Moncure v. Dermott

ERROR to the Circuit Court of the United States for the county of Washington, in the District of Columbia.

The plaintiffs in error, executors of Mary James, instituted an action of covenant against the defendant, on the following instrument of writing:

Whereas, Mary James has executed her bond or note, dated the 28th day of November, 1828, payable to me on demand, for the sum of twenty-six hundred and twenty dollars, which said bond or note was merely loaned to me for the purpose of raising money upon, and whereas, I have, since the execution of the said bond or note as aforesaid, assigned it to Philip Alexander, of Fredericksburg, for value received of him, I do therefore, hereby bind myself, my heirs, executors, and administrators, to pay and discharge the said bond or note, with all interest that may accrue thereon, when the same shall become due and payable.

Given under my hand and seal, this 12th day of August, 1829.

ANN R. DERMOTT. [SEAL.]

The evidence showed that the note of Mary James, which had been assigned to Philip Alexander, was not fully paid by Ann R. Dermott, and that a large portion of the same remained unpaid at the death of Mary James, who had executed a deed of trust to secure the payment of it; and that her executors, Philip Alexander having ordered the deed of trust to be enforced by the sale of the land and negroes conveyed by the deed, paid the same out of the funds of the estate in their hands.

The defendant alleged usury in the transaction for the loan of the money; and by an agreement between the counsel for the plaintiff and the defendant, usury was allowed to be given in evidence as if specially pleaded.

On the trial of the cause, certain bills of exceptions to the ruling of the Court were filed by the counsel for the plaintiff, and the jury, under the charge of the Court, gave a verdict for the defendant; upon which the Circuit Court gave judgment. The plaintiffs prosecuted this writ of error.

The case, and the whole of the plaintiffs' bills of exceptions, are fully stated in the opinion of the Court.

The case was argued by Mr. Moncure and Mr. Key for the plaintiffs in error: and by Mr. Hoban and Mr. Jones for the defendant.

Mr. Key, for the plaintiffs, contended that admitting usury to have taken place between Ann R. Dermott and Philip Alexander, in the original loan of the money, this could not affect the transaction between Ann R. Dermott and Mary James, the testatrix of the plaintiffs in error. This usury was unknown to Mary James, and the executors have been obliged to pay to Philip Alexander the balance of the debt. To affect the covenant on which suit is brought, it must be shown to have been a contract for a usurious loan of money, or a security for such a loan. Laws of Virginia, statutes of 12 Charles 2, ch. 13. 12 Anne, ch. 16. 13 Eliz. The suit is brought on a contract between Ann R. Dermott and Mary James. It is not a suit to recover money loaned, nor is the obligation given as a security for a loan.

Mary James had loaned her note to the defendant, to enable her to raise money on it, by selling it for her own use. This had been done long before the execution of the obligation on which this suit is brought. The instrument is manifestly a covenant to secure Mary James from liability for the loaned note. The covenant is to discharge the note when due, and she is to be secured from the payment of the note. 14 Johns. Rep. 177. Offley vs. Ward, 1 Lev. 235.

The covenant is not to Alexander, nor is it given to pay usurious interest. Alexander is not a party to it; and it was never delivered to him, nor made for his benefit. Had it been made and delivered to Alexander, it would have been nudum pactum. The defendant was already fully liable to him on her assignment to him of the note of Mary James, and there would therefore have been no consideration for it.

What law avoids such an instrument? Suppose Mary James, instead of lending her note to the defendant, had loaned the money to pay the usurious debt, and had taken a note for its repayment; it is settled that usury in the original loan would be no defence to such a note: nor is it a defence in any case, where a subsequent contract is made with a third party who is a stranger to the usury. 1 Mass. Rep. 138. 9 Mass. Rep. 45. Cro. Eliz. 588. 642. 2 Mad. 279. 4 Johns. Rep. 322. 333. 10 Johns. Rep. 185. 195. Story's Conflict of Laws, 206, 207. John vs. Armstrong, 10 Wheat. 258.

It was said, in the Circuit Court, that the plaintiffs should have given notice of Alexander's claim upon Mary James's note, and should have called on Ann R. Dermott to defend against the claim. But the obligation is exactly otherwise. The defendant should have given the executors of Mary James notice not to pay the note, and set up the usury. 8 Wendall, 458, 459. The plaintiffs were not bound to make defence. They had no proof of usury. The defendant stood by and saw the executors pay the debt, and afterwards set up the usury between herself and Alexander, against the executors; who had paid her debt, ignorant of any defence that could be made to the claim of payment from the estate of Mary James.

Mr. Moncure, for the plaintiffs in error, said:

The three instructions prayed for by the plaintiffs and refused by the Court below, present for the decision of this Court the three following propositions.

1st. That a surety paying a usurious debt without being notified by the principal of the existence of the usury, and instructed on that ground to resist the payment, is entitled to recover from the principal the money paid.

2d. That a surety paying a usurious debt without any knowledge of the usury, or of any other objection to the validity of the debt, and under the belief that the same is bona fide due, is entitled to recover from the principal the money paid: and

3d. That the executors of a surety paying a usurious debt without any knowledge of the usury, and after the principal had waived and abandoned all objection to the validity of the debt, and assented that the same should be considered as valid and legal, are entitled to recover from the principal, the money paid.

