Walden v. City Bank of New Orleans

BullaRd, J. Two appeals are before us in this case ; the first from a judgment dissolving an injunction granted at the inception of the suit, and the second from a judgment of nonsuit, rendered upon sustaining a peremptory exception. Our attention, for the present, will be confined to the last; for, if the exception is to be sustained, the injunction falls as a necessary consequence. The action was brought, to cause to be annulled and rescinded, a contract of loan, secured by mortgage, on the allegations; That the contract was contrary to, and in violation of the charter of the City Bank, it having been entered into with a view to obtain a higher rate of interest than the charter permitted, and was, consequently, usurious. That, although it is stated in the written contract, that the loan was made in good current money, yet that, in truth, no money was given, but one hundred and thirty-eight bonds of the Second Municipality of New Orleans, of one thousand dollars each, were given to the plaintiff, which, together with a debt previously due by him, formed the only consideration of the mortgage ; and that said bonds were given to disguise the profits made by the Bank. That the bonds were taken at par, although greatly depreciated, and that the Bank had paid the Municipality only at the rate of $800 for a $1000. The plaintiff, on these allegations, avers the nullity of the contract and the mortgage. He, therefore, prays for a judgment declaring null and void the contract and written obligations, and for general relief; and for an injunction to restrain the City Bank from proceeding, pendente lite, to enforce their mortgage. The defendants filed a peremptory exception in the nature of a. [178] demurrer, to wit, that the petition contains no cause of action against the Bank ; and that the plaintiff has no right in law to demand that the several bonds and mortgages referred to in his petition should be rescinded, or declared null and void, without returning or offering to return to the defendants, the one hundred and thirty-eight bonds of the Second Municipality, with all the interest collected on the same, and the several pre-existing evidences of debt and acts of mortgage, which, by the confession of the petition, the said Walden received from the defendants, in consideration of the bonds and mortgages now alleged by him to be void. This exception presents the question, whether, admitting as true all the allegations in the petition, the plaintiff has shown a sufficient cause of action, and has entitled himself to a rescission of his contract with the Bank. The charge is, substantially, that having effected a loan of the Bank, the plaintiff was induced to take a large part of the sum, to wit, $138,000, in bonds of the Second Municipality, at par, bearing interest at six per cent, in lieu of money; and that the Bank had taken the same bonds at a discount of twenty per cent, thereby making a profit of more than eight per cent, the rate of interest and discount allowed by their charter, contrary to the charter itself. It is not pretended that the transaction is tainted with fraud, nor that there was any material error or want of consent. The only ground of nullity alleged is, that the plaintiff took, at par, certain stocks then depreciated in value, and that the contract was usurious. If this were an action against an individual, instead of a bank, we do not see upon what ground the plaintiff could hope for relief ; for, even admitting that the contract was usurious, it would not follow that it could be annulled in toto. In this respect our law is supposed to differ from that of the states governed by the common law. Here the contract is voidable, only so far as it concerns the interest, and is valid for the principal. The argument, therefore, that the contract is null, because prohibited by law, is not sound; because the prohibition goes to the usury only, and not to the sale of the stocks, with a warranty by endorsement. It is not alleged in the pleadings that the Bank is forbidden by its [179] charter to buy 0:5; sell stocks ; but the plaintiff demands that the contract should be wholly annulled. The circumstance, therefore, that one of the contracting parlies is a bank, does not materially alter the case. -Even supposing that the exaction, in any case, of usurious interest, contrary to the prohibition of the charter, would amount to a sufficient ground for a forfeiture of the charter, and that an individual has the legal capacity to demand such forfeiture, yet it has not been done in this case. The contracts of banks, so far as they are valid and lawful, like those of individuals, may be enforced by an action at law; and no law of this state declares the forfeiture of the principal loaned, where a higher rate of interest has been stipulated fox-, than the law permits. We have heretofore considered the case in the light most favorable to the plaintiff, to wit, that the contract was tainted with usury. Whether it was so or not, it is not now our duty to pronounce ; because we are called upon to decide upon the exception alone, which denies that the petition discloses any sufficient legal cause for the rescission or nullity of the contract, which the plaintiff seeks to avoid. But it may be remarked, that the bonds of the Second Municipality, which the plaintiff alleges were received by him as cash, aré payable many years hence, and bear interest at six per cent, and.were endorsed by the' Bank. If, at the time of payment, the full amount should not be paid, the Bank is ob-. viously liable, as transferrer, to make up the defalcation ; and if, before their maturity, the plaintiff has chosen to dispose of them, he has not yet any recourse upon the Bank. It is not alleged that there was any fraud in- the transaction, nor does the plaintiff set forth any facts from which such fraud could be inferred as would vitiate the contract, independently of the alleged usury. But it is further set forth in the exception, that the plaintiff has not made an indispensable averment in the petition, to wit, his readiness and ability to restore the bonds, and the interest received. It is quite manifest that there can be no rescission of a contract, without placing the parties in the situation they were in before the contract was entered into. It would be absurd to rescind a sale, for example, without restoring the price. This principle has been often recognized by this court, in relation to one class of ac [180] tions of rescission, perhaps the most frequent in our courts, to wit, those of redhibition. The word itself implies, the replacing of the parties in the position they were in before the. contract. It is ‘now settled in this court, that such an action cannot be maintained without an offer to make restitution. 2 Mart. N. S. 466. 4 La. 198. 19 La. 283. The authorities principally relied on by the counsel for the plaintiff, are drawn from the common law, and are cases under usury laws which make the whole contract void. The court, in our opinion, did not err in sustaining the exception, and dismissing the suit. The same reasoning applies to the motion to dissolve the injunction, which was based upon the same grounds. But the court below erred, in our opinion, in giving judgment against the principal and sureties, on the injunction bond, for damages, according to the-act of 1831. The defendants should have been left to their remedy on the bond, inasmuch as the execution of a judgment was not enjoined. Morgan v. Driggs et al., 17 La. 176. 19 La. 396. It is, therefore, ordered and decreed, that the judgment of the District Court, sustaining the exception and-dismissing the suit, be affirmed with costs ; but that the judgment dissolving the injunction with costs, be affirmed as to the dissolution, and reversed as to the damages recovered against the plaintiff and his sureties, reserving to the defendants their recourse upon the injunction bond; and that the costs of the two appeals be paid by the ap-pellees respectively.