Whitworth & Yancey v. Adams
Whitworth & Yancey v. Adams
Opinion of the Court
The Judges delivered their opinions.
This is an action of assumpsit, by the holder of. a negotiable note against the maker. It was a note made for the accommodation of the payees, who endorsed it in blank, and gave it to a broker to raise money on. lie sold it to Johnson at a discount of 3 per eent. a month. The statute of usury has been pleaded in various forms, and a special verdict found, which will be considered hereafter.
It has been a good deal the fashion of late, to decry the policy and justice of our laws, regulating the rate of interest. These considerations, I know, do not belong to us. It is our duty to give to every law an honest and manly support, whatever may be our opinion of its wisdom. It may be permitted to observe, however, that if the experience of ages, and the general opinion of mankind, deserve weight in legislation, their voice is in favor of usury laws. They have prevailed in all civilized countries, and in all time. Their object too is a humane one. In Brown v. Morris, Cowp. Rep. 792, Lord MANSFrEim says, “These statutes were made to protect needy and necessitous persons from the oppression of usurers and monied men, who are eager to take advantage of the distress of others; while they, on the other hand, from the pressure of their distress, are ready to come to any terms; and with their eyes open, not only break the law, but complete their ruin.” In Lowe v. Waller, Doug. 736, the same Judge says, “ The statute of usury was made to protect those who act with their eyes open;—to protect them against themselves. Upon this principle, it makes it penal for a man to take more than the fixed rate of interest; i! being well known, that the borrower., in distress, would agree to any terms.”
In Barton’s Case, 5 Co. Rep. 70, it is said, e( If in truth, the contract be usurious, against the statute, no colours nor shews of words will serve, but the party may shew it, and
la Flayer v. Edwards, Cowp. 112, Lord Mansfield says, “The statute of 12th Anne, prohibits any body from taking, any how, on the loan of money, above 5 per cent. (6 with us) for forbearance of payment; and all contracts for any loan of money, goods, merchandize, &e. bearing interest above 5 per cent,, with an agreement for principal and interest, are null and void. It depends principally upon the contract’s being a loan, and the statute uses the words directly or indirectly. Therefore, in all questions, in whatever respect repugnant to the statute, we must get at the nature and substance of the transaction. The view of the parties must be ascertained to satisfy the Court that there is a loan and borrowing; and that the substance was, to borrow on the one part, and lend on the other; and where the real truth is a loan of money, the wit of man cannot find a shift to take it out of the statute. If the substance be a loan of money, nothing will protect the taking more than Sper cent.; and though the statute mention only for 'loan of monies, wares, merchandize, or other commodities,’ yet any other contrivance, if the substance of it be a loan, will come under the word indirectly.”
Again, in Lowe v. Waller, Doug. 736, Lord Mansfield says, “Before the statute of Henry 8th, all interest on money lent was prohibited by the common law, as it is now in Roman Catholic countries. This gave rise to many shifts and devices to evade the law. One, which was then most common, was provided against by that statute; but, the prohibition being confined to that particular sort of transaction, usurers were thereby put upon other contrivances; and experience taught the Legislature, in more modern statutes, not to particularize specific modes of usury, because that only led to evasion; but to enact, generally, that no shift should enable a man to take more than legal interest opon a loan. Therefore, the only qnes
The correctness of these views I have never seen or heard doubted; and surely they tell us, that the usury laws are not to be construed strictly like penal statutes; but liberally, with a view to advance the remedy, and suppress the mischief. Every transaction is to be stripped of the covering, which ingenuity has thrown around it, and exposed in its nakedness. In this spirit, let us look at the special verdict before us, and see what was the real substance of the transaction.
Wilson fy Orr, and Whitworth fy Adams, were two mercantile houses, doing business in Petersburg. On the 10th of September, 1817, Wilson, the acting partner of his house, applied to Belches, a broker of the town, to know whether he could raise money for him; who answered, “yes, on good paper.” On the evening of the same day, Wilson sent a verbal message to Belches, to en-quire whether the names of Whitworth Yancey would do; but Belches not being at home, did not receive the message. On the 11th of September, Whitworth fy Yancey, for accommodation merely, made the note in question to Wilson Sc Orr, being a negotiable note in due form, purporting to be for value received, which was endorsed by Wilson fy Orr in blank, and on the day of its date delivered by Wilson to Belches, without stating what was the consideration, or why it'was made, but requesting him to get the money for it. Accordingly, Belches, as broker, sold the note to Johnson, a citizen of Petersbui'g, at 3 per cent, a month discount, but did not communicate to him any thing about the note, or the intention of the persons, or the names of the owners; and said nothing on the subject, except that he offered the note for sale; and without further conversation, it was purchased by Johnson, with his own (and not the broker’s) money, which he advanced at the said discount, without any questions asked, or infor
That the object of Wilson §■ Orr was a loan, the advance of money noiv for money to be paid in 60 days, is expressly proved, first, by their application to the broker to know if he could raise money for them; secondly, by delivering the note to him, with a request that he would get the money for it. Get the money how ? Why, in the way uniformly practised with such paper, by discounting it at usury. Can we doubt this for an instant? Do not the whole res gestee proclaim it ? Do we hear of any restriction on the broker ? No ! He was to raise the mo - ney. No doubt he understood the phrase. “ ’Twas his vocation.” He went instantly and discounted the note at the rate of 36 per cent, a year; and we hear no complaint of his having exceeded his powers. And can we suppose that Johnson was ignorant of all this; that he took it for a note which Wilson Orr had received of Whit~ worth 4' Yancey in the ordinary course of business, and which they meant bona fide to sell out and out? (Not that I think such ignorance would protect him;) but can we possibly suppose it ? I cannot. The facts found, the whole port and bearing of the broker and the buyer, proclaim to my understanding the buyer’s knowledge of the real transaction, just as distinctly as if it had been found in so many words. It is expressly found that Belches sold the note as broker. This negatives at once the idea that Johnson could have dealt with him as owner. A broker is the factor of another; the agent of him for whom he is doing business at the time. Dealing with him in this character, if Johnson did not ask for whom he was acting, this wilful and designed omission charges him as strongly
But, if I should be wrong in this, there are two other grounds, on which, it seems to me, that the appellants must succeed.
1. This being accommodation paper, was never an available negotiable note, until it was discounted by Johnson ; and that discount being at a premium higher than the le»
2. Though the note should be considered perfect and available as between Wilson %■ Orr, and Whitworth S>Yancey, yet as the transaction by which it passed from tin; payees to Johnson, was a discount beyond legal interest, and so usurious, no subsequent holder could maintain an action on it.
As to the first: That a note, usurious in its creation, is void, into whose hands soever it may pass, is agreed on all 'sides. It is equally well settled, that if Jl. execute his note or draw his bill of exchange, and B. take these of him or his known agent, at a discount beyond the legal rate, it is just as much usury, as if B. had first advanced the mone.y, and then taken the bill or note to secure it. The shift of a pretended sale is not suffered to protect such a transaction for a moment. The acts of the parties speak, and this language is much more worthy of trust than words. There must be two parties to every contract. I may draw any number of promissory notes, payable to «/?., B., C., &c. and finish them all in due form. While I keep them in my desk or my pocket, they impose no obligation; they are waste paper merely. So, if I agree to purchase property for which I am to give $ 1000, and bond with three or four sureties is required; I execute my bonds, and get my friends to sign as sureties; this is still a one-sided, imperfect transaction. The bond as yet binds nobody; there is no contract; it is the delivery which gives it life. Suppose, instead of a bond, the vendor preferred to take a promissory note with Jt., B, and C. as sureties. 1 could execute the note payable to J1 and get him B. and C. to endorse it. This would make them, in truth, security for me, just as effectually, as if they had joined me in executing the bond. Or, suppose the obligation took the form of a bill of exchange. I might draw on JL payable to my own order; he would accept; then I would endorse it; and B. and C. would endorse after me. Still the note or hill.
To prove that the bill or note dates its existence from the first real transaction, I will first cite some English Cases.
In Arden v. Watkins, 3 East, 317, re-considered in Wills v. Freeman, 12 East, 656, A. having committed a secret act of bankruptcy, prevailed on B., for his accommodation, to accept a bill of exchange, which A. drew on him, payable to his own order. This bill A. endorsed to C. for a valuable consideration, and without knowledge of the act of bankruptcy committed by A., C. the endorsee sued B. the acceptor. It was contended for the defendant, that the property of the bill was in the assignees of the bankrupt, as his act of bankruptcy over-reached the endorsement. But the Court held, that the bill being accepted for accommodation of A. he had no property in it, nor right of action as against the acceptor; and therefore, that none could pass from him to his assignees; but, that
In Wallace v. Hardacre, 1 Camp. 45, the same point is decided upon the same reasoning. But, the ease most strong and decisive, on this subject, is Downs v. Richardson, 5 Barn, and Alderson, 657, and 7th Com. Law Rep. 227, decided in 1822. Three persons, Rains, Lachlan and Thompson, joined as drawer, acceptor and first endorser, in making an accommodation bill. The bill was properly stamped in the first instance; but afterwards, and before it was passed away for value, the date was changed from the 6th to the 16th of March. The acceptor agreed to this change; but afterwards becoming bankrupt, his assignees set up the defence, that the change of date made the bill a new one; and rendered another stamp necessary. Abbot, C. J, says, “The difficulty arises from the act of Parliament, which requires that every bill of exchange shall have a stamp. The question then is, whether this alteration made it a new bill ? Now undoubtedly, when an accommodation bill has the names of the different parties written upon it, it is, in some sense of the word, a bill of exchange; but it is utterly unavailable as a security for money, until it is issued to some real holder for a valuable consideration. It seems to me, on the facts of this case, that this was an accommodation bill, in the strictest sense of the word; and that the principal parties to it had no right of action inter se. This being the nature of the instrument, it follows that until it was negotiated, it was an unavailable instrument; and that it first became a bill of exchange, when it was issued to Howell fora valuable consideration. ” Rayley, J. “The question arises as to the provisions of the Stamp Ant. Now, if an alteration be made before a bill is issued, a fresh stamp is not necessary. Then, when is a bill issued? I am of opinion, that It is Issued as soon as there is some person
Bowman v. Nichol, 5 Term Rep. 537; Cardwell v. Martin, 9 East’s Rep. 190; Bathe v. Taylor, 15 East, 412, shew, that after a bill of exchange is once perfected, the slightest alteration in it, even though all parties consent, will render it void, unless there be a fresh stamp.
I will also refer to the Cases in New York on this point. The commercial habits of that State have rendered them perfectly familiar with the subject. It is every day before their Courts; and their decision's seem to me to deserve all the weight which can be derived from learning, talents and diligent investigation, both in the bar and bench.
