Schermerhorn v. . TalmanSchermerhorn v. . Talman
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To constitute usury there must be a loan of money or its equivalent. (Dry Dock Bank v. Am. Life Ins. Trust Co., 3 Comst., 361.) The common expedient resorted to, therefore, to evade the statute, is to give to the transaction the form of a sale, instead of a loan: a disguise which, whenever it can be discovered, is stripped off by the courts and the transaction declared usurious. Goods are frequently purchased upon a credit and immediately resold at a sacrifice
It would seem hardly to require either authority or argument to prove that a person cannot sell his own promises to pay. It necessarily results from the very definition of a sale, in which all writers agree. Chancellor Kent says: “A sale is a contract for the transfer of property from one person to another for a valuable consideration.” (2 Kent‘s Com., 468, 5th ed.) Bouvier, in his Law Dictionary, defines a sale to be “an agreement by which a man gives a thing for a price in current money.” He adds: “To constitute a valid sale there must be a thing sold.” Long says: “Three particulars are included in a valid sale, viz: a thing which is the subject of it, a price, and the consent of parties. If the subject of the intended sale have no existence, actually or potentially, there can be no valid sale.” (Long on Sales, 3.)
It is plain that the giving of one‘s own promise to pay to another, for any consideration, cannot be brought within these definitions of a sale. It is impossible to call such a transaction a transfer of property from one person to another, as the promise is not property in the hands of the promisor. One who executes and delivers such a note thereby makes a valid contract, viz., a contract to pay according to the tenor of the note. All that he does, i.e., both the execution and the delivery are essential to the completion of this contract; which certainly is not a contract of sale, but is supposed to be the subject of such contract. If then there is a sale, it is made by the same acts which create the thing sold. This is not only repugnant to every just definition of a sale, but logically absurd.
If then it be clear that neither individuals nor corporations can sell their mere promises to pay, the doctrine which has been deduced from the contrary assumption, viz., that upon an exchange of notes, the parties may put what relative
The true rule on this subject I hold to be this: that whenever the question of usury arises, no value can be put upon the promises or obligations of either party different from that which they import upon their face. This is universally conceded in respect to the obligations of the borrower. If a lender advances $90 in money, and takes a note for $100, with interest, he cannot defend himself against the charge of usury by showing that the responsibility of the borrower is doubtful, and that his notes would be worth less than par in the market. The question is to be determined upon the face of the transaction. It is usury per se. Upon what principle, then, can one who instead of the $90 in money, gives his note for $90, allege that the note he takes in return is worth less than its face? The only reason ever given is the one which has, I think, been refuted, viz., that the latter transaction is a sale, and not therefore within the statute. So, if the borrower choose to receive the promissory notes of the lender instead of money, he cannot, I think, upon the question of usury, take the ground that such notes are depreciated in the market. If he gives his own obligations for no greater nominal amount than that for which he receives the obligations of the lender, there can be no usury. To constitute usury, the lender must take or receive, or contract to take or receive, more than the legal rate of interest; and such a project cannot be predicated upon the assumption that he will fail to redeem his own obligations.
It may be said that, admitting a mere exchange of obligations not to be a sale, neither is it a loan; and hence that it is entirely without the statute of usury, unless brought
It may seem to follow from the course of reasoning here adopted that the transaction between Schermerhorn and his associates, and the Trust Company, should be treated upon the mere face of the contract, independent of all extrinsic evidence, as a loan, within the provisions of the statute. It is, however, unnecessary so to hold. The supreme court has found that it was “in substance and effect a loan of money” by the Trust Company, i.e., of its certificates of deposit or post notes, as a substitute for, and in lieu of money; a finding which I think fully warranted by the evidence; indeed I think it is not possible to come to any other conclusion.
