Philadelphia Loan Co. v. Towner

| Conn. | Jul 15, 1839

Lead Opinion

Williams, Oh. J.

The first question presented is, can the plaintiffs recover upon this note ? To this two objections are made : that it is usurious; and that it is discounted contrary to the charter.

There is no dispute but that the note is usurious: is it therefore void ? As it was made in Pennsylvania, and the parties all reside there, except one, who was sometimes there, and sometimes in this state, the contract must receive its construction from the laws of Pennsylvania. Smith v. Mead, 3 Conn. Rep. 253. Medbury v. Hopkins, Id. 472. And by the uniform construction of their statute, a note or contract embracing an usurious consideration, is not void; and the plaintiff may recover the principal and legal interest. Wycoff v. Longhead, 2 Dal. 82. Turner v. Calvert, 12 Serg. & Rawle, 46.

It is said, however, that although this is the general law of that state, as it regards the contracts of individuals ; yet, as the act of incorporation under which the plaintiffs derive all their power, forbids the taking of usury, this contract must be void. Upon this point, we regret that we have no direct decision of the courts of Pennsylvania. We must conform our decision to the opinions of those courts in similar cases; and when we consider, that there is a well settled construction given to their statute of usury, by which it is made in effect to read, that if usury is taken or reserved in a contract, it shall not violate the contract itself, but there shall be no recovery for the usurious part; it would seem that when usury was prohibited in this act, and no special declaration as to its effect, it must have been intended to place this company on the same footing as to usurious contracts as other citizens were ; and that the same results would follow as in other cases of usurious contracts.

If it be asked, if this was all that was intended, why was the subiect alluded to at all in the charter ? We answer, that J ... , a general power was given to this company to loan money pledges, it was very proper expressly to declare that this should not authorize the taking of usury. This is common in bank charters. In this state, most, if not all, the bank charters prohibit the taking of more than six per cent., and leave the effect to be determined by the general law. It has never been claimed, that a construction was to be given to such contracts, different from that given to a similar one made by an individual. And such, we suppose, is the true construction to be given to that part of the charter of the company ; and that this note, like all other usurious notes in Pennsylvania, is good; but no recovery can be had for a sum exceeding the principal and legal interest.

But it was also claimed, that upon principles now well settled, no contract made in violation of an existing law, can be enforced in a court of justice; but the parties will be left to their own course. This, as a general principle, has been often recognised. The United States Bank v. Owens & al. 2 Pet. 527. Bartle v. Nutt, admr. 4 Pet. 184. Terry v. Olcott, 4 Conn. Rep. 442, But where from the law itself it is apparent, that the legislature intended its violation should be attended only with certain consequences, the court will, as in all other cases, carry into effect that intent; as in statutes against gaming, — where the legislature, in one section, makes the security only void, and in another, the contract, as well as the security. The court, by this marked difference of expression, have supposed, that the legislature intended a milder punishment in the one case than in the other. Robinson v. Bland, 2 Burr. 1080. So in construing the statute of 1723 regarding usury, the courts of Pennsylvania have relied upon the different phraseology of that statute and the statute of Anne, from which they have inferred, that a less penalty was intended, and that the unlawful interest was to be deducted. Turner v. Calvert, 12 Serg. & Rawle 46. Now, if in such cases, the general principle above alluded to were to be applied, the consequence would be, that the court would, in this way, adopt all the rigours of the statute of Anne, which the courts of Pennsylvania have declared was intended to be avoided, by the terms of their statute. This would be to make their statute and the decisions under it,felo de se. Such a course cannot be justified upon any principle of comity. Without, therefore, saying, as was said by the supreme court of the United States, in Fleckner v. The Bank of the United States, 8 Wheat. 355. that the taking of usury, though it may be a cause of forfeiture of its charter, could not be taken advantage of, by the defendants ; we think, that the laws of the state of Pennsylvania, do not admit the construction claimed by the defendants.

