Price v. Lyons Bank

The notes of the plaintiff, for $3000, one due the 6th and the other the 8th of November, 1855, which were renewed the 6th of that month, were payable at the Albany City Bank, and were at the time of the agreement for their renewal, between the 1st and the 5th of November, at the latter bank for collection. It appears by the complaint, that when the agreement for renewal was made, the rate of exchange between Lyons, the place of business of the Lyons Bank, and Albany, was one half of one per cent in favor of Albany. Payment of the notes at that time, at the place specified therein for payment, would have secured to the Lyons Bank thé benefit of that difference of exchange, and these notes might therefore be regarded as practically worth that difference beyond the sums payable by their terms. The bank could not have enforced by action payment of the notes at Albany,-nor recovered any thing as damages for not paying them there ;• but nevertheless it was lawful to make them payable at that place; in the ordinary course of business they would be paid there at maturity; and the bank might deal with the plaintiff in respect to them upon the assumption that they w,ould be paid at the time and place provided for payment. It might treat them as equal in value to the amount of the notes at Albany, estimating their value according to their terms. No objection of usury in thus dealing with the notes could be made, as they were actually worth so much upon the assumption mentioned. Like notes providing for the payment of interest upon interest to accrue, the law would not compel payment at Albany in the one case, nor of the *91interest upon future interest in the other; but in neither case is the stipulation to do so illegal, and in each the parties may voluntarily pay and receive payment and deal in accordance with it. But it is unnecessary to discuss the subject further on principle, as it is fully settled by authority that charges for difference of exchange between different points, in such cases, are lawful. (Merritt v. Benton, 10 Wend. 116. Williams v. Hance, 7 Paige, 581. The Ontario Bank v. Schermerhorn, 10 id. 109. The Cayuga Co. Bank v. Hunt, 2 Hill, 635. Oliver Lee & Co.’s Bank v. Walbridge, 19 New York Rep. 134.)

The circumstance that the notes on the renewal were also to be payable at the Albany City Bank, even if it was the intent of the parties to the transaction to secure to the Lyons Bank more than legal interest, does not affect the law of the case. It was lawful to exact the actual difference of exchange on the amount of them, whatever was the intention in making the exaction; and requiring the notes on the renewal to be payable in Albany, although the rate of exchange at the time was in favor of that city, did not in law secure to the bank any pecuniary benefit, and therefore the intent of the requirement was immaterial. That the rate of exchange would be the same, and in favor of the same place, at the maturity of the notes, as when they were made, was too uncertain to be the basis of a legal adjudication. These views are fully sustained by the court of appeals in the recent case of Oliver Lee & Co.’s Bank v. Walbridge, above cited.

The transaction of the subsequent renewal, on or about the 5th of December, was of the same legal character with that already considered; and in the view taken of the case the other questions raised by the plaintiff are unimportant.

It follows that the judgment should be affirmed with costs.

