Thomas v. Murray

By the Court, E. Darwin Smith, J. Upon the face of the transaction, as it appears upon the undisputed evidence given on the trial of this action, it seems to me to present a clear case of usury. The defendant Murray, in the fore part of the month of September, 1857, applied to the witness Wood, who was then keeping anexchange and banking office at Corning, for the loan of $200. Wood said he had a note against one Morrow for $150, payable in hemlock lumber, and if the defendant would take that note he would let him have the $200 and take the note of the defendants for $350. Murray told him he did not want the Morrow note, and that — 166 — he did not consider it good, and that he would try and raise the money in some other way before he would take it. A few days afterwards Murray went again to Wood’s office, when Wood asked him if he had concluded to take the Morrow note. Murray told him if he would let him have the $200 that day he would take the Morrow note, provided he would guaranty it. This Wood agreed to do, and then advanced the $200 in cash, delivered the Morrow note with a guaranty indorsed guarantying the collection thereof, without any consideration therein expressed, and took from the defendant the note in suit for $356.97, at two months. This $356.97 embraced interest on the $200 and on the $150 note, with some items of exchange not improperly included, as Wood states the facts. The Morrow note was dated May 20th, 1857, and was payable on the 1st of October thereafter, in hemlock timber, in plank at $7 per thousand. Upon the assumption that Wood was responsible upon his guaranty of the Morrow note, and that he may not elect to avoid it, it seems to me that the transaction is usurious upon its face, within the case of Cleveland v. Loder, (7 Paige, 559.) He stipulated for an advantage over and above seven per cent on the loan of this $200. The note is for $356.97, and includes interest on the $200, and interest on the $150 note treated as cash and upon interest from the date of the note, September 16, 1857. The Morrow note did not carry interest, and therefore the amount of it was put upon interest 17 days— fourteen and the three days of grace—before it fell due. Then the Morrow note was payable in lumber, not in money. If this note had been payable in money, then aside from this question of the interest on, it for seventeen days, it would have been virtually’nothing more than the exchange of the plaintiff’s note or liability for that of the defendants to the amount of the $150, which would have been an entirely lawful transaction. But by taking the defendants’ note for $350, embracing this note payable in cash with interest, Wood stipulated to turn this lumber note into money and relieve — 167 — himself from all risk in regard to the value of the lumber. All he would have been bound, to do, upon his guaranty of Morrow’s note, would have been to see that the lumber was delivered upon it when due, whatever might have been its value at the time. If the lumber, on the 1st of October, was worth $5 or $6 per 1000 feet, instead of $7, Wood, if Morrow failed to pay it, would have made that difference had he fulfilled this contract for Morrow at that time, by force of the transaction, and would have saved a loss of that amount provided he had kept the note. He made a contract which secured to him cash for this $150 note without any risk of loss in respect to the price or depreciation of the lumber, or any loss or risk attending the sale thereof, or any contingency connected with the property. In Cleveland v. Loder, Chancellor Walworth says, “ Whenever the lender stipulates for the chance of an advantage beyond the legal interest, the contract is usurious.” The lender here secured the advantage of turning lumber into money at a fixed price, probably much above its actual value, without any risk or contingency. This is not the case of a sale of property; for a man cannot sell his own note, or paper made or indorsed or guarantied by him. (Schermerhorn v. Talman, (14 N. Y. Rep. 117.) The question what was the value of the lumber does not, I think, legitimately arise, within the cases of the Dry Dock Bank v. The American Life Insurance and Trust Co., (3 Comst. 358,) for this is not the case of a sale of lumber in presentí. If the lumber had been taken and delivered at the time, as a condition of the loan, instead of the note, the question of its value would be material, and the usury, if any, wotdd consist in securing to the lender the difference between its actual value and the price paid or stipulated for in the contract. The case, so far as relates to the $150, supposing it guarantied by Wood, is in the nature of an exchange of securities. In Dey v. Dunham, (2 John. Ch. 182,) it was held that if, on the exchange of notes, one party reserved a commission greater than seven per cent, the transaction would be usuri — 168 — ous. In Fanning v. Dunham, (5 John. Ch. 122,) the parties exchanged nofes and one reserved 2per cent commissions, and the