It was also claimed, that this note was void, because given in violation of that part of the charter prohibiting this company from discounting notes. Th eclause alluded to, is, that nothing in this act contained shall be construed to authorize said company to discount notes, or exercise any banking privileges whatever. On this part of the case, the facts are ; that on the 1st day of December, 1836, a note was taken for the same sum as the note in suit; that it had been renewed several times, and in each case, the interest was paid or secured ; and that the note in suit was the last of these renewal notes. The is, was this a discounting of notes? It was formerly held, that the reception or reservation of interest in advance, was usury. Barnes v. Worlick, Cro. Jac. 25. Yelv. 31. 1 Bulstr. 17. Noy 41. This rule has been relaxed in modern times, as it respects bills of exchange and banking transactions. Lloyd, q. t. v. Williams, 2 W. Bla. 793. Floyer v. Edwards, Cowp. 112. The Manhattan Company v. Osgood, 15 Johns. Rep. 168. And although the discounting of notes or bills, in its most comprehensive sense, may mean lending money and taking notes in payment, as is said in 2 Cow-en 699.; yet it is believed, that in its more ordinary sense, the discounting of notes or bills, means advancing a consideration for a bill or note, deducting or discounting the interest which will acrue for the time the note has to run. The taking of interest in advance is called discount; as where Lord Alvan-ley says : “If discount be taken upon an advance of money without the negotiation of a bill of exchange, it will amount to usury(3 Bos. & Pul. 158.) or as where Lord Kenyon says : “ The defendant did not receive all the money which was due, upon the note — the discount was deducted (6 Term Rep. 699.) and in the case before cited .of Fleckner v. The Bank of the United States, the supreme court say : “ Nothing can be clearer than that, by the language of the commercial world and the settled practice of banks, a discount by a bank must, ex vi termini, mean, a deduction or drawback made upon its advance or loan of money upon negotiable paper, or other evidence of debt, payable at a future day, which is transferred to the bank.” 8 Wheat. 350, 1. When then, by their charter, the power to loan is given, but the power to discount notes is denied, it is apparent that the term discount must have been used in its more limited and common acceptation, more especially as the company are prohibited from the exercise of banking privileges. The discounting of notes, by receiving the interest in advance for the time they have to run, being one of the peculiar privileges of a banking company, we cannot doubt that this was one of those privileges that the legislature intended this company should not possess. The plaintiffs, then, having repeatedly discounted the notes of these defendants, and the very note in question, they have done it not only without authority from the charter, but in direct violation of its terms. And although every such note is not declared void, yet we see nothing in this branch of the case to take it from the general rule before alluded to ; — nothing indicating a different intent on the part of the legislature. We are, therefore, of opinion that there can be no recovery upon this note.

But as under the charge of the court, the plaintiffs could have recovered no more than the moneys advanced, with lawful interest, deducting illegal interest received, we see no reason for a new trial, provided the plaintiffs could recover upon the money counts. To a recovery upon these counts, it was objected, that the plaintiffs are only authorized, by their charter, to loan money upon pledges ; and as a corporation can act only in the mode pointed out in their charter, called the law of their being, this company are not authorized to loan except upon pledges, and to recover through or by means of these pledges ; and the case of the New York Firemen Insurance Company v Ely & al. 5 Conn Rep. 560. is cited. The first answer to this objection, is, that it was not made in the court below. Pledges were taken. It was upon the subject of damages, objected, that these pledges were not legally taken ; but no question of this kind was made below.