Jones v. Hake, 2 Johns. Cas. 60, A. made a note payable to B., which was endorsed by B. and C. for accommodation of A., and sent by him to E., a money broker, to raise money. E. returned the note, saying he could not get the money with the names then on it, but if D. were added, he could get it at 3 per cent, a month. A. then got B’s name, and returned it to E., who advanced the money on the note, deducting 2per cent, a month. In
Wilkie v. Roosevelt, 3 Johns. Cas. 66. A. made a note payable to B., who endorsed it for A’s accommodation, who passed it to C., to raise money on, by discounting in the market. C. discounted the note at 3^ per cent, a month, and applied the proceeds to the payment of monies lent by him to A.; and afterwards, in the course of his bu - siness, passed the note to D., who sued B., the endorser. Held, that though B. had endorsed, yet as this was for A’s accommodation, the note passed immediately from A. to C.; and that the transaction was, in its inception, usurious, and void.
Mann v. The Commission Company, 15 Johns. Rep, 44. Herman Ruggles drew a bill of exchange, in favor of Oliver Ruggles or order, on Darling, the agent of the defendants. The bill was accepted by Darling, and endorsed by 0. Ruggles. The plaintiff was the holder of the bill. It appeared in evidence, that O. Ruggles had given the note to a broker to raise money on, and that it had been sold to the plaintiff, at a discount beyond the legal rate. Two points were made in the cause. The second was, that there was usury in the sale of the bill. Spencee, J. delivered the opinion of the Court, He said
Bennett v. Smith, 15 Johns. Rep. 355. A. applied to B. to lend him money. B. refused, but said he would buy good notes at a discount of 21 per cent. A few days after, A. brought B. several notes executed by the defendants to A., which B. bought at a discount of 21 per cent., not knowing at the time but that the notes were given to A. in the ordinary course of business. The fact was, that they were executed to A. by the defendants (as a loan of their names) to be sold to B. at the discount he had offered. The Judge charged the jury, that if they believed the witnesses, the transaction was usurious, and the notes void, under the statute: that it was immaterial whether B. knew the manner in which A. obtained the notes; he took them at his peril, and though he may have supposed them to
Powell v. Waters, 17 Johns. Rep. 176. Wood, made a promissory note, which Waters endorsed for Wood’s accommodation. It was made to be discounted at the New-burg Bank, and for this purpose was delivered to Smith, who also endorsed for Wood’s accommodation. Smith applied to the Bank, who refused to discount. He then called on one of the firm of J. T. Powell, who discounted the note, being informed of the purpose for which it was made. The note on which the suit was brought, was a second note made by Wood, and endorsed by Waters, for the purpose of taking up the former. Waters did not know, when ho endorsed the second note, that the first had been discounted by Powell 8? Co., and not by the Newburg Bank; and he supposed that the second note would go to that Bank to take up the former. The second note was discounted by Poioell 8? Co., and the first taken up with the proceeds. On this second note, Powell 8? Co. brought assumpsit against Waters. There were several minor questions; but the important one was, as to the usury in discounting the note. A verdict was taken for the plaintiffs, subject to the opinion of the Court on the case stated. Spencer, C. J. delivered the opinion of the Court He considered it of no importance that the note was intended to be discounted at the Bank, and was in fact discounted by Powell 8Co. It was made to raise money, and such discount did not increase or alter the responsibility of the endorser. On the question «f usury, he say?;
These cases are all in point, and, I think, settled on clear grounds of law and reason. The last is a much stronger case than the one at bar. It is clear that Wood made the note and Waters endorsed it, with the intention of discounting it at the bank, and of course, at the legal rate. But yet, as the contract which gave it being as an available note, was a discount at a premium higher than the legal rate, it was usurious, and the note void. In our case, the note was made and endorsed for the express purpose of raising money at usury; and Wilson <§* Orr, through the broker Belches, sold it to Johnson, at a discount of 36 per cent, a year. If a shift so gross and palpable as this be suffered to pass as an innocent transaction, then indeed I should be inclined to think it best to repeal at once the statute against usury. Such a step would, at least, give fair notice to our citizens, of the ground they occupied.
In the first place, it does appear to me that there is much good sense and soundness in the construction of the statute, contended for by the counsel in Taylor v. Bruce, and used also by counsel in a later case in New York, 2 Cowan's Rep. 740, to wit, that there is a material distinction between that part of the statute, which avoids notes, assurances, &c. for usury, and that which subjects a party to the pains and penalties of the law. The first declares that no one shall take directly or indirectly, for loan of money, &c. more than 6 per cent, and all bonds, assurances, &c. by which a higher interest is reserved or taken, shall be void. The second enacts, that if any one shall, by corrupt bargain, loan, exchange, shift, &c. receive more than 6‘per cent, he shall forfeit double, &c. In the first clause, no corrupt bargain is made necessary to the avoidance of assurances. In the second, it is expressly required to constitute the offence. If we had to pass upon this subject for the first time, I think we should feel little difficulty in pronouncing, that there wás a substantial difference between them. Even in England, where under the influence of the statute of Hen. 8th, the corrupt agreement is said to be necessary to constitute usury, in both its branches; there is in fact a marked distinction between avoiding a note, Sic. and subjecting a party to the penalties of the act. For instance, in Barnett v. Tompkins, Skinn. Rep. 348, the wife of the plaintiff used to lend money, to be paid by the week. She lent to the defendant 20/. to be paid by
Again. As to the corrupt intent, although it be necessary in England to lay it in the pleadings, they seem to have dispensed with any proof of an actual corrupt intent, by substituting for it a legal corrupt intent, saying that wherever any act is done, which shall be considered a violation of the statute, it shall be taken to be corruptly done, though the party had not the least idea, that he was offending against the law. They make a distinction very properly in this respect, between a mistake of fact, and a mistake of law. Thus, a bond is meant to be taken for the proper sum, and the scrivener mistakes it, and puts down a larger sum. This shall not avoid the obligation, or make the contract usurious. The most authoritative decision on this subject in England, and one which is there considered as having settled the law, is the case of Marsh v. Martindale, 3 Bos. & Pull. 154. The opinion of the Court is delivered by Lord Alvanley, C. J. and is elaborate and able. The jury had expressly found, (after stating the facts) that they believed the plaintiff Marsh did not think he was acting contrary to law. In the course of his opinion Lord Alvanley says, “I stated to the jury, that if a man agree to take more than 5 per cent, for the forbearance of money, the law declares such an agreement corrupt within the statute of Anne, whether the party thought at the time, that he was acting contrary to the statute, or not; and though the jury have found that Sir Charles Marsh did not think he was acting contrary to law, there is nothing in that finding to prevent us from examining the transaction, and declaring it to be corrupt, if it appear to us to be so in point of law, without sending the case back to a jury to find the corruption.” And accordingly the transaction was declared usurious, and the
Bernards v. Young, 17 Ves. 44. A .case was brought before Sir Wxljlxam Grant, involving the question of usury. He discusses the subject with his usual dearness, and concludes thus; ^Therefore, though it was not probably so intended, this is an usurious contract.” These opinions seem to me to be founded in sound reason; and without such construction, it would be impossible to enforce the statute.
The Courts of Massachusetts and New York have, 1 find, acted upon this as a settled principle. Thus, in The Bank of Maine v. Butts, 9 Mass. Rep. 49, usury was relied on as a defence to a claim of the Bank, on notes discounted. The mode of discounting pursued was this: Notes payable at 63 days were discounted at the legal rate; but a week before the expiration of the time, the borrower was obliged to procure a new loan of the Bank; thus pay - ing for that week interest both on the original and the renewed loan. The Judge who tried the cause, instructed the jury, that this was not usury, as there was no corrupt. intent, the Bank believing that they had a right to ealeu late in this way. On exceptions to this opinion, the Court decided that the Judge had misdirected the jury. They say, isIt is probable, that in this ease, there was no intentional deviation on the part of the Bank, but a mistake of their right. This, however, is a consideration which musí not influence our decision. The mistake was not involuntary, as a miscalculation might be considered, where an intention of conforming to the legal rate of interest was proved; but a voluntary departure from that rate. An excess of interest was intentionally taken, upon a mistaken supposition that Banks were privileged in this respect, to a certain extent. This was, therefore, in the sense of the law, a corrupt agreement, for ignorance of the law will sol excuse,, ”
These cases shew, that there may be a legal intention, as contradistinguished from an actual intention, a corrupt agreement in law where there was no corruption in fact, as there may be fraud in law involving no moral turpitude. These legal conclusions are correct in the main, though there may be individual exceptions. They have been found necessary for the protection of the community, and
Having thus shewn, first, that to discount a note given for accommodation, at a higher rate than 6per cent., is a violation of the statute and usurious; and secondly, that every agreement in violation of the statute is per se a corrupt agreementj I think the conclusion follows, that Johnson, who purchased the note at a discount of 36 per cent, per annum, (which note received its existence by the transaction) has violated the law, and stands convicted of the corrupt agreement, though he did not know the note to be accommodation paper. It is supposed (in Taylor v. Bruce,) to be absurd and impossible, that when a man has purchased two notes, under precisely the same circumstances, the one shall turn out to be a fair and legal transaction, and the other an usurious and illegal transaction, The seeming absurdity results from considering actual corruption, moral turpitude, a necessary ingredient in the composition of usury civiliter, instead of that legal corruption, of which I have shewn the necessity from reason, and the existence, from authority. The hardship is not greater than where a man purchasing in the market two available, perfect notes, under the same circumstances, shall find one turn out to be a good note, given for a valuable consideration, and the other tainted in its origin with usury or gaming. The notes, in either ease, have no earmark; they bear no brand on their forehead. These, therefore, are the risks and hazards of the trade, and must be encountered by those who follow it. But these traders know (none so well S) that there is a great mass of accommodation paper made aad thrown into the market, to raise money at usury. They know (or if not, ignorance of the law excuses no man) that it is usury to buy these, at a discount beyond 6 per cent. Let them, therefore, make such enquiries as will satisfy them; or, if there be any doubt, let them avoid the traffic, or be content with the legal discount.
If it be objected, that the contract between the broker and Johnson was not usurious, because a note may be sold in the market for less than its face, without committing usury, I answer, that is very true, provided it be a real, bona fide, fair sale out and out of a note, perfect and available before such sale. But, between such a sale and the transaction here, there is a broad and marked distinction. If the holder of a note transfer it without endorsing it, the transaction is prima facie a sale; and if it be a real sale, and not a cover to evade the statute, the contract will be valid, though the discount be greater than the legal rate. But if the holder, when he parts with the note, endorses it, it becomes substantially a mere security for money borrowed. Upon a sale without endorsement, the seller enters into no engagement to re-pay the purchase money, nor is he liable in any event, if he has committed no fraud. In such a sale there can be no usury. But when he endorses the note, he binds himself absolutely, that the whole amount of it (the sum he receives, as well as the discount) shall be re-paid to the endorsee or holder; and being thus bound to pay money in future, for money advanced, if the discount be beyond the legal rate, is it not equally usury, whether the obligation to pay be incurred by an original note, or an endorsement? The difference between the discounting a bill, when the holder endorses, and the sale of a bill without endorsement, is very strongly and clearly laid down by the whole Court in Fenn v. Harrison, 3 Term Rep. 757. It would be a waste of time to refer to all the cases which shew, that where the note is endorsed
The second ground, on which I think the appellants must succeed, is, that the note (even supposing it perfect and available as between maker and endorser) was passed by Wilson & Orr, through the broker, to Johnson, at an usurious discount: that by this usury, the endorsement of Wilson 4' Orr, the payees, was rendered void; and no one holding could claim under it. The statute declares ail usurious contracts “ utterly void/5 Now, that contract which is utterly void, can produce- no effect, can operate nothing, and is, in truth, as if it had never been. If the endorsement of Wilson 4- Orr transferred their interest in the note to the buyer, could it possibly be said to be “ utterly void ?55 What more could it do than pass the title, if it had been valid ? Is it not a contradiction in terms, to say that a void endorsement passes the title ? In the ease of Barnard v. Young, 17 Ves. 44, Keighly executed a deed assigning 8,500/. of East India stock to Young. Keighly afterwards became a bankrupt, and his assignees filed their bill, praying that the defendant might produce the deed, and charging that it was illegal and void, as being founded on an usurious contract. Sir William Grant says, £i It was objected that Young’s assignment was void, as being usurious; and if it is usurious, the consequence must follow, that it is wholly void. The party, in whose fayor an usurious contract has been executed, cannot make
Upon the whole, I am clear that the facts found, prove the note usurious in its inception, and void: that if not void in its inception, the endorsement of the payees was usurious and void; and that on both grounds, the judgment of the Court below must be reversed, and a judgment entered for the appellants.
