Gaither v. The Farmers and Mechanics Bank of Georgetown/Opinion of the Court

The plaintiff here was defendant in the Court below, to an action instituted by the Farmers and Mechanics Bank of Georgetown, on a note made by him to W. W. Corcorran & Co. and by them endorsed in blank to the Bank.

The record makes out a case for this Court, of whcih the following is a summary: That W. W. Corcorran & Co. discounted their own notes with this Bank, at thirty days; the Bank expressly stipulating, that in lieu of money they should receive what they call a post note of their own, payable at a future day, without interest. The evidence would make out that the post notes given for this discounted note, were at thirty-five days after date; that it is, two days after the discounted note fell due; so that in fact there was no advance of money, although an interest of six per cent. per annum, was taken from the Corcorrans, and the post notes of the Bank were proved to be at a discount of one per cent. making one and a half per cent. for thirty days, or eighteen per cent. per annum. The note on which this suit was instituted, was passed to the Bank as a collateral security for the discounted note, and was altogether unaffected with usury in its origin. The ground on which the right of the Bank is resisted, is, not that Gaither is discharged from his contract with W. W. Corcorran & Co., but that the endorsement to the plaintiff below, having been made to secure a note given on an usurious contract, could vest no interest or cause of action in the endorsee. In order to avoid the pressure of this defence, in the Court below, the plaintiffs there gave in evidence a writing, addressed by W. W. Corcorran & Co. to the Bank, bearing date 17th February, 1823, prior to the institution of that suit, in these words: 'Please deliver to Thomas Corcorran what notes of ours may remain in your possession, after the debt due the Bank, for which they are left as collateral security, shall have been paid, or hold the same subject to his order.' And it was further shown, that a few days before the issue was tried below, an adjustment had taken place between the Bank and Thomas Corcorran, (who was then endorser and assignee of W. W. Corcorran & Co.) upon which Gaither's note had been delivered to Thomas Corcorran; he then endorsed his name on Gaither's note, below that of W. W. Corcorran & Co. and thereupon the Bank, before the jury were charged, had the name of Thomas Corcorran entered on the docket, as the cestuy que use, for whom they were prosecuting their suit, and the jury, it appears, were charged with the cause, according to the exhibition of parties, thus made upon the docket; that is, to try an issue between the Bank, to the use of Thomas Corcorran, plaintiff, and Gaither, defendant.

This practice is familiar with the Maryland Courts, and when the action originates in that form, the cestuy que use is regarded as the real party to the suit.

It is now contended, that, although substituted at the eleventh hour, Thomas Corcorran is to be regarded in that relation; and under that idea this cause has been argued, as though the question of usury had been raised between Gaither and an innocent endorser.

But it is obviously impossible, in the present action, to pay any regard to Thomas Corcorran's interest or claims. The arrangement which introduced his name into the cause, was too obviously concocted for the purpose of rescuing the interests of the plaintiffs in the record, from the effects of the defence of usury. It therefore can pretend to no merit in the administration of justice. But if the effects of that transaction be examined, without reference to the motive, it is equally clear, it can have no bearing upon the present action. The interest in, or power over Gaither's note, was only inchoate, and contingent, until all the debts due the Bank should be paid, or they otherwise be induced to relinquish it to him; and this did not take place until long posterior to the institution of the suit, and even after issue joined.

The Bank sue on their own interest, declared on their own right, and acknowledge no participation with Thomas Corcorran in the interest or the action, until the moment when the cause is going to trial. It was surely then too late to permit them to assume a new character, or interpose a new party; however liberally this Court might be disposed to sacrifice the forms and rules of law, to the Maryland practice.

We will, therefore, put Thomas Corcorran's interest out of view, and will consider the parties, at the commencement of the action, as the parties at its close.

This puts the question on the right of an innocent endorser, out of the cause-since the endorsee of Gaither's note received the usurious interest, and the endorser paid it. The only questions on the point of usury, then, are,

1st, Whether Gaither, in the relations in which he stood to these parties, could set up the usury in his defence.