But if it had been, we think it could not have availed the defendants. It is not like the case cited. There, the court held, that the corporation could not loan money. It was not constituted for that purpose. It was an insurance company. The ria:ht to loan was neither expressly nor impliedly But here the great object in view was, to constitute a company to loan money. This its name imports ; and the words of the 7th section expressly confer the power. “ It shall be lawful for said company to loan money, in any sum or sums from one dollar upwards, on pledges of goods and chattels and other securities, to be deposited with the company as security therefor.” It is said, they were to loan on pledges; by which no doubt was intended, that it should be lawful for them to loan to those who had not credit, or could not procure indorsers, but who could secure the company, by deposites of personal property. They were then authorized to accept goods and chattels as security for such loans. Is it any less a loan, because it is secured by lands or goods, than if secured by an indorser? The object of an indorsement is the better security of the sum loaned. The same object is to be effected, by a pledge of goods. The debt exists, in one case as well a§ the other. And where collateral security is taken, whether it be lands, or chattels, or indorsers, we know of no principle upon which the right of the creditor to resort to the original debtor can thereby be taken away. When land is taken, a court of chancery may direct its sale. When either goods or lands are taken, the parties may stipulate for the sale. But no case has been shown us, where, if the security be inadequate, the party shall be deprived of his right to resort to the original debtor, and this upon the plainest principles of justice and equity ; those principles which support that class of actions, now so common, for money had and received. It is true, that in this charter there is no express authority given to sue for the moneys they might loan ; but there is a general power to sue, and a general power to loan upon pledges. When, then, the borrower has failed to comply with the contract to pay, we see no reason why the lender, having a power to sue, may not exercise that power, in this case, as well as in any other. It would seem that this corporation consisted of a company of pawn brokers, constituted and regulated by law. And although dealers of this class generally depend principally upon the pledges they take, we know of no law or practice depriving them of the benefit of the personal security of the borrower. Suppose the article pawned, had been a stolen article; or suppose it was stolen ^lorn Pawnees without their default, would they have no remedy ? Or suppose, by a variation in the market, the pledge entirely inadequate, is the lender to sustain the loss? This would be to say, that the taking of a pledge amounted to 'payment. Cases of this kind must often occur; and if all the ordinary principles, which govern cases of this kind, were to be reversed as it respects this corporation, we should expect to see some more certain indications of it, than we have found in this charter. We see no reason to believe, that the legislature had any such intention. And in the state of Neio-York, it has been adjudged, that where a corporation was prohibited from discounting notes or taking a particular security, if they made the loan, they might recover the money loaned, although the security was void. Life and Fire Insurance Company v. Mechanics Fire Insurance Company, 7 Wend. 31. The Utica Insurance Company v. Scott, 19 Johns. Rep. 1. 3 Cowen 20. 3 Wend. 583.

It was also objected, that there was no evidence of a loan of money, but that which is derived from the loan itself. But the account upon which the defendants rely for their evidence of usury, proves this part of the case. The amount of loans is stated; and it was not claimed, that the advances which the plaintiffs then claimed, were not made as stated ; except that it is now claimed before this court, that some of the charges of money in the plaintiffs’ account were made before this company was incorporated. After the defendants have recognised this account as a valid debt to this company, by giving their notes therefor, every presumption would be made that these sums had been properly charged in this account. But we do not feel bound to examine this objection, as it does not appear to have been made in the court below.

