Moncure v. Dermott

Mr. Justice McKinley delivered the opinion of the .Court:— This cause is brought before this Court upon a writ of error, to the Circuit Court of Washington county, in the District of Columbia. The plaintiffs brought suit against the defendant, in the Court below, upon a covenant executed by the defendant as jfollows: “Whereas Mary James has executed her bond or note* dated the 28th day of November, 1828, payable to me on deinand, for the sum of twenty-six hundred and twenty dollars, which said bond or note was merely loaned to me for the purpose of raising money .upon; and whereas 1 have since the execution of said bond or note assigned it to Philip Alexander, of Fredericksburg, for value received Of him; I do therefore hereby bind myself, my heirs, executors and administrators, to pay and discharge the said bond or note, with all interest that may accrue thereon, whenMhé same shall be-, come due and payable. Given under my háhd and , seal, this 12th day of August, 182.9. Ann R. Dermott.” [seal.] To. this suit the defendant pleaded non assutnpsit, with leave to give usury in evidence, . At- the trial it was proved that.the testatrix became principal in a bond .to Thomas Poultney and Son, of .Baltimore, bearing date the 31st day of March, 1826, for the sum of three thousand six hundred and thirty-three dollars* it being for. the payment of a debt, due by the defendant* who also signed thé bond, payable on the 23d day of November, 1828; and that the testatrix executed a deed'of trust, upon her land and negroes, to secure and save harmless Wijliam C. Beale, John Moncure, and Thomas Ledden, who had become, sureties to said bond, at the request of the. testatrix: and that the reason why she gave her own bond. for the debt ,of the defendant w.as*bécause the defendant could not give satisfactory security to the sureties ;■ that in the spring of the year 1828 the defendant applied to John Moncure, to aid her in borrowing money to pay off the. bond to Poultney and. Son, who- informed her that he did not believe that money could be - borrowed in Fredericksburg at legal interest; and advised her to procure the -note of the testatrix, who was her aunt, and sell it in the market.- Several conversations took place between that time and the next November, between Moncure, acting as agent of the defendant, and Philip Alexander, of Freder-icksburg, in relation to the sale of a' bond, or note of the testatrix; when, finally, Alexander agreed that he would buy the bond, pro-' vided he could make at the rate of twelve per centlim a year upon his money, and obtain security for its final payment.by a deed of trust upon the land pnd negroes of the testatrix. While these, négotiatiohs were pending, the testatrix addressed a letter to Alexander, dated the 25th of November, 1828, in which she stated that her *351 niece, the defendant, had. informed her that she intended selling and assigning to him the bond of the testatrix for $2880, payable on: demand, and proposing, if he would give her time for the payment of the money, she would give a deed of trust upon her land and negroes, to secure its payment. These negotiations were protracted until the money to Poultney and Son was so nearly due that there was not time sufficient to complete the' arrangements in relation to the bond and security; and Alexander agreed to. advance the sum. required, $2340, upon an undertaking, on the part of Moncure and Beale, that they would refund the money to him if the defendant failed to assign the bond, and the testatrix to execute the, deed. On the 1st of December,'1828, the defendant assigned to Alexander the bond of the testatrix for twenty-six hundred and twenty dollars; and, on the 10th day of the same month, the testatrix executed the deed of trust, in which it was stipulated that the bond was to be paid at the end of two years, with legal interest. During all this time the-testatrix and the defendant lived togethér ■ in Virginia, some distance from Fredericksburg. The defendant afterwards removed to Washington, where she resided when this suit was commenced. From the month of April, 1831,to-the month of May, 1832, she made several payments to Alexander .on !the bond; and, by letters to the testatrix, expressed her anxious desire ■ to pay it off, that the testatrix and her property might be released from further responsibility on her- account. After the death of the testatrix Alexander put the bond into the hands of the trustee, with directions to sell the trust property, unless, within a reasonable time, the plaintiffs paid the balance due. The plaintiffs prayed the Court to instruct the jury, .that it is not' competent for the defendant in this action to deny by plea or otherwise, the validity of the note of 28th November, 1828, recite^ in the. covenant on which this suit is brought, and that she is estopped from setting up in this • action any alleged usury, as affecting the validity of said note; that the plaintiffs are entitled to recover in this action the sums which the jury are satisfied from the evidence were paid by the plaintiffs to Philip Alexander, on the bond dated 28th November, 1828; unless the defendant proves to the jury, that before such payments the plaintiffs were