Fanning v. Dunham

The Chancellor. 1. The first and great point in this case is, whether the charge of a commission of two and a half per cent, uniformly made by the defendant, upon the advance or endorsement of negotiable notes to and for the plaintiff) was usurious. •> The defendant was in the habit of loaning his promissory notes to the plaintiff) and of endorsing negotiable notes for the use and benefit of the plaintiff, from the 1st of Septem¡jer 1808, down to the time that the plaintiff stopped pay-1 1 1 1 * mei;t and of taking in return the plaintiff’s notes for the ' • ® r same sum, payable within a day of the same periods of timé. 7 1 v J r Instead of being a cash advance, it was a loan .of his credit , ° (0 ({]6 plaintiff, and attended with the same risk and trouble, r ? * as jf he had loaned the cash. The notes answered the pur1 p0Se 0f cash to the plaintiff) and considering them as cash* the defendant was entitled to ask and receive interest, in the name of commissions, at the rate of two and a. half per cent, or at any rate that did not exceed the rate of seven per cent, per annum. But in every case in which a note was for four months, for instance, two and a half per cent, commissions was more than at the rate of seven per cent., and consequently usurious; and if for five months, for instance, it was less than the legal rate of interest, and consequently lawful. All the notes remaining unpaid which are specified in the schedule A. annexed to the writing of the date of the 27th of August, 1812, and in the pleadings set forth, were infected with usury, because the commissio.n of two and a half per cent, allowed upon each of those notes exceeded the rate of lawful interest thereon. One of the three notes of the date of the 20th and 21st of August, 1812, and remaining unpaid, was for five months, but those three notes taken together, with the allowance of the commission of two and a half per cent, on the aggregate sum, exceeded the rate of lawful interest; and they ought to be taken together, as forming one distinct and entire transaction. The — 135 — three notes of the date of the 30th of March, remaining unpaid were each for five months ; but it appears in proof that they were not given until the 25th of April, though antedated, and a commission of two and a half per cent, upon those notes for the period they were to run, computing from the time they were actually given, exceeded also, the rate of lawful interest. And the five notes in that schedule, given for commissions, were given for comissions containing an unlawful excess of interest. The same objection to the legality of the commissions, will apply to many of the previous transactions of a similar nature detailed in the case, and there can be no doubt that continued usurious exacticns, under cover of commissions, at the rate of two and a half per cent, were practised by the defendant upon the plaintiff, from the commencement of their dealing in the exchange of notes. The defendant has set up, and urged, as a justification for the commissions charged, that they were the usual commissions of merchants and auctioneers, upon the sale of goods, and that those notes were loaned or endorsed on account of expected and promised deposits of goods to be made by the plaintiflj and sold on his account by the defendant. The advances and charges were made, as it is alleged, in anticipation of such deposits, and to ensure to the defendant the advantage of that preference. But the whole history of the case, and all the documents in proof, speak a different language. These assumed deposits were a mere pretext and cover for the charge of these unlawful and usurious commissions. I am perfectly satisfied that the exchange of notes was not made, or these commissions charged upon actual deposits of goods for sale, nor. upon the credit of goods bona fide expected and intended to be deposited. It was a mere exchange of notes for the purpose of raising money by the one party, and for the purpose of exacting a premium of two and a, half per cent, for the loan of his paper, by the other. The endorsement of notes, and — 136 — the renewal of notes, were all for the same object ; and, the plaintiff was led on, step by step, into, a labyrinth from which he could not extricate himself, and all the profits of his India trade, and tangible property at home, were drawn within the grasp of these persevering and usurious exactions. The defendant charged two and a half per cent, premium for every responsibility he assumed, in. whatever; shape it might be; and when we consider that the same charge was upon every renewal, of notes, and that no goods, were, in fact, sold by the defendant, and that during the1 year 1812, the idea of advances on expected deposits arrásales grew more and more improbable and visionary, jhe. whole pretence that the commission had a reference! to future deposits and auction sales, is destitute of colour or plausibility. It is impossible to mistake the real nature of the transactions; the accumulated pledges of the judgment bond, mortgage, ships, and manufacturing shares, were all taken by the defendant as collateral securities for his paper and his commissions. If the lender of money on an usurious contract seeks to enforce any of his securities, and the borrower sets up the defence of «suit# which is proved, the securities will be declared void, and be ordered te be delivered Up and cancel-led. 2. The next, and the more embarrassing point, is as to-the nature and extent of the relief. If the defendant was endeavouring to enforce any of his securities