Brown v. Nevitt

Mr. Justice Handy delivered the opinion of the court. /' This was a bill filed in the southern district chancery'court by James Brown, appellant, against John B. Nevitt, to foreclose a mortgage of real and personal property, executed by Nevitt to Brown, to secure a debt amounting to $32,500 and interest, consisting of several notes made by Nevitt to Brown, one for the sum of $4,833.33!-, two for the sum of $10,833.33! each, all bearing interest at the rate of eight per centum per annum from their date, also two drafts drawn by Nevitt on Samuel Nicholson, agent for Brown, amounting to the sum of $6,000, all — 812 — bearing the same date of the mortgage, and being.'payable at future days. The bill states that the first note and the two drafts had been paid, and claims that there was due on the two notes for $10,833.33a, a balance of principal and interest of about $23,879.60, and seeks a foreclosure. • The answer of Nevitt denies his indebtedness to the amount claimed in the bill, and alleges that the contract sought to be enforced against him is usurious, unlawful, and against the form of the statute in such case made and provided, and was made under the following circumstances: That Nevitt agreed with Nicholson, agent of Brown, that Brown should lend and advance to him the sum of $32,500, on a credit of one, two, and three years, in equal annual instalments, to be secured by mortgage and to bear interest at the rate of eight per cent, per annum from the date of the transaction; that $10,000 of this amount was to be advanced by Brown, by causing a credit for that sum to be entered for Nevitt on the books of the Planters Bank at Natchez, and the sum of $16,500 of the money advanced was to be by a credit-to that amount to be entered for Nevitt on the bopks of the Commercial Bank of Rodney; and the residue of said amount, $6,000, was to be advanced in cash to Nevitt on the 1st of January'thereafter; that the credits were accordingly given on the books of the banks, and the sum of $6,000 was paid in cash, but that although the credits received on the books of the banks were at their nominal amounts, they were, at the time they were received, at a depreciation of twenty or twenty-five per cent, below lawful money; that the notes and mortgage were executed for the credits so given, in part as for a loan and advance of so much money by Brown to Nevitt, and with the intention to require a greater rate of interest than was allowed by our lawsy ■ The answer further claims payments on the mortgage debt to the amount of $21,826.30. During the progress of the case Bacon, Symington & Robins filed their petition claiming to be made defendants, and they were accordingly made parties by an amended bill filed by the complainant. They answered that, subsequent to- the execution of the complainant’s mortgage, Nevitt executed a mortgage to the Planters Bank, for an undivided moiety of all the — 813 — property embraced in the mortgage to complainant, to secure three notes made by him to that bank, which notes and mortgage were in the year 1842 duly assigned and delivered to these respondents; that this mortgage as well as that of the complainant had become forfeited, and that Nevitt was in the possession of the property and receiving the proceeds of the crops ; that the property embraced in the complainant’s mortgage was not more than sufficient to satisfy the same, and that the crops raised by means of the property, pending the suit, are required to pay these respondents’ claim, without which little or nothing would be left to pay it, after satisfying complainant’s prior claim. They pray that their answer may be taken as a cross-bill, and answered by complainant and Nevitt; that a receiver be appointed to take possession of the mortgaged property, and that the crops and annual proceeds may be applied to the payment of the mortgage debts, and the mortgaged property sold, “ and the proceeds appropriated according to law.” To this cross-bill, Nevitt demurred, and by the consent of Bacon, Symington & Robins, the demurrer was sustained to it as a cross-bill, but it was retained as an answer. Nevitt also demurred to the amended bill of the complainant by which Bacon, Symington & Robins were made parties in virtue of their junior mortgage. This demurrer was also sustained, and the amended bill dismissed as to Nevitt, but retained as to Bacon, Symington & Robins. They afterwards filed their petition praying an account to be taken of the amount due them by Nevitt under their mortgage. This application was denied, and an appeal was thereupon taken by them to the superior court of chancery, when the order was affirmed, and thereupon this appeal in part is prosecuted. On the final hearing against Nevitt, the vice-chancellor decreed the payment of the full amount claimed by Brown against Nevitt, and a foreclosure of the mortgage. Nevitt appealed to the superior court of chancery, and a decree was there rendered declaring the complainant’s claim illegal and usurious, reversing the vice-chancellor’s decree, and directing a new account to be taken, charging Nevitt with the actual cash value of the bank credits at the time of the transaction, and with the acceptance — 814 — for six thousand dollars, allowing no interest, but only the principal sum due, and crediting Nevitt with the payments he had made in the transactions. From this decree Brown also prosecutes this appeal. We -will first consider the appeal of Bacon, Symington & Robins. It is first objected in their behalf, that the demurrer to their cross-bill was sustained. But this was done by their consent, and they cannot be heard in this court to object to it. Independent of this, the cross-bill ought not to have been maintained. They certainly had a right to be made parties defendant to the bill of the complainant. As junior 'incumbrancers, in right of their junior mortgage, they should have been made parties, in order that they might have an opportunity to pay oil' the complainant’s prior incumbrance, and to attend to the account to be taken of the complainant’s claim, and see that it was correctly taken. Story, Eq. PI. § 193, 194; 3 Johns. Ch. R. 461; 1 Pa'ige, 286. These rights w,ere secured in their being made defendants to the suit. But they make no offer to redeem, and as defendants, they were entirely competent to attend to the taking the account of the complainant’s claim. They were not entitled to be made parties for any other purpose, and could not be permitted to interpose, without offering to redeem,, and claim a foreclosure of their mortgage under cover of the bill of the complainant to foreclose his prior mortgage, a proceeding not shown to be necessary by any equitable considerations appearing by the cross-bill, one which might produce a collateral litigation between them and Nevitt, with which the complainant had no concern, and tending to hinder and delay the settlement of the complainant’s rights, and to embarrass the litigation as to the defendant. The next objection on their part is, that the court refused their application to have an account taken of the amount due on their mortgage. This course was' undoubtedly proper, for reasons above stated. These defendants were not in an attitude to render it necessary that an account of their claim should be taken. They had not offered to redeem, and were not entitled to demand a foreclosure of their mortgage under the bill to — 815 — foreclose the prior mortgage of the complainant. Their cross-bill had been dismissed with their consent, and the suit stood as a controversy between Brown and Nevitt alone, by which the rights of .these defendants were not affected. It would have been wholly useless, for any proper purpose of the suit, to have an account taken of their claim, and the court below acted properly in refusing the application. But the.principal controversy here arises upon the appeal of Brown, and the question for determination upon it is, whether the transaction between Brown and Nevitt in relation to the bank credits given to the latter is usurious. The main features of the transaction appear to be as follows: — In the spring of the year 1841, Nevitt being indebted to the Commercial Bank of Rodney, and the Planters Bank at Natchez, applied to the agents of Brown to obtain funds that would pay debts to those banks. Negotiations for that purpose were thereupon opened between the parties. Nevitt addressed a letter to Nicholson, an agent -of Brown at New Orleans, dated 23d March, 1841, referring to an application made by him shortly before that to Marshall, another agent at Natchez, in which letter he states his object thus : “ I wish to-pay $10,000 of the debt due you (meaning Brown), by the Bank of Rodney, in one and two years. I wish to buy $15,000 or $18,000 of the Planters Bank bonds at such rate and favor as we may agree on, payable in one, two, and three years ; and lastly, I wish permission to draw on you at twelve months date for five thousand dollars, for which I will give a bond to consign to your house cotton crops,” &c., the whole to be satisfactorily secured by mortgage, &c. To this, Nicholson replied under date 27th March, 1841, stating that he did not exactly understand the proposition, and adding, “ Do I understand you now to propose that you will agree to pay $10,000 of the debt due us by the Rodney Bank, and $15,000 by the' Planters Bank, payable in one, two, and three years, bearing interest the same as the banks have agreed to pay us, say 8 per cent, per annum, and the privilege of drawing on us besides for $5,000 ? ” and the proposition as to shipping crops and executing’ mortgage above stated. He further said: “ As our — 816 — claims on the banks are in the shape of sterling bonds, it might be necessary to have their consent to such an arrangement.” Nevitt replied to this on the 5th of April, 1841, restating his proposition as follows: “ I wish to pay for the Commercial Bank of Rodney, ten thousand dollars of their liabilities 'to you, and get your receipt for the same ; secondly, I wish to buy fifteen thousand dollars of Planters Bank bonds drawn in favor of your house; and thirdly, I wish to have your permission to draw on you at twelve months date for five thousand dollars, the whole payable in one, two, and three years, at such rate as we might agree on,” to- be secured by consignment of crops and mortgage. He adds, “ In your letter, you put the Planters Bank bonds