notified that the bond of 28th-November, 1828, was tainted with usury, and instructed to dispute the same; which the Court refused. And then further prayed the Court to instruct the jury as follows: that if the jury should believe from the evidence, that the note of Mary James to the defendant, assigned by Alexander, dated 28th November, 1828, was made on an usurious agreement entered into between said defendant and said Alexander,but that the plaintiffs had no knowledge of such usury at the time they were called upon to pay the balance due on the note, nor at any time before, and paid the same under the belief that the same was bona fide due, and without any knowledge that there was any objection to the validity of said note; and without any notification or communication from the defendant,-then the plaintiffs *352 are erititléd to recoverunless the jury should be satisfied from the evidence, that the said Mary Jamés knew of the said usurious agreement, under which the said note was given and assigned , as aforesaid: which the Court also refused. And further prayed the Court as follows: that if the jury should believe from the evidence, that the note of Mary James, the defendant, assigned by her 'to Alexander, dated 28th November, 1828, was made on an usurious agreement, entered into between said defendant and' said Alexander, but that the plaintiffs had no knowledge of such usury, at the time they were called upon to pay the balance due on - the note, nor at any time before, and paid the same under the belief that the same was bona fide due, and without any knowledge that there was any objection,to the validity .of said note, and without any notification or communication from the defendant; and if the jury believe from the evidence, the defendant.waived and abandoned all objection to -the validity of said note, and assented that the same should be considered as a valid- and legal obligation, then the plaintiffs are entitled to recover. And it is competent for the jury to infer such waiver and assent,, if they shall believe from the evidence that the defendant, after obtaining said money, made payments of interest, as the same became due, and expressed her desire and intention to pay the said note, and her anxiety to save her aunt’s property from sale •under the said deed of trust; which the Court also refused. To all which refusals by the Court to give- the several instructions as' prayed,.-the plaintiffs except. ' And the. plaintiff’s counsel then further prayed the Court as follows ; that if the jury believe from the evidence, that there was no loan of money from Alexander to defendant secured by the bond of the 28th November, 1.828, but that the said bond was bona fide purchased by said Alexander of defendant, at a discount exceeding -the, legal, raje of interest, the said Alexander not knowing when he purchased said bond, that the same was .loaned by Mary James to the defendant solely to raise money on, the transaction is not ’ usurious, and. the plaintiffs' are entitled to recover in this action the moneys paid by them to Alexander on said bond; and.further, if the jury should believe that Philip Alexander, when he paid the money and took the note as aforesaid, intended to buy the said note for the amount given on it, not knowing that the note was made by Miss James to defendant, in order to raise money on it, and did not mean, by disguising the advance under the form of a purchase, to évade the statute of usury, then such purchase was lawful; which prayers the Court gave as prayed,- and to which the defendant excepts. ' And the-defendant’s counsel thereupon prayed the Court as follows : if the jury find and believe, from the evidence aforesaid, that for several months before the execution and assignment of the bond ór note mentioned and described in the covenant on which the suit is brought, there were such negotiations and propositions, pending between said John Moncure, [acting in behalf of defendant,) and *353 said Philip Alexander, as are - mentioned and set' forth in said affidavits of Moncure and Alexander, arid in the papers arid exhibits therein referred to, that the trae and genuine nature and object of such negotiations arid propositions, and of the successive arrangements and understandings resulting froni them, as really contemplated by both parties, were that said Alexander should make an advance of money to defendant, upon a future bond or note of said Mary James, payable to defendant, and by her to be assigned to said Alexander, under the name and form of a sale of such bond or note at a discount* above legal rate of interest; that such discount, from the amount of Such bond or note should be so adjusted, as that the difference between the full amount of the bond or note* and the sum advanced On .it, should be equivalent to an interest at the rate of twelve per cent, per annum on the sum actually advanced for the time of forbearance, to be given on such bond or note; that all .the said preliminary negotiations, propositions, and arrangements, were, just before the execution and assignment of the bond or note referred to in the covenant set forth in the plaintiffs’ declaration, (such bond of note, being the same note-under seal, or- bill