in this Court, and the present plaintiff had set up and made out the usury, by way of defence, the remedy would have been obvious. The securities would have been declared void, and ordered to be delivered up and cancel-led. But the defendant has not resorted to this Court. He has caused a judgment to be entered up at law, upon the warrant of attorney given by the plaintiff; and the Supreme Court have ultimately refused to afford any relief to the plaintiff against that judgment, though that Court awarded a feigned issue, and had the usury in the bond upon which the judgment was entered, established by the verdict of a jury. The defendant has also proceeded to foreclose the mortgage, not by the aid of this Court, but — 137 — by advertising under a power contained in the mortgage, and it is the present plaintiff who is compelled to come here and ask for relief, which he cannot obtain elsewhere, against the judgment at law and other legal securities infected with usury, by means of the original transactions and responsibilities which they were intended to cover. The question now is, upon what terms he can have relief? But where the lender has proceeded at law, and recovered judgment on a bona and warrant of attorney, or » pro-a power of sale, under the statute, and the borrower files his bill for re-judgment1 ‘at legal securities^ °f ‘usury,™ he ™n3‘bebeiititied or o*to pay! interest wrbe P,”t°fd°bye answer. History of the practice of Courts of lawt in interfering to set aside judgments by confession on bonds and warrants of attorney, on the ground of usury. The feigned issue, which was awarded by the Supreme Court, upon thejudgment in this case, was granted while I had the honour to preside in that Court; and that course was then understood to be the practice of the Court, when e a judgment entered by confession was alleged to be affected with usury. And I should have supposed, that if the usury had been found by the jury, (as it was in that case, and upon the evidence now before me,) that the Court would have administered the same equitable relief that is usually granted here, or else have vacated the warrant of attorney, and set aside the judgment, and allowed the party to come in and plead the usury. But from the subsequent proceedings, I am led to infer, that the practice on this subject has been changed since I left that Court, and that all summary interference at law, with judgments upon confession, charged with usury, is now denied. The history of the practice of the Courts of law, shows the embarrassments attending the subject, and the difficulty of applying a legal remedy, consistently with the rules of law. In Middleton v. Hill, (Cro. Eliz. 588.) usury was pleaded toa scire facias, upon a judgment by confession. TheK. B. held the plea bad, for that a judgment was not an assurance within the statute, and the defendant should not have suffered a judgment. “ And though it may be a practice (i. e. bonds with warrants of attorney to confess judgment,) to avoid the statute, yet it shall rather be tolerated, than to avoid judgments upon such suggestions.” The case of — 138 — Rowe v. Bellaseys, (1 Sid. 182.) was to the same efleet, and decided upon the same authority. The same point was brought up again in the K. B., in Bush, assignee of Jones, v. Gorver, (Cases Temp. Hardw. 220; Str. 1043.) when Lord Hardzeicke presided, and received the same. decision. But though the usury could not be reached by a plea to a scire facias, upon a judgment confessed, the Court hinted, “ that it might be got at, on motion to vacate the judgment.” Lord Hardzeicke discovered great opposition to this mode of shutting out the defence of usury, and observed, that “ it opened a door to an evasion of the statutes of usury, and, therefore, as far as the Court could, they would come at it ” But be said, it could not'be done by plea “in that method,” for a judgment was not embraced by the words “ contracts or assurancesand he thought It strange, that no words had been ever inserted in any of the statutes against usury, to meet the practice of taking judgment bonds, which had been a contrivance used as early- as Queen Elizabeth's time. He then threw out a suggestion for'consideration, that “judgments of this sort might be set aside in an interlocutory way, as on a motion for ill practice, for the warrant of attorney might be considered as a contract within the statute, and upon this foot might be set aside.” This case was decided in 1736, and it contains probably the earliest hint at the equitable interference, upon motion and feigned issue, which has since, though in a manner unsteady, and fluctuating, prevailed in Courts of law. In Machin v. Delaval, in the C. B., (Barnes’ Notes, 52. 277. S. C.) we have, perhaps, the first precedent of this interference. A motion was made to set aside a judgment, entered upon warrant of attorney, and a feigned issue was awarded to try the fact of usury. At a subsequent term, after the trial of the feigned issue, and a verdict finding that the warrant of attorney to enter up the judgment had been given in consequence of an usurious contract, the Court set — 139 — aside the judgment, and directed the warrant of attorney, and the bond on which the judgment was entered, to be delivered up, and the plaintiff to pay the costs of the application. This decision carried the remedy, at once, to the utmost length, and further than it has been since carried. For, as Lord Loughborough observed, in The Duke of Bolton v. Williams, (2 Vesey, jun. 154.) Courts of law will, upon their general jurisdiction, enter