Opinion
03-22-1820
Stone v. Ware and Smith
Bouldin for the appellants, Stanard contra.
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On the 7th of January 1805, William I. Stone, with Jesse Hughes his surety, was indebted to John Ware, by execution upon a forthcoming bond, in the sum of 2301, 13. 0 1/4: Ware was indebted to Charles Smith, by bond for 3511. payable February 10th, 1806. Under these circumstances, Ware applied to Stone, with the execution (which was in his own hands,) and said he would not deliver it to the Sheriff, provided Stone would allow him fifteen per centum per annum, upon the 2301, 13. 9 1/4, from the 9th of January 1805, to the 10th of February 1806, and get his father Hezekiah Stone to become principal in a bond to Charles Smith for payment of the 3511. on the last mentioned day; and that he (Ware) would pay the difference between the two debts. To this proposal, William I. Stone, to prevent the levying of the execution, assented. Ware, being told that such agreement was usurious, drew up an account of the transaction, in which he charged interest at the rate of six per Centum per annum on the amount of the execution, and added thereto an item of 231. 11. 8., " for sundry services done and settled; " (without saying what those services were; which sum amounted exactly to nine per centum per annum on the said amount; ) producing, with 811. 9. 2 1/2. to be paid by himself to William I. Stone, a total of 3511. for which the bond of Hezekiah Stone was taken, payable on that day, with William I. Stone, the said Ware, and George Holman his sureties, to Charles Smith, who was altogether ignorant of the usury. On this bond, Smith obtained a judgment at law; whereupon, a Bill for an Injunction, and for general relief, was filed in the Superior Court of Chancery for the Richmond District, by William I. Stone and Hezekiah Stone against Ware and Smith; stating the foregoing facts, with their accompanying circumstances; and alleging that the complainant Hezekiah Stone took it for granted that Ware was to pay his son the real difference between the execution and the required bond, and knew nothing of the usury until after the judgment upon the bond was obtained against him.
Ware answered; insisting that his aforesaid charge for services was not usurious; but submitting to account. This answer was adjudged insufficient; and he filed another, in which he said there had been much talk about 15 per cent., and the sums charged might have been ascertained by a computation at that rate; but that the said sum of 231. 11. 8 was allowed him for his services in riding about, at a very inclement season of the year, with great danger to his health, and exerting himself to have the arrangement in question concluded, for the relief of the complainant William I. Stone, who considered it very beneficial to him, and declared himself perfectly satisfied with it.
Smith's answer denied any knowledge of the Usury, and declared that the bond to him was fairly taken, for the price of a negro sold to Ware.
The facts stated in the Bill, against Ware, were supported by affidavits; but no objection appeared to Smith's conduct in any respect. It was proved that Ware paid to William I. Stone the difference, amounting to 811. 9. 2 1/2 as aforesaid.
Chancellor Taylor dissolved the Injunction, and afterwards dismissed the Bill altogether; " being of opinion that however clear it may be that the defendant John Ware extorted usury from the plaintiffs in the transactions in the bill mentioned, yet their remedy was at law, and not in equity; since no discovery is sought by their Bill."
The case was brought before this Court by a Petition of appeal.
Decree reversed and cause remanded.
Bouldin for the appellants, made four points on the subject of the Court's jurisdiction; 1st, that Hezekiah Stone shewed sufficient cause for not defending the suit at law, in that he was ignorant of the fact: --on him the transaction was a fraud; and a party's discovering a material fact after judgment, is good ground for relief in equity.
2d, The ordinary rule, that a party shall not apply to a Court of Equity for the relief he might have had at law, does not obtain in cases of Usury. The party oppressed by an Usurer is not particeps criminis, and therefore might, always by bill in Chancery, and now by action at law may, recover back the usurious interest, if paid: and this, even though the money were paid in obedience to a judgment or decree. But the Statute against Usury gives the Court of Equity express jurisdiction, which is not waived by failing to plead at law.