obligatory, above given in evidence by plaintiffs, with the said covenant, and annexed to ■the said original, affidavit' of said J. Moncure, as aforesaid,) terminated in- an arrangement so modifying 'the before pending, propositions' and arrangements- aforesaid, as that said Alexander should immediately advance the defendant 2340 dollars, and that defendant should assign to him a nóte or bond thereafter, to be drawn and . executed by said Mary James, for sueh amount as should make the difference between the sum. so advanced, and the sum to be ultimately received by him for the principal and interest of such bond or note, equivalent'to an interest of twelve per pent, per .annum on the sum so advanced, according to the. principle on which said Alexander, in his letter, a copy of whichjs on the record, to said Mon- ' cure, insisted that the profits of the transaction should be calculated and secured, and that the payment of- such bond or noje shonld.be collaterally secured by a deed'in trust of the-land and slaves of said-Mary James. That the said Alexander, in pursuance and execution of siich arrangement and understanding, did advance the said 2.340 dollars to defendant, or for her use; that the said Mary James,in the pursuance -and execution of the same arrangement and understanding on her part, did afterwards, on the 28th .November, 1828, execute and deliver -the said .note under seal, or bill obligatory of - that date, and afterwards, on the 10th December, 1828, duly execute and deliver'to said J. Moncure, and P. Alexander, the said deed in' trust bearing that date, as above given in evidence by defendants, and annexed to the said cross-examination of said 'Moncure, a copy of which is on the .record, and that the defendant, in the pursuance and execution of the said arrangement and understanding, did assign the said bill obligatory to said Alexander, immediately on the execution ofi’the samé by said Mary James'; that the amount of sa.id securities) and the time with which said Mary James was indulged *354 by. said deed, in trust for payment, were knowingly and. designedly' calculated, and adjusted by and between said Alexander and said Moncure, in behalf of defendant, so as to produce in the end ■ a ■yearly interest of twelve per cent, on the sum advanced during such time of indulgence ; and that the principal and interest, secured by the said instruments, were intended and designed by both parties to amount, and did in fact amount, to greatly more than the sum so advanced-with'legal interest, for such time of indulgence as aforesaid; and did in fact substantially secure to said Alexander,, a yearly interest of twelve per cent, on the sum so advanced by. him. ' Then the jury, if' they find such facts as aforesaid' satisfactorily proved, and fairly deducible from the evidence aforesaid; may properly infer, from Such facts, and fairly presume that the transaction was , substantially a loan within the meaning of the statute against usury; notwithstanding it may appear to have been made in the' form and name of a.sale of the said Mary James’s'bond ór note; and then the jury may, from the same facts and circumstances, if proved and deduced as aforesaid; also properly infer and well' presume, that the sum of money deducted and retained by said Alexder, from the nominal' amount of said bond or note, was substantially usurious interest under another, name, for the forbearance; of the money so lent or advanced;' which the Court gave as prayed, to which the plaintiffs except; and pray the Court to sign and seal this bill of exceptions, as well as the granting of- the said defendant’s prayer, as .to’the refusal to grant the prayer aforesaid of said plaintiffs, which is accordingly done this -24th day of May, 1838. And the said defendant, by her said-counsel, having excepted, as aforesaid, to the said instructions given by the Court at the request of the plaintiff as aforesaid, also prays the Court to sign and sfeal this her bill of exception^ to the said instruction, so given at the request or prayer of the plaintiff, which is also done this 24th May,' 1838. •Upon the judgment 6f the .Circuit Court on the several prayers for instruction to the jury, by "the plaintiffs and the defendant; these questions arise: 1. Does proof of. usury, in the contract between the defendant and Alexander, per se, make void the bond assigned to Alexander, and the covenant, also, upon which the suit-in the Court below was founded ? 