2d, And whether that defence could be set up, after payment of the note on which the usury had been received.

The objection in the first point, is, that as there was no usury in the concoction of Gaither's contract, he ought not to be permitted to avail himself of the usurious contract between the endorser and endorsee, to avoid a debt which he justly owes.

And this is unquestionably true: for the rule cannot be doubted, that if the note free from usury, in its origin, no subsequent usurious transactions respecting it, can affect it with the taint of usury. Nor does Gaither propose by this defence, to relieve himself from paying the note; it goes only to his liability to pay it to this individual; and reason, analogy, and adjudged cases, will sustain the defence. Suppose a note given to a woman, who marries, and then endorses it without her husband's authority; such endorsement would be void; (1 East, 432,) and the endorsee could not recover, yet the husband and wife may recover.

In a comment on the case of Jones and Davison, in Holt's Reports, (1 Holt, 256,) an usurious note is likened to a bill of exchange on a bad stamp. If a stamp were necessary to give validity to an endorsement, it cannot be doubted that none who claim through such an endorsement could maintain an action against the drawer. The endorsement, though actual, was ineffectual for the purpose of transferring an interest in the note. It was a void act.

This case is governed by the laws of Maryland: and the Act of Maryland against usury is in the words of the Statute of Ann. It declares, 'All bonds, contracts, and assurances whatever, taken on an usurious contract,' to be utterly void. Now the endorsement of a negotiable note creates several contracts; and if, in this case, it could give a right of action against Gaither, the drawer, it ought also to sustain an action against W. W. Corcorran & Co. the endorsers; but against them, it is perfectly clear that an action could not be maintained, for they were parties to the usurious loan. It follows, that their endorsement was a void act, and the property, and of consequence, the right of action, never passed to these plaintiffs.-There is a very strong case, on this subject, which we believe was not quoted in argument, to be found in the Books to which we usually refer. We mean the case of Harrison & Hamell, in Taunton's Reports, (5 Taunton, 780,) in which the rights of a collateral surety to avail himself of usury in the original transaction, is distinctly recognised, when the contract of the collateral was wholly unaffected by usury. The case was reserved for argument, and the whole Court concurred in the legality of the defence. The language of the Judges is strong, and applies to the case before us. One of them remarks:-'That if a man lends 1000 pounds on an usurious interest, and gets from a third person a collateral security for 800 pounds only, without usurious interest, I hold that bond is void, not because it is given for securing usurious interest, but because it is given for enforcing a contract for usurious interest.' And another says, 'That if giving these collateral acceptances would alter the case, it would be a shift or device, by which the statutes of usury would be defeated.'

With regard to the second point, it is necessary to see the force of the argument which would deduce from the payment of the discounted note, a cure to the taint with which the contract of endorsement was affected. The law declares it absolutely void. By what operation, then, is it to be rendered valid by the payment of the discounted note? It is argued, by the payment and extinguishment of the latter note, the usury is extinct, and as if it had never existed. We cannot perceive how this reasoning can prevail, either in point of fact or inference. In point of fact, the crime was only consummated by the payment of that note, since the bank thereby incurred a liability under the statute, to be sued for three times the sum paid them; and as to the inference, it seems very difficult to conceive how the payment of the usurious note should operate to confirm or give birth to a a contract which the law declares never had existence, and was ab initio, utterly null and void. There have been cases in which usurious contracts have been cancelled, the usury refunded, and new contracts substituted free from the taint of usury; and the law gives to the offender this locus penitentiae. But there is no analogy between such a transaction and that here presented, in which the money loaned has been paid by the borrower, and only passed into the vaults of the Bank, to be deposited with the usurious interest previously taken. We have not heard of the refunding of this usury; and this, at least, would have been indispensable to removing the taint. But even that would never have given validity to an endorsement, which, in the eye of the law, was, as though it had never existed.

As the decision on this point disposes of the right of action, and leaves no probability that the cause will be again brought up to this Court, we deem it unnecessary to notice any other of the points made in argument.

The judgment was reversed, and the cause remanded to the Circuit Court, with directions to award a venire facias de novo.