The office of the Bank of the United States at Lexington,
Kentucky, in February, 1822, held a large amount of notes of the
Bank of Kentucky, which had been received in the usual course of
business, at the full value expressed on the face of them, as
equivalent to gold and silver, and were so considered by the bank.
On the amount of these notes so held, the Bank of Kentucky had
agreed to pay interest at the rate of six percentum until the same
should be redeemed. All the notes of the Bank of Kentucky held by
the Bank of the United States were finally paid with the interest.
In February, 1822, when the notes of the Bank of Kentucky were at a
depreciation of between thirty-three and forty percent, Owens
applied to the office of the Bank of the United States for a loan
of five thousand dollars of the said notes, saying they would
answer his purpose as well as gold or silver. After repeated
refusals and reapplications, with the consent of the board of
directors of the Bank of the United States at Philadelphia, the sum
of five thousand dollars, in the notes of the Bank of Kentucky, was
loaned to him on a promissory note, signed by him and by Waggener,
Miller, and Wagley, payable in three years, with interest at the
rate of six percent per annum. The money so loaned was paid to the
borrower in the notes of the Bank of Kentucky, and in a check on
that bank, and the interest on that amount of the notes, being so
much of the sum due by the Bank of Kentucky to the Bank of the
United States, ceased from the date of the loan. In an action on
the note given by Owens and others, the defense was set up that the
transaction was usurious, contrary to the charter of the Bank of
the United States, and void.
Held that there was no usury
in the transaction.
The statute of usury of Kentucky of 1798 declares that all
bonds, notes, &c., taken for the loan of money where " is
reserved or taken" a greater rate of interest than six percent
shall be void. In this case, no interest at all was taken, the
interest being payable at the termination of three years mentioned
in the note, and if the case can be brought within the statute, it
must be not as a taking, but as a reservation of more than legal
interest.
The ninth article of the fundamental articles of the charter of
the Bank of the United States declares, among other things,
"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
percentum per annum, for or on its loans or discounts."
It is clear that the present transaction does not fall within
the prohibition of dealing or trading in the preceding part of the
same article, according to the interpretation thereof given by this
Court in the case of
Fleckner v. Bank of the United
States, 8 Wheat. 338,
21 U. S. 351, 5
Cond. 457, to which the Court deliberately adheres.
The words of the article are that the bank shall not take (not,
shall not "reserve" or " take") more than at the rate of six
percent. In the construction of statutes of usury, this distinction
between the reservation and the
Page 34 U. S. 379
taking of usurious interest has been deemed very material, for
the reservation 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, and the party is
only liable for the excess. In the case of
Bank of
the United States v. Owens, 2 Pet. 527,
27 U. S. 538,
it was said that in the charter the word "reserving" must be
implied in the word "taking." This expression of opinion was not
called for by the certified question which arose out of the plea,
for it was expressly averred in the plea that in pursuance of the
corrupt and unlawful agreement therein stated, the bank advanced
and loaned the whole consideration of the note, after discounting a
large sum for discount, in the notes of the Bank of Kentucky at
their nominal value.
The case of
Bank of the United States v.
Owens, 2 Pet. 527, turned upon considerations
essentially different from those presented in the present record.
The questions certified in that case arose upon a demurrer to a
plea of usury, and the demurrer in terms admitted that the
agreement was unlawfully, usuriously, and corruptly entered into.
So that no question as to the intention of the parties or the
nature of the transaction was put. The transaction was usurious and
the agreement corrupt, and the question there was whether, if so,
it was contrary to the prohibitions of the charter, and the
contract void. In the present case, the questions are very
different. Whether the agreement was corrupt or usurious or
bona fide and without any intent to commit usury or to
violate the charter are the very points which the jury were called
upon and under the instructions were asked to decide. The decision
in
27 U. S. 2 Pet. 527
cannot, therefore, be admitted to govern this, for the
quo
animo of the act as well as the act itself constitute the gist
of the controversy.
In construing the usury laws, the uniform construction in
England has been, and it is equally applicable here, that to
constitute usury within the prohibitions of the law, there must be
an intention knowingly to contract for and to take usurious
interest, for if neither party intend it, and act
bona
fide and innocently, the, law will not infer a corrupt
agreement.
This principle would seem to apply to the charter of the Bank.