Bosanquet v. Dashwood, Cases Temp. Talb. 38; Smith v. Bromley, Douglas, 696.
Moore v. Beattie, Ambl. 371.
3d, In this case, the complainants had no remedy at law; the bond to Smith being for a bona fide debt due him, without the least taint of Usury in it. The inducement, by which Smith's debtor obtained other persons to become bound for the debt, being unknown to him, could not avoid the bond.
7 Bac. 201. citing 7 Mod. 119.
4th, The defendant Ware, by his answer submitted to an account, and can not afterwards object to the jurisdiction of the Court. That account should be audited, allowing only legal demands.
On the merits, the Usury is proven by the Answer of Ware himself. Admitting his own statement to be correct, the services charged were rendered, only in securing and collecting the debt on the execution, for his own benefit: --the sum allowed was therefore clearly usurious.
Scott v. Brest, 2 Term Rep. 238.
Stanard contra. --It being admitted on all hands that the bond to Smith was free from all taint of usury as to him; it follows that, whatever may have been the nature of the contract between Stone and Ware, no relief ought to given against Smith. The Injunction was therefore properly dissolved, and Bill dismissed, as to Smith, who was causelessly made a party; and the case ought to be considered as if he had never been before the Court. The testimony introduced to prove the Usury as to Ware, is by no means conclusive: but, let it be conceded that the contract was usurious; the question still arises, was Stone entitled to come before any forum, at the time this suit was instituted? Not a legal forum; because he had paid nothing in pursuance of the contract: --he had merely entered into an obligation, jointly with the other party to the usurious agreement, to pay money, and would be puzzled to frame an action that he could successfully prosecute at law. The like objection holds to the suit in equity.
Ellis v. Warnes Cro. Jac. 32; Hussey v. Jacob, 1 Salk. 344; Anon., 2 Mod. 279; Cuthbert v. Haley, 8 Term Rep. 390; Parr v. Eliason, 1 East, 92.
But, suppose the money had been paid, could the Court of Equity hold jurisdiction of this case? That jurisdiction is twofold; --1st, under the Statute against Usury; and, 2d, under the general principles that regulate those Courts in the application of their powers. --The jurisdiction is not sustainable by virtue of the Statute; 1st, because the Bill is not a Bill for discovery; and, 2dly, because the statutory remedy, according to the fair interpretation of the Statute, is to be used, only where there is some outstanding contract, or security, on usurious consideration, from the enforcement of which the plaintiff seeks protection; and not to recover back from the defendant money paid to, or contracted to be paid for, him. Neither can such jurisdiction be sustained upon general principles. When the powers of Courts of Equity are applied to usurious transactions, they are subject to the same limitations as in other cases. The first limitation is, that relief is not to be given where the plaintiff seeks no discovery, or can prove his case without any; which is the case at bar. The decision in Marks v. Morris, 2 Munf. 407, is not opposed to this rule; for that decision is based on the consideration that the usurious contract was one to oppose which the plaintiff in equity had no day in Court.
Indeed, there are but three classes of cases where relief is or can be sought, in Equity, from an usurious contract or it's effects: --1st, where there is some outstanding obligation or security which the holder may enforce at law by suit, and which the plaintiff in Equity seeks to have surrendered: --2d, where the contract has been carried into effect, the usurious gain paid, and the plaintiff seeks to have it refunded: --3d, where the contract is of such a nature that it may execute itself, or at least be executed without suit; so that the party charged by it has no day in Court to shew it's usurious nature in avoidance of it.
The first class falls properly under the Statute, and the Bill is a Bill of discovery. At all events, the case at bar does not belong to it. In the second class, the bill must also be a Bill of discovery; for the party who would prove his case, would prove himself out of Court. The case at bar does not belong to it, because the money has not been paid, and because the plaintiffs do not rely on a discovery. The third class, though one in which it is not necessary that the Bill should be for a discovery, yet, obviously, does not comprehend the case now in question.
Having considered the question of jurisdiction of the Court below, with respect to the nature of the plaintiff's claim, I will bestow one moment on the question of the jurisdiction of this Court in relation to it's amount.