transaction was held usurious, and the same was held also in Dunham v. Dey, (13 John. 40,) and also in Kent v. Lowen, (1 Camp. 177.) If the sale or exchange of this Morrow note had been unconnected with a loan of money, the case would have been essentially different. It is not the case of a sale of a valid chose in action for less than its face, within the cases of Cram v. Hendricks, (7 Wend. 569,) and Rapelye v. Anderson, (4 Hill, 472.) The application to Wood was for a loan of money. The transaction was purely a loan of money, and this note was imposed and put upon the defendants in connection with and as a condition of a loan of money, and a security, the §350 note in suit, taken for the whole amount. This consideration, I think, was controlling in the cases of Lowe v. Waller, (Doug. 739,) Ketchum v. Barber, (4 Hill, 224,) and in numerous other cases. When notes in equal amounts are exchanged, one is equal in value to the other, and there is no pretense of usury in the transaction; but where either party makes an advantage in the arrangement, over and above seven per cent, then the case is one of usury,, as I understand the cases, if the transaction was designed as,, or connected with, a loan of money. Upon this principle I think this case one of usury, because the Morrow note was not equal to the defendants’, it not being payable in money. Money is equal to money in such a transaction, but nothing else is equivalent to money; and where upon a loan of money any thing else is claimed to be equivalent to money, the lender in such a case, I think, must show the equality; and where any other thing than money is put upon a borrower in an exchange of notes, in connection with and as a condition of a loan of money, I think the transaction presumptively usurious in law. (Davis v. Hardacre, 2 Camp. 375. 2 Parsons on Cont. 387. Swartwout v. Payne, 19 John. 294.) In this view of the law of the case, the refusal of the circuit judge to charge as requested on this point was error, and — 169 — the exceptions for such refusal well taken in respect tó both requests to charge. The transaction appearing confessedly to be one of loan, there was no question of fact for the jury until the plaintiff attempted some explanation by evidence tending to repel the presumption of usury. But there is another view of the case which seems to me more satisfactory upon the facts. The evidence in the case shows quite conclusively that this Morrow note was in fact worthless ; that the parties to it, at the time it was turned out to the defendants, were entirely insolvent and had been so, the maker for six years and the indorser for several years. It appears, also, that Wood had tried to trade off the note before he transferred it to the defendants, for a buggy, and could not trade, although the owner of the buggy desired to sell it, and that at the time when Wood proposed to turn it out to the defendant Murray, the latter told him “ that he did not consider it good,” and also told him he did not want the note, and did not think he could use it, &c. In view of these facts it seems to me quite clear that Wood intended, in making the loan of the $200, to get on such loan, out of the defendants, the sum of $150, the amount of the Morrow note, in addition to the interest on the money loaned, if the note proved worthless. His desire to part with it and his insisting on the defendants’ taking it with the $200, implies'upon its face that he regarded it as certainly a doubtful debt, or at least not equal to money. The contract then, upon its face, in this view, was a contract to loan $200, and to turn out a worthless or doubtful note for $150, and take the defendants’ note for the sum of $350 and interest. This $150 was thus taken for and upon the loan of $200 for the consideration of such loan and as a condition thereof, and for the forbearance of this $200 two months. In this view of the. facts they present a clear case of usuiy. But it is said that the contract is not usurious in this view, because Wood agreed to guar* anty the note, and that such agreement of guaranty meant a valid guaranty, and so the learned judge charged at the cir — 170 — cuit. This would undoubtedly be so if the contract were executory. But it was in fact executed at the time, and becomes necessarily its own expositor. The contract of guaranty was written on the note at the time and in the presence of the agent and parties, and prima facie must be held to express the agreement between the parties, and furnishes upon its face the only evidence of the contract actually made. Neither party can contradict it, and except in a case of mistake or fraud' neither party can vary or reform it, either in law or equity. It is not proved or alleged that there was either error or mistake in. the making of the contract of guaranty, and it must therefore be deemed, in a legal point of view, the true contract between the parties. This contract is confessedly invalid upon its face, and it therefore appears that this note was turned out upon an