This is an action of debt by R. C. Adams endorsee of Wilson fy Orr against Whitworth &? Yancey, in which the jury found a special verdict, that the negotiable note on which the suit was brought, was drawn by the defendants without consideration, payable to Wilson 4r Orr, who endorsed it in blank, and delivered it to Belches a broker, and requested him to get the money for it; without stating what was the consideration, and why it was made; Wilson, the acting partner of Wilson Orr, having the evening before asked the broker whether he could raise money for him, to which the broker replied, “yes, on good paper;” and Wilson afterwards having, on the same evening, sent a message to the broker, which he did not receive, to know whether the names of Whitworth # Yancey would do. That the said Belches, as broker, took the note, and sold it to Wm. R. Johnson, at a discount of 3 per cent, per month, without communicating any thing to Johnson about the same, as to the intention of the parties, or the names of the proprietors of the note; and said nothing upon the subject, except that he offered the note for sale, and without further conversation the note was purchased as aforesaid; and that the money paid for the note, was Johnson’s and no-t the broker’s money.
The defence was, that the note and the transfer of it by Wilson 4' Orr were both void for usury; and the questions which arise are, whether the note itself was, in the words of the statute, “made for the payment of money lent, on which a higher rate of interest was reserved than is allowed by the statute,” or in other words, was it usurious in its inception, or to use the phrase of Lord Ke\wox, in its concoction ? And whether, if not void for usury in its inception, the contract by which it was transferred to Johnson, was usurious and void; and if so, whether the drawee of the note (the defendants) can avail themselves of the fact, that the transfer was void, as against the plaintiff, a subsequent bona fide holder of the note ?
Before proceeding to examine the effect of the facts found in this particular case, it will be useful to advert to some of the general principles settled in relation to questions of usury.
The statutes of usury are said by several of the English Judges to be penal statutes, and consequently, to be con - strued strictly. This declaration is remarkable, inasmuch as the statute, 13 Eliz. ch. 8, sec. 7, directs, that the statute 37 Hen. 8, ch. 9, enacted against usury, should be? construed largely and strongly against the party offending by way of device dirently or indirectly. However this may he in England, our statute having no such provision as that of Elizabeth, is certainly penal; and the general rule is, that penal statutes are to be construed strictly. This rule is, however, liable to exceptions in eases oí statutes intended to prevent a general mischief, or to pro mote the public good; as the statute of frauds, which is highly penal in England, TwynCs Case, Co. Rep.; and when it applies, it means nothing more than that a penal statute shall not be extended by equity, to persons or things, not expressly provided for by its terms'. It ought, however, even when construed strictly, to ho carried irde
The statute of Hen. 8, which governs, and has in some measure given a construction to all the subsequent statutes of England upon the subject of usury, expressly requires, in order to constitute usury, that there should be a corrupt intent; and this must, therefore, be alleged in pleading the statutes. Our statute, on the contrary, whilst it in terms requires a corrupt intent, in order to subject the parties to the penalty prescribed by the act, declares all bonds, &c. void, if made for the payment of money lent, on which a higher interest is reserved than the law allows, without requiring a corrupt intent on the part of the lender. This distinction between the English statutes and oiirs has no practical effect upon any question of usury. In England, the allegation of a corrupt intention is mere form of pleading. It is an inference of law from the fact of the intentional taking or securing more than legal interest; and is inferred by the Court, either from the facts found by a jury, or agreed by the parties, or alleged in pleading and admitted by demurrer. Roberts v. Tremayne, Cro. James, 507; Gibson v. Fristoe, 1 Call, 62; Marsh v. Martindale, 3 Bos. & Pull. 153; Reynolds v. Clayton, Mod. 397—2, and 15 pl. S, S. C. and so conclusive is this inference of law, that if the jury find facts shewing that the party intentionally took or received more than legal interest, the Court will infer the fact of corrupt, intention, against the expressed opinion of the jury, that
It was said in Price v. Campbell, 2 Call, 110, that in order to constitute usury, there must be a corrupt intent on the part of both the contracting parties. In that case, Braxton purchased bonds of Campbell, and in payment drew bills of exchange on several persons in Great Britain, with whom he had no correspondence, and which he knew would not be paid; and that consequently, he would be liable to pay in damages and costs, largely more than legal interest. His object was obviously to raise funds by this expedient. It did not satisfactorily appear, though there was strong reason to suspect, that Campbell was privy to Braxton’s views. The Court held, that inasmuch as there was no agreement between the parties that the bill should not he paid in Great Britain, but should be paid in Virginia, with damages after protest, that Braxton might have provided funds in Great Britain, to take up the bill, and so have avoided the liability to pay the damages, it was not an usurious transaction, as it would have been, if there had been such an agreement. Nothing could deprive him of this right to avoid the payment of a sum exceeding legal Interest, hut such an agreement, which could not exist without his concurrence. The Court were, therefore, right in declaring, in that case, that to constitute usury, both parties must have concurred in such corrupt agreement; and the rule is applicable to most cases; for, there are few cases in which a party can be bound by any contract without his express assent. But, cases may occur, in which a party, who has no intention to make a contract to pay more than legal interest, may be bound by such a contract, unless he can avoid it by the plea of usury; and the true rule is, that any transaction in which the lender reserves intentionally more than legal interest, is void, for that cause only, even if the borrower docs not concur in that intent; and this proposition was sufficient for the decision of Price y. Campbell, The statute, in terms, prohibits the taking,
In the case of Powell v. Waters, 17 Johns. 176, the defendant executed his note, endorsed by another for his accommodation, with intent to procure it to be discounted at bank at a legal rate of discount, and delivered it to an agent for that purpose. The bank refusing to discount it, the agent, without the knowledge or consent of the drawer or payee, endorsed it himself, and procured it to be discounted at more than legal interest, by one who knew the facts; and in a suit against the drawer, the note was held to be void for usury.
In Ackland v. Pearce, 2 Campb. 599, a bill drawn and accepted for the accommodation of the acceptor, without any knowledge on the part of the drawer, that it was agreed, or intended to be discounted on usurious terms, was held,
In respect to the intent which constitutes usury, I think it is the intentionally taking or receiving, under any circumstances, more than legal interest, on the part of the lender or creditor, with or without the concurrence of the borrower; and that this intent is an inference of law, which may be made by the Court from the facts submitted to it by the verdict, agreement of the parties, or demurrer to the pleadings.
The only remaining ingredient necessary to constitute usury, is that the illegal interest shall be taken or reserved upon a loan, or for forbearance. Amongst the infinite variety of shifts to evade the statute, nothing has been more common than to give to a loan the appearance of a contract of hazard or of a sale, neither of which fall within the statute. Whether the transaction is a loan or a contract of hazard or a sale, depends entirely upon the real intent of the parlies to the contract. This is also in many cases an inference of law, to be made by the Court from the facts ascertained by the pleadings, or by a special verdict, but may, in all cases, be delermined by the jury, and in some eases, can only be determined by them, as in the ease of Hamilt v. Yea, 1 Bos. & Pull. 144. A banker having discounted largely for the defendant, paid him the money by bills on London, and upon the transaction, made a profit beyond legal interest. But, whether this profit was allowed to him as extra interest, or as a compensation for the hazard and trouble of remittance, could not be inferred from
The first enquiry, upon the finding of the jury in this case, is, whether the note was, in the words of the statute, “an assurance made for the payment of money lent, on which a higher interest is reserved than is allowed by law;’5 and to ascertain this, we are to consider, not the form or colour, but the real substance of the transaction. The note was not made as an assurance for the payment of money to any one, until it was discounted by Johnson. Neither Wilson <$’ Orr nor Belches could have claimed any thing on this note against the drawers. It was not made with that intent; but, with intent that it should be a security to any other person, who might discount it, not as a security only for the money advanced by him, but for the nominal amount of the note. If a note made for valuable consideration may be sold at any discount, (a question which will be hereafter examined) it is because it is an assurance for the payment of a subsisting debt. The debt is the subject of sale and purchase. Here, however, there being no subsisting debt, and no assurance for the payment of a debt, which Johnson could purchase when he advanced his money, it was not a purchase, but a loan, upon the security of the parties to the note; and then, for the first time, the note was made for the security of the money lent, to be paid at the end of 60 days, with interest at 36 per cent.per annum; that being the rate at which the note was discounted. Johnson intended to lend his money at this usurious interest, and not to buy a note. A man wanting money at a distance, has a motive to buy a bill of
Thesejffinciples are fully established by judicial decisions in England, añd in some of oujj^gister States.
Thus, where the transaction is impeached, on the ground of usury, and the sale has been made by an agent or broker, for one of the parties to the bill, and the agent or broker endorses the bill without an agreement to that effect, and thus emphatically represents himself as owner; or if he does not endorse it; in either ease, the purchaser is held to have purchased from the principal, whether he knew or did not know, that the person with whom he dealt acted as agent. This has operated sometimes to save the transaction from the imputation of usury, when the purchaser gave a full consideration for the bill, which would be void if the agent was considered as dealing as principal; and always to condemn the transaction as usurious, where the dealing with the agent was such, as would have made if usurious, if it had been with the principal.