The whole object of Schermerhorn and his associates was to raise money by way of loan, and this was well known to the officers and managers of the Trust Company. The bargain for the sale of the certificates to Mr. Biddle was made with the full knowledge of Mr. Duer, the vice-president of the Trust Company, before the certificates were issued. No case, I apprehend, can be found of an exchange of obligations under such circumstances, which has not been held to be a
It being established then that the transactions between these parties was substantially a loan of money, i.e., of the certificates or post notes of the Trust Company received by the complainant and his associates as money, the next inquiry is, was it usurious? This question is to be determined in view of the principles already advanced. It follows from those principles, that the question of usury depends in no degree upon the price at which the certificates were sold by the complainant. However great the sacrifice upon such sale, no part of the profit made enured to the benefit of the Trust Company. Nor does it depend upon the value in the market of the certificates loaned. That question arises as we have already seen, only when a loan is made under cover of a sale. The transaction here was clearly not a sale. But it depends entirely upon the relative amount of the securities exchanged, estimated at their face respectively; and in making this estimate any difference in the interest has the same effect as a difference in the principal. The position assumed by Welles, J., on this subject in The Farmers’ Loan and Trust Co. v. Carroll (5 Barb., S.C.R., 616), is, I think, sound. He says: “I hold it to be law, that in all cases of a loan, where it appears upon the face of the transaction that the lender is, in any manner, to receive more than the legal rate of interest as a compensation for forbearance upon the thing loaned, it is usury per se.” This is said in reference to the precise case presented here. The certificates loaned to Carroll ran
Any difference in the nominal amount of the securities exchanged has been repeatedly held in England to constitute usury per se. (Matthews v. Griffiths, Peake‘s N.P. Cases, 200; Maddock v. Hammet, 1 Bos. Pul., 154; Parr v. Eliason, 1 East. 92.) It makes no difference whether the discrepancy is in the principal or the interest. If it appears that, at the end of all the payments, the lender will have received more than his principal with lawful interest, the contract is usurious.
The rule which has been applied in England to grants of annuities for years, in consideration of a certain sum received, is strongly analogous in principle to that contended for here, and rests upon a similar foundation. Such an annuity is simply an agreement to pay a specific sum in instalments, and is not a sale for the same reason that the giving of a promissory note is not a sale. It has accordingly been frequently held, that in such a case the question of usury depends upon computation merely. In the case of Doe v. Gooch, (3 Barn. Ald., 664); Bailey, J., in reply to the counsel who had referred to the case of an annuity for life, said: “In that case the principal is in hazard from the uncertain duration of life. Here it is in the nature of an annuity for years, and there is no case in which an annuity for years has been held not to be usurious, where on calculation it appeared that more than the principal together with legal interest is to be received.” In Fereday v. Wightwick also (Russ. Myl., 45), where an annuity of £ 664.18 had been granted for the term of eleven years and a half, in consideration of the sum of £ 4000 received, the master of the rolls said: “This in effect is an agreement to repay the principal sum of £ 4000, with interest, in twenty-three instalments, and as it appears that the interest thus paid will exceed legal interest, the transaction
I consider these cases as resting upon a firm basis of principle, and as tending to establish the doctrine contended for here; that whenever the question of usury arises between the parties to any transaction, the obligations of the parties themselves cannot be estimated otherwise than at their nominal amount; and that consequently, upon every exchange of notes or other obligations, the question of usury becomes one of mere computation.
Assuming this doctrine to be correct, it is unnecessary to go into any minute examination of facts or calculation of
It is urged by the appellants’ counsel, that it appears from the bill itself that the complainant was a participator in violating the banking laws of the state; and that while the facts alleged might constitute a good defence, were the Trust Company seeking to enforce the payment of his bond, the court will not grant affirmative relief to one who shows himself to have been concerned in an illegal transaction.
There is no rule better established than that which refuses the active interposition of a court of equity in favor of one who is particeps criminis; but like most other rules it admits of exceptions. There are certain cases where the party seeking relief, although particeps criminis, is not in pari delicto, to which it does not apply. This distinction seems to have been first taken by Lord Mansfield, in the case of Smith v. Bromley (2 Doug., 696, note to Jones v. Barkley). The exception was there applied only to cases where the law violated was intended to protect one of the parties from particular acts of oppression or extortion by the other; as for instance the statute against usury. Subsequent cases however, show that the principle is not
These cases have been several times reviewed and approved by the supreme court of Massachusetts. In the case of Inhabitants of Worcester v. Eaton (11 Mass. R., 368), Ch. J. Parker after referring to the cases of Smith v. Bromley and Browning v. Morris, supra, says: “This distinction seems to have ever been afterwards observed in the English courts, and being founded in sound principle, is worthy of
It was said upon the argument, that the modern cases are opposed to this doctrine; but I am very firmly persuaded that the doctrine is sound and the distinction upon which it rests one which exists in principle and in reason. It applies no less in equity than at law, its foundation being that the parties, although joint participators in an illegal transaction, are not equally criminal. In the present case the penalty for violating the statute is imposed upon the Trust Company alone.