There must be an intent to take illegal interest, or, in the
language of the law, a corrupt agreement to take it, in violation
of the charter. The quo animo is, therefore, an essential
ingredient in all cases of this sort.
There has been no taking of usury and no reservation of usury on
the face of this transaction. The case, then, resolves itself into
this inquiry -- whether upon the evidence there was any such
corrupt agreement or device, or shift to reserve or take usury, and
none of these appears in the case.
Because an article is depreciated in the market, it does not
follow that the owner is not entitled to demand or require a higher
price for it before he consents to part with it. He may possess
banknotes which to him are of par value in payment of his own debts
or in payment of public taxes, and yet their marketable value may
be far less. If he uses no disguise, if he seeks not to cover a
loan of money under the pretense of a sale or exchange of them, but
the transaction is
bona fide what it purports to be, the
law will not set aside the contract, for it is no violation of any
public policy against usury.
Page 34 U. S. 380
The plaintiffs in error instituted an action against the
defendants, and one William Owens, on a promissory note for $5,000
dated 7 February, 1822, and payable at the office of the Bank of
the United States at Lexington, Kentucky, on 7 February, 1825, with
interest at the rate of six percentum per annum. The defendants
were joint and several promisors with William Owens. Upon a plea
and demurrer in the suit, a division of opinion was certified by
the judges of the circuit court to this Court, upon which the
opinion of the Court was given as reported in
27 U. S. 2 Pet.
527.
Afterwards, at May term, 1833, the case having been remanded,
judgment was entered against William Owens for want of a plea, and
the other defendants pleaded the general issue, upon which the
cause was tried by a jury and a verdict and judgment under the
direction of the court were given for the defendants. A bill of
exceptions to the refusal of the court to give the instructions
asked by the plaintiffs, and to those given by the court at the
request of the defendants, was tendered on behalf of the plaintiffs
and was sealed by the judges of the circuit court.
The note declared on was in the following terms:
"On or before 7 February, 1825, we, William Owens, Alexander
Miller, Herbert G. Waggener, George Wagley, jointly and severally,
promise to pay to the President, Directors, and Company of the Bank
of the United States, at their office of discount and deposit at
Lexington, the sum of $5,000 in lawful money of the United States,
with interest thereon in like money after the rate of six percent
per annum from this day until paid, for value received, at the said
office of discount and deposit at Lexington, without defalcation.
Witness our hands this 7 February, 1822."
"WILLIAM OWENS"
"ALEX. MILLER"
"HERBERT G. WAGGENER"
"GEORGE WAGLEY"
"Witness -- JOHN BREEN"
On which note is the following endorsement:
"Mem. -- Interest is to be charged on this note from 21 May,
1822 only, and not from 7 February,
Page 34 U. S. 381
1822, within mentioned, the former being the day on which the
amount was actually received by the makers of the note."
"H. CLAY"
The evidence in the case established the following facts. Before
the time when the note was given, the office of the Bank of the
United States at Lexington was the holder of a large amount of
notes of the Bank of Kentucky, which had been received in the usual
course of business at the full value of the notes as expressed upon
them, in gold and silver. These notes were considered as valuable
to the full extent of their amount, although the Bank of Kentucky
had suspended paying their notes in specie. No doubt was
entertained by the officers of the office of the Bank of the United
States of the full ability of the Bank of Kentucky so to redeem
them. At the time the loan was made to Owens on the note sued upon,
the notes of the Bank of Kentucky had depreciated to the amount of
between thirty-three and forty percent. It was also in evidence
that when the Bank of Kentucky suspended specie payments in 1819,
the institution was considerably indebted to the plaintiffs at the
office at Lexington for her notes taken in the usual course of
business and for government deposits transferred to that office
from the Bank of Kentucky and its branches, and that the accounts
had been settled between the institutions, the balance ascertained
and placed to the credit of the plaintiffs on the books of the Bank
of Kentucky, as a deposit upon which the Bank of Kentucky agreed,
in consideration of forbearance of the plaintiffs, to pay interest
at the rate of six percent per annum, and that said interest, as it
accrued, was carried at stated intervals of time to the credit of
the plaintiffs on the books of the bank, and that the amount paid
Owens on the said check had the effect of stopping the interest on
that sum from that time. The balance which remained due from the
Bank of Kentucky to the Bank of the United States was finally
settled and discharged in specie or its equivalent about seven
months after the date or time of the said loan to Owens. The Bank
of Kentucky did not, for many years after the date of the loan to
Owens, generally resume the payment of its notes in specie or its
equivalent.
