Bank of Middlebury v. Bingham

Poland, Ch. J. It may now be regarded as conclusively settled in this State, that a note made for the purpose of raising money, and made payable to a particular person or corporation, and with the expectation that the same will be discounted by the payee, may be taken and discounted by another, and that the person thus advancing the consideration may hold such note as a valid security for the money, even against sureties, and may enforce payment by suit in the name of the payee, unless such payee refuses to allow his name to he used for that purpose. It — 634 — is not regarded as a material thing, even as to the sureties, who advances the money or holds the note, as the benefit derived by the receipt of the money, and the obligation incurred for its payment, are precisely the same in the one case as the other. It is unlike many other contracts, where the personal character and qualities of the contracting parties, form a material element in the contract itself, because they may affect its performance or fulfillment. The mere promise to pay money is the same thing to one man as to another, and even if regard might be had to the character of the person to whom a note is executed, it could be wholly frustrated by a transfer to another, which could always be done so as to give to another the absolute control of the debt, even if not negotiable; Bank of Burlington v. Beach, 1 Aik. 62; Keith v. Goodwin et al., 31 Vt. 269; Boardman v. Rogers et al. 17 Vt. 589; Austin v. Burchard, 31 Vt. 589; Bank of Montpelier v. Joyner et al., ante p. 481. The cases cited by the defendants from Massachusetts and other States where a contrary rule has been held, were all before the court when the later cases above cited were decided, but failed to induce decisions in conformity to them. The objection made to the want of delivery to the payee is also answered by the above cases, which substantially hold that the party advancing the consideration for the note, becomes the real holder and party in interest, and a delivery to him is a valid delivery of the note. Upon the discount of .these notes by Warner and Fletcher the sum of three hundred dollars was reserved for usurious interest, and so far as the case shows, without the knowledge of the sureties. The defendants claim that these notes are inoperative and void for that reason ; not upon the ground that the general law of the State prohibits the taking interest at a higher rate than six per cent., but that a similar prohibition in the charter of the Bank of M iddlebury, upon that institution, has that effect. This same question was very ably and elaborately argued before the full court at the last general term in Farmers’ Bank v. Burchard, ante p. 346, and probably all the leading authorities were brought to the notice of the court, and upon great considera — 635 — tion it was finally unanimously determined that such prohibition upon a banking institution, contained in its charter, had no other or greater effect upon notes taken by them than the same prohibition has upon natural persons by the general law of the State ; that it is not properly a case of a contract beyond the power and scope of their charter, but like all usurious notes, invalid, and not enforcible to the extent that it is usurious and in contravention of the statute. I have examined the opinion of the court in that case drawn up by Barrett, J., in which all the cases are reviewed, and the question discussed with such fulness and learning as will justify the dismissal of the question here by reference merely to that case. This decision of that question of course relieves us from the consideration of another which has been discussed in argument, whether Warner and Fletcher could stand in any better light upon the note than the bank could, had the usurious discount been made by the bank itself. It has not been suggested in the argument that the existence of usury in a note makes the note void, on account of the general prohibition against usury, but it is conceded that the debt and lawful interest may be recovered in an action on the note, and that in ordinary cases such reservation of usury would afford a defence to the surety only to the same extent as to the principal, that is, to have the usurious interest deducted, and see Richmond v. Standclift et al., cited below. All who are conversant with the history of the legislation by which the former law of the State making all usurious contracts and securities void, was repealed, and the present law merely prohibiting the taking of more than six per cent, interest was enacted, know the object and purpose to have been to make such contracts and securities valid, except so far as they were usurious. It has, however, sometimes been suggested that the language used by the legislature was not really appropriate and adequate to that end, and that as the usurious interest was illegal, and in contravention of a positive statute, all contracts infected with it should, upon general legal principles, be declared illegal and void m toto. — 636 — The real intent and purpose of the law has, however, universally prevailedan its interpretation and administration, and among the multitude of cases which have been before the courts, and found in our reports since this change of the law, where questions of usury have been litigated, we do not find that such a question has ever been made. In the case of Richmond v. Standclift et al., 14 Vt. 258, which was not long after the change was made, Williams, Ch. J., in his opinion states the effect of the law to be that the contract can only be avoided to the extent that it is usurious, and so far as we know, such has been the invariable and uniform construction by the courts, profession and people of the State. After so long apractical construction, it is too late now to speculate as to its propriety. It is further claimed on behalf of those defendants who are sureties on the notes, that Warner and Fletcher were guilty of such a fraudulent concealment in not disclosing to the sureties that they were the real lenders of the money to the principal, and the real payees of the note, as to disable them from enforcing the notes. This question must be considered irrespective of the fact of there being usury included in the notes, for, as before stated, it is not claimed that taking usury on a loan of money is a defence to the surety to any greater extent than to the principal, even where the usurious reservation is unknown to the surety. There might be some plausibility in claiming that in such case the surety should not be holden because the means of the principal to make payment are really just so much less as the amount included for unlawful interest. But a