Dean v. Howell

By the Court, Co wen, J. There is no pretence that Smith & Sherman took the note originally as bona fide purchasers, I do not say this because they had notice that Howell furnished Minor with the" note, or lent it to assist him in his business, though there was a plain perversion, the note having been in fact designed for taking up another note which Howell had lent. The notice did not carry any idea of the particular purpose. A bona fide advance would have been perfectly consistent with the purpose as expressed by the notice. The broker told Sherman plainly enough, however, that the note had been lent, and he took it on a loan grossly and oppressively usurious, (a) It lay in the hands of Smith [42] & Sherman till nominally due, when within the days of grace they make an agreement with Minor that the demand for usurious interest shall be given up, and take his note at one year for the money lent with the simple interest. They then add a new agreement that the note in question shall remain with them as collateral security, and it did so remain till after it fell due. Now, up to the time of the new arrangement, Minor owed them nothing. All was void for usury. That is not denied; nor is it claimed that, for the actual advance made on the note they had, up to this time, any claim whatever. The only ground on which this action can be sustained, then, is, that the releasing of the usurious interest, and taking the new note was equivalent to an original advance of the money, and clothed them with the character of bona fide holders at and after that time. This I can by no means admit. To warrant a claim on the ground of paramount right upon a lent note, void in its inception, and confessedly perverted as this was, all the authorities agree that it must be taken in the ordinary course of trade. I do not deny that receiving it as collateral security on an actual advance raises a case of bona lides, if the advance be a fair one. But what have we here? Notice that the note was Void in its inception; the purchasers’ taking it for a void loan, in other words without consideration; and never after-wards advancing any thing. Aware that the makers were not liable they call on the usurious borrower, and, behind the back of the defendants, take a new note which, by expurgating the usury, operates from that time as against him. Then, to secure the performance of this new engagement, the note in question is taken as a pledge. We are then gravely told that all this makes out a bona fide transfer in the ordinary course of trade., But here was no advance of money, actual'or constructive. Analyze the transaction; first a debt is made to arise out of a previous moral obligation ; then, as a security collateral to such debt, the note is pledged. The obligation to pay dates from the giving of the new note. Up to that time there was none. Then the most we can say is that the note in question was taken as collateral security for that precedent debt. This is not the [43] good faith which the law means when it holds a purchase of commercial paper sacred, and even allows it to work wrong against third persons whose names are upon it. To warrant such a violent consequence the transaction must not only rest upon an actual advance at the time, of money or its equivalent, but it must be strong in its innocence and purity. To say that the transaction in question was such, and that this note passed in the ordinary course of trade, would be a slander upon the mercantile community. There are devices enough for covering up and saving men against the legal consequences of usury, without adding this to the catalogue. It is not denied that the note, if unavailable in the hands of Smith & Sherman, is equally so in the hands of the plaintiff. I suppose it was transfered to him merely for the purpose of adding to the embarrassments of the defence. It seems not to have reached his hands till about a year, or at least some months after it was due. It does not appear that he ever paid any thing for it. I do not inquire whether the various prayers to charge may not have been improperly denied. My opinion is that the learned judge erred in directing the jury to find for the plaintiff instead of the defendants, who made out a clear and full defence. New trial granted, costs to abide event. Footnotes [(a)] Where an agent, entrusted, with a negotiable note for the purpose of procuring it to be discounted, pledged it with a stranger for money lent him for his own use, at usurious interest, it was held that, the transaction being illegal for usury, the lender could not retain the note against the true owner, on the ground that he had received it in good faith, in the usual course of trade. Keatgen v. Parks, 2 Sandf., 60.