Suppose the fact of Usury established; the objection, that the money has not been paid, out of the way; and the jurisdiction, as to the subject matter of the claim, clear; what is that claim? 231. 11s. 8d. in it's amplest dimensions! This is all that has been stipulated to be paid for usury, or that has been paid, if Mr. Bouldin will have it so; all that the plaintiffs can now, or could in the Court below, pretend to claim, after having (as before remarked,) in substance, confessed there, that they had no right to relief against the bond or judgment! This sum will not support the jurisdiction of this Court.
The cause was again argued, by the Court's direction; upon two questions; 1st, whether the contract was usurious; and 2dly, if so, whether there must be a forfeiture of the whole debt, or only of the usurious interest.
Bouldin. 1. The pretence in this case of compensation for services rendered and settled, is a mere shift to evade the Statute.
2 Term Rep. 238.
2. The plaintiffs are entitled to protection to the full amount of the bond to Smith, in which they were sureties for Ware, who in reality was the principal obligor, although the name of Hezekiah Stone was first inserted and subscribed. By this simple contrivance, the Usurer has made the borrower pay-master of a debt of his. If it can not be defeated, the borrower is bound hand and foot, and without remedy. The question before the Court is, who ought to pay the bond? I answer, the real debtor, who is Ware. Smith, I admit, is entitled to his money; but he ought to get it, not from Stone, but from Ware. The Court, since all the facts are before it, may fix the debt on the right person. The order of the signatures to an obligation, though prima facie inducing a presumption that he whose name is first signed is the principal obligor, is not conclusive. It is only by the usurious arrangement, that this differs from the common case of a surety seeking to make his principal responsible in the first place.
The present case is stronger than that of Marks v. Morris. In that case, if a suit had been brought at law to recover the property, the Usury might have been pleaded: --but here, by fraudulent trick and contrivance, defence at law was precluded, and no remedy left but in Equity: for Stone could not plead usury to the bond, which was fair and not usurious.
The ground I have taken is substantially supported by the decision of this Court, in West v. Belsches, 5 Munf. 194, that every man's proper debts ought to be paid out of his own estate. In Marks v. Morris it was decided that a Court of Equity will frustrate every scheme by which the Usurer has prevented the plaintiff from taking advantage of the usury at law. The Court ought therefore to decree that Ware alone shall pay the whole amount to Smith the obligee.
Stanard. Whether the contract now in question was usurious, or not, is a mixed question of law and fact. It appeared to me that the case of the plaintiffs was not made out in point of fact: but let us suppose the facts ascertained, is it necessarily an usurious contract? I contend it is not.
Is it usurious for a party owing a debt payable at a distant day, to obtain, in consideration of present payment, a deduction to a greater amount than legal interest? The substance of this contract was, that Ware gave a present claim, for payment of a demand upon him at a future time, with a particular rebate from that demand. If Stone had gotten Ware's bond to Smith, he might have sold it to Ware, at a large discount, for his execution against him; and such discount would not have been usurious. The case before the Court is the same in substance.
Barclay v. Walmsley, 4 East 55.
But if there has been Usury in this transaction, what is the measure of relief which the Court of Equity can give? The appellants call on the Court to enforce a forfeiture of the whole debt! The province of a Court of Equity is not to enforce but to relieve against forfeitures, by mitigating the rigour of law. It's peculiar modes of investigating facts, for this mild and benignant purpose, are most salutary, but, in alliance with a power to enforce, instead of mitigating forfeitures, would be truly formidable. From Tothill to Vesey and Beams, there is no example of that Court's granting relief, by directly or indirectly inflicting a forfeiture on the defendant.
