Anthony H. Metcalf vs. Miles T. Watkins, 1 Port. 57

Mr. Chief Justice Lipscomb delivered the opinion, of the Court. . In this case, suit was instituted in the County Court of Madison county, by Watkins, as holder of a bill of* exchange drawn by Metcalf on Beal, of New-Orleans, in favor of Smith, and indorsed by Smith to Ice, and by Ice to Watkins. The defendant below, pleaded two pleas setting up the defence of usury.

The first, alleging-, that the bill was drawn and indorsed without any consideration, but solely for the accommodation- of one Roberts, to. enable him to procure an advance on it at the rate of thirteen per cent-, discount — and that Roberts sold it to Watkins at that discount — also, that the object for which the bill was made, was known to Watkins. The second plea contains the same matter in substance, but without.the scienter.

The replication denies all knowledge of the bill being drawn for the purpose stated in the pleas, but avers, that the plaint iff Watkins believed it was for a fair and bona fide consideration — r-that before he advanced the money to Roberts on the bill, as stated in the plea, and previous to purchasing the bill, the defendant Metcalf, was applied to for information concerning it, and he had affirmed that the bill was all right — -that he, Watkins, was induced by thes e representations, to purchase the said bill for a valuable consideration, to-wit, the sum stated in defendant’s plea.

This replication, by consent, was filed to both pleas of usury. The defendant rejoined, denying with a protestation the truth of the replication, and averring the truth of the pleas — that when Metcalf was asked for information as to the bill, that it was only whether he had executed or drawn it, and to such inquiry he replied,, that he had executed or drawn the bill.- The sur-rejoinder avers the truth of the replication, and denies the rejoinder. On issue on these pleadings, there was a verdict for the plaintiff below.

On the trial, several exceptions were taken to the opinions of the court," on charges given to the jury— and on the refusal to give such as were prayed for by the de-, ’ fendant’s counsel.

As the points which follow, embrace, as it is believed, eve-', ry important feature of the cause, we shall confine our examination to them. “ The defendant moved the court to instruct the jury, that if they believed from the evidence that the bill sued on, was Ürawn and indorsed, as the defendant and indorsers, Smith and Ice, in their statement declare, and that the same was subsequently passed by the said Roberts to the plaintiff, at a discount of 13' per cent, from its date to its maturity ; and also, that the manner and circumstances of such transfer, and the transfer itself were not within the knowledge, concurrence or privity of the defendant; then the bilí tras and is usurious, and void as against the defendant; and the plaintiff cannot recover.

But the instruction so sought, the court refused to give, as the same was asked ; but in lieu thereof, instructed the jury, that if they believed the plaintiff was totally ignorant of the circumstances attending the drawing and indorsing said bill, and wholly unconcerned in its origin, then though it was without consideration as between the parlies to it, it was not usurious, and the defendant could not defeat the recovery of the plaintiff, on the ground of usury.” The question involved in this case is not hew. It was fully embraced in the opinion of the court, in the case of Faris & Powell vs.

King, decided by the Supreme Court of the State, when under the old organization. The judges who then constituted the court, were Crenshaw, White, Saf-fold and myself. Judge Saffold delivered the opinion of the majority of the court, deciding that the case was within the statute .of usury» Judge White and myself concurred— Judge Crenshaw dissented.

As the court trying this case is now composed of only Judge Saffold and myself, it might well have been considered by us as “res adjudicata”— but the importance of the question, coupled with the facts that one of the Judges then dissented, and that the Virginia cases had not been commented on by the counsel, nor noticed by us in the case cited, induce us to look on the question as fully open in this case. We shall therefore enter into the investigation as-though it had never before been decided by us. The first

section of our act against usury provides, “ that no person or persons shall upon any contract whatever, take directly or indirectly, for the loan of any money, wares, mer~ chandize, bonds, notes of hand, or other commodities what.so-' ever, above the value of eight dollars for the forbearance of ~one hundred dollars for one year, and after that rate for a greater or less sum, or for a longer or shorter time ; and alp bonds, contracts, covenants, conveyances or assurances, hereafter to be made for payment of money, or delivery of any money, goods, wares, or merchandize, so to be lent, on which a higher rate of interest is received , or taken than is hereby allowed, shall be utterly void and of no effect.” The proviso to the 4th

section provides', that “ this act shall not be so construed as to prohibit the sale of any bond or bonds which may have been given fairly and bona fide, and not given for the purpose of evading the provisions of this act.” - We shall not step aside to eulogise, nor to deprecate-, the influence of usury laws in general, but content ourselves with arriving at a satisfactory construction of our own, on the subject. It has been said that this law is penal, and requires a rigid construction — that it should not be brought to bear on any transaction not clearly within its Iptter.