2. If the testatrix had no knowledge of the-usurious agreement between the defendant and Alexander, and the plaintiffs were'.also ignorant, and knew nothing of such usurious agreement, when they were cálíed on to pay the balance due on the bond, and they paid it under the belief that it was a bona fide debt, and without' any notice to the contrary from the defendant, were they entitled to recover in the Court below ? The contract between the defendant and Alexander .for the purchase of the bond, if embracing no other -party than themselves, could affect no contract between other parties-previously made; and whether that contract was usurious depended, on the intention of the parties to it. If it was made bona fido,fox the sale- and purchase of the bond, although at a. discount which would insure to Alexan *355 der twelve, per cent, a year, for' the money advanced, it.would not be usurious. ' If, on the other hand, the sale of the-bond was a mere cover for the purpose .of evading the statute against usury, and the real intention bf'the parties was to make a contract for the loan of money at a higher rate of interest than six' per cent., then the contract was usurious. But to involve the testatrix in the Usury, and to extend its taint to the bond, as well' as to the assignment, it must have been shown, by proof that she executed the bond for the purpose of aiding the defendant to borrow money at usurious .interest, and not to enable her to raise money by selling it in -the market. . As the' third prayer of the plaintiffs is materially different from the first-and-second, we will examine it first. If the first member of it had been presented .alone,- ijt would, in our opinion, have been proper for the Court below to have granted it: but as it was inseparably connected with-the latter member, it presented a very different question. The objectionable part is in these words: “And if the jury believe, from the evidence, the defendant waived and abandoned all objection to the validity. of said note;. and assented, that the samé should be considered as a valid and legal obligation, then the plaintiffs are entitled to recover; and it is competent for the jury to infer such waiver and assent, if they shall believe from the evidence, that the defendant, after obtaining said mol ey, made payments of. interest, as the same became due, and expressed her deshe and intention to pay the said- note, and her anxiety to save her' aunt’s property from sale under the said deed of trust.” This reasoning proceeds on the assumption that a bare promise to pay an usurious debt, or a' partial payment of it, would, take the contract out of the statute -against usury. -No subsequent confirmation, nor new contract stipulating to pay the debt, with the usurious interest, will make it valid. Notwithstanding, therefore, the defendant may have declared her determination to pay the debt, and did actually pay a part of it, she had, nevertheless, a perfect right, afterwards, to avail herself of the plea of usury; therefore, the Court below did right in refusing the instruction. ..The first and second instructions prayed for by the plaintiffs, and that prayed for by the defendant, may well be considered together. Jointly they embrace the whole case, and present the two questions ■before stated. The facts stated in the prayer of the defendant, if found by ihe jury,taken alone and unconnected with the facts stated iii the prayers of the plaintiffs, Would oppose no legal bar to the plaintiffs’ aetion; unless, indeed, an usurious contract between the defendant and Alexander, could impart its usurious taint to the bond assigned, and the covenant .sued on,; The Court below having decided, by refusing the prayers of the plaintiffs, that knowledge, on the part of the testatrix, of the usurious contract, was not necessary to subject the two contracts between her and the defendant to the taint of usury. They, therefore, put the. case upon the éxpress ground, that proof *356 of usury in the contract between the defendant and Alexander, did, per se,make void the bond assigned, and the-covenant sued on. If the testatrix had no knowledge of the existence of usury in the contract between the defendant and Alexander, the bond which she gave to the defendant, although without valuable considération, was not usurious. There must be a loan, and the taking of more than legal interest, or the forbearance of payment of a pre-existing debt, upon a contract for; illegal interest, to constitute usury. Barclay vs . Walmsley, 4 East, 57. The fact of knowledge, in the.plaintiff’s testatrix, is very material; first, to show whether the bond ' which-she executed to the defendant was usurious; and, secondly, to show whether thC-cootract between the defendant and Alexander was usurious. If the bond was free from usury in its inception, ho subsequent transaction between other parties could invalidate it.. Nichols vs. Fearson and others, 7 Peters’ Rep. 106. Although this bond may have been executed without valuable consideration,- in the hands of a bona fide purchaser, without notice of that;fact, it would be good against the obligor. It is the settled law in Vir- - ginia, that the bona fide purchaser of a bond or note may take it at any rate of discount, however great, without violating the statute against usury. Hansborough vs. Baylor, 2 Mun. Rep. 36. 