Bandel v. Isaac

Le Grand, C. J., delivered the opinion of this court. This was an* action instituted in the Court of Common Pleas of Baltimore city, by Isaac, the holder, against Bandel, the drawer, of a promissory note, to recover its amount. At the trial below there was full and unquestioned proof of the making and endorsement of the note. Under the plea of non assumpsit the defence relied upon was that of usury, and none other. To that objection we address ourselves, and, as • this is a matter which concerns the daily transactions and dealings of men, we will be as plain and brief as the nature of the inquiry will allow. If the defence in this case be at all available, it must be because of the language of the Constitution. In the 49th section of the 3rd article of the Constitution is the following: “The rate of interest in this State shall not exceed six peícent. peí' annum, and no higher rate shall be taken or demanded, and the Legislature shall provide, by law, all necessary forfeitures and penalties against usury.” Were it not for an opinion pronounced by the judges of the Circuit Court of the United States, for the district of Maryland, in the case of Dill vs. Ellicott, we would experience but little, — 219 — if any difficulty, in determining tiie true import of the constistitutional provision. Our high respect for the judgment of the learned judges who gave that opinion, has called upon us to weigh most carefully the reasons given in its support, and to review with the strictest scrutiny our own opinions in regard to the matter. The more we have reflected on the subject, the more thorough has been our conviction, that the rule laid down in Dill vs. Ellicott ought not to be accepted in this State, as the proper interpretation of the Constitution in this particular. The theory, on which rests the decision to which we have adverted, is simply this: that the taking of more than six per cent, interest, for the use of money, is usury, and therefore prohibited by law, and, as a consequence, any contract which reserves or authorizes the taking of more than six per cent, is wholly void, and, on grounds of public policy, incapable of being enforced by our courts. To this general proposition, to our minds, there are substantial and unanswerable objections. The effect of the decision of that court is, that a contract providing for the payment of more than six per cent, is not simply void as to the excess, but void entirely. The only authority adduced in support of this view is, the case of the Bank of the United States vs. Owens, 2 Peters, 527. In that case, by a bare majority of the court, it was held, that under the charter of the bank a contract, by which more than six per cent, was to be paid, could not be enforced, and that although such contracts were not, in ivords, by the charter, pronounced void, yet the policy of the law made them so in fact, and worked a forfeiture of the money loaned. In that case it was also held, that ‘‘reserving’” was the-equivalent to “taking.” When the same case again appeared before the same court, this was declared to be error, and the distinction between the two clearly pointed out in the opinion of Justice Story. The “reservation,” says he, “of usurious interest makes the contract utterly void; but if usurious interest be not stipulated for, but only taken afterwards, then the contract is not void, but the party is only liable to the penalty for the excess.” 9 Peters, 399. This decision also established, that the transaction which — 220 — bad been formerly declared to be usurious and void was free from all taint; and whilst the court does not, in terms, overrule the doctrines of the decision in 2 Peters, yet, in explanation of them, places it upon the ground that the case came before the court on a demurrer which admitted the transaction to have been “unlawfully, usuriously and corruptly entered into.” With this notice of it, the court then declare, that they “deliberately adhere” to the doctrine of Fleckner vs. The Bank of the United States, 8 Wheaton, 354. In that case it is said: “The statutes of usury of the States, as well as of England, contain an express provision, that usurious contracts shall be utterly void; and without such an enactment the contract would be valid, at least in respect to persons who were strangers to the usury.” Now this language was held as applicable to a clause in the charter of the bank, which declared: “That the bank shall not be at liberty to purchase any public debt whatsoever, nor shall it take more than at the rate of six per centum per annum, for, or on its loans or dividends.” It is this clause in the charter which the court examined in the case in 2 Peters, and on the interpretation of its import there given, the case of Dill vs. Ellicott was decided by the Circuit Court for the district of Maryland. If the decision of Fleckner vs. The Bank of the United States is, as was said in 9 Peters, to be adhered to, it follows, the interpretation given in 2 Peters cannot be maintained, for it is in direct conflict with it. Whatever, therefore, might have been' the force, as authority, of the case in 2 Peters, it has ceased since the decision in 9 Peters, where it is substantially overruled, and its opposite, the doctrine of 8 Wheaton, set up, and which, we think, is conclusive of this case, it being, in our judgment, in conformity with the decisions of most of the different States, and in conformity with good reason. The court