It seems to methat’the proposition may be true or false, according to the subject matter on which it is to operate. When operating on the contract or the security taken, it is not strictly speaking, punitive in its character, and we should so construe it as to repress the great eyil the legislature had in view in its enactment. But when the punishment of the person who has com- ' nutted usury, is sought, according to the benignant principle which pervades our criminal jurisprudence, it should be construed in all cases of doubt and uncertainty in favor of the accused.

This distinction between usury cimlüer and usury criminaliter, seems to have been recognised by the legislature in the enactment of our usury law — the first

section of which operates on the contract and such securities as may be taken, for usury, and omits the-word “ corrupt.” The second

section directs in what manner those who have taken or accepted a greater than the legairate of interest, shall be proceeded against, and employs the word “ corrupt” as an adjunct to the bargain for the loan, &c. Since the statute of Henry VIII, down, to our own times,'the authority of the highest judicial precedent, has urged such a construction of statutes for the prevention of usury, as to enable the courts to ferret out usury, no matter with what shift or device the invention or cunning'of man might .clothe it.

The great and leading object being to detect the offence by whatever name it may be called, the statutes of most of the states on this subject, áre similar in their terms, however different they may be in prescribing the consequences of such usury. Our statute excepting bonds fairly and bona fide made ánd sold, from the operation of the law, is, peculiar. I,am not prepared, however, to say that this "exception would not have been implied, if it had not been expressed.

Its insertion in the act will, however, give rise to another question — that is, whether as bonds .alone have been excepted by the statute, this will not exclude notes and bills — “ Expressio unius Exclusio alterius.” As this point however was not urged in the argument, I shall avoid expressing my opinion as to the effect of the proviso in the 4th section, but consider it as though bills and notes were included, or the proviso omitted. In Jones vs.

Hake, one Wat-1 • i i . kins made a note to Hake, which note was indorsed to him and others without any consideration, and for the accommodation of Watkins merely ; it was ¡.then delivered to Hake as a broker, who procured it to be discounted by Herriman at a usurious interest. It afterwards came into the hands of Jones, an innocent holder. It was decided, that although Watkins and Herriman were unknown to each other, it was to bo considered as a contract immediately between them. This case in some of its features, presents a striking analogy to the one before us.

The purchaser or holder of the bill stood in the same attitude of a purchaser without notice, and there was no privity between him and the maker or endorsers — consequently there could have been no corrupt agree-merit' on his part, to commit usury. This case was recog-nised ás good authority in Wilkins vs. Roosevelt, and again-in the same book, on an application for a new trial. The case of Jackson vs. Henry, is not believed to have much bear-, ing on the case before us. In that case there was a mortgage to secure the usurious consideration.

This mortgage was foreclosed,' and the property sold under the decree of the court, pursuant to the statute of the state. No defence of usury was set. up against the mortgage in the process for foreclosure. -The purchaser bought at public sale, under the direction of the court, and was ignorant of the original consideration between the mortgagor and the mortgagee. The defence was never set up until the suit was brought to recover possession from the mortgagee, and it was then held by the court, to be .unavailable.

Judge Kent in his opinion, acknowledges however, that this case is bottomed on the statute of the State of New-York, and that statute expressly provides, that the sale of the mortgaged premises when so made shall bar-all equity of redemption. He too, recognises thé doctrine, that this favor or indulgence is not extended to an innocent púrchaser, when the suit is on the usurious instrument, and refers' to Low vs. Waller, and Brown vs. Bampton. In the case of Moore v.

The President and Directors of the Commission Co. it is held, that where a bill or note is valid as between the drawer or maker, and the payee, so that the latter can maintain an action upon it against the former, it is valid in the hands of an indorsee, who has discounted it at a higher rate than the legal interest, and he may recover the full amount of the bill or note, against the maker or acceptor.

It is further holden in the same case, that a bill or note drawn for the purpose of being discounted at a usurious rate of interest, and indorsed for the accommodation of the maker or drawer, is void in its original formation. The case of Dunham vs. Guild is not believed to have any particular bearing on the question of an innocent purchaser of a bill, drawn for the purpose of raising money at a usurious rate of interest; but as it is believed to be important, and in point, on a question raised and discussed, by the counsel for the defendant in error, it may as well be noticed here.