into the validity of a warrant of attorney and judgment, and may vacate the warrant of attorney,, and set aside the judgment; but the jurisdiction does not extend to ordering the bond to be delivered up, and if ever done, it has been done inadvertently. The next case of this kind, arose in the K. B., in Cook v. Jones (Cowp. 727.) A rule was granted, on the motion of the defendant, to show cause why a judgment entered on warrant of attorney, should not be set aside, on the ground that the consideration of the warrant was usurious. Lord Mansfield said, that the party was without relief, unless the Court interposed, and an issue was directed, V' try whether the contract, upon which the warrant was given, was usurious. We have no further report of the case, and are, therefore, unfortunately, without the means of knowing what kind of relief, and to what extent, the K. B. would have granted it, if the issue had been found in favour of the defendant. In Matthews v. Lewis, (1 Anst. 7.) a motion was made on the common law side of the Court of Exchequer, to show cause why a judgment entered by confession should not be set aside for usury, and even the rule to show cause was denied. The Court admitted, that the K. B. had granted such motions, but that no such practice existed in that Court; and they observed, that to set aside judgments of that kind by a summary jurisdiction of a Court of law, was to usurp the office of a Courtof Equity. The introduction of the practice of a feigned issue was rendered necessary by the first innovation — 140 — of sustaining the motion. The Court intimated that the relief ought, in such cases, to be limited to the extent to which a Court of Equity goes, which decrees what is really an(j no m0re; and that if they set aside the judgment, the plaintiff would lose what was really advanced. This case, as far as the authority of it reaches, shuts out completely, all relief at law after a judgment has been confessed. But we have two subsequent cases upon this subject in the C.B. in which it appears, that they continue to exercise an equitable jurisdiction, in cases of usury, over judgments by confession. The first of these cases is that of Edmonson v. Popkin, (1 B. & Puller, 270.) in which a motion was made, founded on the preceding decision in Barnes, to set aside a warrant of attorney, and the judgment entered thereon, as having been made to secure an usurious loan. The Court did set aside the warrant of attorney and judgment, in order that the question of usury might be tried, which would be shut out, if the judgment was allowed to stand. This decision was six years after that in the Exchequer; and it shows, that the Exchequer practice on the subject, was considered as peculiar to that Court, and had no influence upon the settled practice of the C. B. The other case in the C. B. was that of Hindle v. O Brien ; (1 Taunton, 413.) upon a like motion the usury was not denied; and the Court therefore said, that there was no ground for an issue; and they proceeded to grant relief, but not to the extent of the case in Barnes, nor of that in B. & Puller, for the last case seemed to enable the party to plead the usury, and thereby annul the bond entirely. They granted a limited relief, upon the principles of a Court of Equity, by compelling the defendant to do what was equitable, by paying the sum really advanced, with legal interest. It was considered as an application to the equitable jurisdiction of the — 141 — Court; and they ordered the money levied on execution to be brought into Court, and referred it to the prothonotary, to take an account generally, of all matters between the parties, and compute the principal and legal interest due to the plaintiff. The case says, the Court also set aside the judgment, but for what purpose does not appear. We have here a series of decisions, showing, that the Court of C. B. does interfere, to set aside or control judgments by confession, infected with usury; and we have a decision of the K. B. to the same effect, founded on previous suggestions of that Court in favour of such a jurisdiction. The Court of Exchequer is the only Court of common law powers, which has, by a single decision, peremptorily refused to interfere; and, perhaps, that may have arisen from the circumstance, that the same Court has also a distinct equity jurisdiction. The Supreme Court of this state has, until lately, followed the decisions of the K. B. and C. B. at Westminster. In Wardell v. Eden, (2 Johns. Cases, 258.) the Court said, that the proper way to try the question of usury against a judgment entered by confession was, by awarding a feigned issue; and this was accordingly done, in the cases of Gilbert v. Eden, (2 Johns. Cases, 280.) and of Slate v. Schuyler. (3 Johns. Rep. 139.) In Hewitt v. Fitch, (3 Johns. Rep. 250.) the judgment was set aside, without a feigned issue, as there was no denial of the usury, nor any doubt of the fact. But it now appears, from the proofs in this case, that after the feigned issue had been awarded and tried, and the usury found, the Supreme Court vacated all these proceedings, and denied all relief to the present plaintiff. The counsel for the defendant have insisted, that the order of the Supreme Court, vacating all the proceedings under the feigned issue, and allowing the defendant to proceed to execution upon his judgment, was to be received here, as a conclusive bar to the charge of usury made and proved in this case : I cannot consider the order in that light. Though — 142 — I have not the benefit of the reasons on which the order