Gaither vs. The Farmers and Mechanics Bank of Georgetown. Hawk's R. 411. Oldham vs. Turner, 3 B. Monr. 67. Lloyd vs. Keach, 2 Conn. 175. It is difficult, indeed, to perceive how the discount of a valid promissory note can be considered as usury, under any circumstances in New York, since the decision in Cram vs. Hendrick, 7 Wend. 569. Cram, the defendant, was the payee and holder of two promissory notes, executed for a valuable consideration by one Gomez. About three months before the maturity of the notes, Cram employed a broker to raise money upon them, and for this purpose delivered them to him endorsed in blank. The broker applied to Hendrick to discount the notes, informing him at the time that they belonged to Cram, and were to be discounted for his benefit. Hendricks cashed them, charging a discount of one per cent. a month for the time they had to run, and, after protest and notice of their non-payment at maturity, sued the endorser. It was held by the Court of Errors, that the contract was not usurious; that the holder was entitled to recover from the endorser the amount of the advance made by him, together with the interest thereon, and from the maker the whole amount of the note. Whether on the transfer of a note, good and available between the original parties, upon an usurious consideration, the original debtor can set up the usurious endorsement to disprove the title of the holder, is a question upon which the authorities are not unanimous. In Lloyd vs. Keach, 2 Conn. 175, it was held that the defendant might avail himself of such intermediate usury to impeach the plaintiff's right of action, thus affirming the decision of the Supreme Court in the case under consideration. Under the decisions in New York, as we have seen, the question can hardly arise. The point was made and considered serialim by the Judges in Whitworth vs. Adams, 5 Rand. 333, although it was not essential to the decision of that case. The Court was divided in opinion, but a majority of the Judges held that an intermediate endorsement of a valid note for an usurious consideration, as between endorser and endorsee, will not vitiate the note in the hands of a subsequent bona fide holder without notice of the usury. The same principle has been affirmed both in South Carolina and in Maryland, Foltz vs. Mey, 1 Bays. Rep. 486, Johnson vs. King & Jones, 3d McChord's L. R. 365, and Bush vs. Gwinn, 4 Harr. & Johns. Rep. 507. These decisions mainly rest upon the reasoning and authority of Lord Kenyon in the case of Parr vs. Eliason, 1 East Rep. 92 (A. E. vol. i., 60), and may be sustained without repudiating the doctrine of Gaither vs. the Farmers & Mechanics Bank of Georgetown, or affirming the right of a holder to maintain suit on a note when his own title has been acquired by usury. The facts in Parr vs. Eliason were these. A bill of exchange payable to A or order, which was legal in its inception, was by him endorsed to B for an usurious consideration, who passed it to a third person for a valuable consideration without notice of the usury, by whom it was paid to B's assignees after his bankruptcy, in satisfaction of a debt owing to the bankrupt's estate. It was held that the endorsement from A to B on an usurious account did not avoid the bill in the hands of an innocent holder; and that B's assignees being clothed with the rights of such innocent endorsee, were entitled to hold the bill against A, though as between A and B the security was void. So clear did Lord Kenyon consider the question that he would not allow the counsel of the assignees to argue it. "There is nothing in the point; and it Gaither vs. The Farmers and Mechanics Bank of Georgetown. might be attended with serious consequences, if it could be supposed that the Court entertained any doubt upon it. The commerce of this country subsists upon paper credit; but if this action could be maintained no man would be safe in taking even a Bank of England post bill payable to order; for however just and legal it might be in its inception, if the payee passed it to another for an usurious consideration, it is now contended that it would be void in the hands of any subsequent innocent holder, and might be recovered from him. Where the bill itself, in its original formation, is given for an usurious consideration, the words of the statute of Anne are peremptory, that the assurance shall be void; and the construction which has been put upon the statute has gone far enough in saying that it shall be avoided even in the hands of an innocent endorsee without notice. But 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 reasoning of Judge Coulter in Whitworth vs. Adams, in support of the same proposition, seems to the editor, irresistible. "A note," says Judge C., "endorsed in blank is properly likened to one payable to bearer; and in Peacock vs. Rhodes, Doug. 614, Lord Mansfield says, there is no difference between them. Both pass by delivery, and possession proves property. It seems to me that the question does not so much depend upon the title passing from the payee who has endorsed it 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 upon the title