It was, contended that Watkins took and received, or contracted for, no greater discount on the bill purchased by him from Roberts, than the customary exchange between Huntsville and New Orleans. In the case just citec} from 16 Johnson, the plaintiff offered to show 'on the trial, that the charge of a commission of two and a half per cent, on the exchange of notes, was within the understanding, usage and custom of merchants. The evidence was overruled as immaterial and useless. This was assigned for error.

Chancellor Kent ■says, “ that the rejection of this testimony was right; is a point clear and self-evident.” He refers to the opinion of-Lord Chancellor Loughborough, in the ex parte case of Aynes-worth when his Lordship said, “ that the custom of a trade to take a discount above five per cent, (or the legal rate of interest in England) cannot authorise a greater demand than five per cent.” The Chancellor proceeds, that “ it is perfectly idle to talk of a custom of merchants to take a commission above the legal rate of interest, on the exchange of notes.

The custom of merchants is not applicable to such a case.” It is not a matter of trade and commerce within the meaning of the law merchant; and if there was such a local usage in New-York, it would be null and void, and could not be set up as a cover or pretext to trample down the law of the land. The money lenders throughout che country might as well set up a practice ©f their own, and then.plead it in bar of the statute. In the case of Powell vs. Waters, Chief-Justice Spenser roférs to the doctrine in the case of Mun vs.

The Commission Company, as settled law — that if the note or bill could not support an action, as between the original parties, before it had been sold, then if it is sold at a rate higher than the legal interest, it will'be usury. It may be now considered as. the settled doctrine in the State of New-York* that if the note or bill was made for accommodation only, and nothing Pid for it until it was discounted, at a discount greater than the legal rate of interest, it would be usury ; although the purchaser at such discount, was a stranger to the original object for which it was made.

The case in 4th Cowan, is so distinct in its features, and being merely a random expression' of Judge Southerland,’’s, cannot be considered as in the least shaking the previous train of decisions. We will now examine the Virginia decisions on the question. The case of Hansford vs. Baylor,a seems to be a leading case. It was there decided that it was not usury, to purchase a note made for accommodation, at a greater discount than the legal rate of interest, if the purchaser was ignorant of the object for which the note was made. • The court was composed of Judges Tucker, Flemming, Roane, and Brooke.

The two first delivered opinions reversing the decree of the chancellor of the Richmond district — the other two concurred, but delivered no opinions. No authority is referred to, and the argument of counsel is not reported. The d< cisión seems to have been rested by the court, on a want of prjvity between the borrower and lender, and it was thought by the court that there must be a concurrence of the will of both parties to make it usury. The next case we shall notice, is Taylor, Adm'r of Holloway vs. Bruce.

This too was a proceeding in chancery, against the purchaser of an accommodation bill, drawn and indorsed for the sole accommodation of the makers — it was placed in the hands of a broker, who procured it to bo discounted. In the answer of the purchaser, he said he did not recollect — that the, broker informed him, he was acting as agent for the maker. The case was argued with great ability by most eminent counsel on both sides. The Court, composed of Judges Roan, Coalter and Brooke, sustained the authority of Hansford vs. Baylor. Judge Roan dissenting.

Judges Coalter and Brooke rest their opinions mainly on the ground, that it did not appear from the evidence that the purchaser knew the character of the note. Judge Roan in his dissenting opinion, supports fully the Ncw-York doctrine, that the note ivas void in its original formation, and that the' purchaser took it at his own risk. It appears from this dissenting opinion; that he had concurred with the Court, in its decree in the case of Hansford vs.

Baylor, on the ground, that it did not appear but that the note from the maker in that case, to the first indorsers, had Been founded on good consideration, and was a fair and bona fide transaction. lie contended that a noto made for accommodation,for the purpose, of raising money, is nothing more than a blank paper, until it has, been negotiated by being discounted — and that if such a note is discounted at a discount greater than that of lawful interest, it is void under ilio statute against usury,, whether the person discounting it was acquainted or not with the manner in which it uras made, and its object and design.

The next case we shall notice, is that of Whitworth vs. Yancy & Adams. In this case a majority of the Court sus- atained the decision in Taylor vs. Broten. It was, however again a divided court. Judges Carr and Green delivered very able and elaborate dissenting opinions. They assumed the ground taken by Judge Roan, in his opinion before mentioned. Both held that the law merchant applicable to bills 'of exchange, wras not to govern, but the common law. The Judges who composed the majority, wore Coalter, Cabell and Brooke.