In the state of things existing in 1822, William Owens
applied
Page 34 U. S. 382
to the office at Lexington for a loan of $5,000 in the notes of
the Bank of Kentucky, assuring the bank that they would answer his
purpose as well as gold or silver. The offer was rejected by the
directors of the bank, and on its renewal was again refused. A
third time the loan was applied for, the interference of a
gentleman connected with the business of the bank, not a director,
to procure it was solicited and obtained, and the application was
referred to the board at Philadelphia, by which the loan was
authorized, a mortgage on real estate being given as an additional
security for the loan. The mortgage and note having been executed,
the amount of the same was paid to William Owens by handing him
$1,100 in notes of the Kentucky Bank and a check of that bank for
$3,900, which was paid to him at that bank in its notes.
The defense to the action was that the transaction was usurious,
and therefore contrary to the act of Congress incorporating the
Bank of the United States, and void. On the trial, the following
instructions to the jury were asked by the counsel for the
plaintiffs.
"1. That if they believe from the evidence that the
consideration of the note sued on was $3,900, paid in a check on
the Bank of Kentucky, and $1,100 in Kentucky notes, and that the
contract was fairly made, without any intention to evade the laws
against usury, but that the parties making the contract intended to
exchange credits for the accommodation of Owens; that the Bank of
Kentucky was solvent, and so understood to be, and able to pay all
its debts by coercion; that the contract is not void for usury nor
contrary to the fundamental law or charter of the bank,
notwithstanding it was known to the parties that said bank did not
pay specie for its notes without coercion, and that the difference
in exchange between bank notes of the Bank of Kentucky and gold and
silver was from thirty-three to forty percent against the notes of
the Bank of Kentucky."
"2. To instruct the jury that if they believe from the evidence
that the contract was made on the part of the bank fairly, and with
no intention to avoid the prohibition of their charter by taking a
greater rate of interest than six percent, or the statutes against
usury, but at the instance, and for the accommodation and benefit
of the defendant Owens, and that at the time of the
Page 34 U. S. 383
negotiation and contract for the check on the bank and the
$1,100 in bank notes of the Bank of Kentucky, that bank was
indebted to the Bank of the United States, at their office
aforesaid, the sum of $10,000 or more, bearing an interest of six
percent, which sum, it was understood and believed by the parties
to the contract, at and before its execution, the Bank of Kentucky
was well able to pay, with interest, and which sum it did pay,
after deducting the $3,900, paid to the defendant Owings, with
interest in gold or silver or its equivalent; that the contract was
not usurious unless it believed that the contract was a shift or
device entered into to avoid the statute against usury and the
prohibition of the charter, notwithstanding the jury should find
that the check and notes aforesaid were in point of fact of less
value than gold and silver."
"3. If the jury finds from the evidence in the cause that the
defendants applied to the plaintiffs to obtain from them $5,000 of
the notes of the President, Directors, and Company of the Bank of
Kentucky, and in consideration of their delivering or causing to be
delivered to the defendants $5,000 of such notes, and the said Bank
of Kentucky was then solvent and able to pay the said notes, and
has so continued up to this time, and that the holders thereof
could by reasonable diligence have recovered the amount thereof,
with six percentum per annum interest thereon from the time of the
delivery of them by plaintiffs to defendants up to the time of such
recovery, and that said arrangement and contract was not made under
a device or with the intent to evade the statutes against usury or
to evade the law inhibiting the plaintiffs from receiving or
reserving upon loans interest at a greater rate than six percentum
per annum, then the transaction was not in law usurious or unlawful
and the jury should find for the plaintiffs."
"4. That unless the jury finds from the evidence in the cause
that the advance sale or loan of the notes on the Bank of Kentucky,
made by plaintiffs to defendants, was so made as a shift or device
to avoid the statute against usury or in avoidance of the clause of
the act of Congress which inhibits the plaintiffs from taking or
reserving more than at the rate of six percentum per annum for the
loan, forbearance, or giving day of
Page 34 U. S. 384
payment of money, the law is for the plaintiffs, and the jury
should find accordingly."
