Payne v. Freer

Bockbs, J.: The learned judge before whom this cause was tried found and decided as matter of law that the provision in the articles of copartnership, stipulating for tne payment or allowance of ten per cent to the partners respectively on the average of their overdrafts in their bank or partnership accounts, did not render the instrument void for usury. This decision was put' on the ground that an overdraft, within the meaning of the contract, was not a loan of money, but was an advancement out of the common funds, 'and the interest returned therefor was for the common benefit, and partook of the risks and hazards of the business. We are inclined to adopt this conclusion as sound in law. The business capital of the partnership consisted of a joint fund contributed by the parties, with such addition as their business as private bankers would afford by way of deposits. On their capital they were to conduct the business of banking, in the same manner and upon the same principle that the business of national banking associations was conducted, by virtue of the power conferred upon the latter by the so-called national currency act and its amendments, with an exception as to the amount of reserve fund to be kept on [128] hand. The term of the partnership was ten years, with the right of an earlier dissolution on consent of the partners, and the latter were to bear the losses of the business alike, and were to share equally in its profits. Now, in the first place, it appears that all advances to the partners on overdrafts would be made from the joint or partnership fund; and, secondly, the result of the business only could determine whether or not there would be any profits to divide. There was, consequently, just that state of hazard connected with the business which would, according to the authorities, rescue the case from the effect of the statute against usury. It was not certain at all that either member of the partnership would ever get a return of lawful or of any interest whatever on his contribution to the fund, or indeed of any of such contribution itself. It is by reason of the risk and hazard attending bottomry or respondentia securities that they are held not to be within the statute of usury. So in Ord on Usury (39), it is laid down as follows : “ Recollecting that an usurious contract must be grounded on a loan, which implies a return of the principal, we may thence conclude that if money be advanced for a premium which exceeds legal interest, on a hazard or contingency, and is not to be repaid at all events, the contract is not usurious.” Of course the hazard must be real and substantial, not a slight and merely colorable risk, and not put. forward in appearance merely to cover up a corrupt purpose. The doctrine above extracted from Ord on Usury is also reiterated in Kelly on Usury (50), and in Oomyn on Usury (21 and 28). The rule of law is, too, very neatly stated in Tyler on Usury (185), as follows: “ Upon the same principle of contingency or hazard when persons are actually in partnership, an advantage to be taken out of the trade may be reserved in any way agreed upon, without subjecting the agreement to the charge of usury, for the moneys are not laying at interest, but employed in making profits, subject to losses; and although one partner retires, still if he continues liable to be sued the agreement for such advantage can not be usurious.” (See cases cited, pages 186, 187.) The doctrine above stated has been repeatedly recognized as sound by the courts ; indeed it has never been questioned. (See the following cases: Delano v. Wild, 6 Allen,. 9; Silver v. Barnes, 6 Bing. [N. C.], 180; 37 Eng. Com. Law, 571; Fereday v. Hordern, 1 Jacob, 144; 4 Eng. Ch., 144; Bur129 bridge v. Cotton, 8 Eng. Law and Eq., 57; Gilpin v. Enderbey, 5 Barn. & Ald., 954; 7 Eng. Com. Law, 519 ; R. B. B. & L. Ass., 27 N.J. Eq., 223 ; also Mills v. S. B. & L. Ass., 75 N. C., 292 ; Hubert v. K. B. & S. Ass., 11 Bush., 296 ; Melville v. A. B. B. Ass., 33 Barb., 103.) While the above cases may not seem to be entirely harmonious in their conclusions, none of them intimate a doubt as to the correctness of the rule of law above eliminated from the text books. The apparent want of harmony in them has arisen rather from a supposed different state of facts than from any doubt as to the law applicable to cases of partnership wherein the question of usury has been raised between partners. We are of 'the opinion that in this case the stipulation in the articles of partnership, brought under examination, provided for the use of partnership funds; and, further, that the partners might agree for such use and’ employment of them as to them might seem best, without bringing their agreement within the purview of the statutes against usury. The learned judge was right, therefore, in holding that the articles of copartnership in this ease were not void for usury. This being so found, it seems to us to carry with it the entire case, and that the learned judge should have further found that all the transactions proved before him were of like character as those covered by the stipulation relating to overdrafts. It was competent for the partners to agree between themselves as to the manner in which the partnership funds should be employed, and they might as well agree that the partnership would apply its funds to the use of one of its members at ten per cent on notes, as on overdraft^. In both cases it would be an agreement as to the mode of using the partnership funds by one of the partners. As regards the transactions relating to the notes of Freer, or on which he was liable, the agreement in effect was this: that advances might be made on them or in their payment from the partnership funds, at an allowance on the money so advanced or employed in the transactions relating to them of ten per cent. This was in legal effect and in fact the same as was the agreement as to the overdrafts, embodied in the articles of partnership, and different from the latter only in the fact that it related to notes instead of overdrafts, and rested in parol. If the agreement as to overdrafts was not open to the impu [130] tation of usury, the agreement as to the Freer notes was not within the denunciation of the statute. In both cases, as above suggested, the agreement i-elated to the way or manner in which the partnership funds should be employed, and the transactions partook alike of the contingencies and hazards which attended the general partnership business. . The parties did not regard those agreements as at all differing in their nature or effect. Indeed, by consent of all concerned, the notes were put on the same footing with the overdrafts in so far as ¿he use and employment of the partnership funds were concerned. The notes were carried into Freer’s account on the firm or bank books, and were treated, as regards the moneys applied upon them, or to their payment, the same as were the overdrafts. It might well be found that the agreement, implied from the manner in which the business was conducted, was to the'effect that all moneys of the firm which should be advanced on or applied to the payment of Freer’s notes, for his use or benefit, should stand subject to like stipulation as that contained in the articles of copartnership relative to advances on overdrafts. In conclusion we are of the opinion that the finding declaring the bond and mortgage in suit usurious and void was erroneous. The judgment must, therefore, be reversed. Boardman, J., concurred; Learned, P. J., not acting. Judgment reversed, new trial granted, costs to abide the event.