Branch Bank at Mobile v. Strother

DARGAN, J. The State Bank and its Branches, are allowed to discount notes and bills, at different rates, according to the time they have to run before maturity; but there is no special law prescribing the rate of interest these debts shall bear after maturity, consequently the interest they bear after they become due, is regulated by the general interest law of the State, and all bear eight per cent. On the day of the settlement, all the debts owing by the complainant to the bank were due, and all were bearing eight per cent. The agreement was to extend the whole indebt — 57 — edness, dividing it into six annual payments, and notes were given, falling due from one to six years. The amount of these notes exceeds the debt, and lawful interest added to it, $4,269 18. This charge of interest, over the rate of eight per cent., the plaintiffs in error contend, they had the right to make, and can. legally require the defendant to pay, because they are authorized to discount notes at eight per cent-., having twelve months to run, and in extending a debt over due, they can charge interest by way of discount; or to discount the note, given in extension of the debt, and apply the proceeds to its payment. The authorities relied on by the plaintiff’s counsel, do hold, that a bank may discount a note, of its debtor, under an agreement to apply the proceeds to the payment of the debt ; and even if the note so discounted, be paid by the discount of another, such a transaction is not usurious, unless it was a mere cover to hide usury. The Bank of Utica v. Wagner, 2 Cowen, 712; The State Bank v. Hunter, 1 Dev. R. 100; 9 Mass. R. 49. But we do not think these authorities come up to this case. In none of the cases referred to, had the note a longer period than twelve months to run, before maturity. The period of time the notes had to run before.maturity, makes the distinction between this cause, and the cases referred to, and the question is, has the bank the right by law, thus indefinitely to extend the payment of its debts, and charge interest by way of annual discounts ? If we affirm that the bank has the right, we must sanction results, that the common sense of all mankind would condemn as oppressive, and unjust. For instance, the note that falls due the sixth year, nearly doubles the principal, and if it had been extended twelve years, it would have nearly quadrupled the principal included in it. Such a rule of computing interest on debts, the payment of which is extended several years, leads to results that cannot be tolerated by law. 2 A. K. Marsh. 335; 1 Johns. Ch. R. 13, 550; 6 Ib. 313. The length of time then that the note, or bill has to run, becomes a material inquiry, in distinguishing between a legal discount, and an illegal transaction. In none of the cases referred to, did this question arise, for none of the notes had — 58 — more than twelve months to run; and I have not been able to find any decisions, that throw much light on the subject, or lay down any settled rule in reference to it. Mr. Chitty merely says, that if bills having two or three years to run, are discounted, and interest thus taken in advance, the transaction would be held usurious; and to the same effect, is the case of Martindale and Marsh, 3 Bos. & Pul. 154. I will not, therefore, undertake to lay down a rule, that shall govern in every transaction. But as the respondents are authorized by their charter, to discount notes, having twelve months to run, at eight per cent, per annum, and we see that some limit must be fixed to the period of time the note has to run, in order to justify the discount of it at eight per cent, per annum, we feel no hesitation in saying, that the bank is not authorized to discount notes or bills at eight per cent., having a longer period to run than twelve months; nor can they extend a debt due to them, longer than twelve months, and charge interest by way of annual discounts in advance. They may, it is true, extend the payment of their debts to any time, they and their debtors may agree, but if they extend them over twelve months, they can only charge such interest, as any other individual is authorized by law to receive of his debtor. We will not say, that the bank may not discount a note or bill, having longer than twelve months to run, even at eight percent., if the calculation of the interest to be deducted, be made by the common rules of arithmetic ; that is, by ascertaining the present worth of the note or bill, at eight per cent., for the time it has to run. But the discount intended to be interdicted, is calculated in this manner : first ascertaining the interest for one year at eight per cent., on the sum mentioned in the note, and then multiplying the interest for one year, by the number of years the note or bill has to run, and deducting the amount thus ascertained, from the amount named in the note. We should feel no hesitation in saying, that the discount thus calculated, when the note or bill has longer to run than twelve months, is illegal, whether made by a bank, or any individual. If the note or bill had twelve years to run, and was discounted by this rule, every four dollars received by the maker of the note, would in effect yield ninety-six dollars interest. Or a note — 59 — of one hundred dollars thus discounted, would give to the borrowor four dollars only, although the present worth of a note discounted at eight per cent, for the same period of time, is.a fraction over fifty-one dollars, if the discount be calculated by the common rules of arithmetic. The mode of computation adopted by the bank, in ascertaining the interest to be charged in this case, was to charge interest at eight per cent, by