Again, we are met with the objection that the plaintiffs, having done an unauthorized and illegal act, in discounting the note, every thing connected with it is illegal; and the court will no more aid the plaintiffs to recover upon the general counts than upon the note itself. The general rule, it is truly said, applies not only to contracts immoral in themselves, but to such as are contrary to the policy of the law as against the requirements of a statute or its prohibitions. Ribbans v. Crickett & al. 1 Bos. & Pul. 264. 266. Law v. Hodson, 11 East 300. Langton & al. v. Hughes & al. 1 Mau. & Selw. 593. Bartle v. Nutt, admr. 4 Pet. 184. But a majority of the court are of opinion, that this principle is not applicable * . , this case. It does apply effectually to those cases where Uae contract and the security combined form one entire subject; as if this money had been lent and the note taken at one time, so that it might have been said to be one transaction. Such was the case of Bensley & al. v. Bignold, 5 Barn. & Ald. 335. That was a suit for paper, and the printing of a pamphlet, without the name of the printer upon the first and last pages, as the statute of 39 Geo. 3. c. 79. s. 27. required. The Ch. J. says : “ The omission to print the name was a direct violation of the statute; and lam of opinion that a party cannot be permitted to sue either for work or labour done, or materials provided, where the whole combined forms one entire subject matter, made in direct violation of the act of parliament.” So where a loan of money is made, and, at the same time, a note is given therefor, with usurious interest, the lender cannot re. cover upon the common counts. Scott v. Nichols, 4 Doug. 314. But the case is entirely altered, where there was originally a legal consideration, and afterwards a note or bond is given, which is void, on account of usury or some other illegality. Such void instrument does not impair the original contract. In Gray v. Fowler & al. 1 H. Bl. 462. a bona fide debt existed for malt and bills accepted, most of which were due. Then the parties entered into a new contract, by which the debt was secured by deed, with usurious interest. The court were all clearly of opinion, that a fair debt for goods sold &c. still subsisted, unimpeached by the usurious transaction. In Phillips v. Cockayne, 3 Campb. 120. Lord Ellenborough says, “ if there was once a valid subsisting debt, that cannot be destroyed by a void security.” Parker v. Ramsbottom, 3 Barn, & Cres. 257. These decisions have been followed in Massachusetts and New-York. Johnson v. Johnson, 11 Mass. Rep. 359. Stebbins v. Smith, 4 Pick. 97. Swartwout v. Payne, 19 Johns. Rep. 294. Hughes v. Wheeler, 8 Cowen 77, Rice v. Welling & al. 5 Wend. 595. Hammond v. Hopping, 13 Wend. 505. The case of Cowles v, Hart & al. 1 Root 396. does not seem to notice this distinction ; but it was a case before the superior court, at an early period, without examination of authorities. The principle, however, is not confined to usurious contracts ; for it has been held, that where the parties had agreed to such an alteration in , . . . note, as would render it void, for want of a stamp, the payee m'ght recover upon the original cause of action. Sutton v. Toomer, 7 Barn. Cres. 416. This principle was recognized in this court, in Pond v. Smith & al. 4 Conn. Rep. 297. 306.

If then the contract to loan was authorized by the charter, we are unable to see how a note, which, as the defendants claim, is toid, as contrary to the provisions of the charter, can have the effect of extinguishing the original cause of action, or in any manner contaminating it. In this case, it appears from the account exhibited, that the loans were all made on or before the 5th of November, and no note was discounted until the 1st of December. This objection, therefore, cannot prevail.

The defendants also claimed a set-off of goods sold and delivered, and money had and received. The goods, they say, they deposited with the plaintiffs, to secure loans made to them ; but they were not legally pledged, as no appraisal was made or certificate delivered, according to the provisions of the act of incorporation ; nor have they been sold agreeably thereto, but for less than their real value. The court below held, that the plaintiffs were not accountable as for goods sold and delivered, without some other evidence of a sale. That in some cases where goods have been illegally taken from the owner and sold, he may waive the tort and bring assumpsit, is now well settled. Lamine v. Dorrell, 2 Ld. Raym. 1216. Hambly v. Trott, Cowp. 371. 374. & seq. So where one had seduced an apprentice from his master, it has been held, that his master may sustain assumpsit, because it approached very near the last class of cases. Lightly v. Houston, 1 Taun. 112. Foster v. Stewart, 3 Mau. & Selw. 191. 196. In both these cases, however, the Ch. J. seemed to regret, that the law had not been suf-ered to take its course. The practice seems to have been introduced with some hesitation, to prevent injustice, particularly in those cases where the action died with the party, and yet his estate reaped the benefit of it; and seems to have been confined to those cases where the remedy might be beneficial to the plaintiff, and not injurious to the defendant. Lindon v. Hooper, Cowp. 414. Weston v. Downes, Doug. 23. In such cases, says Lord Ellenborough, the plaintiff does no more than waive any complaint, with a view to damages, of the tortious act, by which the goods were converted into money, and takes the net pro-needs as the value of the goods. 10 East, 391. Here, the . ... , defendants, not content with the net proceeds, claim as goods sold. This has been allowed where the defendant, having possession of the gopds, could not account for them, when charged as for goods sold, but by setting up some fraudulent act of his own ; (Biddle & al. v. Levy, 1 Stark. Ca. 20.) as where a man fraudulently induced the plaintiff to sell goods to an insolvent person, and took possession of them himself. Hill v. Perrott, 3 Taun. 274. Whether this could have been done, if the goods had been stolen, has been doubted ; Bul. N. P. 130, 1.) and was denied in Foster v. Tucker, 3 Greenl. 458. Certain it is, that the law does not, in all cases, imply a contract for goods sold and delivered, where they have been wrongfully obtained from the owner ; as where the defendant, by a false representation, induced a publican to provide for the support of certain voters, upon the credit of a third person ; it was held, that an action for goods sold would not lie against him, though an action for deceit might be sustained. Thompson v. Bond, 1 Camp. 4.

