Mills v. Johnston

Bell, J. The commission business is the creature of agriculture and commerce, and has grown up in all the great centres of trade throughout the United States. The commission merchant finds his proper and necessary place between the farmer or planter, who tills the soil, and produces crops, and those by whom the productions of the earth are manufactured or consumed. To state that this kind of business is necessary to agriculture and commerce, is at the same time to state that the laws of the country extend their protection to it. The most enlightened courts of the Union have adjudged, that the commission business is a lawful business, and that the commission merchant is as much entitled to a reasonable compensation for any services that he may render to those with whom he transacts business, as any other person is entitled to be paid for any other service. Embarrassing questions, growing out of the local usages of commission merchants, have sometimes been presented to the courts. But these questions are all solved by the application of a few plain and intelligible principles. The question, whether or not a commission merchant is entitled to charge a certain commission in a given case, is answered, by ascertaining whether or not the commission charged is a fair and reasonable compensation for a service rendered. If it be fair and reasonable, then it may be charged, and recovered by law. If it be unreasonable or exorbitant, then, in the absence of such a special contract as would preclude inquiry into its fairness and reasonableness, it cannot — 324 — be recovered by law. Again, if the name of commission be used as a disguise for some other thing, which the law does not permit, the courts will have no regard for the mere name, but will strip the unlawful thing of its borrowed name, and condemn it by its true name. But we will proceed from these general observations, to the consideration of the case itself. The court below held, that there was no usury in the account of Mills, McDowell & Co., of New York, before the same was entered on the account of R. & D. G. Mills, Galveston. The counsel for the appellees contend, that there was error in this ruling of the court, and they assume two positions, to show that there was usury in the New York account. The first of these positions is, that the commission merchant, after charging a commission for accepting a draft, has no right to charge a further commission for paying it. The second position is, that the commission merchant has no right to charge a commission for paying a draft, where there has been no previous acceptance, .as in the case of a draft payable at sight. We will notice both these positions together. It is important to bear in mind, that the mere lending of money for the sake of interest, is no part of a legitimate commission business. But in conducting a legitimate commission business, the merchant must pay out money for the accommodation of his customer; and in order to do this, he must keep money of his own constantly on hand, or he must borrow, to meet exigencies when they arise. The transactions between the commission merchant and his customer, are properly to be regarded as a whole. It will not do to select a single transaction, as for instance, an advance of money to meet a sight draft—it will not do to select such a transaction from a long series of transactions—to say, here is a loan of money, and more interest is reserved for it than the law allows. For to do this, is to lose sight of the real nature of the dealings between the parties. The commission merchant undertakes to keep his customer’s account. Incident to the business of receiving and selling crops, or of purchasing and forwarding goods; is the paying out of money for freights, for articles purchased in pursuance of — 325 — orders, and the like. The customer sometimes wants a sum of money to meet the exigencies of his business. The commission merchant advances the money, not as a mere loan for the sake of interest; not ordinarily, in the expectation that it will be repaid in money; he makes the advance as an incident to the general business which he has undertaken to do, and in the expectation that he will be repaid, out of the proceeds of crops or other goods, placed in his hands for sale. It is presumed, that the merchant’s money is worth the interest which the law allows him to charge for it; and because he is liable to be called on to advance it, when it may be inconvenient for him to do so; because he may be obliged to borrow it, in order to accommodate his correspondent; because he does not lend it for the sake of interest; because he has no intent to violate the law by taking usurious interest; and because he has the trouble of keeping his correspondent’s account; he is allowed to charge a reasonable commission for these advances, as an incident to his general business, which has grown up out of the necessities of agriculture and trade. Ordinarily, when the commission merchant makes an advance of money to his customer, he does it without any special security for its repayment. All these considerations tend to show, that such advances are not properly to be regarded as loans of money, for the sake of interest. When a commission merchant accepts the time draft of his customer, he charges a reasonable commission for the accommodation then expended. He does his customer a service, and he is entitled to a reasonable (but to no more than a reasonable) compensation for this service. By the acceptance, he becomes responsible to the