way of annual discount, for every year the note had to run. That is, for the first year, they ascertained how much the principal in the note would yield, if employed in discounting notes. The second year, they ascertained what the principal and interest, added together, would yield, employed in the same manner, and so on for the number of years the note had to run. If the law would tolerate the extension of a debt, charging interest- by this mode of computation to any indefinite period of time, had the debt been extended eighteen years, and the interest cast in the same manner, would it not be legal? Yet, if it had been extended eighteen, instead of six years, the principal, in the last note, would have borne over seven hundred per cent. The cases referred to in 2 Cowen, and 1 Dev. Rep., although they do in effect hold that a bank may extend a debt, charging interest by way of discount, yet the extension in those cases was for a short time, and even if those decisions are to be relied on as authority, and as affording a correct exposition of the law, we cannot extend the principle recognized by them, to any indefinite period of time, without sanctioning results, that both the learned, and the unlearned, with one voice would pronounce onerous, oppressive and unjust. If the bank can be permitted to extend a debt over due, and charge interest by way of discount, their contract must not embrace a longer period than one year. If they wish to extend their debts longer, they can only charge interest at eight per cent, per annum. The counsel for the plaintiff in error, has submitted an able argument, to show, that the bank has not been guilty of usury.. It is true, that neither the bank intended to charge, nor the defendant to pay, more than lawful interest, and the' over-charge of interest, is the result of an improper mode of calculating the interest, for the time the notes had to run; — 60 — and the facts negative the existence of any corrupt intent. To constitute usury, there must be an intent to take more than lawful interest; if more be reserved by mistake, it is not usury. Nor can it make any difference, whether the mistake occurs, by adopting an improper mode of calculating interest, or by erroneously adding, or multiplying figures. 7 Gill & Johns. 44; 10 Id. 300. I should therefore be inclined to agree with the plaintiff’s counsel, that the facts of this case, do not constitute usury; yet, because the bank may not have been guilty of usury, they cannot be entitled to receive the over-charge of interest, but the notes to the extent of the over-charge are void, for the want of consideration, and to this extent is the plaintiff entitled to relief. But it is objected that the right to relief is barred by the statute of limitations. It must be borne in mind, that the bill is not filed to recover back money paid. The amount that has been paid, whether the excess of interest would constitute usury or not, must be appropriated to the principal and lawful interest. 1 Leigh, 453; 7 Monroe, 596. The over-charge of interest, which is the foundation of the complainant’s right to relief, adheres to the debt, as long as it is in existence, and the payment of a portion of the debt, which the law will apply to the extinguishment of the principal and lawful interest, will not and cannot take away this right to relief. The statute of limitations cannot, therefore, have any influence on the question. It is again said, that the bill is defective, in not offering to pay the amount actually due, and lawful interest. The bill recognizes the liability of the complainant to pay the amount actually due, and lawful interest, and the complainant submits to pay this sum, in such manner as the court shall direct. This we t&ink is a sufficient offer to pay, if the gravamen of the bill had been to obtain relief against a debt alledged to be usurious. The reason why it is necessary, in a bill seeking relief against usury, to offer to pay the amount actually due, is, that the court will not interfere, unless the complainant will either pay, or submit, that a decree be rendered against him for the principal and lawful interest, and the court has not the power to render a decree against him, on — 61 — his own bill, unless he makes this offer by the bill. The complainant submits in his bill, to pay the amount actually due, in such manner as the court shall direct; he invests the court with jurisdiction to render a decree against him for the proper amount, as fully as if he had offered in so many words to pay the amount actually due. Nor is there any available objection to the decree, that the reference to the master was prematurely made. The usual practice is, to settle the equities between the parties, before a reference is ordered to state the accounts between them. But if the final decree is in accordance with the equity of the case, as made by the bill, answer and proof, it cannot be reversed, whether a reference was prematurely made, or whether one was made at all or not; for no one can complain of an error, or an irregularity, unless such error, or irregularity, is injurious to his rights. The report of the master is not objected to, as erroneous in calculation. If we were to reverse the decree, that a new reference might be ordered, the report must be the same in amount, and the final decree the same. This view shows, that there is no error that should reverse the decree, growing out of the order of reference, and the master’s report. The magnitude of this case, has induced us to examine all the questions presented, and which were necessarily involved in coming to a conclusion deliberately, and the result of our opinion is, that the decree of the chancellor must be affirmed.