As I perceive that my brethren do not agree in this cause, and the responsibility of deciding it is in effect necessarily cast upon me, I have deemed it my duty, *92considering its importance in point of principle, to look into the case with some care, and to express my own. views in respect to the questions presented for our consideration. It seems that on the 6th of November, 1855, the plaintiff was indebted to the Lyons Bank in the sum of $4000, upon three promissory notes, payable in Albany, of which one for $1000 was past due and protested, one for $2000" was due on that day, (the 6th,) and one for $1000 was due the 8th of the same month. On that day the plaintiff gave a new note for $3000, at 22 days, payable also at Albany, to renew the two last mentioned notes, paid the discount on this note and one half of one per cent exchange on the said two notes, and the same were ordered back from Albany by the bank, and delivered up to the plaintiff; the notes then being the property of the bank, and having been sent by it to Albany for collection and payment. Here was a discount made to take up paper, payable in Albany, then held by the Lyons Bank, and in addition to the discount one half of one per cent was exacted, paid and received by way of exchange, making $15 over and above the legal rate of interest. This $15 was received to pay the exchange on the two notes then in Albany, becoming due, and this, it appears, was at that time the difference of exchange between Lyons and Albany, and that sum would be requisite to purchase at Lyons a draft on Albany to meet these notes. The plaintiff could not legally have been required to pay this exchange, but having made his notes payable in Albany, he could only perform his contract by sending the money there, by draft or otherwise, to meet such paper. In the absence of any statute applicable to this class of banks, on the subject of selling drafts to pay their own paper payable at another place, (International Bank v. Bradley, 19 N. Y. Rep. 245; Leavitt v Blatchford, 17 id. 521,) I do not see why the Bank of Lyons might ngt sell the plaintiff, a draft on Albany for $3000 to meet his note, and receive from him the usual premium on such draft; and if this be so, I do not see why the bank might not receive the exchange and undertake to procure the *93notes from Albany for the plaintiff; and this was really what was done-on this occasion. The $15 was not paid or received on the discount of the $3000 note, and its payment does not in any way affect the validity of this.note. On the maturity of this $3000 -note it was not paid, bút new notes were discounted at the bank; one for $700 at 15 days; one for $1000 at 30 days; and one other for $1000 at 45 days, and $300 paid in cash, and the discount on these notes was paid, together with exchange on the $3000 note, at Albany as before. These notes were subsequently renewed, and the exchange paid, and the same mode of proceeding by repeated renewals continued till the debt was reduced to the two notes for $750 embraced in the mortgage in controversy in this action. Through the process of' these various renewals the \ of one per cent on the amount of these notes respectively was repeatedly taken, paid and received in the manner aforesaid, by the name and claim of exchange between Lyons<and Albany, over and above the legal rate of interest. In this way the bank received, and the plaintiffs paid, on the $3000 loaned and on the amount of the debt remaining unpaid, at all times over 14 per cent upon the amount of the loan, for the period of about nine months. This is palpable upon the face of the transaction. Upon these facts, connected with the testimony of the plaintiffs that the several discounts of the notes aforesaid were made upon the express agreement or condition, imposed by the bank, that the said notes should thus be made payable in Albany, I should have supposed before the case of Oliver Lee & Co.’s Bank v. Walbridge, in the court of appeals, (19 N. Y. Rep. 134,) that this was a plain and palpable case of usury, and that the repeated renewals of the plaintiff’s paper at short dates, with the payment of exchange to the bank at Lyons on such renewals, was a mere contrivance or device to evade the statute and secure more than the lawful rate of interest on the money loaned. But the only basis for the allegation of usury in the transaction would, in my view, consist in making it a condition of such discounts that the paper should be payable *94in Albany, with the intent on the part of the plaintiff to pay, and of the bank to secure and receive, the difference of exchange between Lyons and Albany. If the case were stripped of this feature, there could be no pretense of usury in the transaction. But if the original contract for the discount of these several notes so payable was lawful when made, and not infected with usury by reason of any such condition or agreement—and this must be so if it was as lawful to make them payable in Albany as at Lyons—the notes could not become invalid afterwards j and it cannot violate the law to pay the paper promptly, at maturity, at its place of payment, or to furnish funds to the bank to make such payment, and for the bank to receive the same. In the case of Oliver Lee & Co.’s Bank v. Walbridge, (supra,) it is expressly held that it is not unlawful for a bank to make it a condition of a discount that the paper shall be payable at some other place in the state, with the express object, view and intent of both parties to secure to the lender the difference of exchange between the two places, over and above legal interest. "Under this decision all the various notes given by the plaintiff, as detailed in the evidence in this case, payable at Albany, and all the renewals thereof, were entirely lawful and valid; each renewal being a discount of new and valid paper. The bank was of course entitled to receive payment at Albany and to receive the exchange or difference in value between money at Lyons and money at Albany, if the debtor voluntarily paid it at Lyons instead of sending the money to Albany. And the lawfulness of the transaction cannot depend upon the time the paper had to run. Some of this paper was payable in 15 days, some at 22, and some at 30. The shortness of the paper could not affect its validity. It would, on the 15 day paper, enable the lender, it is true, at one half per cent exchange, to make one per cent a month in addition to legal interest; but according to the decision in the case of Oliver Lee & Co.’s Bank v. Walbridge this is entirely lawful. According to that decision, the receipt of such extra amount by way of exchange, over and *95above legal interest, is not the receipt or reservation of more than seven per cent interest on the loan and forbearance of money, and the process by which its payment is secured is not, and cannot be regarded, a device or contrivance to evade the statute. Under this decision, which is of course binding upon us as authority, however much we may doubt its soundness, (and I am by no means convinced of its correctness,) I can see nó ground' upon which to hold that the mortgage in this case is usurious. The judgment of nonsuit, therefore, was rightly tendered by the referee, and the judgment should be affirmed.

