 1, sec. 5131, sub-secs. 1, 2, 3 and 4, to purchase real estate for the special purposes and under-the circumstances therein stated. The Act plainly shows that it was the intention of Congress to so limit and restrict National Banks, as to prevent them from exacting and receiving a greater rate of interest than is authorized by the laws of the States, within which such institutions may be respectively located, and to prohibit them from becoming buyers and sellers of promissory notes. The evidence shows that Winchester and Son, note and bill brokers, were employed by Lazear Brothers to sell the note of June 22, 1812, to any purchasers willing to buy, and that it was sold to the appellee, over the counter of its banking house, at nine per cent, discount, for Lazear Brothers, the drawers, who received the proceeds of sale. None of the Bank officers were informed that the Winchesters were acting for Lazear Brothers, nor were the latter told to whom the note had been sold. The note was sold to the Bank on the eighth day of July, 1812. The President of the Bank testified that the note in question was purchased by order of the Board of Directors, and that he had an impression, he believed, that Lazear Brothers were to get the proceeds of it. He further proved that, after the customers of the Bank were served, it sometimes invested its surplus proceeds in notes. We are of opinion that this transaction was an out and out purchase by the Bank, and that such purchase was without authority, and that the Bank acquired no title to the note and cannot recover thereon in this suit. While we do not mean that a Rational Bank may not invest its surplus capital in notes, we are of opinion that it has no authority to use such surplus funds, as may remain on hand from day to day, for the purpose of buying notes. National Bank of Rochester vs. Pearson, Thompson's Bank Cases, 637; Farmers and Mechanics’ Bank vs. Baldwin, 23 Minnesota, 198. If any other construction were given to such a transaction as this, the intention of Congress to prohibit Rational Banks from buying and selling notes would be entirely defeated, and those institutions would be at perfect liberty to decline making discounts for their customers, and after-wards to buy up the very paper, which had been offered for discount and refused, at such price as the Bank might choose to give. The note of the 22nd June, 1872, for five thousand dollars was acquired by the appellee by purchase without authority to make such purchase, and it is not, therefore, entitled to the note and cannot recover upon it, and the appellant’s seventh prayer ought to have been granted.

The guaranty of the appellant is shown to have been executed by him and accepted by the appellee, and the subsequent discounting of paper, of which Lazear Brothers were drawers, or which they had endorsed, furnishes prima facie evidence that such discounts were made upon the faith of the guaranty. But such prima facie evidence may be rebutted by other proof offered by the guarantor, or by facts and circumstances put in evidence by the appellee. Whether the money was parted with by the appellee on the faith of the guaranty or 'otherwise, is a question exclusively for the determination of the jury, and there are some facts and circumstances appearing in the evidence, as contained in the record, which, should ■ have been submitted to the consideration of the jury, whose duty it is to determine to what weight, if any, they are entitled. We are of opinion, therefore, that there was error in rejecting the appellant’s fourteenth prayer. It follows from what we have said that there was also error in granting the appellee’s modified prayer, because it permitted the jury to find for the appellee the amount of the five thousand dollar note, after deducting the usurious interest received upon it, and also because it took from the jury the question whether the money obtained from the appellee had been loaned upon the faith of the guaranty.

The sixth and thirteenth prayers of the appellant were waived, or abandoned at the argument of the case, and we need not refer to them further than to say, that we think there was no error in rejecting them.

As there was error in rejecting the seventh and fourteenth prayers of the appellant, and in granting the modified prayer of the appellee, the judgment appealed from will be reversed and a new trial awarded.

Judgment reversed, and

neiu trial awarded.

(Decided 19th June, 1879.)

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Dissenting Opinion

Alvey, J.,

delivered the following dissenting opinion.