The cases of Dogwell v. Wylie, 2 Campb. 33; Jones v. Davidson, 1 Holt, 256, and Young v. Wright, 1 Campb. 139, seem to me to have proceeded on these principles altogether. In the first of these eases, the action was by the endorsee against the acceptors of a bill. A broker swore that he had repeatedly discounted bills for the defendants, with his own money, at half per cent, more than legal interest; the Iasi of which becoming due, and the defendants'
The case of Jones v. Davidson was this. The bill was drawn by Richards on Davidson, accepted by him, and endorsed by Richards. Davidson applied to Duckworth to raise him some money upon his bill. The bill in question was accordingly drawn, which Duckworth promised to get discounted for 30 shillings, which was greatly more than the legal allowance for brokerage. The bill was delivered to Duckworth with this understanding, that he should get it discounted, giving the value of the bill (minus the 30 shillings which he was to take out of it) to the defendant. Duckworth’s name was not on the bill at this time, but he carried it to Shore, who discounted it at legal interest, but required Duckworth to endorse it, which he did. Gibbs, C. J. held, that if Duckworth was by the original agreement to have been a party to the bill, and to discount it either with his own or another person’s money, receiving thereout 30 shillings as so much of rebate from the principal sum, it would be an usurious contract; but if it were a mere agreement between the parties, that the bill should go out in its full security to the
The case of Young v. Wright was this; Assumpsit by Young against Thomas Wright, on a bill drawn by him on Charles Wright, and endorsed by the defendant, by B. Tenant, and by P Young. King testified, that he had long been in tho habit of discounting bills for Charles Wright the acceptor, at first at the rate of 5 per cent, per annum, afterwards at 40 per cent, per annum: that he had agreed to get the bill in question discounted for Mm, on these terms; and accordingly got it discounted by a Mr. Reeves, who gave for it some checks which were never paid, and goods, which, when sold, produced only 50/., this being the whole sum which C. Wright had received upon it. The counsel contended, that the bill was good in the hands of a bona fide holder for valuable consideration, because the supposed usury had been committed be-' tween King and Reeves, third persons no parties to the bill. There was no usury, therefore, in its original formation, but only in negotiating it; by which the present plaintiff could not be at all affected. Lord E:leenborotjgh however held, that if the witness was believed, there must be a verdict for the defendant. “According to the evi ■’lenco given at the time the bill was drawn, there was a corrupt agreement, that it should be discounted at usurious interest, by which it was vitiated, into whatever hand it should afterwards come.” This opinion of Lord Ellenborough was pointed to the argument of counsel. At that time, according to Lord Kenton’s doctrine in Parr v. Eliason, a bill good in Its inception was considered as available to a bona fide holder, notwithstanding any usury in Its negotiation by the payee; and there seems !o have been an unsettled notion, that a bill was not void
I observe too, that in Young v. Wright, the purchaser Is not suggested to have had any knowledge, either of the original purpose for which the bill was drawn, or that King was acting as the agent of Wright. Why could he not, therefore, deal with King as owner, in which case, if the bill had been given for consideration, and assigned to King for value, King not endorsing it, the purchase might have been made on any terms, without usury ? As I have before said, if the purchaser had given full value, the bill would have been good, notwithstanding the original purpose of the parties in making it; and giving less than its value allowing a discount of legal interest, the contract was usurious on that account, and not on account of the purpose for which the bill was drawn.
Upon principle and authority, therefore, I conclude that this note being, in its first negotiation, which alone made it a security for money, discounted at an interest of 3 per cent, per month, was void in its inception for usury, and cannot be the foundation of an action, even in the hands of a bona fule subsequent holder
If, however, the note could be considered as valid in its inception, as between the drawer and payee, then any person claiming as endorsee against the drawer must show, that a valid transfer has been made by the payee, without which he cannot possibly have a legal title to the debt due by the note; and if the plaintifi has not a legal title, it will be a good defence to shevv that fact. If the transfer be void to all intents and purposes for usury, the title no more passes by it, than it would by the endorsement of a married woman, to whom a bill was given, or by a bankrupt after his bankruptcy, or by a person to whom the bill was not given, although of the same name. Conner v. Martin, 1 Str. 516; Philisbock and Wife v. Pluckwell, 2 Mau. & Selw. 393; Batteson v. Goodwin, 12 Mod. 50; Meade v. Young, 4 Term Rep. 28. The case of an infant endorsee is not an exception to this rule; his contract not being void, but voidable at his election only. So indispensable is it to prove a valid transfer by the payee, that it was required to prove his endorsement in the case of a bill accepted after it was endorsed. Smith v. Chester, 1 Term Rep. 655. And in enquiring whether the transfer of a bill is void for usury, it is to be determined by the rules of the common law, and not of the law merchant, for the reasons before stated.
The necessity of proving, on the part of the plaintiff, in a suit against the drawer or acceptor, a valid endorsement by the payee, so as to transfer to him the legal title, has
If, then, the transfer of the note in this case by Wilson 8? Orr was usurious, the action cannot be maintained by the plaintiff, although a bona fide holder, even if the note were valid, as if given for full and valuable consideration. The cases of Daniel v. Cartony and Parr v. Eliason
The case of Whiffin v. Roberts was this: Roberts drew a bill in favor of Ould for 86/., payable in three months. The bill was for the accommodation of the drawer; and the plaintiff, who gave 29/. for it, knew that fact. Lord Kenyon said, that “ when a bill of exchange is given for money really due, or is drawn in the regular course of business, the endorsee, although he has not given the endorser the full amount of the bill, yet may recover the whole, and be holder of the overplus above the sum he really paid to the use of the endorser. But, when the bill is an accommodation one, and that known to the endorsee, and he
There is a marked distinction between the effect of an assignment of a bond and of a negotiable note or bill of exchange. In the case of a bond, it is at law a valid security for its amount, even as between the parties, although there is no consideration for it. It is, therefore, a subsisting security before it is transferred. A negotiable note or bill of exchange, on the contrary, is not a valid or subsisting security as between the parties, if it be not made upon consideration; and acquires validity only from its first negotiation. The assignor of a bond is in no event liable to re-pay any thing more than the consideration which he received; and that not by force of the contract of assignment, but upon the general principle, that the consideration of the contract having failed, he is bound to restore what he nas received. These differences shew the grounds upon
But there may be cases, in which a discount greater than legal interest may be considered as a sale, although the seller endorses; as if the seller wants money at one place for a - bill payable at another. A discount at a rate greater than legal interest, by the difference in exchange, would be a sale prima facie, and could not be impeached on the ground of usury, unless the discount was greater than could be fairly attributed to that circumstance; in which case, it would be considered as a shift for evading the statute; and private bankers are, in England, allowed
No circumstance appears in this case, to give the transaction the appearance of a sale. The parties who procured the money from Johnson, received- the money, and were to re-pay it at the same place. There was, therefore, no exchange; nor was there any expense of remittance, or any other expense or trouble, possibly to be encountered by Johnson in the collection of the money, other than that which is incident to every other loan of money, and which the law considers as compensated by the gain of 6 per cent, interest. There was nothing to justify a discount at a sent wore than legal interest; much less, a discount at the rate of 36 per cent, per annum. I need not repeat what I have already said, to prove that the contract, by which the note was transferred to Johnson, was a contract between him and Wilson fy Orr, and has the same legal effect as if it had been made between them in person, without the intervention of a broker. And if so, even if the note was originally made for full value, the transfer would be void, and the plaintiff could have no title.
The doctrine which I assert, would induce those who were about to discount a promissory note or bill of exchange, to enquire whether the party offering it to him is owner or agent, and in general he would be informed truly. But, if not, the party falsely affirming himself to be the owner, would be responsible for the injury done by his falsehood. The doctrine of Taylor v. Bruce, on the contrary, affords a strong inducement to the parties to such a transaction, to shut their eyes upon the truth, no matter how strongly the circumstances are calculated to excito
As several important questions on the subject of usury are supposed to arise in this case, it is to be regretted that we are obliged to decide them, unaided by the bar.
1. One question, which is said to arise, is this: If an accommodation note, payable at bank, is endorsed in blank by the payee, and handed by him to his agent for sale, and it is sold at a greater rate of discount than legal interest, without endorsement by the agent, and it is afterwards passed bona fide and for full value, by the purchaser to the plaintiff, also without endorsement, and without knowledge in the first purchaser, that he from whom he purchased was agent of the payee; is the note usurious and void in the hands of the innocent holder ?
2. Another question is this; whether, if, for want of such knowledge, the note is to be taken as one given in the ordinary course of business, and the seller the real owner, yet as he paid the payee only the money he received as aforesaid, this endorsement by the payee is to be
3. The other question is, whether the facts found by the jury in this ease, are sufficient to enable the Court to say, that Johnson the purchaser, knew that the note was for the accommodation of the payees, and that Belches was their broker and agent in the sale; or whether the jury must not find those facts positively, one way or the other ?
These notes, standing under the act, as foreign bills of exchange, as it regards their negotiable quality, the two first questions involve the law of usury in relation to such securities.
In regard to questions of usury generally, some doubts have lately been suggested, whether there is not a difference in the effect of our statutes and those of Great Britain? That is to say, whether, under our statutes, the security may not be void, so that the debt may be forfeited civiliter, when, if the unlawful gain had been received, it might not be a corrupt receiving, so as to subject the party criminaliter to the penalties of the statute ? It seems to me, that on the existence or non-existence of this difference, much of the weight of the argument in support of the two first propositions must depend.
In the country which gave us birth, to which we at one time belonged, and from which, therefore, we have taken most of our civil institutions, and the common law of which is now our law, various statutes are found on this subject.
The first was that of 37 Hen. 8, ch. 9, by which it was declared, that no person, by any way of any corrupt bargain, loan, exchange, chevisance, shift or interest, of any wares, or by any other deceitful way, shall take in gain for one year, &c., above 10/. in the hundred; and if any person shall do any thing contrary to this statute, he shall forfeit the treble value, and shall suffer imprisonment, &e.;
This was purely a penal statute, creating an offence, and punishing it criminaliter.
By the statute of 13 Eliz. ch. 8, all bonds and assurances for payment of money lent, or covenant to be performed, upon any usury in any thing, against the act of 37 Hen. 8, ch. 9, upon which there shall be taken above the rate of 10/. for the hundred for one year, shall be void. This statute, having forfeited the debt, reduces the penalty of the statute of Hen. S, as I understand, “ to so much as shall be reserved by way of usury above the principal,” to be recovered as by the said statute.
By the 21 Jac. 1, ch. 17, the rate of interest was reduced to 8/. per cent.; and any contract directly or indirectly to take more, to be void, and the party guilty to forfeit treble the value of the money or other thing lent.
The statute of 12 Car. 2, ch. 13, altered the rate to 6 per cent., retaining nearly the same words; and that of 12 Ann. ch. 16, is also nearly in the same words, but changing the rate to 5 per cent.
In the case of Chesterfield and others, ex,ors of Spencer, v. Jansen, 1 Atk. 339, it is laid down, “ that nothing is legally usurious but what is prohibited by the statutes; and that the material ones are those of 37 Hen. 8, ch. 9; 13 Eliz. and 21 Jac. 1; and that that of 12 Ann. ch. 16, varies in nothing from the former acts, but in reducing the rate of interest. For, in the penal clauses, all the words of the statute of Hen. 8, are taken in; so that the cases determined on the first of these statutes, are looked upon as authorities upon all the subsequent statutes.” Thus we see that the statute of Hen. 8, was purely penal, and did not affect the contract. That of Eliz. avoided the contract in all cases of usury against the statute of Hen. 8. So that, thus far, it clearly required the same evidence of an usurious contract, under which unlawful interest was received, to convict under the statute of Hen. 8.
These statutes, owing, I presume, partly to their inaptitude to the condition of a new Colony, and partly to their penal sanctions, were not in force here; and we had no laws against usury, until the Colonial Legislature enacted them. 1 Black. Com. 108.
