Towslee v. Durkee

By the Court, Paine, J. The first question as to the sufficiency of the answer in setting up usury, arises upon the construction of the words “ legal interest,” which it contains. It alleges a loan of money by the bank to the defendants, and a series of renewals; that at the time of the loan, the note given therefor was made payable at the city of New York, with the express purpose of exacting from the borrowers the amount of exchange “ in addition to the legal rate of interest,” and that they were required to pay, and did promise to pay, such exchange, as a condition of the loan: while the understanding was that the note should never be paid in New York, but should be kept and paid in Kenosha. The answer further avers that at each of the renewals the same condition was required, and the same corrupt agreement made to pay the exchange on New York “in addition to legal interest,” as a mere cover for rrsury. But it is insisted by the counsel for the respondent, that the words “legal interest,” as used in the answer, must be construed to mean interest at the rate of seven per cent., that being the rate fixed by law in the absence of a contract fixing a different rate. If those words require that construction, the answer fails to show usury. But they were obviously used by the pleader in a different sense, and as meaning the highest rate of interest which the law allowed the parties to contract for. And we think they are as often used in this sense as in the — 486 — other, and that their true sense in any instance must be determined from the subject matter, and the connection in which they are used. Thus if the inquiry relates to a case where no rate is agreed on by the parties, and the object is to ascertain what rate the law fixes in that event, the words “legal interest,” would naturally be understood to mean the rate fixed bjr law in the absence of a contract. But if it relates to a contract claimed to be illegal in providing for more than legal interest, the same words would there just as naturally, be understood to mean the highest rate allowed by law. The very point of the inquiry, namely the validity or invalidity of the contract, would imperatively require that sense. That they are so used in this answer is not only obvions from the entire context, but at the close, where it avers knowledge on the part of Towslee, it alleges that he took the note with the full knowledge of the usurious contract, and that it was made with intent to exact “ a large excess above the interest allowed to be taken by law." It being clear, therefore, that those words are used in this answer as meaning the highest rate at which the parties were allowed by law to contract, and that use being sanctioned by common practice, we think it would be placing a forced construction upon them, to say that they mean interest at seven per cent. Legal interest may as well mean that which is legal by contract, as that which is legal in the absence of a contract. And where the context shows clearly that they were used in the former sense they ought not to be construed in the latter. The question then remains, whether, with tins construction, the answer sets up usury. As before stated, it avers that the bank made it a condition of the loan, that the borrowers should pay exchange on New York over and above legal interest, and the note was made payable there for that purpose, solely with a view of obtaining more than legal interest, and with the understanding that the note was not to he paid in New York, but was to be paid in Kenosha. The same agreement was made at each renewal, and for the same purpose, and with the same lack of intention to have the money paid in New York. 'We have no doubt the facts — 487 — constitute usury. It is true there are cases where exchange between different places has been allowed to be taken in dition to legal interest, where it appeared to have been done in good faith, without any intent to evade the usury law, or where it. was done for the accommodation of the borrower himself. But their reasoning implies that where such an arrangement is insisted, on as a condition of the loan, and is designed as a mere device by which the lender is to receive more than legal interest, it would be usury. Marvine vs. Hymers, 2 Kern., 233; Merritt vs. Benton, 10 Wend., 116; Bank vs. Schermerhorn, 1 Denio, 133; 3 McLean, 601. In Stevens vs. Lincoln, 7 Met., 525, the exacting of exchange as a mere cover for usury is assumed, as a matter of course, to be usurious. In the case of Oliver Lee & Co.'s Bank vs. Walbridge, 19 N. Y., 134, the note was discounted in Buffalo, and made payable in New York city, the exchange being in favor of the latter place. It was averred by the defendants, and they offered to show, that the note was made payable in New York merely to enable the bank to obtain the amount of the exchange over and above legal interest. Justices Comstock; and Allen each delivered an opinion. The former held that it was not usury, for the reason that the law would not take notice of the difference in the value of money at different places in the same state, so as to impute usury to a contract made with a view to obtaining such difference beyond legal interest. But his reasoning would imply that a different rule would prevail between places in different states, particularly those as far distant from each other as New York and Wisconsin. Many of the reasons existing in the case of countries entirely foreign, exist in such a case. And our statute itself