I cannot agree with the majority of the Court in their conclusion as to the want of power in the Bank to acquire title to the note of $5000, obtained from Winchester & Son. . That note was made and endorsed by Lazear Brothers, and was negotiated by Winchester & Son as agents of the makers, long before the note matured. Whether the Bank knew at the time of the negotiation that the money advanced upon the note was for the makers and endorsers of the paper, is a question, I think, quite immaterial. If Lazear Brothers had presented the paper in person and obtained the money upon the terms upon which the brokers obtained it, there would then have been no question as to the legality of the title acquired by the Bank; that, it is conceded, would have been a discount. But it is contended, and it is so held in the opinion of the majority of this Court, that, as the note was obtained from Winchester & Son, hill brokers, without disclosure at the time from them that the money was for the benefit of the makers of the note, therefore it was a purchase of the note, as contradistinguished from a discount, and that the transaction was ultra vires, and consequently no title to the note was transferred to the Bank. To this proposition I cannot assent.

This question, of course, depends upon the jn’oper construction of certain provisions of the Rational Bank Act, under which the appellee was organized. The general purpose of its organization was “for carrying on the business of hanking.” By the terms of the Rational Bank Act, (U. S. Rev. St., sec. 5136,) the Bank is clothed with all the powers, except such as are expressly prohibited, usually given to and exercised by hanking corporations. It is expressly authorized to exercise “ all such incidental powers as shall he necessary to carry on the business of hanking; by discounting and negotiating promissory notes, drafts, hills of exchange, and other evidences of debt; by receiving deposits ; by buying and selling exchange, coin and bullion ; by loaning money on personal security, and by obtaining, issuing and circulating notes.” Besides the things thus enumerated which the Bank is in terms authorized to do, there are many other things that it may do, under the general power to carry on the business of hanking. There is no express power given, for instance, to certify checks, or to collect notes, checks, or hills of exchange, for account of customers or correspondents ; and jet we know that such transactions constitute a large portion of the legitimate business of banking. It does not follow, therefore, that everything is prohibited that is not expressly authorized. By sec. 5197, U. S. Rev. Sts., it is provided that any banking association “ may take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State, etc., where the Bank is located, and no more,” etc. This latter provision is under the title, “ Regulation of the Banking Business.”

Now, without invoking the aid of any implied power possessed by the Bank, to enable it to carry on the banking business, it is expressly authorized, as we have seen, to discount and negotiate promissory notes. What, then, is the meaning of the word “ negotiate,” according to its ordinary acceptation among business men ? According to the most approved lexicographers, its meaning is “ to transfer, to sell, to pass, to procure by mutual intercourse and agreement with another, to arrange for, to settle by dealing and management.” Webster’s Die.; Worcester’s Die. This term would seem to be comprehensive enough for all the requirements of the case; but, by allowing the full meaning to the more exact and important term, “ discount,” all doubt whatever would seem to be removed. To discount is to deduct a sum of money from the debt in consideration of its being paid before the usual or stipulated time for payment. In the case of Fleckner vs. Bank U. S., 8 Wheat., 350, Judge Story, in delivering the opinion of the Court, having occasion to define a discount by the Bank, said: “ Nothing can be clearer than that, by the language of the commercial world, and the settled practice of Banks, a discount by a Bank means, ex vi termini, a deduction or drawback made upon its advances or loans of money, upon negotiable paper, or other evidences of debt, payable at a future day, which are transferred to the Rank. We must suppose that the Legislature used the language in this, its appropriate sense ; and if we depart from this settled construction, there is none other which can be adopted, which would not defeat the great objects for which the charter was granted, and make it, as to the stockholders, a mere mockery.” Purchase may be by way of discount, equally as a loan may be made by that means. When the party receiving the proceeds of the paper discounted is himself either maker or endorser, and the discount is made on his responsibility, he receives the money as a loan, for he is bound to return it; but if he is in no way bound on the paper, he receives the money as an advance, and as a consideration for the transfer of the paper. Both transactions are, according to the established practice and usage of Banks, discounts, though the latter is in effect a purchase by the Bank. The act of discounting simply has reference to the deduction from the face amount of the paper for the time it has to run to maturity, and the rate of that deduction; but whether the transaction amounts to a loan or to a purchase on the part of the Bank, depends upon other facts and condition of things. This idea of restricting the pow.er of discounting to a transaction in which money is actually loaned upon the credit of the party passing the paper, it seems to me, is novel, and, I am sure, is contrary to the received understanding of the commercial community, and the established practice and usage of Banks. Suppose the payee of a promissory note payable to order takes it to a Bank and procures the money on it, less the rate of discount, upon endorsement without recourse; would that not be strictly a discount within the meaning of the law, notwithstanding it would not be a loan upon the responsibility of the party obtaining the money? Such a transaction would not be a loan at all, according to the correct meaning of the term; and yet if it be a discount, according to the modes and usages of banking, why should not any third party holding paper payable to bearer, or endorsed in blank, be able to negotiate that paper -with the Bank, by way of' discount, and transfer a good title to the Bank, notwithstanding his name might not appear upon the paper, or he incur any liability in respect to it ? I cannot, I must confess,' perceive the reason for the distinction that has been made in this case. It should he recollected that it is not. the rate of discount, with reference to which the parties deal, that determines the question of the validity of the transfer of the paper, or the title of the Bank, though the latter may have exacted and received more than the lawful rate of discount. All the business of the National Banks is done under the restrictions prescribed by the Act of Congress; and the rate of discount is expressly prescribed, among the various regulations contained in the Act for the government of the banking business ; and for taking, receiving, or charging any greater rate of interest or discount than is by the Act allowed, the Bank subjects itself to the penalties prescribed by see. 5198, of the Revised' Statutes ; hut the title to the paper is not thereby affected. However the transaction here involved might be characterized if it were between individuals—whether it be called shaving or otherwise—as a bank transaction, if the Bank exacted a greater deduction from the face value of the' paper than the law allowed, it was excessive discount, for which it incurred the penalties of the Statute; but the' transfer of the paper vested a good title in the Bank. ■ And as by the opinion of the majority of the Court it is declared that the Bank acquired no title to the note in question, and is therefore not entitled to recover on it, I must respectfully dissent from that portion of the opinion, though I concur in the conclusions as to the other portions of the case.