The first was that of 1730, 4 Stat. at Large, 294. It is much like the) statute of 12 Car. 2, ch. 13; and in the Revision of 1733, it is noted in the margin as that statute,
There is another statute in 1734, which, amongst other things, provides for a discovery of usury by bill in equity. &c. Ibid 395.
Thus it appears, that in this, as in many other respects, the Colonial Government pursued the course of legislation of the mother country; and consequently, we have always looked to their decisions on similar laws, as safe, guides in this, as in all like cases.
I understand, until it has been lately questioned as to this country, that in England as well as here, whenever ® party has received what is alleged to be usurious gain, if lie could not be punished under what is called tho penal part of the statute, the contract would not be considered ap void, and vice versa. This I take to have been hitherto considered as settled law, as a general rule; that is, as
Cases have been cited, where a man’s ignorance of the law, and his belief that he was not acting contrary to it, would not avail him in a civil suit. But, that would no more avail him in defence of a criminal prosecution, than in repelling the defence of usury to a suit on the bond. Ignorance of law is no excuse; he has done the act which is contrary to law; his mind concurred in that, and he must abide the consequences. If it is usury for one purpose, it must be for every purpose of the act.
The argument, by which it is said, that one situated as in the case supposed, only runs the risque every man does, in taking an assignment, dona fide, of a security which turns out to be usurious and void, can only have its origin and support in this novel idea. How is this ? The act done, and that by the party himself, is voluntary, and is the very act of usury complained of. It may, however, be perfectly innocent and legal, and so far as the party knew, was so. It is only unlawful and void, by reason of the acts of others, of which the supposed usurer was ignorant, and as to which he may have been grossly misinformed and deceived. But his security is void. Those who deceived him and knew the facts, but concealed them, have got his money, and he has no recourse on them. If the debt in this case is forfeited under the act, it is a very different case, indeed, from that of him who is the assignee of an usurious security. He has his recourse against his assignor, and cannot be punished for the usury, as the other can,
But it is said, that when he purchased, he knew that he was giving less than the face of the note deducting legal interest, and therefore, he must risque the consequences-If it turns out to be a note for value, or in the usual course of business, as he believes it is, the purchase will be lawful and valid; otherwise, if it is for accommodation, he forfeits his money; or if he receives it, even although he knew nothing of this fact, ho is guilty of usury, and forfeits double the amount of the debt. This would operate like an ex post facto law; and a construction resulting in such consequences, it seems to me, cannot be correct.
It is furthermore said, that such accommodation note must be usurious and void, because it had no legal existence as an available security, until it was delivered to the purchaser, on the sale. Thus coming into existence on a discount at more than legal interest, it is unlike a note for value, which is valid and available the moment it is executed; aud it is, therefore, concocted in usury, notwithstanding it is a genuine note, and according to its face and attending circumstances, an available note in the hands of the holder who offered it for sale as his own property. This again, if usury, and punishable as such, must be a hard case; and the question is, whether the law will bear such construction ?
An ordinary note or bond may be purchased at a greater discount than legal interest, without imputations of usury, although such bond or note be given for accommodation, the purchaser being ignorant of that fact. Gibson v. Fristoe, &c. 1 Call, 62; Price, &c. v. Campbell, 2 Call, 110; Brown v. Brent, 1 Hen. & Munf. 4; Skipwith v. Gibson & Jefferson, 4 Hen. & Munf. 490; Hansbrough v. Baylor, 2 Munf. 36. Why shall not this also he usury ? Because, say our decisions on this point, there must be a loan ov forbearance, and that on a contract between parties having a mutual intention to borrow and lend. &r\
An ordinary note or bond, not delivered, if lost, or stolen, is not the deed or note of the party, and can avail no one. Far otherwise is the law of bills of exchange. So soon as they are endorsed in blank by the payee, and whilst in his or the maker’s hands, for accommodation, they have, to certain purposes, a species of existence; for, if lost or stolen, they are good in the hands of a bona fide holder. In the hands of the maker or payee, they may or may not be available, according as they are or are not for accommodation; and a party purchasing from either of these, at a greater discount than legal interest, will be more or less subject to the charge of usury. But, when it has been passed off by the payee to a third person, for the express purpose of sale, it would seem strange that a ¿sale by such person, because he was entrusted to sell, should not avail, but be usury, when a sale by the thief would pass the title. In the one case too, the payee would
In the ease of a stolen note, it is certainly not an available security to any one engaged in, or cognizant of, the felony; and it only becomes so, whon it is transferred to one ignorant of the felony; but, the felon is certaiuly not the agent of the payee.
To make it. necessary, thenj to enquire whether tho holder i to subject him to all tho disal usurer, in ease he does not, the matter, will essentially chai nature of those securities. In atiahegaug casssjaHEngland, as where it was held that the transfer of amll, after a secret, act of bankruptcy, was void, and gave no title to the holder, the decision was soon found to have this effect, and was remedied by statute; as I believe was also done, when the effect of the decision, which avoided the transfer by the payee of a bill for value, if discounted at a rate greater than legal interest, was discovered. But, this point will be moro fully considered hereafter. This too, would be to reverse the general and sound principle of law and justice, that whenever one of two persons must suffer by the. act of a third, he who has enabled that third person to occasion the loss, must sustain it himself There may be d dozen names on the bill or note; all for tho accommodation of the maker or payee, or even for some one of the
If the party purchasing had no reason to believe the note or bill was not the property of the holder, which is the case now under consideration, and the only true one by which to test this question, and he is to forfeit his money, it must be because he is not innocent. If he is, if he stands as the innocent holder or transferee of an usurious security, then he is not the usurer, subject to the penalties of the act; but may get clear of them, under the idea that there is a difference between what is denominated the civil and jjenal clauses of the act. Unless this doctrine, then, can be maintained, there is a case of usury without an usurious lender.
In the case before us, the holder and seller did not endorse. This is considered in law, as evidence of a sale out and out. He is not responsible to the purchaser, and on this ground also, that purchaser does not stand as an ordinary purchaser of a security, void for usury; nor was the transfer, as between these parties, usurious.
It has been held in New York, and is supposed there to be the doctrine in England, that a sale even by the payee, whose endorsement is necessary to make the paper negotiable at a greater discount than legal interest, is not,perse, usurious. I strongly incline to think, that this decision is correct. As between the payee and his immediate endorsee, the liability is no greater than in the caseof an assignment of an ordinary note. It may go no farther; and if the money is not paid by the maker or drawee, the holder can only recover from his immediate endorser, the sum he paid for the note or bill. The payee offers to sell out and out, to the purchaser, at the rate agreed on; but he is told, “ you
On general principles, then, it seems to me, the law cannot bo as contended for in the first proposition. On authority, also, I feel myself sustained, with the exception of some cases from New York.
The case of Baylor v. IJansbrough, especially if 1 have been successful in shewing that the scienter is as necessary-in cases of bills of exchange, as in ordinary notes and bonds executed for accommodation, is a direct authority in point.
The case of Taylor v. Bruce, which was by a divided Court, consisting of three Judges only, cannot be considered as binding authority here, when the question is again presented for consideration. I have again weighed, with all my feeble powers, the arguments of bench and bar in that ease, as well as the very able arguments of my brethren in this; but without experiencing that conviction of my error, which perhaps they ought to produce.
In the case of Ackland v. Pearce, 2 Campb. 599, the note was made and fabricated after an application for a discount was made, and the note then offered, refused, and the usurious rate agreed on.
So in Young v. Wright, 1 Campb. 139, the agreement was, with the broker, who had been in the habit of discounting for the party at 40 per cent, to have that bill discounted at that rate. But the jury did not believe the witness, and so found for the plaintiff.
The late ease of the King v. Ridge, seems to have settled the doctrine in England, in conformity with the opinions of the majority of the Court in Taylor v. Bruce. There, the drawer himself sent the bill, which had been drawn in his own favor, and accepted and endorsed by Mm
I have carefully examined the cases from New York, and especially that of Bennet v. Smith, 15 Johns. 355, in which alone, the question was made, whether it was necessary to prove that the person discounting knew the notes were for accommodation, and made for the purpose of raising money. In most, if not all, of the other cases, such knowledge appeared as a part of the case; and in that case, the jury might well have found the knowledge; for, the application was for a loan, not to sell notes. The party said he would not lend, but would buy notes, and they were afterwards made to the precise amount agreed, and the lender spoke of the transaction afterwards as a loan. Judges are more easily led away in establishing principles, when the case before them is one where, in fact, the principle can work no injury, than when .it is applied to a case, where its hardship and injustice manifestly appears. Besides, the Courts there had, in other cases, laid down the general doctrine, that accommodation notes had no existence until negotiated for value; and that if that negotiation was at a rate greater than legal interest, it was usurious; a proposition undoubtedly true, if, as appeared in those cases, the fact of accommodation was known, and it was also known that the party accommodated was, in person, or by known agent, the party with whom the treaty was. The error was in considering this as a general proposition, without exception; and that it was enough to prove the note to be for accommodation, and to raise money, without further proof of a corrupt loan.
But even in New York, I understand this doctrine is not yet fully settled; nor can it be correct, as it seems to
I must, therefore, be excused for not following the course of decision there, even if it is considered the settled law of that State.
The second proposition presents this question; whether, if a note is made in the ordinary course of business, and is available between the maker and payee, there being no usury between them, but is endorsed and transferred by the payee on an usurious consideration, and afterwards gets into the hands of a bona fide holder for value, this intermediate usury shall destroy the right in the holder to recover on this note against the maker?
The proposition is founded, as I understand, on this argument; that although, as to subsequent endorsements after that of the payee, usury in them shall present no bar, because yon can erase them, and claim to stand at once as the endorsee of the payee, and so this intermediate usury shall not affect the right to recover; yet as you must claim under the payee, and cannot do without his endorsement, that endorsement is void for the usury, and no more title passed thereby, than if it had been forged: that the bill still remains the property of the payee, who could maintain trover therefor, he having still the legal title to the note and its avails; and consequently, that the maker can refuse payment, in fact is bound to refuse payment, if he has notice, as much as he would he, if he had notice of a forged endorsement; and that consequently, the bona fide holder, although he has paid full value, cannot recover.
In the first place, I am not. satisfied that this question arises in this caso. Here the note did not. pass from the
If it be said, that he must be considered as negotiating the note with the payee, because there is no other name on it, yet that is repelled by the fact that, in reality, he got it from another, and again, as above said, if it can be considered a purchase from the payee, the note itself is void, not the contract of transfer.
But, as it is-supposed that the question does arise, it becomes my duty to examine it.
The decisions in England have been directly in opposition to each other. The Court of King’s Bench, in the case of Parr v. Eliason, 1 East. 92, Lord Kenyon on the bench (about the year 1800,) deciding in favor of the holder; and the same Court (about the year 1816,) Lord Eelenborotjgh, who had argued the other case when at the bar, being on the bench and deciding otherwise.
The effects of this last decision, on the negotiable quality of commercial paper, was soon felt; and the Legislature, as before remarked, were obliged to interpose.