passing from the payee at the time he parts with the possession is evinced by the cases of lost or stolen notes so endorsed, in which surely no title passes; if possible, less so, than when voluntarily delivered on an usurious consideration. But in fact the moment the payee voluntarily parts with the possession, the legal title does pass. The holder may give the note to a friend, and he might part with it for full value, and the purchaser could recover. If not for full value, still this is usury only with a subsequent holder, and if both had endorsed, their names might be stricken out. "But in truth, is not this using one contract which is usurious, to avoid or evade the performance of another contract which is not usurious, though that assurance has been voluntarily sent into the world by the owner, and has come to the possession of an innocent holder, who, on the faith that it was legally and properly issued, has given full value for it? It would be a different matter under the law, if the payee had been sued on this new drawing, as his endorsement is called. Here would have been a corrupt and unlawful contract; and we would have been forced to apply the law in his favor against the innocent. This, as Lord Kenyon says, is as far as the law goes, and far enough too." The opposite position, the very one indeed assumed by the Supreme Court of the United States in the case before us, was taken by Judge Green, and, to some extent, by Judge Carr, who reviews the English authorities more fully than Judge Johnson. "Is it not," says Judge Carr, "a contradiction in terms, to say that a void endorsement passes the title? In the case of Barnard vs. Young, 17 Ves. 44, Keighly executed a deed assigning 85001. of East India Gaither vs. The Farmers and Mechanics Bank of Georgetown. 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, 'It was objected that Young's assignment was void, as being usurious, and if it is usurious the consequences must follow, that it is wholly void. The party in whose favor an usurious contract has been executed, cannot make use of it for any purpose whatever.' If the endorsement of the payees is void, the property of the note remains in them. If the endorsement of the payees is valid, and any subsequent endorsement void, the holder may still sue on the note: for he may strike out all the intermediate endorsements, and claim under the endorsement of the payees. But every subsequent holder must claim through the payees; and where their endorsement is void, no holder can maintain a suit." The doctrine, as stated in this opinion of Judge Carr, is that which Mr. Justice Story, in his treatise on Promissory Notes, considers to be the best established. See Story on Promissory Notes, 213. "If," says Judge Green, in the case we have cited, "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 vs. Martin, 1 Str. 516; Phillisbock and wife vs. Pluckwell, 2 Maule & Sel. 393; Batteson vs. Goodwin, 12 Mod. 50; Meade vs. 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 vs. Chester, 1 Term. Rep. 655. 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 never been questioned, except by Lord Kenyon, in Daniel vs. Cartony, 1 Esp. N. P. Cas. 274, and by the judgment pronounced by him for the Court, in Parr vs. Eliason, 1 East. 92. In both these cases, the holder of a bill accepted for value, transferred it at an usurious discount. In the first case, the bill came to the hands of a bona fide holder who sued the acceptor. In the second case, the bill passed into the hands of the assignees of the purchaser, and the endorser brought an action of trover for the bill against them. And in both cases, Lord Kenyon argued, that the bill being good in its inception, could not become void by any subsequent usurious transaction in its negotiation, and that a bona fide holder could not be affected by such subsequent usury. It was unquestionably true, that the bill itself was not vitiated by the usury in the transfer of it; and the acceptor was still liable to pay it. That was not the point in either case. The true questions were, whether the plaintiff was entitled to recover as endorsee in the first case, or the defendant to retain the bill in the second case; both of which turned upon the inquiry, not whether the bill was valid, but who was entitled to it; in short, whether the legal title passed by a void contract of assignment. This question was decided differently by Lord Ellenborough in the subsequent case of Lowes vs. Mazaredo, 1 Starkie Rep. 385, and more fully reported in Comyn on Usury, 175. In that case, the bill was accepted for full Gaither vs. The Farmers and Mechanics Bank of Georgetown. value. The payee transferred it at a discount exceeding legal interest, and the usual commission for brokerage, and it passed through several hands, one of whom gave full value for the bill. The holder sued the acceptor; and it was held that the first endorsement being void for usury, no subsequent holder could maintain an action upon it against the acceptor." Judge Brooke, in the course of his opinion, observes, that the case of Lowes vs. Mazaredo, overruling Parr vs. Eliason, gave such a shock