It will he seen, that there has been no cóntrariety of decision ou the important question in Virginia, but that they have been uniformly the samo way. Yet when the great weight of talent, and the deserved reputation of the Judges who dissented, and their very able and learned arguments are considered, those cases cannot, as decided, have the same influence with us, as they would otherwise be entitled to. Judge Roan in his day, sustained a reputation for strength of intellect, independence of character, and judicial learning, surpassed by no jurist in our country.

Judges Carr and Green have not been so much known to the profession ; but the great learning, research, and talent displayed in their’ dissenting opinions, sufficiently establish their claims for rank 'among the most eminent Judges of the land. We have found nothing therefore in the adjudged cases, to disturb the opinion expressed in Faris & Powell vs. King. Let ns take up, however, the question on principle, and see wliat will be the result.

It will be agreed by all, that if a note is tainted with usury in its original concoction and for-formation, this taint, like the mark on Cain, will follow it through all its migrations., shiftings and changes, never to be purified, but continually presenting an insuperable bar to its validity. Tnose who support the validity of a note made for the purpose of raising money on usury, contend that the note is complete before it is discounted — and in this, it seems to me, consists the great error of the decisions in the Virginia courts.

They have not attended sufficiently to what would be the legal effect of such a note or bill, if it were not discounted. It never could bo sued on between the original parties for the want of a .consideration. No consideration is paid until a new party is made — who comes in by discounting it at usurious interest. Judge Carr presents his views on this point with so much force aud perspicuity, that it would be injustice to him to abridge them. He says “ there must be two parties to every contract. I may draw a number of promissory notes payable to A. B. and C. &c. and finish them 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 a thousand dollars, and bond with three or four securities is required ; I execute my bond, and got 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 if.; the delivery which gives it life. Suppose, instead of a bond, the vendor preferred to take a promissory note with A.

B. and C. as sureties ; I could execute the note payable to A. and get him together with B. and C. to indorse. This would niake, them, ~n truth, surety for me just as effcetu~lly as if they had joined me in executing the bond. Or suppose tlie obligation took the form of a bill of exchange, I might draw on A. payab'e to my own order-he would accept-I would indorse it, and B. and C~ would indorse after me ; still the note while in my hands would be mere waste paper. A.

B. p~nd C. to be sure, had agreed to become my sureties, and had signed the instrument in such a way as to put it in my power to bind them ; but they could only be bound when I became bound; and that could only be when I delivered the bill or note upon a real transaction. ~f I never did this, though the time for which the note purported to run had elapsed, no one of the parties to it could sustain an action on it against another. It had never received the animating touch, and was still a lifeless body. raise money, at usury, a little cau~tion must be used~ A decent cloak. I get a friend to lend me his credit.

He exe- cutes a note for me for one thousand dollars, payable at three months,- which I indorse. While I hold this paper it is nothing-it imposes no ob]igation on my friend,- it is a mere preparation which I am making to get my money. When I part with it, then I give it being, and stamp its character by the nature of the contract I make. If Idiscount it beyond the legal rate, whether by myself or agent, it is usury. The note is usurious in its inception and void." To prove that a note or bill dates its existence from the first real transaction, he cites some English cases, to wit-Ardin vs. Watkins-Wells vs.

Freeman-Wallace vs. Henderson-Davis vs. Richardson. These bases all fully sustain the po- sitiori assumed by the Judge. What then was the first real transaction in the case before us? Until it had been discount~ ed, no suit could have been sustained by any one of the par- ties who figured in the tr~nsactioii. Neither Smith thepayee, nor Ice the indorser, nor Roberts, the object for whose bene-~ fit it had been fabricated, were affected, until it was discount- ed by Watkins.

That was the first real transaction, and it a3East 317 b l2East65G Cj Camp. 45 was that which breathed spirit and life into the otherwise va-Ineicss and unavailable paper. The first real transaction siampt on it tlio impress of its own character. Had it been flkcennted at the legal rate of interest, or at one not beyond suck iegs-J rate, it v/onld have been valid : but its discount at a greater than the legal interest, made it usury. To sustain the contrary doctrine, we must assume that the bill or noto was perfect and valid before it was discounted.

It is further said, that usury is a crime, and cannot be committed without'the, intention, to do so — that an innocent purchaser of a note cannot be convicted of crime when he honestly supposed that the bill or note was based on a valuable consideration — and to this extent went the opinion of the Judge in the court below, as shown by another part of the bill of exceptions: yet nothing is more clear, than that a man may commit usury civilUer, without ever having heard of the law for its prevention.