agreement of guaranty which both parties knew or were bound to know, at the time, was utterly void. Neither party can be permitted to allege ignorance of the law, and certainly Wood cannot, for it is conceded on this argument and was assumed on the trial and in the charge of the judge, that he knew that this contract was of no validity. It is then to be considered, in this view of the case, as no contract. It has no force as a contract, and the case, stripped of this pretense of a contract of guaranty, presents a bald case of usury, upon the assumption that this doubtful or worthless note of §150 was put upon these defendants as part of the consideration for the loan of §200. But it is said that though Wood knew that this guaranty was invalid, there was no intent to evade the statute of usury, and this is the point on which the case obviously turned at the circuit. But this will not do. This man Wood cannot be let off upon the ground that he intended to commit a fraud, but not usury. If he knew his contract of guaranty to be invalid, he knew also, and the defendants also must be presumed to have known what was the legal effect of the transaction, and that he was to get this §150, or might get it for nothing, out of these defendants. That constitutes usury, — 171 — and a man who makes a contract which the law declares usurious cannot escape the penalty of such offense upon the plea of ignorance of the law, or of the absence of an intention to evade the statute. The law considers that every man intends the legitimate consequences of his acts. In a large number of cases of adjudged usury there was an unquestioned ignorance in point of fact of the legal effect of the contract. Such was the case of The New York Firemen’s Insurance Co. v. Ely, (2 Cowen, 678;) and The Bank of Utica v. Wager, (2 id. 712, 769; 8 id. 398;) and Cleveland v. Loder, (supra,) and The Dry Dock Bank v. The American Life Insurance Co., (supra,) and many other cases. But the statute of usury cannot be evaded in this way. All agreements, which in legal effect give to the lender of money any profit or advantage, certain or contingent, more than at the rate of seven per cent interest, violate the statute. It is not necessary to allege or prove, aliunde, any particular intent or special corruption in such a case. It is usury upon its face, and the court must so decide as matter of law. It is only when the true character of the transaction is equivocal, whether it be a case of bargain and sale or a loan and a device for usury, that the question becomes one of fact and belongs to the jury. In this case the legal inference of usury upon the face of the transaction is met by the claim, on the part of the plaintiff, that so far as relates to this $150 note, the contract was in fact one of bargain and sale. This was the view taken of this question by the learned judge at the circuit, and this brings us to the exceptions to the charge. The. theory of the charge is that the note was the subject of sale as valid business paper in the hands of Wood, the guarantee thereon being void, and that therefore there could be no usury in the sale of such note. The first branch of the charge of the judge at the circuit I therefore think was erroneous in this, that he said to the jury that the transaction would not be usurious, if at the time of the sale Wood supposed and believed that it was a good note, and the parties to it were able — 172 — to pay it, and the bargain between them was a bargain for the sale of this note only, and without any intent to evade the statute, &c.; and that it omits to leave it, in the same ■connection, to the jury to say whether it was part and parcel of the bargain and the intention of the parties at the time, that the defendant should take such note at his own risk in regard to the solvency of the parties thereto. If that had been embraced in the charge, this part of it would have been substantially right; but as it stands, this question in regard to the bargain, and which would have had doubtless an important influence with the jury, was entirely excluded from their consideration. Upon this question the jury would have been entitled to look beyond the form of the transaction, and to take into consideration all that was said and done at the time of the trade, the void guaranty and all other facts which are part of the res gestee of sale. Upon this point, of the sale of the'note, the question would necessarily arise whether Murray understood and expected that he was to have a valid guaranty of the note. If he did, and that was the real contract, there could be no genuine bargain for its purchase and sale, and the jury could not have so found as a question of fact, looking at the real intention of the parties. Upon' the charge to the jury, I think they might have found that there was an actual sale of the note upon the agreement of Wood to guaranty it. I think therefore there should be a new trial. [Monroe General Term, December 3, 1860. New trial granted. Smith, Johnson and Knox, Justices.]