to the negotiability of commercial paper, that the Act of 58 Geo. III. was passed for the purpose of re-establishing public confidence. That act declares, that no bill of exchange or promissory note, though for an 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 usury. This act excludes negotiable paper almost entirely from the operation of the statute against usury. Some of the cases have gone further, and held that the maker of a note cannot set up the defence of usury against a holder whose own contract of purchase was affected with this taint. In Knights vs. Putnam, 3 Pick. 183, a distinction was taken by Wilde, Justice, in delivering the opinion of the Court, which is referred to by Chancellor Walworth, in the case of Cram vs. Hendricks, as at least plausible and worthy of consideration. We extract so much of the opinion as is necessary to exhibit the argument of the Court. "It is a well established principle, that if a note or security is valid when made, no usurious transactions afterwards between the parties or privies will affect its validity. Ferrall vs. Shaen, 1 Saund. 295, Williams's note. "But it is objected that as transfer is usurious, the plaintiff's title fails, although the original contract remains good, and that he cannot derive title from an illegal transaction in which he was a guilty party. This objection would have weight, if an usurious contract were malum in se or merely void. But it has been frequently held, that a contract contaminated with usury is only voidable by the party injured, or those claiming under him. "Now it is manifest that the maker of a note is not affected by an usurious agreement between the endorser and endorsee. He is liable on his contract, and it is immaterial to him whether the action be brought in the name of the endorser, or in that of the endorsee. But I hold further, that the transfer of a note on an usurious consideration is neither void nor voidable. So far as the endorsement operates as a transfer of the note, it is an executed contract, and the statute against usury is not applicable. It only applies to the implied promise or guarantee of the endorser, which being an executory contract may be avoided. But in no case can an executed contract be set aside on the plea of usury. It is not, however, necessary to insist on this distinction for the purpose of sustaining the present verdict. It is sufficient for this purpose, that the transfer is voidable only, and that it is not competent for the defendant, he not being a party to the transfer, to avoid it. The note being free from usury between the immediate parties to it, no after transaction with another person can, as respects those persons, invalidate it." This decision is supported by the case of Littell vs. Hord, Hardin's Rep. 81. The obligor of a bond pleaded to an action by an assignee an usurious assignment. The Court say, "The statute against usury was certainly provided to Lloyd vs. Scott. prevent the necessitous from being overreached and oppressed by those who might be unfeeling and unjust enough to take advantage of their situation: the law was emphatically made for the benefit of the borrower, and therefore the maxim, ' Quisquis renunciare potest juri pro seipso introducto' applies. The Court will not compel the assignor who is not a party to the cause to take advantage of a transaction, which, were he in court, he might expressly sanction. This contract could not have injured the obligor, as payment to a holder having a regular assignment, would have discharged the obligation." The same principle is followed in Collier vs. Neville, 3 Dev. 30. The Court say that the object of the statute of usury was to protect the borrower, not to enable a lawful debtor to avoid the payment of a lawful debt, and hence the latter cannot aver an usurious assignment, so as to defeat the assignee. LLOYD VS. SCOTT.* Usury. What agreement will constitute, and who may take advantage of it. MR. JUSTICE M'LEAN delivered the opinion of the Court. This is an action of replevin, brought to replevy certain goods and chattels which the defendant, as bailiff of William S. Moore, had taken upon a distress for rent claimed to be due upon certain houses and lots in Alexandria, owned and possessed by the plaintiff. The sum for which the distress was made is five hundred dollars. The declaration is in the usual form, and the damages are laid at one thousand dollars. The defendant filed his cognisance, in which he acknowledges the taking of the goods specified in the declaration; and states that a certain Jonathan Scholfield, being seized in fee of four brick tenements and a lot of ground in the town of Alexandria, by his indenture, dated the 11th of June, 1814, in consideration of five thousand dollars, granted, bargained, and sold to William S. Moore one certain annuity or yearly rent of five hundred dollars, to be issuing out of and charged upon the said houses and ground, and paid to the said Moore, his heirs and assigns, by equal half-yearly payments of two hundred and fifty dollars, on the 10th of December, and on the 10th of June, in each year, for ever thereafter; to have 4 Peters' Rep. 205. |