Opinion
(June Term, 1843.)
1. Where a Bank of this State agreed to lend to an individual notes of a Virginia Bank, which were at a depreciation in the market, below both specie and the notes of the bank in this State, and the borrower was to give his note at ninety days, to be discounted by the Bank, and to be paid in specie or in the notes of the bank making the loan: Held, that the note given in pursuance of this agreement was void for usury, though the borrower stated at the time that he could make the Virginia notes answer his purpose in the payment of his debts to others.
2. Usury consists in the unlawful gain, beyond the rate of six per cent, taken or reserved by the lender, and not in the actual or contingent loss sustained by the borrower. The proper subject of inquiry is, what is the lender to receive, and not always what the borrower is to pay, for the forbearance.
APPEAL from Pearson, J., Spring Term, 1843, of CAMDEN.
This was an action of debt upon a note for $4,400, dated 17 June, 1842. The defense relied on was the statute of usury. On the trial it appeared in evidence that Williams and Green, the principals in the note, on 17 June, 1842, had their notes in bank, two for $1,200 each, and one for $2,000; that at the instance of Williams and Green, the cashier agreed to consolidate the three notes, and the note in question was taken in renewal thereof. The usury alleged was in the $2,000 thus included in the note of $4,400. The $2,000 note was offered for discount, on 25 February, 1842, and was then discounted as to $1,000. On 4 March following, it was discounted as to the other $1,000, and when discounted, the proceeds were placed on the books of the bank as a credit to Williams and Green, in Virginia bills. Williams and Green were then charged with the amount of several notes the bank had received (523) for collection against them, and the balance was checked out by Williams and Green, and paid to the bearers of the checks in Virginia bills. There was evidence tending to show that the terms upon which the $2,000 note was discounted were, that Williams and Green should receive Virginia bills, and pay in North Carolina bills or specie. It was also in evidence that on 25 February, 1842, and on 4 March, 1842, and for some time afterwards, the bills of the Virginia banks were seven per cent below specie value in the money market, and between two and four per cent below North Carolina bills. That on 2 February, 1842, the bank made a rule that all deposits in Virginia bills should be considered and entered as special deposits, and paid out in Virginia bills. That in February, March and May, the difference between North Carolina bills and Virginia bills in the money market at the North and in Norfolk was 2 per cent in North Carolina bills, that in Elizabeth City, where the bank is located, the difference was between 2 and 4 per cent in favor of North Carolina bills, during the latter part of February, March, April and May, 1842; that the bank, in February, 1842, refused to take Virginia bills in payment of claims sent to them from the North to collect, but at that time took such bills in payment of notes discounted previous to February. The plaintiff's counsel called as a witness John C. Ehringhaus, the cashier. The defendant's counsel objected to his competency, as he was the plaintiff of record. The Court considered him incompetent. The plaintiff offered in evidence the book kept by the cashier in pursuance of a clause in the bank charter, and made evidence by that clause. The book was objected to by the defendant's counsel, but was admitted by the Court. It appeared from the book that on 18 February, 1842, the president and directors entered into a resolution, that all notes discounted on that day and afterwards should be paid in North Carolina notes or specie; and, on 25 February they adopted another resolution, that one-half of the payments upon all notes discounted prior to 18 February should be in North (524) Carolina bills. A copy of these resolutions was posted up in the bank room. Several witnesses swore that, although in February there was a difference in the money market of 2 per cent in favor of North Carolina bills and of 4 per cent after these resolutions of the bank on Virginia bills, still Virginia bills continued current, and passed at par in payment of debts and in the purchase of produce. The sheriff swore that he had many executions to collect returnable to March Term, and he received Virginia bills, except in two cases, where he was instructed to require specie; but these instructions were withdrawn in a short time, and, as far as he knew, Virginia bills were received at their nominal value in the payment of debts, and answered that purpose the same as North Carolina bills, except at bank. One Butler, the teller of the bank, swore that when Williams applied for the discount of the $2,000 note, he stated that he was entirely willing to receive Virginia bills, as they would answer to pay debts at their nominal amount, for which purpose he wished to get them. He stated that the bank resumed specie payment on 1 May, and, as preparatory to that, in February and afterwards, paid out few of its notes, and wished to get in as many as possible. He also stated that it was the practice of the bank to have quarterly settlements with the Virginia banks, and exchange to them such of their notes as this bank had received, for the notes of this bank, which they had received, and the excess was entered to the credit of the one or the other.