5 Rand. 33. If the testatrix was neither a party nor. privy to the contract, ' between the defendant and Alexander, it was a very material fact ' for-the jury to consider when inquiring whether there was usury in the agreement between the defendant and Alexander : because, if the testatrix had no knowledge of the usurious contract between them, it was. impossible that she could have been party or privy to it. Suppose the jury had, found, specially, that the testatrix was neither party nor privy to the contract between the defendant and Alexander, and that Alexander had no knowledge of the fact -that'the bond which he.purchased from the defendant-had been executed by the testatrix without valuable consideration; the contract of assignment would háve been entirely free from usury, and the testatrix liable upon the bond. -But that liability has never been questioned. Viewing the case in this aspect, the defendant -would have had no pretext for pleading usut-y against the plaintiffs in this cause, But upon what ground is it that usury is set up by the defendant against her covenant of indemnity ? If that covenant had been given to Alexander, and the first contract was usurious, he would have been in no'better condition; because the consideration being the same, the taint of usury would have attached to it ¿t once. . But the case is very different between the defendant and the testatrix. The,latter had lent her note to the defendant', and conveyed her land and negroes to a trustee to secura the payment of it. She was no party to the usury; and she had given a full and valuable consideration to the'¡defendant for the covenant of indemnity. The Circuit Court, by -refusing to .permit the jury to inquire into the fact of knowledge on the part of the testatrix, in relation to the usury, thereby admitted *357 her ignorance of that fact. Therefore, as between these parties, the whole transaction was legal, and the covenant free frbm all taint of usury. Cuthbert and another vs. Haley, 8 Term Rep. 390. Upon the second question it will only be necessary to examine the point, whether the defendant was bound to give notice to the plaintiffs of her intention to plead the statute against usury.in bar of the debt due to Alexander; the other points having been fully examined on the first question stated. It is obvious, from the evidence, in the cause, that the defendant commenced, the.negotiation with Alexander for. the sale of the bond of the testatrix, andieonducted it to its final conclusion; and that she was bound to know every fact and circumstance connected with( the whole case. In Ford vs. Keith, 1 Mass. Rep. 138, the case w“as of a surety who had paid the debt* knowing at the time that it-was founded on an usurious contract. He brought suit against the. principal to recover the amount paid, to which he pleaded the usury between him and the payer of the note. Judge Strong, who delivéred the opinion of the Court, said: “The defendant says, it is true the money was borrowed for me; I received it, and had the benefit of it; I.requested you to become my surety and sign thé note, and" you have paid the contents;' yet as I had a'legal fight to avoid the note, you shall not recover of me. Will the law permit the defendant to get rid of the present action on such grounds ? ' He presuméd it would not. No man is bound to take advantage of a penal law, and avoid a contract which in equity he ought to perform; and nothing could excuse the defendant, but his giving express notice to the. plaintiff that he, the defendant, did not mean, to pay the note.” The present is a much stronger case for the plaintiffs than the one just quoted. The defendant, as before stated; knew all the facts of. the case; she had paid, at different times, parts of the debt; nearly fivte years had elapsed from the date of the contract till its final payment; there was no evidence that the executors had any knowledge of illegality'in the contract; the suit was not brought on the contract said, to .be tainted with usury, but upon the covenant of the defendant; stipulating to indemnify the testatrix against the payment of the debt,, which theplaintiffs had been compelled to pay under these circumstances. She sets up the alleged usury, between her and Alexander, to defeat her'bond of indemnity ; arid insists that she is entitled to the benefit of it, unless the plaintiffs prove that they gave her notice before they paid the,debt.' That she was-bound to give notice of her .intended defence has already been shown; and to remove all doubt on these points,we refer to 8 Wend. Rep. 452, to show that she was not entitled to notice. To permit the defendant to avail herself of the plea of usury, under the. circumstances of this case, would, be to encourage the grossest, fraud and injustice. The plaintiffs paid the balance of the debt to Alexander, in the regular discharge of their duty as executors, without knowledge or notice of the alleged usury. We therefor'e think that the Circuit Court erred iñ'refusing the first and *358 second instructions prayed’ for by the plaintiffs, and in granting the instructions prayed for by the defendant. Wherefore the judgment of the Circuit Court is reversed, and the cause remanded for further, proceedings to be had therein, not inconsistent with this opinion. . This cause came on'to be heard on the transcript of the record iiom the Circuit Cotirt of the United States for the District'of Columbia, holden in. and for the county of Washington; and was argued by counsel. On consideration whereof, it is ordered and adjudged by this Court, that the judgment of the said Circuit Court, in this cause be and the same is hereby reversed with costs; and that this cause be and the same is hereby remanded to the said Circuit Court, with directions to award a venire facias de novo, and for further proceedings to be had therein in conformity to the opinion of this Court.