at par; you are aware, I suppose, they are selling now at a considerable discount, and much apprehension entertained of their future payment. I have consulted our mutual friend, L. R. Marshall, and made a proposition which he wished me to submit to you, to reduce the rates of interest on the bonds to half the amount specified, or I will take your offer for the Rodney Bank amount, and change the amount of Planters Bank bonds to ten thousand dollars, and draw at twelve months for ten thousand dollars, the whole secured as before mentioned, payable out of the first proceeds (of crops) in the annual instalments, bearing interest at the rate you propose, say eight per cent, per annum. I make the change as I can buy the Planters Bank bonds greatly below par.” He further stated that he had consulted the banks, and that they were willing to the arrangement. On the 16th of April, 1841, Nicholson replied to this, stating that he had been advised by Mr. Marshall, that “ all would be made satisfactory.” He says, “ I believe we understand each other now fully, with the exception of the amount which you wish to draw on me at twelve months. I must decline coming under acceptance for the present for over $5,000, and you may either make the amount of the Planters Bank $10,000, or $15,000, as you may prefer. So the matter stands thus, if I understand it, that is, first, you assume $10,000 of the Rodney Bank debt due us; second, you purchase $10,000, or $15,000, as you may prefer, of the Planters’ Bank bonds at par; third, — 817 — you draw on me at twelve months for $5,000,” &c. He stated that he had written to Mr. Marshall to close the business with him, &c. On the 4th of May, 1841, Nicholson wrote to Marshall, stating that Nevitt had been at New Orleans, and had made several propositions, which he had declined, and especially that he had tried to be allowed to draw for $10,000, which was positively declined, and he refused to vary his original proposition. He says, “ the business is clearly understood between us thus: $15,000 of the Rodney Bank, $10,000 of the Planters Bank, $5,000 to be drawn for, falling due not sooner than January next, the bank debt to be taken at par, and the whole to bear interest at the rate of eight per cent, per annum, and payable in one, two, and three years equal instalments; ” secured, &c. On the 15th of May, 1841, Mr. Marshall wrote to Mr. Nicholson from Natchez, stating that he had received the letter of the 4th of May, and a previous one, and had closed the business with Nevitt, by taking his notes at one, two, and three years respectively, for the aggregate sum of $26,500, payable at thé Bank of Louisiana in New Orleans, to secure which, and an acceptance in his favor by Brown for $6,000, he had executed a mortgage as agreed on, the whole making $32,500, thus: “ Planters Bank indebtedness $10,000, Rodney Bank indebtedness $16,500, and acceptance $6,000.” The deposition of Mr. Marshall shows, that the transaction was considered as a transfer of the debts due by these banks to Brown for the respective amounts mentioned to Nevitt; that the claims of Brown against these banks were in sterling bonds, some of which witness had in his possession at the time to the amount of $10,000; that these bonds were worth from four to ten per cent, more than the amount mentioned on their face, for difference of exchange; that none of these bonds were transferred to Nevitt, but the transaction between him and Brown was by receipts or checks, drawn by Brown on the banks to the amount for which Nevitt received credit with the banks, and which were used by him in paying his debts to the banks; that the witness passed the sterling bond which he had in his possession at the time of this transaction, amounting to about. — 818 — $10,000, and belonging to Brown, to the credit of Brown with the Planters Bank, on which he had the benefit of the difference of exchange theréon of four to ten per cent. He further states, that Nicholson, in some of his letters to him, speaks of the transaction as a purchase by Nevitt of so much of his claims against the banks, and in some of them he speaks of it that Nevitt was to pay Brown so much of the debts due him by the banks ; and that both these banks were in a state of suspension of specie payments, and that their bonds, above spoken' of, would not have sold for specie at par in the market, at the.time. In a letter from Brown to Nevitt, dated 26th of March, 1842, he speaks of the failure of Nevitt to ship cotton to meet his engagements, “ in accordance with the agreement at the time the loan was made.” It is further shown, that the account of Nevitt with the Rodney Bank was credited on the books with the sum of $16,500, on account of a check for that amount drawn by Nicholson for Brown, and that Brown was charged with the same amount at the same time, both entries being made on the general account of the parties concerned ; that Nevitt was credited on the books of the Planters’ Bank with a check for $10,000, drawn in the same way; that the same amount was charged to the account of Brown on the books; that Brown received a credit on the books of Planters Bank bonds for $10,000, anfd a premium of 8£- per cent., amounting in