of the Supreme Court was founded, I cannot possibly suppose, that they acted upon the assumption, that there was no usury in the case, especially after the verdict of the jury finding usury, and which verdict does not appear to have been set aside or questioned. I should rather infer, that the Court were pressed with the difficulty of applying a fit and suitable relief, considering how unstable the English decisions had been, as to the nature and extent of that relief; and that they thought it most advisable to follow the doctrine of the Court of Exchequer, and to leave the party to his suit in this Court, and which, in this instance, embraced not the judgment only, but all the claims and securities held by the defendant. I presume the Court acted upon sufficient considerations, but without any intention of deciding or concluding the question of usury, or affecting the title of the plaintiff to relief in equity. With respect to the relief that can be afforded here, I take the rule to be, that a plaintiff who comes to a Court of Equity for relief against a judgment at law, or other legal security, on the ground of usury, cannot be relieved, except upon the reasonable terms of paying to the defendant what is really and bona fide due to him. On the other hand, if the party claiming under such usurious judgment, or other security, resorts io this Court to render his claim available, and the defendant sets up and establishes the charge of usury, the Court will decide according to the letter of the statute, and deny all assistance, and set aside every,security and instrument whatsoever, infected with usury. It is perfectly immaterial, in respect to the application of the principle to the case of the debtor who sues here, whether the usury be confessed by the defendant in his answer, or be made out by proof. The plaintiff must still consent to do what is just and equitable on his part, or the Court will not assist him, but leave him to make his — 143 — defence at law, as well as be can. The case of Taylor v. Bell (2 Vern. 171.) is a striking, but very harsh illustration, of the rule. The plaintiff had given bonds with sureties, for moneys borrowed at usury, and a warrant to confess judgment, and judgment was entered thereon. He then brought his bill to be relieved, and for an account, and though the answer confessed the facts from which the usury was deduced, relief was denied, and he was ordered to pay principal, interest, and costs. So, in a late case in the Exchequer, (Skyrne v. Ryoot, cited in Orde on Usury, 113.) where a bond and warrant of attorney was taken in an usurious transaction, the decree was, to take an account of the money really paid, and that on payment thereof, the bond and warrant of attorney were to be delivered up. In Scott v. Nesbit, (2 Bro. 641. 2 Cox, 183.) we have this strong observation oí Lord Thurlow: “ I take it to be an universal rule,” he observes, {t that if it be necessary for you to come into this Court to displace a judgment at law, you must do it upon the equitable terms of paying the principal money really due, with lawful interest. I have no idea of displacing a judgment upon any other terms.” He directed, in that case, that the judgment should stand as a security for the money actually paid, with legal interest. The equity cases speak one uniform language; and I do not know of a case in which relief has ever been afforded to a plaintiff, seeking relief against usury, by bill, upon any other terms, It is the fundamental doctrine of the Court. Lord Hardwicke (1 Vesey, 320) said, that in case of usury, equity suffers thparty to the illicit contract to have relief, but whoever brings a bill, in case of usury, must submit to pay principal and interest due. Lord Eldon, (3 Ves. & Bea. 14) a tier an interval of more than sixty years, declared precisely -he same rule. At law, says he, you must make out the charge of usury, and at equity, you cannot — 144 — come for relief, without offering to'pay what is really due j and you must either prove the usury by legal evidence, or have the confession, of the party. In Eagleson v. Shotwell, (1 Johns. Ch. Rep. 536.) the same rule was followed in this Court, where a party came to be relieved against usury in a mortgage. I have been thus particular in showing the rule of equity on this subject, because the plaintiff has sought by his bill to have all the securities taken by the defendant, and infected with usury, declared void, and ordered to be can-celled, without offering to pay any thing. His counsel have also contended, at the hearing, that the rule in equity, where the defendant either confesses the usury, or it is established by testimony, is the same as it is when usury is set up as a defence to a demand in law or equity. All that I can do in this case, consistently with my view of the established doctrine of the Court, is, to direct an account to be taken of the dealings between the parties, and to hold the securities which the defendant has taken, to be good only for the balance which may appear to be due to the defendant, after deducting all usurious excess in any of his commissions and charges. The objection that presses upon the subject is, that the statute of usury maybe, in a great degree, eluded, by taking a judgment bond, which precludes the debtor from an opportunity of pleading the usury in a Court of law ; and if he can only be relieved upon the principles of a Court of Equity, or by the summary powers of a Court of law, acting upon equitable principles, the usurious creditor is sure to preserve his principal sum, and