Suppose he makes a contract for the lean or use of money at a greater rate of discount or interest than eight per cent. — the rate allowed by our statute ; hut not knowing the statute, he believes it authorises the amount he has reserved in his contract; now this contract would be void under the statute, although neither of the parties, the lender nor the borrower might know at what the statute had fixed the legal rate of interest. The question is not, whether the lender intended to commit usury. If he has stipulated for more than the statute allows, usury is the inference of law.

If, however, in stating a balance, or in the calculation of interest, there has been a mistake, when only the legal rate was intended, there would be no usury. There is nothing in the first

section of our statute, against usury, which operates on the contract itself, that makes a corrupt agreement a necessary constituent to render the contract void. It may be well to notice here an argument founded on the supposed participation of Metcalf in the fraud practised on Watkins. It is alleged by the plea, that when inquiries were made of Met-calf concerning the bill, at the instance of Watkins before •discounting it, Metcalf replied “ that it was all right.” The rejoinder avers that the inquiry was directed to the mere fact of executing or signing the bill, and he replied that he did execute, or sign it.

The inference drawn by Watkins may have been, and may reasonably be supposed to liavebeeny that the bill was a good and valid one. • It was urged that it was a fraud on Watkins by Metcalf, to conceal the true character of the transaction, and that he is estopped from taking advantage of his own fraud, by setting up the defence of usury. It seems to me, to be a full answer to this argument, that if the paper was made for the purpose of raising money, and it was raised at usury, that the fraud of the parties could not change the nature of the transaction, and purify it from - the taint of usury.

Tf Watkins was induced to believe, from the fraud of Metcalf, that the bill was a good one, and purchased under such fraudulent representations, his remedy could not he on the bill; because that was clearly void, and his remedy, if any, would be in a different form of action. This may be a hard case on Watkins.

On a very memorable occasion in the history of our jurisprudence, when most enormous amounts of usury had been collected, to the ruin of the borrower in many cases, and when they sought to recover back the usury that had been paid, under the mistaken impression that the payment could have been coerced, we declared, that whatever might be the hardship of the case, we could not warp the principles of law to meet particular cases, and to relieve their oppressions ; and now, if the lender loses his debt by not having been sufficiently informed of the nature of the transaction in which he was participating, we must respond to him in the same language.

W e may, however, be permitted to say, that if our statute against usury is to be any thing more than a dead letter, or a mere cob-web restraint, which the dullest im ention might sweep away at a breath— we must bring cases of the character of that before us, within its provisions. Were we to rule otherwise, nothing in the form of a statute would be left more utterly feeble and use-*ess* The facility with which it would be evaded, would be a subject of derision to the dullest capacity that ever entered the mone^j. as a money lender ¿marEeP.

The testimony of a broker, in one of the cases from Johnson, I do not recollect which — is emphatic on this subject. He points out a way, as clear as noon-day, by which to evade the statute. He says, “ I do not beliave the lender knew who the borrower was. I was not in the habit of letting the borrowers name be known.” Nothing more would be necessary than to prepare the paper, and place it in the hands of a broker, with instructions not to let the person who should discount it, know for whose use the money was advanced.

From the views we have expressed, the charge of the court-under the second plea was not on an abstract question, but was wrong in law, under the issue formed on that plea. We believe too, that Roberts’ declarations ought not to have been admitted in evidence. If (as would seem to be the case) his interest was balanced, he was a competent witness, and of course better than his declarations, which were nothing more than hear-say testimony. Let the judgment be reversed, and the cause remanded. By Mr. Justice Saffold : I concur in the opinion that the judgment is erroneous, and must be reversed.

I arrive at the same conclusion with Chief Justice Lipscomb, without subscribing to all the propositions, illustrations, or reasons by which he is influenced. My views are fully expressed on all the principles necessarily involved in this case, in two previous decisions of this court. Faris & Powell vs. King, and Thompson vs. Jones. I was . . , , ^ . . , , ', willing to investigate the subject on principle, and the authority of other courts, notwithstanding our former decisions.

The same has been done with the aid of elaborate and highly talented argument, but I have not been enabled to change my opinions as before expressed, oh any material point embraced. I would not, however, be understood to concur, on this occasion, in the extenssion of any principle' further than before declared. 1 Stew. 255 2 John Cas. 60. 3 John. 66. 3 John. Cas. 205. 10 John. 196 Doug. 736. 2 Strange, 1155. 15 John. 44. 16 John. 367 4 Ves. 678. 17 John. 179 15 John. 55. 1 Va. R. 42. 5 Rand. 333 . 3 East, 317 12 East 656 j 1 Camp. 45 . 5 Bar. and Ald. 657. 1 Stew. 255 1 Stew. 256 Mun. 36.