Lord Kenyon, in that case, said, there was nothing in the point, and it might be attended with serious consequences, if it should be supposed that the Court entertained any doubt about it. The commerce of the country subsists on paper credit. If this action could not be maintained, no man could lake even a Bank of England post note, payable to order; for, however legal in its inception, if the payee passed it on usury, it is now contended that it would be void in the hands of an innocent holder. When the, hill itself is usurious, it is void by the statute; and the construction has gone far enough in saying, it shall be void in the hands of an innocent holder without notice. No case has gone the length now contended for; nor do the words of the statute require it. Here the bill was fair and legal in its concoction; and therefore, no advantage can be taken of what happened afterwards, against bona fide holders.
The case of Lowe v. Mazaredo, (the best report of which, that I have seen, is in Cornyn on Usury, 175,) is that in which the contrary decision took place; in which Lord Eei.enbokough said, the bill having been stained by the payee with usury, could never be effective until it was cleansed. Had it been called in by the payee, and republished, it might have received an effect de novo; but tainted as it was, every one must take it subject to its vice. It was impossible to reject one part of an endorsement, and retain another part; but it would be necessary either to receive or repudiate the whole unsound matter. He added, that he had turned the case of Parr v. Eliason in his mind with great doubt; and having been counsel in that case, remembered, that at the time of its decision.
It seems to me, that the question was decided in this last case, without a due regard, either to the true meaning of the statute, or to the nature of bills of exchange. A note endorsed in blank, is properly .likened to one payable to bearer; and in Peacock v. Rhodes, Doug. 614, Lord Mansfield says, there is no difference between them. ’ Both go by delivery, and possession proves property, &c. It seems to me, that the question does not depend so much on the title passing from the payee, who has endorsed in blank, as on the legal fiction, if I may so term it, by which the holder may claim on the ground of payment of value by him to the payee, and which enables him to strike out all other endorsements, even such as may be in full, and fill up the assignment to himself from the payee. That it does not depend on the title passing from the payee, at the time he parts with possession, is evinced by the cases of lost or stolen notes so endorsed, in which surely no title passed; if possible less so, than when voluntarily delivered on an usurious consideration. But in fact, the moment he voluntarily parted with the possession, the legal title did pass. The holder might have given the note to a friend, and he might have'parted with it for full value, and the purchaser eould recover. If not for full value, still this is usury only with a subsequent holder, and if both had em dorsed, their names would be struck out
But, when we bring this case to the touchstone of common honesty between man and man, how does it stand ? The payee has voluntarily parted with a note endorsed by him in blank, and which is an invitation to all the world to negotiate it. It passes through various hands without farther endorsement, not oven by the usurer himself, so as to make him responsible to any one, unless perhaps, to him he sold it to. The last holder certainly has no recourse against any one whose name is not on it; and if the one from whom he got it was as innocent and ignorant as himself, and did not endorse, he will not bo answerable, as I understand to be settled law. Chitty on Bills, 117, 118. He has advanced his money to the full value of the note; the debt is justly due from the maker, who cannot resist the payment to some one; and the question is, to whom ought it to be paid, according to the principles of common honesty? Is it to be paid to the payee, because usury to the amount even of one dollar has been practised on him, and who will thus receive the money twice, or to the bona fide holder ? If to the payee, then I say this is svjindling, and that under the sanction of a Court of Justice, and worse than the most grinding usury. It is, moreover, to throw the forfeiture of the debt, not on fho usurer,
As to the third and last head of enquiry; if knowledge in Johnson, that the note was for accommodation, and that Belches was the mere agent of the sellers, must be proved and found, does the verdict sufficiently find that fact, or can the Court infer these facts from those found ?
This knowledge is a matter of fact, as it seems to me, on which the jury alone were competent to decide. They alone could draw the inferences from the circumstances before them. But the verdict, so far from finding that Johnson knew the facts aforesaid, seems to negative even knowledge in the broker himself, that the note was for accommodation. The finding on this point is, “that it was handed to him, without stating what was the consideration, or why it was made, with a request to get money for it. ” So also, instead of finding that Johnson knew
But if it was intended merely to find circumstances, and to refer it to the Court to infer the facts, it, seems to me they were imposing a duty on the Court, which exclusively belonged to themselves. Thus in Lowe v. Waller, Doug. 736, if goods are given in part, above their value, it is the province of the jury to decide, whether the difference is so great, that it is apparent they were taken only as a cover. So, whether the expense and trouble is colourable or bona fide, the culpable intention must always be left open to the jury, whilst the Court are to decide as to the legality of the transaction. Comyn on Usury, 97, 98, 99, 157, 158, 120, 121. In the case of Douglass v. M’Chesney, 2 Rand. 109, although the circumstances were strong, and though that was a ease in Chancery, in what the Court might have determined as to the facts, yet it was considered most proper to refer them hack to a jury to draw the inferences.
I think there was no error as to the matter stated in the bill of exceptions, and on the whole, am for affirming the judgment.
This was an action by Adams, as endorsee of Wilson Sr Orr v. Whitworth & Yancey, on a negotiable note.
The declaration claimed, as the debt due and detained, the sum of $954 03, with interest thereon from the 13th Nov- 1817, till paid; which said sum of $954 03, was composed of the sum of $ 950, the amount of the note, and the sum of $ 4 03 the cost and charges of protest.
The defence was usury.
The facts of the case are found by a special verdict, which states, “ that the promissory note, in the declaration mentioned, was made by Whitworth Sf Yancey, on the 11th September, 1817, without any consideration having been given, or paid to them by Wilson Sf Orr for the note; but that the note is in due and usual form, purporting to be for value received, and was duly endorsed in blank, by the said Wilson Sf Orr: that on the evening of the 10th September, John Wilson, acting partner of Wilson Sr Orr, sent a verbal message to G. JSf. Belches, a broker in Petersburg, to know whether the names of Whitworth Sf Yancey woúld do, he the said Wilson having, on the same day, asked the said Belches, if he could raise money for him; “ yes, on good paper:” but, the said Belches not being at home, the message was not received by him. That on the said 11th September, the said Wilson delivered the said note to the said Belches, without
The Superior Court, being of opinion that the law was for the plaintiff, gave judgment for $ 954 03, the debt in the declaration mentioned, with interest from the 13th November, 1817, till paid, and one cent damage, and the* costs: from which judgment an appeal was taken to this Court.
Before wo enter on the consideration of the question directly presented by this verdict, it may be useful to en-quire, whether there be any material difference between the English statutes and ours, on the subject of usury ? If there be no difference, we may, in expounding our statutes, avail ourselves of the decisions of the English Courts, is: expounding theirs.
The most important. English statutes on the subject of usury, are those of the 87th Hen, 8, ch. 9:5th «and fiih Ed
The statute of Henry the 8th, contained no provision for vacating usurious contracts; it denounced and punished the taking and receiving more than 10 per cent, interest. It declared “ that no person or persons, &c. by way or means of any corrupt bargain, loan, exchange, chevisance, shift, interest of any wares, merchandizes or other thing or things whatsoever, or by any other corrupt or deceitful way or means, or by any covin, engine or deceitful way or conveyance, shall have, receive, accept or take, in lucre or gain, for the forbearing or giving day of payment of one whole year, of and for his or their money or other thing, that shall be due for the same wares, merchandizes or other thing or things, above the sum of ten pounds in the hundred, and so after that rate, &c. and no more or greater gain or sum thereupon to be had, upon the pain and forfeiture hereafter in this act mentioned and contained.” A subsequent section declares that “ if any person or persons, &c. shall do any act, &c. contrary to the tenor, form and effect of this statute, &e. every offender, &c. shall forfeit and lose, for every such offence, the treble value, &c.”
The statute of 5th and 6th of Ed. 6th, ch. 20, repealed that of Henry 8th, and prohibited the lending of any sum or sums of money, “for any manner of usury, increase, lucre, gain or interest, to be had, received or hoped for, over and above the sum so lent, &e. upon pain of forfeiture of the value, as well of the sum, &c. so lent, &c. as also of the usury, increase, lucrq, gain or interest.”
The statute of 13th Eliz. ch. 8, reciting the beneficial effects of that of Henry 8th, and the evils of that of Ed. 6th, repealed the latter act, and revived that of Henry
In the 21st year of James the 1st, it was deemed ad visable to reduce the rate of interest from 10 to 8 per cent. That was accomplished by the act of 21st oí James 1st, ch. 17, which re-enacted, and reduced into one act, the Several provisions of the acts of Elizabeth and of Henry 8th, by declaring, “that no person, &c. from and after the 24th of June, which shall be in the year 1625, upon any contract to be made after the said 24th June, 1625, shall take, directly or indirectly, for'loan of any monies, wares, &c. above the value of 8/. for the forbearance of 100/. for one year, and so after that rate, &c. And that all bonds, contracts and assurances whatsoever, made after the time aforesaid, for payment of any principal or money to he lent, &c. upon or for any usury, whereupon or whereby there shall be reserved or taken above the rate of 81. in the hundred as aforesaid, shall be utterly void. And that all and every person and persons whatsoever, which shall, after the time aforesaid, upon any contract to be made after the said 24th day of June, which shall be in the year of our Lord 1625, take, accept and receive, by way or means of any corrupt bargain, loan, exchange, chevisanee, shift- or
It would be-a waste of time to give extracts from the statutes of 12th Chs. 2, ch. 13, and 12th Jinn. ch. 16; which last is now generally known in England as the “Statute of Usury.” It is sufficient to say, that they are almost literal copies throughout from the statute of James, and certainly do not differ from it in any substantial respect; except that the statute of Charles reduced the rate of interest to 6 per cent., and that of Jinn, to 5 per cent.
The statute of 58 George 3d, ch. 93, provides, that “ no bill of exchange or promissory note, thereafter drawn or made, shall, though it may have been given for a usurious consideration, or upon a usurious contract, be void in the hands of an endorsee for valuable consideration, unless such endorsee had, at the time of discounting or paying such consideration for the same, actual notice that such bill of exchange or promissory note had been originally given for a usurious consideration, or upon a usurious contract.”
The first statute in our own Code, against usury, is the act which passed in the year 1730, (4 Stat. at Large, p. 294.) I here copy its provisions, so far as they are applicable to the case under consideration, that it may be seen how exactly it follows the English statute of usury. It declares, “ that no person or persons whatsoever, from and after the 29th day of September, in the year of our Lord 1730, upon any contract to be made after the said 29th day of September, shall take, directly or indirectly, for loan of any monies, wares, &c. above the value of 61. for the forbearance of 100/. for one year; and so after that rate, &c. And that all bonds, contracts and assurances whatsoever», made after the time aforesaid, for the payment of any prin
It will thus be seen, that there is not the slightest substantial difference between our statute of usury and that of England; except as to the rate of interest; and except also that the person taking or receiving unlawful interest, forfeits, by our law, only the double value of the monies, &c. lent, ike.
It has been decided in England, that the statutes of Jinn, of Charles, of James and of Elizabeth, are founded upon the statute of Henry 8th; that they partake of its spirit and expression, and indeed vary little from it, hi any other substantial respect than reducing the rate of interest; and • consequently that the cases decided on the statute of Henry, are lo be taken as authorities applicable to all the subsequent statutes; and that the decisions upon the statutes of Elizabeth, James and Charles, are to be considered as applicable to the statute of Ann. Comyn on Usury, 10; 1 Atkins, 340; 2 Ves. 142.