I am entirely unable to see why the transaction of giving the $3000 note was not clearly usurious. It was given in renewal of former notes, about to fall due, and was in substance and legal effect but the extension of the time of payment of a pre-existing indebtedness. It was nothing more nor less than a forbearance of the day of payment twenty-two days, with the three days of grace to be added. The notes about to fall due were payable at the Albany City Bank, and as a condition of the forbearance, the plaintiff was required to make, and did make, the new note payable at the same place, and to pay the legal discount, and one half of one per cent in addition, which was called the exchange. This was repeated upon several subsequent renewals, and as long as the renewal notes continued to be made payable at the same bank. At some of these renewals, the extension of time was only fifteen days, when the payment of one half of one per cent called exchange would be at the rate of twelve per cent a year in addition to the legal interest. The result of all these renewals, through a period of several months, was to give the lender, for this forbearance, over fourteen per cent for the use of his money. If this is not usury the statute may as well be repealed at once, or declared inoperative and void by our courts. The case cannot fairly be distinguished from that of The Seneca County Bank v. Schermerhorn, (1 Denio, 133.) That was the case of the renewal of a note, and as a condition *96of the extension, the borrower sold to the lender a draft at par, which was worth one half of one per cent premium. The correctness of that decision has never, that I am aware of, been questioned, and it seems to me to apply with full force to the renewal notes from which the mortgage in question sprung. It was said upon the argument, that a note given in renewal of another note is an independent transaction, and not an extension, or forbearance of the day of payment. But this, as was said by Bronson, justice, in the case last cited, “ involves a distinction which I cannot see, and which I think none but a usurer can comprehend.” And unless I have entirely misapprehended the true character of this transaction, it would puzzle an individual of that character even, however skillful and astute in financial matters, to explain to the satisfaction of one of only common understanding, how there could be such a thing as a difference in exchange between two sums of money, or two obligations, payable at the same place, as were these several notes. There can be no such thing in fact, arid I think nothing of the kind exists in commercial usage, and calling it by that name is but a stale and transparent pretense, for an unlawful exaction. It is a common device, in such transactions, to endeavor to hide an unlawful .exaction, under some fair and harmless name. I cannot agree with my brethren in the opinion that this case falls within the principle established by the court of appeals in Oliver Lee & Co.’s Bank v. Walbridge, (19 N. Y. Rep. 134;) and feel constrained to protest against such an application of the rule there laid down. That case, as I understand it, was determined upon the ground that by the law of the contract, where the lender only required the borrower to pay the amount loaned to his' agent, at any other place within the state than that where the loan was made, with legal interest, nothing but legal interest was embraced in the stipulation, and usury could not be predicated upon it, although the sum paid might be worth something more at the place of payment, to parties residing at the place where the loan was made.

*97As a tender or payment of the precise sum agreed upon, with legal interest, by the borrower to the lender, wherever he might be found, in coin, would discharge the obligation the moment it became due, and nothing more could be recovered should the entire contract be enforced by action, it was held that there could exist no usurious element in such an agreement. It seems to have been considered by the court that any premium, or rate of exchange, existing in favor of one point, within this state, against another, at the period of the making and delivery of a time note, although such note might be made, and accepted, with a view and for the express purpose of securing this difference to the lender at the day of payment, yet such anticipated profit was so speculative and unreal in its character, and the course of exchange so uncertain in respect to its continuance in that direction, for any length of time in future, that the arrangement could not, legally speaking, be regarded as securing such premium to the lender, or any profit whatever beyond legal interest, irrespective, wholly, of the statute.

This is precisely what was decided by a majority of this court in Cuyler v. Sanford, (13 Barb. 339,) and which decision has ever since been followed in this district.

This must now be regarded by the profession, and by the-courts, in this state at least, as a settled and sound legal proposition, although we may still expect practical bankers and dealers in exchange to reason differently, and under the shield of this rule, to continue to accumulate large and substantial gains and profits, beyond the legal rate of interest, by practicing upon a theory directly opposite. But this is no such case. Ho room was left in the arrangement in this case, for the operation of any contingency, to defeat anticipated profits.’ The legal myth, or fiction, of the rate, or premium of exchange, as it seems to be regarded, when resting in expectation only, was here reduced to the palpable and unmistakeable reality of a cash payment, exacted and handed over in advance, and as a condition precedent to the forbearance. If this is not usury, *98I can scarcely conceive of á case that would be. In this respect the case at bar differs essentially, and radically, as I conceive, from the two cases above referred to. Had the plaintiff, in the case of the Oliver Lee & Co.’s Bank v. Walbridge, required not only that the note should be made payable in New York, but that in addition to advancing the legal discount, the borrower should also, as a condition of the loan, pay in advance the half per cent premium of exchange which was expected to accrue to the lender’s benefit at the maturity of the note, the case would have been precisely analogous to the renewal notes in question. In such a case, it seems impossible that the court of last resort could decide as they did in the case cited. Indeed the whole reasoning of the court, in that case, would inevitably lead to a conclusion just the reverse, in the case supposed. It is not pretended by my brethren but that the strong and controlling tendency of the evidence, before the referee, when the plaintiff rested his case, was to prove that the mortgage in question, although made to the defendant Sutton, was the direct offspring of these notes. They rest their decision exclusively, as I understand them, upon the authority of the decision referred to in the court of appeals. As that case, in my judgment, does not control, or in any respect affect this, I am of the opinion that, the judgment should be reversed, and a new trial ordered.

Judgment affirmed.

T. R, Strong, Smith and Johnson, Justices.]