say: “The taking of interest by the bank, beyond the sum authorized by the charter, would doubtless be a violation of its charter, for which a remedy might be applied by the government, but as the act of Congress does not declare that it shall avoid the contract, it is not perceived how the original defendant could avail himself of this ground to defeat a recovery.” — 221 — If this be sound law, and we shall presently proceed to show that it is, why should a different interpretation be given to the 49th section of the 3rd article of the Constitution of Maryland? It “does not declare,” that a contract exacting more than six per cent, shall be void, any more than did the clause in the bank charter. So far from it, it is plain to us from the very words of the section, that its purpose was, first, to fix and establish a certain legal rate of interest; second, to leave-it with the Legislature to provide, “by law,” what amount and kind of forfeiture and penalty should be suffered by, and imposed upon, those who should take or demand more than six per cent. The thing forbidden by the Constitution, is the taking or demanding a higher rate of interest than six per cent.; it is not forbidden to take or demand that or a lesser rate. The thing forbidden is the excess and nothing else, and that is what is illegal and void, and it is within the province of the Legislature to punish this illegality by forfeitures and penalties. Whilst the Constitution makes it competent to the Legislature, “by law,” to forfeit the whole, or any part, of the money loaned, and, in addition, to impose a penalty, yet, until it does exercise this office, all that is “avoided” by the Constitution is the excess beyond the six per cent. Prior to the present Constitution, the legal rate of interest depended upon the legislative pleasure, to be changed whenever it seemed expedient. The framers of the Constitution thought it best to deprive the Legislature of this discretion, and therefore fixed the rate in the Constitution, but continued to the Legislature the power of determining the forfeitures and penalties. By the act of 1704, ch. 69, see. 1, it was provided, that no person or persons, whatsoever, should “exact or take, directly, for loan of any moneys,” &c., at a higher than a certain rate specified in the section. This language is certainly as strong as that of the Constitution, and yet the Legislature that passed that act did not suppose that if a higher rate was exacted or taken, the contract was therefore avoided because of this declaration, and accordingly, therefore, went on, by the second section of the act, to make all such usurious contracts void. — 222 — 'and, by the third section, to provide forfeitures and penalties for the making of such contracts. The power exercised by the Legislature, in the passage of the second and third sections of the act of 1704, is the same as that which it is authorized' to exercise by the 49th section of the 3rd article of the Constitution. If, as is the case, the Legislature has not provided, “by law,” forfeitures and penalties, the courts cannot usurp the authority which the Constitution has, in express terms, empowered it to exercise. If the framers of the Constitution understood that the mere fixing in that instrument the legal rate of interest, per se, avoided the contract, they would not have confided to lhe Legislature the power to provide, by law, “forfeitures,” for in that case there would be nothing to forfeit, and they would have simply directed the Legislature to provide a penalty. We must presume, that the convention which framed, and the people who adopted, the Constitution, understood what was the previous state of the law on the given subject, and that they were aware of the fact, that whatever may have been the view entertained in times gone by, in England and elsewhere, as to the sinfulness of taking interest, that here, in Maryland, both the Legislature and courts held it lawful and proper to do so to a certain rate, and beyond that as only malum prohibitum, and not as morally wrong in itself; that they considered it but little, if anything, short of immoral, for a. person to avoid his solemn promise to refund what he had actually received of another’s money. They could not have been uninformed of the existence of the act of 1845, ch. 352, which made it incumbent upon any one claiming to avail himself of the provisions of the act of 1704, specially to plead and set out, .both principal and interest actually and fairly due, and that even when this should be done, the party so pleading was made liable for the principal and interest actually due; and if not ignorant of this, it is impossible to believe, they could have intended to repeal this act by indirection, when it was so easy to have done it in plain words. The very fact of not having done so, in such a manner, is conclusive evidence, to our minds, that they never intended to do so, but designed to leave that subject to the Legislature, — 223 — And inasmuch as a repeal of a law is not to be unnecssariiy inferred, and as the third section of tire BiJl of Rights continues in force “all acts of Assembly in force on the first Monday of November, eighteen hundred and fifty, except such as may have expired or may be altered by this Constitution,” we conclude, (the Legislature not having done so,) that the act of 1845 is still in full force, subject “to the revision of, and amendment or repeal by, the Legislature of this