As our Legislature seems studiously to have copied the very terms of the “ Statute of Usury” in England, 1 have no doubt that it was so done, in order to give us the benefit of the English decisions as applicable to our statute;
Haying thus shewn the identity of our statute of usury with that of England, and, consequently, that they both admit and require the same exposition, I will now proceed to lay down some of the general principles, which have been established on the subject, and are supposed to have a strong bearing on the case before us.
The statutes of usury in England, have been always regarded and expounded as penal statutes. , No one ever doubted the penal natui’e of the statute of Henry 8th. Its sole operation was to fix the rate of interest, and to inflict penalties for exceeding it. The statute of Elizabeth revived that of Henry, and was, of course, so far penal; and although it introduced a new clause, yet that also was penal in its nature, since it vacated the contract. The statute of James has no more reference to the statutes of Henry and of Elizabeth, than our statute has. But it incorporates into itself, by particular enactment, all the important provisions of both of those statutes; which provisions were afterwards transcribed and re-enacted in the statutes of Charles and of Ann. as they were also in our act of 1730. All the statutes subsequent to that of Elizabeth have been regarded as penal, not because they were governed by that of Henry, but because of the intrinsic, nature of their provisions.
No difference of construction has ever been admitted between the clause vacating the contract, and that inflicting the penalty for the taking or receiving unlawful interest. In Hamitt v. Yea, 1 Bos. & Pul. 156, where the defence to an action of debt was usury, Brooke, Justice, said “ on a penal statute shall we be so strict, for the purpose of defeating a fair claim; for, I cannot but con-
There can be no usury where there is not a loan, express or implied, or at least a forbearance; which, however, is included in the term loan. Comyn, 156-7; Cowp. Rep. 113 14; 1 Vesey, jun’r. 531; Barclay, qui tam v. Walmsley, 4 East, 55. In Barclay, qui tam v. Walmsley, 4 East, 55, Lord Ei.lbnboiiough said, “that to constitute usury, there must either be a direct loan, and taking more than legal interest for the forbearance of payment, or there must, be some device contrived, for the purpose of concealing or evading the appearance of a loan or forbearance, when in truth it was so.”
I3ut, whether there was a loan or not, depends on the intention of the parties to the contract. It is universally admitted, that in enquiring whether a transaction be usurious or not, the principal subject to be attended to, is the intention of the contracting parties, I. do not mean to say,
But, before we attempt to apply these principles to the ease before us, it will be necessary to ascertain the facts established by the verdict.
It sufficiently appears, that the note in question was made by Whitworth 4' Yancey to Wilson 4' Orr, without consideration, and solely for the accommodation of W. fy O., the payees, to be sent into the market for the purpose of raising money; and that it was, for that purpose, put by W, 4* O. into the hands of a broker, who sold it to Wm, 12. Johnson, at a discount greater than legal interest. But whether Johnson, at the time he made the purchase, knew that the note had been made without consideration, and was offered for sale by the broker, for the benefit of W. 4* O., the payees, is a matter of fact, which is not found by the jury. Whether the jury ought, from the other facts found by them, to have inferred and found the farther fact, that Johnson had such knowledge; or whether, if the facts actually found, had been presented to the Court by a demurrer, the Court ought to have inferred the farther fact, that Johnson had such knowledge, is a point not necessary to be decided. I will observe, however, that if I had been on the jury, I should have done as they have done; I could not have said, on my oath, that Johnson had such knowledge. How could they have said so, in the absence of all evidence on the subject ? The broker himself had no reason to know that, the note, had been given for the :v
I did not sit in the case of Taylor v. Bruce, because it was supposed that the principle involved in it, was applicable to a case in an inferior Court, in which I was then a party. But that case has been, long since, decided in my favor, on other grounds; and the controversy forever terminated, by the refusal of a supersedeas to the unsuccessful party. The interest which I was supposed to have had In the decision in Taylor v. Bruce, if it could have had any effect on my feelings, would have inclined me to wish a decision different from that which was pronounced. But, that interest has certainly left no bias on my mind; for, after a laborious, extensive and careful examination of all the principles and authorities supposed to have any bearing on the subject, I entirely approve of the decision of tho Court.
Our laws having put notes negotiable at bank, on the footing of foreign bills of exchange, this case must be decided by the principles applicable to such bills.
It is one of the privileges of a bill or note, that it imports a full and fair consideration; and it is consequently
If a bill be, by its terms, payable to a particular person or bearer, it is transferable by delivery. If it be payable to the order of a particular person, or to him or his order, &.c it is transferable, in the first instance, only by endorsement. The endorsement of a bill or note may be either in full, that is, in favor of some particular person; or it may be in blank; that is, by the mere signature of the party making it. After an endorsement in blank, the bill or note is transferable by mere delivery: and so long as the endorsement continues in blank, it makes the bill or note payable to bearer. An endorsement in blank, even if made for a particular purpose only, or without intention to transfer it at all, puts it into the power of any person into whose hands it may come, either by special trust, by finding, by fraud or by theft, to transfer the bill or note, in the same manner, and as effectually, as if it had been, originally, made payable to bearer. And it would not be competent, in any such case, to any party to the bill, or note, to object to its payment. The holder of the bill or note, is the owner, as to every person to whom he may pass it for value. I do not understand this to be contro» verted, except as to those cases where the seller is, in truth, the agent of the endorser of the bill or note, or the agent of that party to an accommodation bill or note, for whose accommodation it was made; and where, in either case, the payment is resisted on the ground of usury.
Bills of exchange and negotiable notes are property; and they are as much the subject of sale as any other property. And the mere circumstance of their being sold at a discount greater than legal interest, does not subject the sale to the imputation of usury, unless it be made in such a way as to make the seller responsible for their nominal, amount, in case of their being dishonored. If, therefore, the holder of a bill originallj' payable to bearer, or of a note or bill endorsed in blank, (which makes it payable to bearer,) sells it, at ever so great discount, iC out and outJp
I have already stated that, if the purchaser knew the character of the note, and that the person soiling it was the agent, of the party for whose accommodation it had been made, and purchased it, with such knowledge, at a discount greater than legal interest, it would be void for usury. And this was admitted by both of the Judges who decided the case of Taylor v. Bruce. It would be usury, because, the purchaser, knowing the facts above mentioned, could stand in no better situation than if he had purchased the note directly from the principal. Dealing with a known agent, is dealing with the principal. And if the purchase had been made directly from the principal, it would be clear usury; because, the note being merely for accommodation, was not, as between the parties to it, the evidence of any subsisting debt. It was, consequently, as to them, not an available note, nor could any action, as between them, be maintained upon it. It has no legal existence until it is negotiated for value. And if it bo negotiated directly by the party for whose accommodation it was
But how stands the law, if, as we are forced to say was the fact in the present case, the purchaser of the note did not get it, from the party to the note, but from a broker in the market, without knowledge of the character of the note, and without knowledge of the person for whom it was sold ?
By the law merchant, which has, by adoption, become a part of the common law of the land, every bill of exchange imports, as before said, a fair and full consideration; and if it was originally made payable to bearer, or has become so payable, by having been endorsed in blank, every bearer or holder, be he agent, trustee, finder or thief, has a right to sell it, and to transfer it, by delivery. In no case whatever, is the person disposed to purchase it, bound by the law to make any enquiries as to the right by which the bearer or holder sells it; nor, after he has purchased it, can his right to demand and receive its amount from all the parties to it, be objected to on the ground that the person who sold it, exceeded his authority, violated his trust, or that having only found or stolen the bill, he had no title to it. To compel the purchaser to go into enquiries as to the consideration, or to permit the parties to the bill to object to its payment, on any of the grounds stated, would greatly impair the negotiability of bills and notes; their most dis-
But, it is contended, that it was a loan as to Wilson fy Orr. In the case of Floyer v. Edwards, Douglass, 114, Lord Mansmeib said, ‘1 that the view of the parties must be ascertained, in order to satisfy the Court that there was a loan and borrowingBut, how is 45 the view of the parties to be ascertained?” From the fads of the transaction, as they were exhibited, and appeared to the parties, at the time. It is on this principle, that the purchaser of an accommodation hill or note, at a discount greater than legal interest, from the known agent of the party for whose accommodation it was made, is held to be usurious. In such a case, the facts of the transaction, as they appear to the purchaser, make known to him that he is advancing his money to the very man whose bill or note he gets, and that the bill or note had no legal obligation whatever, until he received it. The substance and nature of such a transaction,
The argument generally relied on, in support of the proposition that the discounting an accommodation note at a greater premium than legal interest, makes the note usurious and void, is usually stated in the following form; “as none of the parties to the note could maintain an action on it, as among themselves, it was not an available security until it was discounted; and if the discount which thus gave it being, was at a premium greater than legal interest, the note is usurious and void.55
It is certainly true that accommodation paper is utterly ’unavailable as a security for money, until, (in the language of Chief Justice Abbot,) “it is issued or negotiated to some real holder for valuable consideration;” or until, (in the language of Justice Bailey,) “ ii is issued to some person who can make a valid claim upon it.55 Downes v. Richardson, 5 Barn. & Ald. 674; 7th Com. Law Rep. 227. The term “negotiation,55 when applied to a bill or note, includes, as 1 understand it, every mode of transfer, whether of sale or discount,, by endorsement or delivery. It is admitted, therefore, that the note in question was never an available security, until it was transferred to William it. Johnson, at a discount of three per sent. per month. But it docs not, in my humble judgment, follow, that the note is, therefore, usurious and void. It h rather, (I say it with great deference,) an assump
Bat, it is said, that the ease of a security avoided by the statute of usury, is an exception to the rules of the law merchant; and that, therefore, the rules of the law merchant, do not apply to a case where the defence is usury.
I readily grant, that the statute of usury does constitute an exception to the rules of the law merchant, and that so far as the exception extends, (but no farther,) the rules of that law do not apply to cases where the defence is usury.
But, how far does the exception extend ? To determine this, we must first ascertain the rule, and then the exception. By the law merchant, it was not allowed to a party to &, bill, to object, as against a purchaser for value, the want of a consideration; nor was it allowed to him to object, ay against any body, that, the bill had been given for a usurious consideration. Tima stood the law merchant until the statute of Elizabeth avoided all contracts founded on a usurious consideration. But, the statute made no other change in the law merchant, and of course, constitutes no farther exception to it, than lo allow the party to a bill, to object, as against every body, that the bill had been given for the illegal consideration of usury, and was therefore void. I admit, however, that the statute having allowed him to plead the usury in bar, it allows him also to give evidence of every fact that will conduce to prove the usury. Thus, where the hill was an accommodation bill, and was sold by the agent of the party for whose accommodation it was made, the defendant will be allowed to prove both the want of consideration, and the agency of the broker, in all cases where those facts will conduce to prove the usury; as, for example, where they were known to the person purchasing the bill. In that case, they do conduce to prove the usury; because, they prove that his real intention was to lend his money, and not to buy a bill, in the way of trade. But, where those facts do not eon
I have not been able to find a single case, in any English Court of Justice, where the transfer of an accommodation bill has been decided to be usurious and void, merely on the ground that it was transferred by the agent of the party for whose accommodation it was made, at a discount greater than legal interest. There has not been a dictum to that effect; so far, at least, as I have observed. Knowledge in the purchaser, of the character of the bill, and of the agency of the seller, are considered in England, to be indispensable requisites, to constitute usury in such cases. On this point, the case of The King v. Ridge, 4 Price’s Reports, 50, is an express authority, directly in point. The arguments of the bench and bar appear to me, to throw much light on this question, so much controverted in Virginia. Considering the case as very important, and entitled to great respect, and, as the book containing it is very dear, and very rare, (I have not heard of a copy of it in any library or in any book-store in Virginia,) I shall request our reporter to publish the case at large, in a note, or in his Appendix, from a manuscript copy which I obtained from Philadelphia, through the agency of a friend, and which, I believe to be correct. I forbear, therefore, to make any farther remark upon it.