The affirmative of these three propositions is maintained by the counsel for the plaintiffs, on the following authorities. Robinson vs. May, Cro. Eliz. 588. Dutton vs. Downham, Ib. 642. Basset and Prowe's case, 2 Leon. 166. Comyn on Usury, 186 and 196. Ford vs. Keith, 1 Mass. 139. Bearce vs. Barstow, 9 Mass. 45. Parker vs. Rochester, 4 John. ch. 332. 1 Tuck. Blac. Com. 379. Merchant vs. Dodgin, 2 M. and Scott, 633. Cuthbert vs. Haley, 8 T. R. 390. Jackson vs. Henry, 10 Johns. 185. Chadbourn vs. Watts, 10 Mass. 121. Stone vs. Ware, 6 Mun. 541. Ellis vs. Warnes, Cro. Jac. 32. De Wolf vs. Johnson, 10 Wheat. 367. Crenshaw's administrator vs. Clarke and others, 5 Leigh, 65. Spangler vs. Snapp, 5 Leigh, 478. Turner vs. Hume, 4 Esp. 11. Scott vs. Lewis, 2 Conn. Rep 132. Green vs. Kemp, 13 Mass. 515.

The covenant upon which this suit was brought is in effect a covenant of indemnity; and the plaintiffs having paid the supposed usurious debt, without any knowledge or suspicion of the usury, are entitled to recover on the covenant the money paid by them, though they made the payment without suit, and without notice to the defendant. Such would be the case on general principles, but it is especially so here, where the principal had removed from the state, and where payment by the plaintiffs was necessary to save the property of their testatrix from sale under the deed of trust. Douglass vs. Clarke, 14 Johns. 177. Chase vs. Hinman, 8 Wend. 452. Ken. vs. Mitchell, 2 Chit. 487.

The plaintiffs also contend that there is error in the judgment of the Court below, in granting the instruction prayed for by the defendant.

1st. The hypothetical case stated in that instruction is not a case of usury. Usury will not be presumed; and if, upon any rational hypothesis the transaction could have been legal, it will not be presumed to have been usurious. The statute of usury is highly penal in its character, and should not be applied without strong and clear proof of the usury. Crenshaw's administrator vs. Clarke and others, 5 Leigh, 65. Whitworth vs. Adams, 5 Rand. 404-425. The contract in this case having been made in Virginia, must be governed by the law, and the decisions of that state. It has been there decided that the bona fide purchase of a bond made for sale, at a greater discount than legal interest is not usurious. Hansborough vs. Baylor, 2 Mun. 36; also, Taylor vs. Bruce, Gil. 42. Whitworth vs. Adams, 5 Rand. 333. There is nothing in the facts stated in the defendant's instruction inconsistent with a bona fide purchase of the bond from the defendant. The purchaser may well have supposed that Mary James was indebted to the defendant in a sum equal to, or exceeding the amount of the bond; and that the defendant was willing to sell so much of the debt as would raise the sum which she needed, and no more. Or he may have well supposed, that Mary James, being a maiden aunt of the defendant, and warmly attached to her, had given her the bond which was offered to him for sale. In either case the transaction would have been perfectly legal; and knowledge of it on the part of the purchaser would not have made the purchase usurious.

2d. The Court in giving the instruction, weighed the evidence and decided upon the facts which should have been left exclusively to the jury. 5 Rand. 397, 407. 6 Leigh, 517. 4 Maul. and Selw. 192. 3 Com. Law Rep. 97. Ib. 109. 5 Ib. 417. Where the facts found in a special verdict, or stated hypothetically in an instruction, show a loan or forbearance of money at more than legal interest, the corrupt agreement is an intendment of law, and need not be expressly found or stated; but where the transaction presents itself in the form of a sale of a bond, or in any other form which may be used as a shift or device to evade the statute, the corrupt intent to evade the statute is a question of fact, which must be left to the jury. The case of Roberts vs. Tremayne, Cro. Jac. 507, is in accordance with this distinction.

Mr. Hoban and Mr. Jones, for the defendant, contended: that as to so much of the plaintiffs' exceptions to the decision of the Circuit Court as goes to the refusal of the instructions to the jury, moved on the part of the plaintiffs, all the said instructions were properly refused, as being erroneous in the general principles of law assumed in them; or, even if correct in their principles, yet they were propounded with such qualifications and adjuncts, as were wholly inadmissible, and vitiated the instructions throughout their entire frame.

As to the instruction finally granted at the instance of the defendant, upon the hypothetical state of facts therein set forth, it is contended, that the facts assumed are fairly deduced from evidence; not only sufficiently pertinent to the conclusions of fact assumed, but going to the clearest proof of those conclusions: that the Circuit Court has, nevertheless, fairly left every fact, and every conclusion of fact, to the free and unbiassed judgment of the jury: that such facts, being found true, do amount, in every circumstance both of act and intent, to technical usury, in both the forms stated by the Court: and that the legal conclusion of usury would follow from such facts found in a special verdict: yet the Court has left all the conclusions and presumptions of usury from the facts, equally as the facts themselves, to the judgment and discretion of the jury.

Mary James was acquainted with the whole transaction for procuring the money from Philip Alexander, and she cannot be excluded from the influence of the law on the subject of usury, by coming forward as a suitor on the obligation of guaranty, given by the defendant in error. The original note, for the payment of which the money was procured from Alexander, was the note of Mary James. She was the debtor on that note, and originally liable for its payment. It was to relieve her from this liability the money was procured by the usurious dealing between the defendant, and Alexander-of all the circumstances she was fully cognizant.

How is the law settled with regard to principal and surety, when the surety is collaterally liable for a usurious contract? It is claimed that notice of the nature of the transaction is not necessary. If the contract was originally usurious, the guarantee is void. Comyn on Usury, 133.

A new contract made by the parties, with a stranger ignorant of the usury, is not affected by it, and is valid. But if the old contract is continued, and is usurious, no recovery can be had. But on a new contract it is different. Comyn on Usury, 196. 1 Mass. 137.

The obligation of the defendant, on which this suit is brought, could have been enforced against her in a Court of Chancery, by Alexander; it was therefore a direct obligation to sustain a usurious contract.

Mr. Justice M'KINLEY delivered the opinion of the Court:--