State.” In construing a Constitution, we must take into consideration the circumstances which attended its adoption, and what appears to have been the understanding of those who endorsed it with their approbation, keeping always in view the proper office of a Constitution, which is, to declare general rules and principles, and to leave to the Legislature the duty of preserving or enforcing them by appropriate regulations, penalties, &c.; and, also, that the words in such an instrument ought to be taken in their ordinary and common acceptation, because they are presumed to have been so understood by the framers, and by the people who adopted it. State vs. Mace, 5 Md. Rep., 351. Manly vs. The State, 7 Md. Rep., 147. Groves vs. Slaughter, 15 Peters, 449. Now if the people of Maryland had been accustomed, and their courts had regarded the statutes on the subject of usury as importing a certain thing, whenever the same or equivalent words are employed in a subsequent Constitution or statute, the presumption of law is, that they are used in the same sense. Duramus vs. Harrison & Whitman, 26 Ala., 326; Ruckmaboye vs. Mottichund, 32 Eng. Law & Eq. Rep., 84. And, as was correctly said by Justice McLean, in McLean, Assignee, vs. The Lafayette Bank, et al., 3 McLean, 613, if it be “admitted, that where a contract is made in violation of a statute, or of the policy of the law, it is void. And that a usurious contract in Ohio is not only against the statute, but in violation of the policy of the law. But the law seems to be well settled in this State, that usury constitutes an exception from the general principle; so that the contract is only void for the excess of interest. Other States have construed their laws against usury in tire same way. Now, whethe,. — 224 — this construction be right or wrong, is a matter of no importance; it is the law;” so we say, that even were it conceded,(although we deny it in fact,) that, the general understanding, in this State, of the meaning and office of the first section of the act of 1704, was erroneous, yet it is the law, and in construing our Constitution, we must construe it as a question of intention in the adoption of it by the people, to be collected from the.whole scope of the provision itself, considered in' connection with the anterior and then existing laws on the particular subject. 12 Howard, S. C. Rep., 80. Here we have a clause in our Constitution forbidding the demanding or taking more than six per cent, as .interest, with an authority to the Legislature to provide, “by law,” in the way of forfeitures and penalties, what shall be the punishment for demanding or taking more; and in such a case the rule is settled by the case just cited from 12 Howard, that on a whole view of the prohibition, and accompanying provision for regulations in regard to the thing prohibited, that the contract is not avoided by virtue of the prohibition, but by the regulation which expressly declares it to be so. This case, whilst it admits-some diversity in the decisions on the subject, is a sufficient answer to most of the cases cited at the bar by the appellant’s counsel. We might, if we deemed the occasion to require it, multiply authorities to almost any extent in affirmation of the views we' have stated, but we think we have referred to a sufficient number, and shall, therefore, content ourselves with a brief recapitulation of the points of this decision. 1st. We hold, that the 49th section of the 3rd article of the Constitution does not, of itself, make void, in whole, a contract demanding or exacting more than sir per cent, interest. It merely fixes the legal rate of interest. 2nd. That it is for the Legislature, by forfeitures and penalties, to make the contract void, either in whole or in part, as to it may seem best, and by penalties, punish the party or parties making such a contract. 3rd. That until the Legislature shall, “by law,” provide the necessary forfeitures and penalties, the act of 1845, ch. 352, remains in force. — 225 — (Decided March 16th, 1859.) Wo hold the act of 1845, with the exception of its 5th &, 6th sections, to be nothing more than an act relating to the remedy, that is to say, it prescribes the mode in which the party seeking to avoid any part of a contract, on the ground of usury, shall bring such defence to the notice of the court. Until he does bring such defence to the notice of the court, in. legal contemplation, it has no existence. If, however, it should be deemed expedient to adopt any other mode, it is for the Legislature to provide it. From these it follows, that the judgment of the Court of Common' Pléas must be affirmed, each and all the prayers offered by the defendant being in conflict with the view we have taken, and were, therefore, properly refused. Until the Legislature shall otherwise order, an action may be maintained on a contract on which was demanded or taken more than six per cent, interest; and if the defendant desires to rid himself of liability for the excess beyond the six per cent., he must specially plead and set out what is actually and fairly due on the contract; unless he does so, he will be responsible to the extent of the face of his contract. In further support of this opinion, we refer to the following cases: Groves, and other, vs. Slaughter, 15 Peters, 449. Bank of Chillicothe vs. Swayne, and others, 8 Ohio, 280, 281. Hynes vs. Cobb, et al., 2 Louisiana Annual Rep., 363. 2 Dallas, 92. Judgment affirmed.