sufficient answer to this is that the liability of the principal and surety both is also lessened to just the same extent as the principal assets are lessened by the unlawful reservation. If, therefore, these notes had been actually discounted by the Bank of Middlebury, at the same usurious rates they were by Warner and Fletcher, the sureties would have been furnished with no defence except to the usurions portion of them. Upon what principle then can they claim to have been defrauded by not being informed that the notes were really to be discounted by Warner and Fletcher instead of the bank ? — 637 — The jury have found that the notes were not made payable to the bank with any design by Warner and Fletcher to deceive or defraud the sureties, and there is nothing in the case to show that they had any knowledge that the sureties were ignorant pf the fact that the money was to be obtained of them. It comes then simply to this question, whether the surety on a note given to raise money, which is discounted by some person other than the payee named in the note, without this fact being made known to the surety, is thereby holden or not. The cases cited before seem to answer this question, or rather this is but the same question in another form. The reason why another than the payee of the note may discount and enforce the note is that it is not material to the obligation itself who is the party who shall enforce it. After this, to hold that the surety is entitled to have it submitted to a jury to say whether he would or would not have signed had he known who was to be the real holder of the note, would be worse than to abrogate the rule itself, for the subject would be throwp open to mere speculation and conjecture. The sureties say here they supposed the notes were payable to the bank, and that prompt payment would be exacted of the principal, and therefore they were willing to sign for him. The next case of the kind that arises, the surety might ipsist that the payee of the note was a lenient, forbearing man, and he had a right to suppose that punctual payment would not be exacted, and therefore he was willing to be surety for him, but would not to an austere man. To allow such a question to be made at all would involve enquiries in to the character, and reputation, and business habits of parties, and of motives, and intents of parties, so utterly hypothetical and fanciful that no certain solution of them could ever be made. Whether'A. or B. would be the more likely to exact usurious interest, which would be the forbearing and which the exacting creditor, and which, under all the circumstances, would the surety prefer to become bound to, would all be very fanciful issues. In all the cases which have been cited by the defendants on this point, the surety had either been made to contract for something different from what he understood, or from what appeared upon the face of his contract, or some — 638 — fact material to the risk and responsibility of the contract he entered into, was concealed from him. The leading case of Pidcock v. Bishop, 10 E. C. L. 197, is a good example of the former class. The defendant became a guarantor for a third person to the plaintiff, to pay for certain iron purchased of the plaintiff. By an agreement between the plaintiff and the principal, the iron was inventoried above the market price, and the difference applied upon an old debt due the plaintiff, and this unknown to the defendant, who thus without his knowledge, was really made to guaranty the plaintiff’s former debt against the principal. It was most justly held that he was not bound at all. Franklin Bank v. Cooper, 36 Maine 179, is a good example of the latter class. The defendant signed a bond to the plaintiffs, to secure the due and faithful performance of duty by their cashier, and the bond was so drawn as to cover a period of time already elapsed. The cashier had already, when the bond was made, been guilty of defaults, which were known to the plaintiffs, but not communicated to the defendant. It ivas held that the concealment of so important a fact, was a fraud upon the surety, and he was not bound. The very ground upon which Warner and Fletcher are allowed to discount and hold a note made payable to another is, that it is immaterial to the risk of the sureties’ contract, l.-y whom the note is discounted. The sureties also claim, that they were discharged by an extension of time of payment to the principal, in consideration of two hundred dollars as interest on the two notes for three months. By reference to the letter to Warner enclosing the draft for two hundred dollars, it will be seen that A. L. Bingham did not propose a delay for three months absolutely, or offer this two hundred dollars unconditionally, as interest for that period. The letter shows that he expected, or at least hoped to get the money to pay the notes soon, if so, that this sum of two hundred dollars, would apply as a part payment; if he could not get the money to pay the notes, he proposed they should take this sum as interest for three months. Warner received the draft, and converted it into money, but made no application of it, nor does there appear to have been any further communication between them — 639 — until after the expiration of the three months, when Warner endorsed the amount as three months interest paid. By the terms of the letter, Warner, if he fully acceded to the proposition contained in it, had no right to make an absolute application of the money as interest for three months, and the principal, or the sureties, had the right to pay the principal as soon as they chose, and if there was no contract for delay that was binding on them, there was none that bonnd the creditor to grant it, or that tied his hands from collecting the notes. The mere receipt of money cannot be regarded as an acceptance of interest in advance, for it was not so offered ; the notes were due, and they had the right to retain the money as a part -payment of the debt. The case shows no conclusive acceptance of this sum as interest until the endorsement, which was after the extension had expired. There was no evidence in the case of any agreement for delay whatever, unless it was to be inferred from the acceptance of interest in advance, and if this was clearly proved, a promise to delay for that period probably would be inferred, without evidence of any express promise to delay. The most the defendants could claim from this evidence was to have it submitted to the jury to say, whether there was a receipt of interest in advance, and a contract to delay payment. This was done by the court below, and the jury found there was no such extension of time. We find no error in the trial, and the judgment is affirmed.