McAllister v. Smith

Scates, G. J. The correctness of the order, striking the second and third pleas from the files for immateriality, depends upon the proper application of the principles of the law, which entered into and became part of the contract, within the intent and meaning of the parties. For the lex loci contractus, and the lex loci contractus rei sitce, when, respectively applicable, enter into and form part of every civil contract, respecting rights of property, in things, and choses in action, and so of lex domicilie, respecting mere personal contracts, such as marriages, &c. This is the general rule, and apparently of great simplicity in the abstract. Its application however, under certain states of facts and circumstances, becomes exceedingly difficult, and is left inextricably confused, by the authorities. The rule, when properly understood, has its apparent substitutions as well as exceptions. The case before us, as made by the pleas, is an instance of the former. The contracts were made in this State, and the laws of this State would, had the parties been silent, have become part of the contracts for the construction and meaning of the parties, in ascertaining and fixing their mutual rights and obligations. But parties may substitute the laws of another place or country, than that where the contract is entered into, both, in relation to the legality and extent of the original obligation, and in relation to the respective rights of the parties, for a breach or violation of its terms. This I call a substitution of the laws of another place or government, for those of the place of entering into the contract, and which is noted by the authorities as an exception to the general rule. This is allowed in all civilized countries, and recognized as part of the jus gentium, or law of nations, respecting private and personal rights, and in all cases, where the subject matter of the contract is not malum in se, immoral, or contrary to the local policy, or dangerous to the peace and good order of the particular community, in which it is sought to be enforced. When parties seek to enforce such obligations, in the courts of the country, whose laws have been adopted as those of the contract, it presents only an ordinary case of jurisdiction to the court, over a contract made under the same laws of the forum, and by parties within its jurisdiction. But when the enforcement of the contract is sought in the courts of a country, governed by a different rule than the local or adopted law of that contract, the law governing it has no force or obligation ex proprio vigore, in that forum, but ex comitate, under the general public law, the court will enforce it, giving extra territorial effect, to the laws of another government, where it is not dangerous, inconvenient, immoral, nor contrary to the public policy of the local government. Where the legislature does not define and prescribe the extent of this comity, it must be declared by the courts in each case, governed by precedents, under the general public law. On examining these, we find numberless cases, with great uniformity, sanctioning the enforcement of contracts made under and sanctioned by the laws of another State, which are not allowed by the laws of the State where suit is brought, or where a different rule prevails. Thus we find the marriage contract, legally solemnized or dissolved, under one jurisdiction, respected and enforced in another, under whose laws neither the obligation, nor its rescission would have been allowed. And so of the sale of lottery tickets and conduct of lotteries. So it is in relation to express or implied contracts for interest on money. Any rate per cent, sanctioned by the laws of the place where the contract is made, or by the substituted laws of the place where it is to be performed, or paid, will be recognized and enforced in the courts of other governments, whose laws would make such rate usurious. But there is a jealous vigilance of the courts to detect evasions of the usury laws, and when discovered, courts will withhold any aid to those who make foreign contracts a pretence for exacting usury at home. The following authorities fully sustain the principles I have laid down. Story Confl. Laws, Secs. 241 to 246, 280 to 282, 299, 304, note 1, 304a, 305, 311a and note, 312; 2 Parsonson Cont. 94, Sec. 5; 2 Kent Com. 457 to 461 and notes; Byles on Bills (marg.) 314 to 318; Andrews v. Herriott, 4 Cow. R. 510 and note (a), which contains a good summary on this subject. Sherman et al. v. Gassett et al., 4 Gil. R. 523; Robinson v. Bland, 2 Burr R. 1077; Van Schaick v. Edwards, 2 John. Cas. 355; Thompson v. Ketchum, 4 John. R. 287; S. C. 8 John. R. 192; Fanning v. Consequa, 17 John. R. 516; Sherrill v. Hopkins, 1 Cow. R. 105; Commonwealth of Kentucky v. Bassford, 6 Hill 528; Jacks v. Nichols, 1 Seld. R. 183; Cox and Dick v. United States, 6 Pet. R. 198; Andrews v. Pond et al., 13 Pet. R. 77; Reimsdyk v. Kane et al., 1 Gallis C. C. R. 374; Harman v. Harman, 1 Baldw. C. C. R. 130; Bainbridge & Co. v. Wilcocks id., 537; Pecks et al. v. Mayo Follett et al., 14 Vermt. 