the whole to $10,874.59. Nevitt received credit for $10,000, and Brown had the benefit of the premium on the sterling bond. These banks were largely indebted to Brown at the time, by sterling bonds or otherwise, on general account on their books; that the issues and bonds of the Planters Bank were at a depreciation of twenty-eight per cent, below specie, and that the paper and issues of the Rodney Bank were at a depreciation of from twenty to twenty-five per cent, below specie at the time. The principal point of controversy between these parties seems to be, whether the transaction, as to the bank credits, is to be regarded as a sale, or a loan, by Brown to Nevitt. It clearly appears that Nevitt’s object was to procure funds that would pay his debts to the banks. He proposed to do so by — 819 — obtaining Brown’s receipt to the Rodney Bank upon the debt due him by that bank, for a specified sum, to be passed to Nevitt’s credit with that bank, and to purchase a certain amount of the bonds of the Planters Bank, to be used to his credit with that bank. As to the former bank, the matter was concluded substantially as proposed; but there can be no pretence that there was a sale of the Planters Bank bonds. On the contrary, the consideration received by Nevitt was passed in the same manner with both the banks, and consisted of a credit given on the books of each of them by means of the receipts or checks given upon them respectively in favor of Nevitt. It was a transfer to Nevitt of so much of the indebtedness of the banks to Brown, and for this consideration he executed the notes. It is not clear from the testimony, whether the transaction was in form a loan or a sale, and it seems to have been regarded indifferently in that respect by the parties. The circumstances attending it characterize it rather as a loan than a sale. But its character in substance is fixed by the actual value received under it by Nevitt, and, subjected to this test, there can be no doubt that the consideration was bank credits; and whether loaned or transferred or sold, it makes no substantial difference. Those credits are shown to have been greatly depreciated below the nominal value at which they were received by Nevitt at the time, that this was known to the parties, and that the notes and mortgage were executed as for the nominal value of the credits. It is shown, that if Nevitt had received par funds, or even the bonds of the bank, they would have been much more valuable to him in his settlements with the banks. He urged the depreciation of the bank bonds which he desired to purchase as a reason why he should obtain them upon just terms, and at their real value. But the agent of Brown insisted throughout, that the credits should be taken at par, and although Nevitt proposed to purchase the Planters Bank bonds to the nominal amount of $10,000, and the agent managing the transaction in behalf of Brown had such a bond at the time, yet that was not transferred to Nevitt, it being worth with the bank $10,874, but was passed to the credit of Brown with the bank to that amount, Nevitt receiving credit for only $10,000 with the bank. — 820 — It thus clearly appears that the consideration advanced by Brown for the notes and mortgage was depreciated bank credits, known at the time not to be of the value at whiph they were loaned or sold; and under the repeated decisions of this court, the contract is usurious. If a loan, it is usurious. Bondevant v. Commercial Bank of Natchez, 8 S. & M. 533; Cook v. Bank of Lexington, Ib. 543; Coulter & Richards v. Robertson, 14 Ib. 18. So if it is a sale. Scott v. Hamblen, 3 Ib. 289; Archer v. Putnam, 12 Ib. 286; Walker v. Meek, Ib. 495. It is insisted in behalf of the appellant, that as these notes were made payable in Louisiana, they are to be governed by the law of that State; and as it is not shown that the contract was usurious by the law of that State, that it cannot be held to be usurious under our laws. This argument would have much force if the objection to this transaction was merely that a rate of interest not permitted by our laws, but allowable by the laws of Louisiana, was clairried or charged bond fide, and not with the view of evading our laws upon the subject; for in such a case, the law of the place of performance of the contract would govern it. But a much more serious objection is raised to this contract. The usury is alleged to consist, not in the stipulation for a rate of interest upon a legal loan not allowed by our laws, though legal in the State of Louisiana, but in loaning or selling depreciated bank securities as if they were worth their nominal value, by means of which an illegal rate of interest and a usurious profit upon the real value loaned or sold would be realized. The objection is, that the consideration of the contract is illegal, because the appellant thereby reserved, as a component part of the principal sum intended to be secured, a usurious rate of interest upon the sum advanced, this being inherent in the transaction, and necessarily governed by the laws of this State, where it was actually done. Such a transaction is held to be prohibited by our laws, as is above shown; and it cannot stand on the same principles