recognizes the distinction not only between contracts payable within this state and those payable without, but also between those payable in some adjoining state or territory and those payable in some state or territory not adjoining. It provides for ten per cent, damages in the latter case, on protested bills of exchange, but only five where payable in an adjoining state or territory. This statute does not include promissory notes, and perhaps the general law merchant would not entitle their holders in such — 488 — cases to recover the difference of exchange, though there are some decisions that they- may. See opinion of Comstock, J., pages 136-7, where he alludes to the conflict of decisions upon this point, and admits that, in justice, promissory notes and bills of exchange ought to stand upon the same footing in this respect. This, therefore, is sufficient to take this case out of his reasoning, and to show that, as between Wisconsin and New York, the difference in exchange is a thing sufficiently tangible and real for the law to recognize it, and to make usurious any agreement made to recover it, over and above legal interest, when made as a mere shift for that purpose and not in good faith. And it may be observed that Selden and (Tray, Justices, dissented; and there is certainly much force in the reasoning of Justice Johnson, to the effect that such a transaction would be usurious even in New York. Cuyler vs. Sanford, 13 Barb., 347. Justice Allen also held that there was no usury, but upon different grounds. He seems to rely principally upon the uncertainty as to whether the exchange would be in favor of the place where the note was made payable, when it became due. He alludes also to the ffict that this arrangement was not insisted on as a condition of the loan, and says, if that had been done, and the agreement to pay exchange had been expressed in the instrument, he was not jR'oparecI to say that it would not have been usury. Now in this case both of those things are alleged to have been done, so that there is nothing in either of the opinions in that case in conflict with the position that this answer discloses usury. And it may be observed, that there is nothing in the mere fact of the uncertainty as to whether the lender will eventually gain anything by way of exchange that deprives such a transaction of its usurious character. If he is sure, at all events, of his principal and interest, and stipulates even for a chance for more, it is usury. Cleveland vs. Loder, 7 Paige, 557, and cases cited; Leavitt vs. De Launy, 4 Coms., 369. We are fully satisfied, therefore, that this answer sets up facts showing usury. And if it were not so held, it is obvious that not only the spirit but the letter of the usury laws would be entirely subverted. The lender might openly — 489 — contract for the payment of exchange on the most distant states, as California or Oregon, in addition to legal exact the payment of it, and yet take no usury. This would be equivalent to a repeal of the law. See also State Bank vs. Ensminger, 7 Blackf., 105. It seems, from the opinion of the court below, that the demurrer to the answer was sustained, not because it failed to show a case of usury, but because it did not aver a tender of the principal sum loaned. And this is based upon the decision of this court in Rock River Bank vs. Sherwood, which is said to have decided that precise point. This is a misapprehension of that decision. In that case usury was not averred at all, but the bank having contracted for usurious interest, it was claimed that the entire contract was void, not by the usury law, but for want of power on the part of the corporation to make it. It was said to be as void as would be a policy of insurance issued by the bank. On the other hand, it was contended, that, inasmuch as the bank was authorized to loan money and take securities, if it contracted for more interest than the law allowed, that had the same effect on the contract as would a similar transaction between individuals. And this court sustained the latter view. That was the entire scope of the decision. And that part of the opinion relied on by the court below, simply asserts that the defendant, in order to avail himself of the usury, should have plead it, and then have proved a tender. It does not hold, however, that he should have averred a tender. And this court has expressly decided, in several cases, that this was not necessary, even while the usury act of 1856 was in force. Platt vs. Robinson; Root vs. Pinney, not yet reported. But it was also held in the case last mentioned, that the provision in the act of 1856, in respect to proving a tender, (which had been re-enacted in the revision of 1858,) was repealed by the usury act of 1859. It was also held that it was a provision affecting the remedy merely, by imposing a condition which the courts should require to be complied with, before the party could have the benefit of his plea showing an illegality in the contract. And it was further held, as a consequence, that when the law imposing this — 490 — con(^orL was rePealer\ tlie party was at liberty to avail himself of that illegality, without complying with the condition. It was therefore erroneous for the court below to . sustain the demurrer for want of an averment of tender in the answer. And under the law as it then was, and still remains, it was unnecessary for the defendants to prove it. The order appealed Rom is reversed, with costs, and the cause remanded for further proceedings.