drawee of the bill for its payment, when it matures. But as between himself and the drawer of the bill, there is an understanding that the drawer will place him in funds for the payment of the bill at its maturity. If, then, the drawer does not perform this part of his agreement, and the merchant be obliged to advance his own money to pay the bill, then he has done something more than he undertook to do, as between himself and the drawer of the bill. He has not only lent his — 326 — credit by the acceptance, and thus accommodated his customer, which is supposed to be worth something, but he has now provided his own funds, and paid what the drawer of the bill agreed to pay, and this service is supposed to be worth something more. The question for the court is, how much is the whole service' rendered by the commission merchant, reasonably worth ? If it is only worth two and a half per cent., to accept a draft and to pay it, then the merchant can recover no more. If it is worth five per cent, to accept and to pay, then the merchant can recover that much. In determining whether or not the commission merchant can recover a commission charged or not, there are two questions to be submitted to the jury. The first is, whether the charge is really a bond fide claim of compensation for a service rendered in the regular course of a legitimate business, or is it a cloak for the taking of a higher rate of interest than the law permits ? If it be usury in disguise, the law puts upon it, unhesitatingly, the seal of its condemnation. If it be no usury, but a bond fide claim of compensation for a service rendered in the course of a legitimate business, then the next inquiry is, concerning the reasonableness of the charge. If it is reasonable, and no more than a fair compensation for the service performed, then it may be recovered, otherwise not. These questions are always questions for the jury. The cases have established, that the custom of merchants in a particular place, may be given in evidence, to show that the charges in the-particular case are fair and reasonable. But evidence of this custom is received like any other evidence. The jury must be satisfied that the commission charged is a reasonable one, or it cannot be recovered. We have thought it proper to lay down these general rules, because they seem to us to be sound deductions from the best considered authorities, and consonant with reason and justice. (See cases of Trotter and Douglas v. Curtis, 19 Johnson, 160; Brown v. Harrison and Robinson, 17 Ala. Rep. N. S. 778; Seymour v. Marvin, 11 Barb. Sup. C. Rep. 80; Hutchinton v. Hosmer, 2 Conn. 341; Floyer v. Edwards, decided by Lord Mansfield, Cowper, 112; Ketchum v. Barber — 327 — and others, 4 Hill, 224.) In the case before us, the New York account had been transferred to the Galveston house, and was included in the settlement made at the time of the execution of the notes. There was no evidence of the reasonableness or unreasonableness of the charges for commissions contained in the New York account; and as the burden of proof, after opening the settlement made by the execution of the notes, was upon the appellees, there is no reason shown for questioning the correctness of the decision of the court below, that there was no usury in the New York account. There is another ground on which the objections, made by the appellees to the settlement, so far as both the New York and the New Orleans accounts are concerned, may be met and repelled, and we have only discussed this question of the legality of these commissions, for accepting and advancing, in this part of the opinion, because the question properly arises upon the Galveston account, which we will presently proceed to consider. In reference to the New York and New Orleans accounts, the 7 evidence is satisfactory, that they were fully paid by the Galveston house, after they were transmitted to that house by the firms in New York and New Orleans. McMuller, the financial clerk of the Galveston house, says in his testimony, that these sums were paid by remittances made by the Galveston house, to cover balances against the firm in Galveston, in favor of the other firms. We take it to be a well established principle, that where one person, by request, pays the debt of another, although the debt so paid may have arisen upon an illegal contract, the party who pays it, is entitled to recover it back from him, at whose request it "was paid. Lord Mansfield laid down this rule clearly, all the other judges concurring, in the case of Faikney v. Reynous and another, 4 Burrow, 2069. We cannot perceive that the fact that Robert Mills was a partner in all the houses, can affect the case, or interfere with the application of this principle. A member of a firm may contract debts with the firm, and may make payments to the firm, in the same manner that any other-person may. But these New York and New Orleans — 328 — accounts were not paid by Robert Mills; they were paid by the firm of R. & D. G. Mills, of Galveston, of which firm John W. Jockusch is shown to have been, at the time, a partner. Mr. Jockusch was not a partner in the New York and New Orleans houses. The firm of R. & D. G. Mills, of Galveston, had a large account against the appellees, in addition to the New York and New Orleans accounts. We think, under these circumstances, that the payment of the New York and New Orleans accounts by the firm- of R. & D. G. Mills, entitled that firm to recover those amounts from the appellees, even if there were usurious charges in said accounts. In the