with a bond fide agreement made in one place, to be executed in another. We cannot recognize the laws of Louisiana as rendering valid a contract made here and sought to be enforced here, which is prohibited by our laws. The rule in such cases is, that the — 821 — agreement must stand or fall by the law of the place where it was made. Andrews v. Pond et al., 13 Peters, 65; Story, Confl. Laws, 203. Here the'defendant alleges that a usurious interest and profit were intended to be secured to the appellant, by means of the advance of bank credits to the amount of $26,500, as at par, when they were at a depreciation of from twenty to thirty per cent., retaining upon the nominal amount interest at the rate of eight per cent, per annum from the date. And these allegations are sustained by the evidence. It is shown that the appellant’s agent, who conducted the negotiation, was well aware of the depreciation of the bank funds, and of Nevitt’s great desire to procure them; that he would not transfer the sterling bonds, which were somewhat more valuable than the general bank credits, and were the kind of funds which he knew that Nevitt especially desired to purchase, and that he insisted that the bank credits should be received by Nevitt at par; that all the efforts of Nevitt to obtain the funds and advances on better terms were unavailing; that he had to come to Nicholson’s terms, take a smaller advance of acceptances than he desired, take the bank debt at par, and pay interest at the rate of eight per cent, upon the whole amount. These circumstances show that by the giving time of payment on the notes of Nevitt, an interest and profit were intended to be secured, contrary to the law of this State,,and which cannot be carried into execution by our courts^/ It is urged, in support of the legality of this contract, that the credits received by Nevitt answered the same purpose to him as so much cash, because he therewith paid his debts to the banks. If this were correct in point of fact, it would not relieve the transaction from the taint of usury, if the bank credits advanced were not worth in the market the value for which they were passed to Nevitt; for it is held that the character of the contract is not changed by the use the party makes of the depreciated funds he receives. 8 S. & M. 541; 12 Ib. 290; 5 Ired. 698. But it cannot be said that the credit received by Nevitt with the banks was of the same value to him as the loan of par — 822 — funds would have been. The notes and issues of those banks were at a depreciation of from twenty to thirty per cent, below par funds. He had the right by law to discharge his indebtedness to them in their own notes and issues. With par funds he could have purchased in the market their issues at this depreciation, and it is clear that it would have required a much less amount of par funds to purchase their notes and paper, than the sum loaned or transferred to Nevitt. And it is, therefore, manifest that the credits advanced to him with the banks were not of the same value to him as the same amount would have been of good and lawful money. Again. It is said that the appellant parted with his claims agáinst the banks to the amount transferred to Nevitt, and, although they were depreciated at the time, that the issues and credit of one of them, the Rodney Bank, are now at par, and that the appellant would have had the benefit of this, had he not transferred his debt to Nevitt at his solicitation; that it would therefore be 'unjust to cause him to take only the value of his debt at the time of transfer, and lose all interest. This might be a very good argument against the policy of usury laws touching transactions of this character, but it cannot change the law as it is enacted, nor the exposition of it, which is so well settled in this court. If a party sees proper to deal in depreciated money and funds, he must do so at his ■ hazard ; and if he proves to have violated the law, he will not be heard in a court of justice to complain of the hardship. Upon principles of public policy, apart from the moral justice of the case as between the parties to the suit, the plaintiff will not be aided in a court of justice to reap the fruits of his illegal contract, however harshly the loss may fall upon him. The rule in such cases is, Potior est conditio defendentis. Holman v. Johnson, Cowp. 343. But if the Rodney Bank credit had been at par at the time it was advanced to Nevitt, the transaction would still have been usurious, because the Planters Bank credit was depreciated, and the credits with both banks entered into and constituted parts of the contract of the notes and mortgage. And it is well settled, that where the transaction is one entire contract, and it is — 823 — usurious as to a part of it, it is illegal as to the whole; and it follows that, under our laws, no interest can be recovered upon any part of it. Harrison v. Hannel, 1 Eng. C. L. R. 780; Jackson v. Packard, 6 Wend. 415; Fleming v. Mulligan, 2 McCord, 173; 1 Ib. 350; Chitty, Cont. (6th Am. ed.) 707; 7 Pick. 40; 15 Ib. 167; Coulter et al. v. Robertson, 14 S. & M. 18. The decree of the chancellor appears to be in conformity to these views, and it is therefore affirmed.