the lawful interest. But this objection was for a long time perceived, and felt, and endured in the Courts of law, before any remedy could be applied; and thóugh they interfered, at first, most effectually, by vacating the warrant of attorney, and allowing the party to come in and plead, they seem now to have abandoned the case to equitable relief, and to choose to — 145 — administer no other. It is the folly of the party to have precluded himself from pleading, by confessing judgment. Leges vigil antibus non dormientibus subveniunt. At any rate, though it were even to be regretted, that Courts of law cannot place the debtor in a condition to be enabled to annul (he contract altogether, under the sanction of the statute; yet certainly I should introduce a new principle into this Court, if I was now to undertake to displace a judgment at law, upon any other terms than those I have mentioned. The same objection and difficulty occur in the case of a mortgage taken to secure an usurious loan, with a power to sell, annexed to it, by means of which the creditor forecloses his mortgage by an act in pais, without calling upon any Court to assist him. The debtor has no relief in that case, but by applying to this Court, and then he must comply with the terms of paying what was actually advanced. He deprives himself, in that case, by the power to sell, as he does in the other, by his warrant of attorney to confess judgment, of an opportunity to appear in the character of defendant and plead the usury. These are cases in which the party, by his own voluntary act, deprives himself of his ability to inflict upon the creditor the loss of his entire debt. Many other cases may be stated in which the same result will follow. The party is in the same situation, if instead of resisting the usurious claim, he pays it. He cannot then expect assistance to recover back more than the usurious excess. If the warrant of attorney, or the power to sell Were procured by fraud, or surprise, or accident, that would form a distinct head of relief, and in no wise applir cable to the case. And, perhaps, it is sufficient for the purposes of public justice, and public policy, that the law has enabled a debtor, in every case, in which he does not of his own accord deprive himself of the means, to plead the statute in discharge of his usurious contract; and of his ob — 146 — ligation to pay even what was received, and that in aJS cases he can, by paying the actual principal received, and the lawful interest, be relieved from the usurious exaction. The following decree was entered : “It is declared that, the promissory notes given by the plaintiff to the defendant,, and specified in the writing in the pleadings mentioned,, of the 27th of Augustr 1812, and in- schedule A. to the said writing annexed, and which remain unpaid, are infected with usury, and that the practice stated in the pleadings of asking and receiving a commission of two and a half per cent, upon the exchange of notes between-the parties, or upon negotiable paper endorsed by the defendant,, was usurious in every instance in which such commision exceeded the rate of seven dollars, for the forbearance of 100 dollars for one year, or exceeded that rule, for a greater or less sum, for. any other period; and that the pretence set up by the defendant, that the said commissions were taken, for and on account of expected deposits of goods for sale at auction, was unfounded in point of fact. And it is further declared to be the established, doctrine and. practice of the Court, that the plaintiff who seeks the aid of the Court to set aside a judgment at law, or other legal security, on. the ground of usury, cannot be entitled to relief, whether, the' usury be established by proof, or admitted by the answer, except upon the terms of paying the principal and interest lawfully due thereon, after deducting every usurious excess; and that the judgment, and the mortgage, and the West Chester manufacturing stock, held by the defendant in this case, and mentioned in the pleadings, are to be deemed and taken as . securities only for the balance that may be due, after such deduction. It is thereupon ordered, &ec., that it be referred to. one of the masters of the Court to take-and state an account of all the loans or endorsements of notes, or advances in cash, by the defendant, to or on behalf of the plaintiff, and of all notes given, by the plain, — 147 — tiff to him in exchange, or for commissions, or otherwise, and stated or referred to in the pleadings and proofs, from 101 the commencement of their dealings as therein stated, and „ , . . . „ that on such accounting, the master m no case allow any commissions to the defendant beyond the lawful rate of interest declared as aforesaid; and that the defendant be charged with all excess of interest received by him, in the shape of commissions or otherwise, during the course of such dealings ; and that he also credit the plaintiff with the amount for which his share or third part of the ship or vessel called the Tea Plant, sold for, as admitted in the pleadings, and with all other payments made by the plaintiff, and credited by the defendant, and that he report the balance, if any, remaining due to the defendant upon such accounting, and that interest be charged and allowed on such accounting, when the same would be proper, according to law, and the usage of the Court. And it is further ordered, that the master report to the Court with all convenient speed, and that the question of costs and all further directions be, in the mean time, reserved.?’