It is unnecessary, however, to decide what would be the rights of the complainant were he seeking some kind of relief on the ground of a violation by the Trust Company of the restraining law. The question is, whether he is precluded from all relief against the usury, because the usurious contract was connected with a transaction which was within the prohibition of the restraining act. I see no just ground for thus holding. The usury and the violation of the restraining law are entirely distinct offences. The statutes are distinct and the penalties distinct. The one offence depends upon circumstances having no necessary connection with those which establish the other. The complainant in the eye of the law is one whom the statute of
To what relief then is the complainant entitled? This depends in some measure upon the question whether he is to be regarded as a borrower within the provision of
In the cases of Post v. The Bank of Utica (7 Hill, 391) and Rexford v. Widger (2 Comst., 131), it was held, that the term borrower did not include purchasers from the borrower. What is the complainant here but a purchaser? It is said that he had never parted with his entire interest; that he would have been entitled to an account from the assignee; and that if his debts had been discharged without a resort to this property, it would have revested in him. But the answer is, that by the sale, every vestige of his original interest was cut off. He acquired by the purchase the same rights that would have been acquired by a stranger, and none other. It is by virtue of the title acquired, at the sale alone, that he comes into court, and the circumstance that he is the same person who was once entitled to relief as a borrower is a mere accident, which cannot affect his rights. He can claim the same relief to which the assignee in bankruptcy, or any other purchaser under him, would be entitled. If he asks equity, therefore, he must do what equity requires.
But it is insisted on the part of the complainant, that the post notes issued by the Trust Company are void; that the company is not liable for their payment; and hence, that equity does not require any provisions to be inserted in the judgment for its benefit or protection. Whether these notes are void or not is a question between the Trust Company and the holders. It has never yet been decided in this state,
What then does equity require in this case? Plainly, that the bond of Schermerhorn should be canceled, and that he should be put in possession of the property purchased of the Holland Land Company, and its proceeds, upon payment of the sum actually borrowed of the Trust Company, with interest to this time. In ascertaining that sum, we are not to be governed either by the amount which the complainant and his associates received for the certificates, or by their market value at the time of the loan, but exclusively by the amount of the obligation which the Trust Company assumed upon the face of the certificates; in other words, the amount which the company must pay to redeem them. The relief granted to Schermerhorn, therefore, should be upon condition that he pay the principal sum loaned, estimating the pound sterling at its value in London where the certificates are payable, and interest upon that sum to the time of payment; with a rebate, however, of the difference in interest of two per cent for the whole time the certificates have from their dates to run.
It was insisted orally upon the argument, that the effect of declaring the contract between the complainant and his associates and the Trust Company usurious would be to render void not only the bond of the complainant, but every other part of the transaction, including the deed of the Holland Land Company to the trustees; thus leaving the title to the land and other property in question in the last mentioned company. But Chancellor Walworth in his printed argument concedes that this consequence would not necessarily follow unless relief is granted to the complainant as a borrower under the
This is a clear and accurate statement of the rule, except that the power of the court so to arrange the different parts of the entire transaction as to accomplish what equity demands, is not confined, I apprehend, to cases where the complainant offers in his bill to do equity, but exists in every case in which the court is called upon to adjust the rights of the respective parties upon purely equitable principles. Formerly when bills of this character were filed to obtain a discovery as well as relief, unless the complainant offered in his bill to do what equity would require, upon the facts alleged in the bill itself, the defendant might demur; not because the court could not, if the facts were established, grant the relief to which the complainant was equitably entitled, but because a discovery would not be compelled without such offer. If, however, the defendant voluntarily answered instead of demurring, and the allegations in the bill were proved, the books are full of cases in which relief was granted upon such terms as to the court seemed just. (Livingston v. Harris, 3 Paige, 528; Fanning v. Dunham, 5 John. Ch. R., 122.)