case in 4 Burrow, Lord Mansfield said: “ If money be lent in order to.pay a play-debt, or in order to pay off an usurious contract, or even to lend out upon usury, and a bond be given for securing the repayment of the money so lent, such a bond will not be void; the obligor will be bound to pay it.” This same principle was emphatically and distinctly asserted by Chief Justice Marshall, in the case of Armstrong v. Toler, 11 Wheaton, 258. In this case, the Chief Justice reviewed the authorities upon the point involved. But it may be said, in the case before us, that the firm of R. & D. G. Mills, paid these New York and New Orleans accounts, voluntarily, and without authority from the appellees. That may be so, but the subsequent promise to pay, upon the execution of the notes, was a ratification of what had been done, and takes this objection out of the mouths of the appellees. Chief Justice Marshall met this point precisely, in the case of Armstrong v. Toler. He says, “ That the person who paid the money knew it was paid in discharge of a debt not recoverable at law, has never been held to alter the-case. A subsequent express promise is, undoubtedly, equivalent to a previous request.” We think, then, that the payment of these New York and New Orleans accounts, for Johnston & Dewberry, by the firm of R. & D. G. Mills,' of Galveston, and the subsequent recognition of that payment, and the ratification of it by Johnston & Dewberry, when the notes were executed, places those matters upon precisely the same footing as if R. & D. G. Mills had -paid these — 329 — accounts upon the previous request of Johnston & Dewberry; and we think that Johnston & Dewberry are estopped from saying that there was usury in those accounts, and that they were not bound to pay them. Then the remaining question for our determination is, whether or not, there was any usury involved in the settlement, so far as the Galveston account was involved therein, and so far as the transactions of the parties were concerned, after the consolidation of all the accounts into one. And here we will notice a position assumed throughout their whole argument, by the counsel for the appellees. It is, that the appellees contracted to pay, in the precise manner in which the accounts were kept, and, consequently, if one unlawful charge entered into the account, it infected the whole account, from that time forth. This position cannot be maintained. In the absence of express contract, (and there is no express contract shown in this case, except the execution of the notes,) the law will not imply a promise to pay what is unlawful. It will imply a promise to pay what is fair and reasonable, and therefore lawful; but it will not imply a promise to pay what is usurious, and, therefore, unlawful. There is one other principle which it is, also, necessary to keep in view, and that is, that the compounding of interest, by agreement, and where it is not intended as a cover for usury, is not unlawful. Upon the question, then, whether or not there was usury involved in the settlement between these parties, after the consolidation of all the accounts, we have to say: 1st, The law will not look to the mere form in which accounts are kept, to ascertain whether there is usury in a subsequent settlement, or not. 2d, The law will not impute usury to a settlement, because the parties have agreed to compound interest upon a sum fairly due. And lastly,' The law, in deciding whether a settlement involves usury or not, will look at the whole amount of interest reserved, as distinct from such commissions as are allowable and recoverable by law, and to the whole period of forbearance expended; and if the charges, properly imputable to interest, do not exceed the — 330 — highest interest allowed by law, for the whole period of forbearance, then the settlement cannot be held to be usurious. In applying these principles to the settlement before us, we find that the whole amount of interest reserved, including the “ dry balance item” of 31st December, 1851, by the settlement, does not amount to twelve per cent, per annum, upon the sums due, for the whole period of forbearance extended. The evidence shows, that the commissions charged in the Galveston account, except the “ dry balance item” of December 31st, 1851, were usual and reasonable commissions. These commissions are, therefore, not to be imputed to interest. We cannot perceive any sound principle on which the commission on dry balances can be sustained. It has reference to a past transaction ; and, although, in a given case, it may be said to be equitable, still it is but another mode of declaring that the merchant’s money is worth more than the law allows him to retain for it. This charge of commission on dry balance, then, in the Galveston account, must be imputed to interest; but it will not swell the whole interest to twelve per cent, for the whole period of forbearance. Looking, then, from the form of things to their substance and effect; from the form of the accounts, as kept by one of the parties, to the substance of all the transactions between them, we can find no usury. We conclude, therefore, that the court below erred in the views taken of this case, on the trial below. We see nothing in the evidence to warrant a conclusion, that the court below erred as to the questions of fact involved in relation to credits and payments. The judgment of the court below, will be reversed, and this court will render such judgment as ought to have been rendered by the court below. Reversed and reformed.