36. In Pecks et al. v. Mayo Follett et al., the contract fixed a time and place in Albany, New York, for the payment of the note made in Canada, but no rate of interest was specified. The court assumed or presumed from the place of payment that the parties intended to adopt the laws of New York, in reference to the rate of interest, and accordingly gave seven per cent. And this rule seems to have received the common sanction of American and English courts. See 2 Kent Com. 460, 461 and notes. I do not regard the case of Depan v. Humphreys, 20 Mast. La. R. 1, as in conflict with the authorities, but sanctioning fully the right of the parties to fix upon the higher rate of interest, where the contract is made in one, and to be executed or paid in another State. The case before us is precisely like the case in Vermont, in reference to interest, and what laws should govern the contract, except that there the facts were found, here they are averred by the pleas, which also insist, that the interest taken was usurious, and therefore, the statute of New York makes void the contract. With the consequences we have nothing more to .do than to declare the effect of the law, upon the contract, when it is admissible to administer its provisions in our courts. This court has properly declared, it would not administer the mere penal sanctions of a foreign law by forfeitures. 4 Gil. R. 523. But when by those laws the contract itself is void there, it is void here and everywhere, and this court will not enforce here, even though it might have been valid if made under our law. This principle is, I believe, without exception. Such is the case presented by the pleas, which presented a good defence to the bills of exchange, if true, and the plaintiff should have been allowed to make and insist upon his defence under them. The court erred in striking them from the files, as immaterial. The notarial certificate of protest is not evidence of that fact, as was ruled in Bond v. Bragg et al., ante, p. 69, and Kaskaskie Bridge Co. v. Shannon et al., 1 Gil. R. 15, in relation to inland bills. In revising the ruling of the court below, in excluding McAllister, the drawer and acceptor, for incompetency, we must keep in mind that there is a distinction between the law of the contract and the law of the forum. The former will be enforced in our courts as entering into and forming part of the contract of the parties, with the exception that if those laws operate criminally or penally upon the parties, our courts are under no comity to enforce them in this respect. Sherman et al. v. Gassett et al., 4 Gil. R. 523. But where the law makes the contract void there, it will in like manner make it void here. But in administering this measure of relief, we do it through our own forms of action, according to our own rules of evidence, and pursuant to our own rules of practice. By these must the disclosure óf the fact of usury be made and the defence sustained. Our law has ever condemned usurious interest. It does not, however, avoid the contract, but forfeits three-fold the amount of usurious interest. Still, this forfeiture is inapplicable to a contract made under and governed by the laws of another State. If, however, we do not, in the true spirit of the law’s repugnance to usury, apply the rules laid down for discovery of its own violations, to the discovery of like violations of the usury laws of other States, when sought to be enforced in our courts, we shall be left without any rule especially applicable to this class of cases, not equally applicable to all. My present impressions are,'that the witness is expressly made competent by the seventh section of chapter, 54, Rev. Stat. '45, p. 295. Its language is broad and general, embracing the real actors in the usurious transaction, with a view to a full disclosure, whenever the fact of usury is put'in issue by the pleadings. The tenor-of the act does not confine the rule given, to violations of our own laws, but enlarges it to the “ fact of usury” being “ put in issue ” “ by the pleadings.” Foreign usurers shall find no greater facilities for concealment of their practices, than domestic ones, if resort be had to our courts for remedies, to extort the excess. I understand the rule given there, as a general one for the detection of the fact, by the oath of the debtor, upon whom the usury has been practiced without regard to the time, place, or laws violated by it, restricted only by the fact, that the creditor be still living, and who also may be heard on oath as a witness to this fact. It is further noticeable, in confirmation of this view of our own statute, that different courts in the different