So where goods were sold on credit, to one who fraudulently intended, at the time, not to pay for them ; it was held, that this action did not lie, before the term of credit expired, there being an express contract, though trespass might have been brought. Furgerson &. al. v. Carrington, 9 Barn. & Cres. 59. And where goods were sold, to be paid for, by a bill of exchange, to be indorsed by the purchaser without recourse ; it was held, that he was not liable in an action for goods sold and delivered, although at the time he knew the bill was worthless. Read v. Hutchinson, 3 Camp. 351.

In this case, it is admitted, that the goods were delivered as security for money loaned. It became, then, the duty of the plaintiffs, to appropriate them for the purposes for which they were received. If they expressly agreed to do this, no contract would be implied. If there was no express contract, the law would imply that the plaintiffs would hold and appropriate them to this purpose. If they failed to do this, trover might lie, or perhaps a suit founded upon the contract which the law raised thereon. But we do not discover any principle upon which the law would imply that the goods were sold to the plaintiffs, contrary to all the facts in the case. Had the defendants chosen to call upon the plaintiffs for the money, which - had been received by the sale of the goods, then indeed they .would have waived the tort, and treated the plaintiffs as their agent. But now they claim to waive the tort, but do not affirm the contract the plaintiffs have made, which alone furnishes the defendants with the ground of their claim. No authority is cited for this claim but that of Studdy v. Sanders & al. 5 Barn. & Cres. 628. There, the principal question was as to the sale of some cider, which had been condemned in the exchequer. The casks containing it were lent to convey the cider, and had not been returned. Holroyd, J., in his opinion, says : “ I think also, that the action lies for the value of the casks. The defendant had them in use, and has not returned them.” If the court mean to say, in that case, that an action for goods sold and delivered would lie for those casks, is it not to be supposed that some notice would have been taken of the case of Lyons & al. v. Barnes, 2 Stark. Ca. 39., decided, a few years before, by Lord Ellenborough, where an action for goods sold and delivered was brought for beer sold and the casks in which it was delivered Í The plaintiff having given notice to the defendant, that unless the casks were returned within a fortnight, he should be considered as the purchaser ; Lord Ellenborough held clearly, that an action for goods sold and delivered could not be maintained for the casks. They were left in the house on particular terms ; the whole rested in special agreement between the parties ; and that agreement ought to have been specially declared upon. And so well is the principle settled, that eminent counsel treat it as one so clear that they may use it to illustrate another. Thus, in Foster v. Stewart, above cited, Scarlett says, “as well might it be said, that if a man takes the goods of another, the owner of the goods might have assumpsit against him for goods sold.” This, though no authority, shews how the question was viewed in Westminster-Hall. And upon examination of the case of Studdy v. Sanders & al., it is apparent, that there must have been a count for the loan or hire, as well as the price of the casks; and probably this gave rise to the remark alluded to.

We think, then, that the judge was clearly right, in the direction which he gave upon this point; and upon a view of the whole case, a majority of the court are of opinion, that no new trial ought to be granted. 6 6

In this opinion, Church, Huntington and Waite, Js., concurred.

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Concurrence Opinion

Sherman, J.