About February, and for some time afterwards, the credit of excess was in favor of this bank for a considerable amount, and this amount did not draw interest from the debtor bank. It was also in evidence that Williams and Green were in debt to many persons, and that persons, situated as they were, could get off Virginia bills at their nominal amount in payment of debts. Green was one of the directors present when the $2,000 note, and it was included in the $4,400 note, was usury in the $2,000 note, and it was included in the $4,400 note, now sued on, it would vitiate the whole. That to constitute usury (525) there must be a loan of money, to be returned, at all events, at a profit of more than six per cent to the lender, and a loss of more than six per cent to the borrower. In this case it was not contradicted, but that there was a loan to be returned at all events; the only question was, as to the profit of the one and the loss of the other; that if Virginia bills were depreciated at the time, so as to be from 2 to 4 per cent below North Carolina bills in value, and 7 per cent below the value of specie, and the bank, as a condition of the loan, required the borrower to receive such Virginia bills, with the expectation and right to make him repay in North Carolina bills and specie, without explanation, it made out a case of usury; for, besides the six per cent interest, the lender received, and the borrower lost, the difference in value. That as to the receipt of the Virginia bills, after the credit was given to the borrower, it made no difference whether he received them himself, or whether they were received by persons having his check; that if this additional profit was made by the one and lost by the other as the terms of the loan, it made no difference whether the officers of the bank thought it was usury or not, for no man was allowed to give in excuse his ignorance of the law, if in fact the law was violated. The Court further charged that the plaintiff, by way of explanation, insisted, first, that there was no additional gain to the bank; for, supposing Virginia notes to be then depreciated, they would, in after settlements with the Virginia banks, when they should in the course of trade get notes of this bank, answer as well as specie; 2d, that there was no loss sustained by the borrower, for he was enabled, being in debt, to pay off his debts with these Virginia bills, dollar for dollar, and that was the motive of the bank in letting him have them. As to the first, was there an additional gain to the bank? This was a question of fact for the jury.
It was insisted that as the excess of Virginia bills did not draw interest, the bank gained, as a matter of course, in getting off depreciated paper at par, which would otherwise lay upon its hands unproductive. As to the second, was there a loss to the borrower? (526) This was also a question of fact for the jury. If the borrower owed debts, and his creditors were willing to receive Virginia bills in payment at par, it would seem, he lost nothing by receiving them at par. The defendant's counsel here moved the Court, that he lost in this, that if he had received specie, or even North Carolina bills, he could have exchanged the one at 7 per cent premium and the other for 2 per cent premium for Virginia bills, which latter bills would have paid his debts, dollar for dollar, and he would have the premium extra. The Court charged that the premium extra, if the borrower could have realized it, would certainly have been desirable. But if the bank did not have the ability to lend specie, and was unwilling to lend its own notes, and the borrower was thus unable to make this premium extra, it was rather a disappointment than a loss or sacrifice on the part of the borrower. If the borrower, being unable to get a loan of specie of North Carolina bills, received Virginia bills at par and passed them off to his creditors at par, he could not, as the term loss was understood in law, be said to have submitted to a loss, for the debts he owed and thus paid, might be called for in specie as well as the debt he incurred in order to pay it. The defendant's counsel then moved the Court to charge that if the credit of Williams and Green was so much impaired that a depreciated currency would pay their debts at the full nominal value of such depreciated currency, yet it did not follow that they did not suffer loss by borrowing such currency and contracting to pay in a better currency, though they did in fact pay off debts to the whole amount of the sum borrowed, and that, although the borrower did not lose beyond the six per cent, yet if the lender gained or made a profit over and above six per cent, and the making this profit was a part of the agreement, upon which the loan was made, this agreement was in law a corrupt and usurious agreement. The Court refused so to charge; but charged that the essence of usury consisted in the fact that one man, having the means, should take advantage of the necessities of another, and (527) exact a gain of more than six per cent at the expense of the other for a loan, that although it was understood that the lender would gain over and above six per cent, yet if it was not to be at the expense of the borrower, it did not come within the legal meaning of usury — there must be a conjunction of a profit to one, and a loss to the other. For instance, if A applies to B to borrow $1,000, B says I have not that much cash, but I have $500 cash and a note on C for $500, C being doubtful and his note not being worth its nominal amount; whereupon A says the note of C will be as good as cash for what I owe, and I am borrowing the money to pay him, and B thereupon let him have $500 cash and C's note, and takes his note for $1,000, with six per cent, this is not usury, for although B gained by getting off a doubtful note at par, yet A lost nothing, for that note was worth to him its nominal amount. So in this case, if the bank, being about to resume specie payments, was unwilling to lend its own notes, but having these depreciated Virginia bills, was induced to lend them under the full belief that the borrower could use them at the nominal value, and so would lose nothing, the fact that the bank did gain would not constitute usury because the borrower did not lose; but in considering the question the jury must be satisfied that the bank had no reason to believe that the borrower would lose, and was satisfied that he would not, for if a needy man says to a moneylender, that bills 50 per cent below par will answer him as cash, the lender must necessarily know that it is not so, and that the borrower means to submit to a sacrifice for the sake of getting money. So if the bills are 25 per cent, 10 per cent, 5 per cent, 2 per cent, the argument upon the question of fact is still the same, weakened only in degree, and the question resolves itself into this, did the parties really believe that the depreciated bills would answer the borrower to pay his debts as cash; if so, then the one has not made a gain at the expense of the other, and there is no usury; but if a loss to the borrower was expected (528) by reason of the bills, then the lender has taken advantage of the necessities of the borrower, to compel him to submit to a loss for his benefit, and the law pronounces the transaction usurious, and the note void.