As to the cases of Dagnal v. Wylie, 2 Campbell, 33; Jones v. Davison, 1 Holt, 256; 3 Com. Law Rep. 92; Young v. Wright, 1 Campbell, 139, and Ackland v. Pearce, 2 Campbell, 599; I have examined them with
It is true, that the great principle, involved in this case, has been settled in New Fork, differently from The King v. Ridge, and Taylor v. Bruce. I have very great respect for the decisions of the Courts of that State, and generally, I derive profit as well as satisfaction from consulting them. I have considered all their cases upon this point, but have not been convinced by them. And, great as is my respect for them, I cannot sacrifice to them the convictions of my own judgment; backed as they are by the uniform decisions of the English Courts.
My brother Judges have discussed at great length another question, which is this; If the note in this case could be regarded as an available security, as between the parties to it, and had been endorsed, at a discount greater than legal interest, by the payee, to a person who afterwards transferred it to a bona fide holder, could such holder recover on the hill ?
This question, although made, does not judicially arise in the case. The note did not pass from the payee to the person who paid the money, nor was there any contract of endorsement between them. But if, as the question supposes, the note had passed from the payee to the person who paid the money, on a contract of endorsement, by which the payee received, for the bill, less than its nominal amount, deducting legal interest, I should be decidedly of opinion that the endorsement was usurious and void, on the ground mentioned by Bailey, Justice, in Lowes v. Mazaredo, Oomyn’s Usury, 181, that “every endorsement is considered in law as a new drawing.” And as every holder subsequent to the payee, must claim through the endorsement of the payee, he could not, if that were void, recover on the bill. This point was settled in
I think the judgment should be affirmed.
It is somewhat to be regretted, that the point decided by this Court, in the case of Taylor v. Bruce, Gilmer, 42, upon two very elaborate and able arguments by the bar, is to be re-viewed in this case, in which there has been no argument, there being no counsel on either side. Under these circumstances, I might content myself by referring to my opinion in that case; an opinion formed on as much light as I have now before me, and upon as laborious and deliberate consideration as I am capable of devoting to any ease. I shall, however, without pretending to enter into a very elaborate discussion of all the cases that are supposed to have any application to it, confine myself to a few remarks on the principle, on which the case to be re-viewed was decided, and to the few cases really applicable to if.
It must be admitted, I think, that a note, such as those in the case alluded to, and the one in the case before us, in the hands of a party who was the legal owner of it, as regarded the purchaser, might be purchased for less than its face, without the imputation of usury; and that the parties to it would be estopped, by the law merchant, to say, in a suit upon it, that it was without consideration, or tainted with fraud. The negotiable character, imparted to it by the law merchant, it must be admitted, forbids such defence. Upon these premises, the first question in the ease of Taylor, &?c, v. Bruce, was whether, though in fact the notes in that case were made to raise money on, the defendants could avail themselves of the plea of usury, against a party totally ignorant of the purposes for which the notes were-made, and who had paid value for them; whether the policy of the act against usury must not only
In considering that question, though it was admitted upon principle and authority, that a contract, usurious iu its inception, must be held to be void in tho hands of a fair holder, as against the parties to it, yet it, was thought by a majority of the Judges, that in a ease in which the usury was not consummated before the sale of tho note, its negotiable character, in the first, instance, ought to protect it from the plea of usury; and the more especially, if the allowance of the plea would subject & party to all the consequences of committing usury, though totally ignorant of it at the time he purchased the note. Many cases were cited by counsel in that case, and some of the New-York cases much relied on. Upon the Brut argument, there was no division in the Court, on the law of the case, But on the fact, the dissenting Judge believed, on the evidence, that Bruce,, the purchaser of the notes from the broker, liad notice of the purpose for which they were made, and that he was pm chasing from the makers; and on the second argument, which is reported, it is very evident that that impression had great weight in bringing hist: to the conclusion on the law, to which he finally came.
As regards Johnson, who purchased the note of the bro - ker in this case, if he had knowledge of She purpose for which it was made, it ought to have been found by the jury. On the contrary, I think ignorance of the purpose for which this note was made, sufficiently appears by tin-verdict. If any thing was to be inferred from the Gu:tf that Belches, who sold the note to him, was a genera! broker, which is found by the jury, or from any other fact in tho verdict, to fix the fact of knowledge of the purpose for which, the note was raade, upon him, it. ought to have beet-
As regards the purchase by Johnson, then, the question is precisely the one decided in the case alluded to. In a contest between the policy of the law against usury, and the policy of the law merchant, which gives to bills their negotiable character, a defendant ought not to be permitted to avail himself of usury, as a sword by which to injure others, as in the case of Taylor, <$-c. v. Bruce, (for in that case it was in evidence, that real bona fide notes might have been purchased at a rate not higher than the notes in question,) but as a shield with which to protect himself against the extortion of his adversary. The rule caveat emptor does not apply to bills and notes, because their title is on their face; their negotiable character absolves the purchaser from all enquiries beyond the paper itself. They are not affected by failure of consideration, or by fraud, in the hands of a fair purchaser without notice. A bill or note with a blank endorsement, is a bill or note payable to bearer, and passes by delivery. In the case of Lowe v. Waller, in which there was usury in the concoction of the bill, the Court, to preserve the principle of negotiability, struggled hard, but was compelled to yield to the force of the statute against usury. In the case of Parr v. Eliason, Lord Kenyon held, that intermediate usury, between an endorser and endorsee, did not taint the contract with usury in the hands of a bona fide holder. In the case of Lowes V. Mazaredo, Lord Ei.lenborough overruled that case, and in consequence of it, such was the shock given to the negotiability of bills, that the act of 58 George 3, was passed, to re-establish public confidence in bills, &c. That act declares, that no bill of exchange or promissory note, though for usurious consideration, shall be void in the hands of an endorsee for value, unless at the time of his discounting it, or paying the consideration, he had actual notice of
The only case I have met with, which is directly in point to the case before us, is the case of The King v. Ridge, 4 Price’s Rep. 50. The facts were, that Lord Moira drew four bills of exchange, payable to his own order, which were accepted by Ridge, his Lordship’s regimental agent. They were endorsed generally by Lord Moira, and by his agent, Major James, handed to the house of Jiustin <§'• Maund, who discounted them at usurious interest. The real question in that case was, whether it was a sale of the bills, or a loan; and it was decided to be the latter, on the express ground that Jiustin Maund, who discounted them, must have known that they were dealing with Lord Moira himself for the bills, and not with another, who might be the owner of them. Among others, Gakjiow, Baron, said, the confusion which has got into this case, proceeds from its having been at one time considered, that these bills were sent about the town, to be sold for what could be got for them; but the fact is, that this paper was sent by the maker to those, who well knew its precise value, to get that value for it, which was done. Nothing had been given by Major James for it; and whether the transaction was originally good, it is not necessary to enquire. But that this transaction, as between Major James, the acknowledged agent of Lord Moira, and Jhtstin # Maund, was usurious and void, there can be no doubt. That it was nothing but a loan by Jiustin 8? Maund to Lord Moira, seems, from the facts, very clear. But, if they had not known, that the bills were the bills of Lord Moira, and sent by Major James, his agent, to borrow money on them, it is equally clear the decision would
As to the cases in which a party purchasing a contract, usurious in its inception or concoction, though ignorant of the usury at the time, is to lose his money, they are not controverted. They have no application to the case before the Court. In such cases, he is not condemned as an usurer, though he loses his money. The usury exists anterior to his purchase, and is not consummated by his purchase. But even in these cases, it will be found, that before the passage of the act of 58 Geo. 3d, there was great repugnance in the English Judges, to subject an innocent purchaser of such a bill, to the loss of his money. In the case of Jones v. Davidson, Chief Justice Gibbs said, “I can never understand the equity of the rule, which has so long obtained under the statute, that an innocent endorsee shall be prevented from recovering on a bill of exchange, which has been contaminated in its creation with usury, by means to which he is not privy, and of which, when he receives the bill, he can know nothing. I own I have sei’ious doubts on this construction; and if the case renders it necessary, I Will reserve the point, except for usury committed by the parties who originally create the instrument. If the parties who create the instrument, and agree to put their names upon it, commit usury, it is reasonable that they should answer for the consequences; but, I do not' understand, why the security should be avoided in the hands of one who takes it for a valid consideration in the common course of business.” In that case, ¿a agreed to give B, a sum beyond legal interest, to get a bill discount
These cases, as before remarked, have no application to the one before us. There is an important difference between convicting a party of usury, and subjecting him to the loss of his money, by the conviction of others. In order to convict a party of usury, the intention to commit it must be wilful. There must be a corrupt agreement, and not a true and just intent. In a contract, fair upon the face of it as to himself, he cannot unknowingly, be made the instrument of others to commit it; unknowingly, not as to the law, but the facts, on which he proceeds to advance his money. The technical distinction between what is called a perfect bill and a blank, ought not to affect him; but in truth, there is nothing in it. A note made by H, and endorsed by B, for accommodation, though of no binding force between the parties until discounted, is not a blank piece of paper. As regards évery body else, it is a binding security, and when sold to a party without notice, neither want of consideration, nor fraud, ean be alleged against the holder. To allege usury in the purchaser who discounts at more than legal interest, though real business notes might be purchased at the same or less discount, according to circumstances, and to subject him to the penalty of usury, would be to interdict the sale of bills and notes altogether, or to put him on enquiry, which would change the character of such paper. Nor can this Consequence be avoided by any construction of the act against usury.
It cannot be said, that the contract may be avoided under the first section, and the party remain unaffected by the second section, if he receives its amount. The two sections must be taken together, to give any validity to the second. It must be considered as applying to the party embraced by the first. That section avoids the contract if usurious; and the second inflicts the penalty, if the usury
Upon the whole, I think the case of Taylor, &c v. Bruce, was decided on correct principles, and that the case before us must follow its fate, and the judgment be affirmed.
Judgment affirmed.
Note.™The statute here referred to, is 58th Geo. 3d, ch. 93, which provides, that no bill of exchange or promissory note, though given tor an usurious consideration, shall be void in the hands of an endorsee for value, unless, at the time of his discounting or x»ayiug the consideration of the same, he had actual notice of the usury.
See Appendix, No. 2.
Note.—The judgment was afterwards reversed, on account of interest being given on the costs of protest.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.