After the announcement of the foregoing decision, the appellee, hy its counsel, applied to the Court for a re-hearing of the question presented hy the seventh prayer of the appellant, as to the right of the appellee to recover on the note of Lazear Brothers for $5000, dated the 22nd of June, 1812. The Court, in response to this application, directed a re-argument on notes.

Rotes were filed on hehalf of the appellee hy John N. Steele and I. Nevett Steele, and on hehalf of the appellant by T. Alex. Seth, R. Stockett Mathews and S. Teackle Wallis.

Bartol, C. J. and Bowie, Brent, G-rason, Miller, Alvey and Irvins, J., participated in the decision on the re-argument.

Grason, J., delivered the opinion of the Court.

This case was argued and decided hy this Court at the April term, 1819, and is now before us again upon a re-argument granted upon the motion of the appellee. The re-argument- was asked only upon the appellant’s seventh prayer, which was based upon the theory that the note of Lazear Brothers for five thousand dollars, dated June 22nd, 1812, which was obtained hy the appellee from Winchester & Son, note and bill brokers, was not discounted hut pm,rchased; that such purchase was not authorized hy the Banking Act, and, consequently, that the appellee acquired no title to the note, and could not recover upon it. This question was most thoroughly and ably discussed hy the counsel of the respective parties, arid after a very careful consideration of the case, it was held that the appellee acquired the note in question hy purchase, and not by discount, that such purchase was not authorized hy the Banking Act, and that the appellee acquired no title to the note and could not recover upon it. This question has again been very fully argued upon notes, filed by the counsel of the respective parties, and has again been carefully considered, and a> majority of the Court concur in the opinion, heretofore filed in the case, and in the conclusions therein reached.

(Decided 1st July, 1880.)

The judgment appealed from, will, therefore, he reversed, and a new trial awarded.

Judgment reversed, and

neio trial awarded.

Note.—The Reporter is requested to state, that Chief Judge Bartol, who concurred in the opinion of the majority first rendered, entertaining doubts as to the correctness of the decision upon the question presented by the appellant’s seventh prayer, requested a re-argument of that question; and upon the final disposition of the case after the re-argument, concurred in the views expressed by Judge Alvisy in his dissenting opinion. Judge Irving concurred with Chief Judge Bartol and Judge Ai/vey in their dissent.