States have pressed the policy of the usury laws as proper exceptions, to the rule laid down by Lord Mansfield in Walton v. Shelley, 1 Term R. 296, even should the rule be adopted. Taylor v. Beck, 3 Rand. R. 323, 324; Stump v. Napier, 2 Yerg. R. 37. I must regard that policy of the law for detection and prevention of usury, introduced by recent statute regulation, as paramount to the supposed policy of protecting negotiable paper, by denying the competency of the maker or indorser, to impeach the consideration or validity of notes signed by him. And this brings me to the consideration of the general rule, without respect to the statute rule. The rule was laid down in Walton v. Shelley, generally, excluding as incompetent any original party to any contract, which he had signed, to impeach its validity. The general proposition was denied in Bent v. Baker, 3 Term R. 27, by Lord Kenyon; and Mr. J. Buller, who concurred in laying down the rule, qualified and confined it in this case to negotiable instruments. Afterwards, in 1798, the case was expressly overruled and denied to be law, by the court of King’s Bench, in Jordaine v. Lashbrook, 7 Term R. 602, in which Mr. J. Lawrence, concurring in overruling Walton v. Shelley, treated usury, gaming and infancy, as exceptions, even should the rule be recognized. It was expressly so ruled in Smith v. Prager, 7 Term R. 56, in a case of usury. But the Supreme Court of the United States,_ in The Bank of the United States v. Dunn, 6 Pet. R. 56, adopt the rule in Shelley’s case, as applicable to negotiable notes. Although the remarks of the court are general, the facts of the case, in 6 Pet. R. 56, show a proper case for the application of the rule in Shelley’s case, and upon a further distinction upon which some of the States adopt and apply it; and that is to exclude the witness in cases where negotiable instruments have been actually negotiated, and are in the hands of bona fide holders, in the due course of trade. See Pennsylvania cases cited below. Such was the case in 6 Pet. R. 56. So should be understood my approval of the rule in Lyon et al. v. Boilvin, 2 Gil. R. 637, where I noted one, but did and could not note every exception and distinction to it as a general proposition. I intended to refer to this case in 6 Pet. R. 51, 57, but it was printed as the 9 Pet. by mistake. There is some reason, justice and policy in support of the rule excluding the maker or indorser of negotiable paper, when he comes to impeach it, after negotiation, in the hands of the innocent purchaser; but this reason will not apply to protect the original parties, while it remains in their hands, or is sued on merely for their use and benefit. There are many and irreconcilable decisions in the different States. Most of the courts, if not all, have adopted the rule, with qualification, in Bent v. Baker, confirming it to negotiable instruments; and others alone, to those actually and bona fide negotiated. See 1 Greenl. Ev., Secs. 383, 384, and note 1, of last section; 6 Ohio R. 246; 14 Ohio R. 487; 17 John. R. 176; 11 Pick. R. 416; 1 Metcalf R. 416; 2 Dallas R. 196; 2 Binney R. 165; 4 Serg. & Rawl. R. 397. The Pennsylvania rule confines it to negotiated instruments, which were commercially negotiable; and só I might understand the rule in Massachusetts from the cases of Churchill v. Suter, 4 Mass. R. 162; and Fox et al., admrs., v. Whitney, admr., 16 Mass. R. 120. On the contrary rule, I have referred to 3 Rand. R. 316, and would add 3 Grattan R. 90, which appears to be a naked judgment the other way. Connecticut repudiates the rule. 1 Conn. R. 265. New Jersey—2 Harrison R. 194. . New York admits the competency of the witness, overruling Winton v. Saidler, 3 John. Cas. 185, by Stafford v. Rice, 5 Oowen R. 23, (see id. 153 ; 3 Wend. R. 416,) and they hold expressly, that the maker is competent to impeach it for usury. Tuthill v. Davis, 20 John. R. 285; Bank of Utica v. Hillard, 5 Cow. R. 153; Truscott v. Davis et al., 4 Barb. S. C. R. 495. The authorities are too numerous to pursue them further. I have presented enough to show and sustain the exceptions and distinctions taken, and, I think, to sustain the rule adopted by this court, as embracing all that is demanded by public policy in maintenance of commercial credit; and yet, without trenching upon that other rule of public policy, adopted by positive legislation, to detect and prevent usury, and a similar one to avoid gaming contracts, in the hands of assignees, and judgments and conveyances given in violation of the act. Rev. Stat. 1845, p. 263, Cap. 46. There being a release of plaintiff here, as acceptor, to the witness as drawer, we are of opinion he was competent, while the security remained in the hands of the original party, to prove the fact of usury, independent of the provisions of the statute. Judgment reversed and cause remanded. Judgment reversed.