Badger for the plaintiff.
Kinney Iredell for the defendant.
The best definition which can be given of usury will be found in the words of the statute by which it is prohibited: No person or persons whatsoever, upon any contract, shall directly or indirectly take for the loan of any moneys, wares, merchandise or commodities whatsoever, above the value of six dollars by way of discount or interest for the forbearance of one hundred dollars for one year, and so after that rate for a greater or lesser sum, or for a longer or shorter time, and all bonds, contracts and assurances whatever for the payment of any principal or money to be lent or covenanted to be performed upon any usury, whereupon or whereby there shall be reserved or taken above the rate of six dollars in the hundred, as aforesaid, shall be utterly void." Usury consists then in taking directly or indirectly, upon a loan of money or commodities, either by way of discount or interest, above the value of six dollars for the forbearance of one hundred dollars for one year, or that rate for a greater or less sum, or for a longer or shorter time. It follows then, that the test proper to be applied to the loan, which in this case is alleged to be usurious, is whether it was made upon an agreement to render therefore a higher rate of compensation than the statute sanctions. Now if the agreement was that the borrowers should receive the amount lent, after deduction of the discount, in notes known to be depreciated at their nominal value, and at the expiration of the term should repay that amount in lawful money, or in a currency less depreciated than that in which it was advanced, without further explanation, an assurance to carry that agreement into execution would be usurious. It is manifest that by that assurance there is reserved (529) to the lender, after taking out the legal discount, the difference between the actual value of what was lent and what is to be returned. This is prohibited gain. If upon a loan it is agreed that the borrower shall be paid in bills at a premium, which they actually command in the market, all will admit that in this there would be no usury, and it must follow that if he be required to take it in bills at par, which are then at discount, this must be usury. Whatever may be the motives which induced the Legislature to regulate the value of the use of money, and by severe penalties to prohibit all bargains for its use at a higher price, the standard of this value is the gain taken by or reserved to the lender, not the price paid or to be paid by the borrower. Accordingly, we cannot doubt, if it was a part of the considerations for a loan, that in addition to the principal and lawful interest to be paid by the borrower, a stranger should allow a gratuity to the lender, such loan would be usurious under the statute. The proper subject of enquiry is what is the lender to receive, and not always what the borrower is to pay, for the forbearance. Where the entire gain of the lender is derived from the borrower, the profit of the former and the loss of the latter, are necessarily commensurate. But it is always safer to apply, when we can, the standard given by the law, than to make use of any other, however exactly in general it may appear to correspond therewith.
In this case, it seems to us, that his Honor, after laying down very accurately the general rules of law applicable to it, in considering the explanations, by which the agreement was sought to be rescued from the imputation of usury, has permitted his intelligent mind to be perplexed and finally led into error by an unnecessary enquiry about the loss of the borrowers. And having arrived at the conclusion that, in consequence of the use to which the money borrowed was applied, they had not subjected themselves to a loss upon the loan greater than at the rate of six per centum per annum, he was of opinion that (530) the assurance was not tainted with usury, although the lender was thereby to receive more than the compensation for forbearance fixed by law. That error, we think, was occasioned by not regarding the loss as determined by the agreement, but as ascertained by combining therewith the gain of the borrowers in their disposition of the money lent. Upon these combined transactions, they may not have finally lost the premium allowed upon the depreciated notes, but, if it be so, it is because their creditors have consented to allow it. They did lose more than the lawful interest by the agreement, but they were enabled to throw off this loss upon others.
If the depreciated notes — depreciated in the money market or even with all other persons, had been to the borrowers intrinsically worth the value at which they were received, then there would have been no usury in requiring that they should be received at that value. It might have been fortunate for the holder to meet with a person to whom these notes were as cash, but, if they were, then in effect there was a loan of the money which the notes called for, and six per centum per annum interest thereon, would not have been a greater gain on such loan than the law authorized. Such a case might be put; as if the borrowers had been permitted to deposit, as cash, Virginia notes to that amount, on a promise to take them back at the same rate, or were under any other valid obligation to redeem them. And perhaps there are others, but it will be sufficient to state these as illustrations of this position. It is very probable that neither the borrowers not the lender had an actual intent to violate the statute against usury, and it is not unlikely that the loan, as made, under the then pressure of the times and embarrassments of the banks, was not only prompted by commendable public motives, but in truth also an act of favor to the borrowers. But if, by the agreement, it was intended to obtain in fact a greater compensation for the money lent that the statute allows, the law pronounces the agreement corrupt, whatever misapprehensions might have prevailed as to the construction of the statute, or however free the agreement (531) from every taint of moral turpitude. This may be hard, but sic lex scripta est, and we must obey it.
The Court is of opinion that there was error in the instructions given to the jury, and that the judgment must be reversed and
PER CURIAM. New trial.
Cited: Stedman v. Bland, 26 N.C. 300; Bank v. Ford, 27 N.C. 696; Webb v. Bishop, 101 N.C. 102; Moore v. Beaman, 112 N.C. 565.
(532)