In this case, there can be no difficulty in adjusting the equities of the parties, because no part of the transaction need be avoided except the bond of Schermerhorn. The deed of the Holland Land Company and the partition among the associates should be confirmed; and the trust in favor
It should be referred to a referee to compute the amount due to the Trust Company upon the principles here indicated, and to take and state an account between the trustees, the Trust Company, and the complainant, mutually and respectively; and the judgment should provide that the complainant pay the balance, if any, which may be found due to the Trust Company, with interest; that the proceeds of the trust property continue to be applied to the payment of such balance until the same shall be fully paid; and that upon payment thereof in full, either by the complainant or by the trustees from the proceeds of the trust property, the complainant shall be entitled to a conveyance and assignment from the trustees of all the trust property remaining in their hands or under their control, or in the hands or under the control of their agent or agents. The judgment of the supreme court must be modified accordingly, and the proceedings must be remitted to that court with instructions to carry out the principles herein set forth. No costs are to be allowed to either party in this or in the supreme court.
The claimant based his claim for relief in the supreme court upon several grounds: First. That the arrangement of 11th July, 1838, was infected with usury; Second. That it was void for want of power in the American Life Insurance and Trust Company, under its charter, to issue the certificates of deposit mentioned in the pleadings and proofs; and Lastly. That the issuing of these certificates was, under the circumstances, a violation of the laws of this state relating to unauthorized banking. That court pronounced the judgment appealed from, on the assumption that the arrangement referred to was usurious, and that the plaintiff could be relieved against it in this action though he had not paid or offered to pay the sum really owing, without examining the other questions. It
It was well settled, prior to the enactment of the Revised Statutes, that a party, seeking in a court of equity to set aside a contract or conveyance on the ground of usury, was bound to pay or at least offer to pay the creditor the amount owing him, deducting the usurious premium. This was upon the ground that the principles of the court did not allow it to lend its aid to enforce a penalty or forfeiture — its jurisdiction being to relieve against such claims upon equitable considerations. A provision in the Revised Statutes dispensed with this condition, in favor of the borrower, where relief only without a discovery was sought. The usury act of 1837 went further, and provided that “whenever any borrower of money, goods or things in action, shall file a bill in chancery for relief or discovery, or both, against any violation of [the Revised Statutes respecting usury or] this act, it shall not be necessary for him to pay or offer to pay any interest or principal on the sum or thing loaned; nor shall any court of chancery require or compel the payment or deposit of the principal sum or interest, or any portion thereof, as a condition of granting relief or compelling a discovery to the borrower in any case of usurious loans forbidden by said title or by this act.” (Laws of 1837, 487, § 4.) The question immediately arose, whether the dispensation thus provided for was limited to suits prosecuted literally by the borrower, or whether that term was used in a general sense to denote the party claiming to be aggrieved by the alleged usury; whether he was the original party to the loan or one representing him by privity of estate. The limited construction was finally adopted by the courts; and that construction has been established by the tribunal of last resort. (Post v. The President, &c., of The Bank of Utica, 7 Hill, 391; Rexford v. Widger, 3 Barb. Ch. R., 640; S.C., 2 Comst., 131.) If, therefore, Mr. Schermerhorn had sold his interest in the
This view of the case was sought to be avoided by the complainant‘s counsel by the allegation that the proceedings in bankruptcy were coram non judice and void, because the petition in bankruptcy was not, as it was said, sworn to before an officer authorized by the laws of the United States to take affidavits; and I have been unable to find any act of congress authorizing clerks of courts to administer oaths out of court. As to oaths taken in court, it is well known that they are usually administered by the clerk or his deputy. The first order in the bankrupt proceeding which directs the publication of notice to show cause, and the order or decree of bankruptcy, both recite that the petition was duly verified. These orders were granted at the instance of the petitioner, and are some evidence against him that the verification was in all respects according to law. The deed to Schermerhorn recites the decree of bankruptcy, and the order appointing the assignee; and the defendants gave in evidence, in addition to the deed, certified copies of these orders. The fifteenth section of the bankrupt act provides “that such recital [in a deed executed by the assignee], together with a certified copy of such order, shall be full and complete evidence both of the bankruptcy and assignment therein recited.” The defendants also gave in evidence the discharge of Schermerhorn from his debts. The fourth section of the act declares that