The rule in equity is, that the borrower is bound to repay the principal with legal interest, before he gets relief for the excess; for he that seeks equity must always do equity. Even where the defendant has been guilty of fraud, by taking advantage of youth and inexperience, he shall yet have equity; and that is principal and lawful interest. (a) The maxim, that he who hath done iniquity shall not have equity, applies only where he is plaintiff. (b) Even Courts of law, wherever they have discretionary power to subject the party to terms, follow a similar rule. (c) Where usury has been discovered, and the usurious securities destroyed, an express promise to pay the principal with legal interest, has nevertheless been supported. (d)
Mr. Bouldin contends that the measure of relief should be the amount of the bond from Ware to Smith; although he acknowledges that that bond was fair and conscientious. He wishes a Court of Equity to act as supplemental to a Court of law, to enforce a penalty which the Court of law can not enforce; to make that usurious in equity, which is not usurious at law; on the ground that the party has so sheltered himself that the Court of law can not take hold of him! He says that the object is not to enforce a forfeiture in his client's favour; not to rob Ware, but merely to hold him fast, and compel another to rob him! Smith, it seems, is to be prohibited from recovering any thing from the complainants; but the whole liability for the debt is to fall upon Ware! Is not this, to all intents and purposes, enforcing a forfeiture against him?
If there be usury in this case, to what does it attach? Not to the debt to Smith, as Mr. Bouldin admits. The original fair contract is not infected by the subsequent usurious agreement: --the latter alone is to be set aside. (e) And that agreement applies only to the 231. 11. 8; a sum too small to give this Court jurisdiction.
Bouldin in reply. Arithmetical calculation supports the testimony that the sum allowed amounted to fifteen per centum per annum; and Ware's own answer admits the same thing. But Mr. Stanard says, this is not usury. It would require all his ingenuity to make this case resemble that of Barclay v. Walmsley, 4 East, 55. It is the plain case of a debtor, hard pressed by a creditor, agreeing to pay, for the sake of forbearance, nine per cent. in addition to the lawful interest, upon an arrangement that the payment should be made to a creditor of such creditor. The only object of this Bill is to deprive the usurer of the advantage obtained by him, by which he deprived the borrower of the opportunity of making the defence at law. The principle is the same with that upon which the Court went in Marks v. Morris. The Usurer there, by resorting to a deed of trust, gave the debtor no opportunity at law to plead the usury. So, here, Ware contrived to get Stone bound with him in a bond to Smith, and in such manner as to make Stone apparently the principal debtor; to which bond the plea of usury could not be put in. If Ware himself had not been one of the obligors in that bond, I should have had some difficulty; but (as it is,) the Court, to give complete effect to the Act of Assembly, may compel him to pay the debt to Smith, which is his own debt; --may make him the principal obligor, which in fact he is. Otherwise, the Act might always be evaded by the contrivance of binding the borrower to pay the money to a creditor of the lender, instead of to the lender himself. Allow the usurious agreement effect, and my client is the principal debtor to Smith; otherwise not.
An Usurer is not to be let off more lightly on the ground that the usury is not acknowledged in his answer, but fixed upon him by proof. Under the principles of Bosanquet v. Dashwood referred to by Mr. Stanard, and all the other cases here and in England, the Court of Equity is always open to relieve against fraud, usury and extortion.
OPINION
The Court's opinion was delivered as follows.
The arrangement by which the appellants were induced to give their bond to the appellee Smith, was indeed tainted with Usury, but it is not even alleged that Smith was privy thereto, or had any knowledge thereof. He only agreed to accept that bond in lieu of another, which he held for a just debt. The authorities seem to bear us out in saying, that, under these circumstances, the bond as to Smith is not to be impeached of usury, and he is to get full payment thereof. Had this knowledge been charged and proved upon him, the case might have been otherwise. In relation to the appellee Ware, however, the usurious arrangement being proved, the appellants are entitled to relief. That relief is to be upon the terms of paying the principal justly due to him (Ware) with legal interest. The decree is therefore correct as it relates to Smith, but is erroneous as to Ware, to the extent of the usurious gain received by him; the difference between the two debts having been already received by Stone the younger.
The decree is to be consequently reversed, and the cause remanded, to have an account taken, and a final decree rendered pursuant to the principles of this decree.