I concur in the opinion, that the statute of usury in the state of Pennsylvania, upon its admitted construction, presents no objection to the verdict. But there are considerations in the case, upon which, after much hesitation, I am compelled to dissent from my brethren.

The plaintiffs are an artificial person, and have no natural capacities. A natural person, of competent understanding-, may make any contract, which is not forbidden by moral or municipal law. An artificial person has no power, except what is given by its charter, to make any contract whatsoever. These principles have been unanimously recognized by this court, and are established by the highest authorities. I therefore consider the original contract for the loan of this money as void, on the ground that the plaintiffs were unable to make such an agreement. See The New York Firemen Insurance Company v. Ely, 5 Conn. Rep. 564. 567. The same v. The same, 2 Cowen, 678. The same v. Sturges, Id. 664. Head & Amory v. The Providence Insurance Company, 2 Crunch, 127. 166. 168. 169. The People v. The Utica Insurance Company, 15 Johns. Rep. 383. Beaty v. The Lessee of Knowler, 4 Pet. 168.

The powers of this corporation must be sought in the charter. They are what the legislature meant to confer, and nothing more. Was it intended to authorize, by the charter, a contract, which it expressly forbids ? Unless we can answer in the affirmative, we must admit, that the power to make the contract stated, upon the loan in question, was never conferred upon this company. It was for interest at the rate of eighteen per cent, per annum. The charter prohibits charging more than six.

If the original contract, on which the loan was made, was void, will the law raise an implied promise to refund the sums lent ? If not, there is no ground on which the plaintiffs can recover.

When an infant has made an agreement, for which he is deemed incompetent, he may, upon its disaffirmance, recover' anv moneys which lie has advanced. But his disability .. .. .. , intended for his defence, and is grounded on the presum p-^on °f his natural incapacity to understand and protect his rights. The law will, therefore, relieve him, in all cases where the agreement is within its provisions. Were it not so, those provisions would be nugatory. But no such principle applies to the case under consideration. Although a corporation has no powers to contract, except such as are conferred by its charter ; yet it is presumed to be cognizant of its own attributes, and perfectly to understand the law which gave it existence. With this knowledge, the plaintiffs acted in defiance of that law. They attempted to do, not only what they had no legal power to perform, but what they knew to be expressly prohibited. Shall they now appeal to the violated law, acknowledging that the contract is wholly void, and pray that another promise may be presumed from these circumstances, that they may be relieved, upon the principles of justice and equity, against their own folly and disobedience ? I am not aware of any principle upon which such an application can be granted.

The United States have no general law regulating the rate of interest; but the charter of the late national bank had this provision : “ The bank shall not be at liberty to purchase any public debt whatever, nor shall it take more than six per cent, per annum for or upon its loans or discounts.” The charter nowhere declares the contract void. It is simply prohibitory, like that in question. But in the case of The Bank of the United States v. Owens & al. 2 Pet. 527. 538., upon the second question submitted for determination, the supreme court of the United States decided, that irrespective of any usury laws whatever, a violation of the charter, by agreeing to take more on a loan than the prescribed rate of interest, rendered the contract wholly void ; and that the plaintiffs could recover nothing. Independently, therefore, of the usury laws of Pennsylvania, the very conditions of the plaintiffs’ charter preclude a recovery in this action.

This is not one of that class of cases, in which, by a legislative act, the security only is made void. Such are those within the statute 9 Ann. ch. 14. regarding securities for money won at play. Robinson v. Bland, 2 Burr 1077. Barjeau v. Walmsley, 2 Stra. 1249. Such, also, are the cases contemplated by the statute of New- York, commonly called the Restraining Act. The Utica Insurance Company v. Scotte, 19 Johns. Rep. 1. Nor is it of that class, where the original contract, being lawful and valid, may be enforced, notwithstanding a subsequent security given for the same thing, is void for usury or other cause. Here, the original contract was void.

My opinion is, that the verdict ought to be set aside, and a new trial granted.

New trial not to be granted.