I will in the next place state briefly the conclusions of my mind upon the question of usury: First, the value of a pound sterling was not over estimated when it was received as equivalent to $4.71; but assuming that exchange was at par it was undervalued by about sixteen cents. An act of congress, passed in the year 1834 (
At the time the arrangement in question was consummated, the defendants’ charter was embraced in the act of the general assembly of Maryland passed in December, 1837. The sixth section contains a limitation of the powers of the company, in these words: “This act shall not be construed to authorize the said company to issue for circulation as money, any of its own promissory notes, or notes in the nature of bank-notes, or certificates of deposit payable to bearer.” The certificates issued in 1838, though not in terms payable to bearer, were such in effect. They were payable to the order of Mr. Thurston, an officer of the company, and endorsed by him in blank, so that they would pass by delivery. But it cannot be said that they were issued for circulation as money. The large amount of each certificate, the distant day at which they were payable, the fact that they bore interest and were payable in foreign money and in a foreign country, would entirely prevent them filling the place of currency. They resembled in their main features, so far as this question is concerned, public stocks more closely than circulating notes. They would, doubtless, answer some of the purposes of money, and so would state stocks or any other good bonds or securities, but they are quite destitute of the qualities which would fit them for circulation in the manner which money circulates. They were not, therefore, forbidden by the act of incorporation. The prohibition in the 4th section of the original act of incorporation, passed in 1833, was broader, and prohibited the company from issuing and putting in circulation any negotiable note. £ 12,000 of the certificates, which were eventually secured by the arrangement of 1838, were issued while the last mentioned act was in force. The issuing of them was a violation of the charter of the company. That charter however was not matter of municipal law with us. Its only effect was to regulate and define the power of the corporation, and when the company executed an act forbidden
The 6th section of the title of the Revised Statutes relative to “unauthorized banking and the circulation of certain notes and evidences of debt issued by banks,” declares that “no person or association of persons or body corporate, except such bodies corporate as are expressly authorized by law, shall keep any office for the purpose of receiving deposits or discounting notes or bills, or issuing any evidences of debt to be loaned or put in circulation as money; nor shall they issue any bills or promissory notes or other evidences of debt as private bankers for the purpose of loaning them or putting them in circulation as money unless thereto specially authorized by law.” (
It does not, however, follow, that any of the parties can sustain a suit in equity to rescind the arrangement or to set aside any of the deeds by which it was consummated. The parties were all participants in the transaction, and each is deemed to have consented to all the stipulations contained in the papers. It is manifestly impossible to discriminate in favor of those who were less actively engaged than the others. Those who took the more active part in the arrangement acted as the agents of the other parties, and notice to them is imputable to all the associates. It is an established principle of law that the courts will not entertain a suit to enforce an executory contract made in contravention of a statute of the state. If such a contract has been executed, an action will not lie in disaffirmance of it. In this class of cases the law will not extend its aid to either of the parties. It will not listen to their complaints against each other, but will leave them where their own acts have placed them. (Yates v. Foot, 12 John., 1; Nellis v. Clark, 20 Wend., 27; S.C. in Error, 4 Hill, 424; Staples v. Gould, 5 Sandf. S.C.R., 411; S.C. in Court of Appeals, April Tr., 1854; Talmadge v. Pell, 3 Seld., 328.) In this case Schermerhorn caused the title to the land in controversy to be conveyed to trustees for the benefit of the Life and Trust Company. That was an executed conveyance. If valid it operated, in connection with the papers constituting the defeasance, by way of mortgage, and vested a defeasable title in the trustees. The plaintiff seeks to disaffirm and rescind this conveyance and have the premises conveyed to him on the ground that it was part of a transaction entered into in violation of a statute of this state. The principle of law referred to is fatal to the suit in this aspect of it.
If the plaintiff was in a situation to avail himself of the
If the plaintiff should be confined strictly to the case made by the complaint, the result of those views would be that the suit should be dismissed with costs, for the reason that no offer to pay anything is made by the plaintiff, and that he is not entitled to the benefit of the act of 1837. But, a majority of the court, while concurring substantially in the foregoing positions, are yet of the opinion that relief
All the judges except MITCHELL, J., who was of opinion that the transaction was not usurious, and COMSTOCK, J., who took no part in the decision, concurred in the result of the foregoing opinions.
Judgme’