"5. That unless it believes from the evidence in this cause that
there was a lending of money and a reservation of a greater rate of
interest than at the rate of six percentum per annum stipulated to
be paid by defendants to plaintiffs, the law is for the plaintiffs
and the jury should find for them unless it further finds that
there was a shift or device resorted to by the parties with the
intent and for the purpose of avoiding the law, by which something
other than money was advanced and by which a greater rate of
interest than six percent was allowed."
"6. That if the defendants applied to the plaintiffs for a loan
of $5,000 of the notes of the Bank of Kentucky, and agreed to give
therefor their note for $5,000, payable three years thereafter,
with interest, and the Bank of Kentucky was then, and continued
thereafter to be solvent, and the said Bank of Kentucky did
thereafter pay and discharge to the holders thereof the said notes,
the said contract was not unlawful -- although the notes of the
Bank of Kentucky would not then command, in gold or silver, their
nominal amount when offered for sale or exchange as a commodity or
money."
"7. That if it finds from the evidence that the defendants
obtained from the plaintiffs $5,000 of the notes of the Bank of
Kentucky, or $3,900 in a check upon said bank and $1,100 of its
notes, and in consideration thereof, made the note sued upon, the
said transaction was not therefore unlawful or usurious -- although
the notes of the Bank of Kentucky were then at a depreciation in
value of thirty-three percent in exchange for gold or silver."
"8. That there is no evidence in this cause conducing to prove
that there was a loan by the plaintiffs to the defendants of notes
on the President, Directors, and Company of the Bank of
Kentucky."
The court refused to give these instructions, and on motion of
the defendants instructed the jury:
"That if it finds from the evidence that the only consideration
for the obligation declared upon was a loan made by the plaintiffs
to Owens of $5,000 in notes of the Bank of Kentucky, estimated at
their nominal amounts, part paid in the notes themselves and the
residue
Page 34 U. S. 385
in a check drawn by the plaintiffs on the Bank of Kentucky on
the understanding and agreement that the said Owens was to receive
the notes of said bank in payment thereof, and he accordingly did
so, that the Bank of Kentucky had, before that time, suspended
specie payments, and did not then pay its notes in lawful money;
that the said notes then constituted a general currency in the
State of Kentucky, commonly passing in business and in exchange at
a discount of between thirty and forty percent below their nominal
amounts, and could not have been sold or passed at a higher price;
that the said facts were known to the plaintiffs and said Owens,
yet the plaintiffs passed the said notes to the said Owens, the
borrower, at their nominal amounts, then the transaction was in
violation of the act of Congress incorporating the plaintiffs, the
obligation declared on is void, and the verdict ought to be for the
defendants."
The plaintiffs prosecuted this writ of error.
Page 34 U. S. 393
MR. JUSTICE STORY delivered the opinion of the Court.
This is a writ of error to the Circuit Court of the District of
Kentucky to revise a judgment of that court in a case where the
plaintiffs in error were original plaintiffs in the suit.
The suit was an action of debt brought upon a promissory note,
dated 7 February, 1822, whereby the defendants, on or before 7
February, 1825, jointly and severally promised to pay the
President, &c., of the Bank of the United States, at their
office of discount and deposit, at Lexington, $5,000 with interest
thereon, after the rate of six percent per annum, until paid, for
value received. And by a memorandum on the back of the note, the
interest was to be charged only from 21 May, 1822, that being the
day on which the money was actually received by the makers of the
note.
The plea of payment was put in, upon which issue was joined, and
it was agreed between the parties that either party under the issue
might give in evidence any special matter which would be specially
pleaded. At the trial, a verdict was rendered for the defendants,
upon which judgment passed in their favor, and the cause is now
brought before us for revision upon a bill of exceptions taken at
the trial and for matters of law therein stated.
Page 34 U. S. 394
From the evidence at the trial it appears that prior to the time
when the note was given,
viz., in 1819, the Bank of
Kentucky, which had previously been in high credit, suspended
specie payments, and at that time the institution was indebted to
the plaintiffs, the Bank of the United States, in a large sum of
money for notes of the Bank of Kentucky, taken at par in the usual
course of business and for government deposits transferred to the
office at Lexington, from the Bank of Kentucky and its branches.
The accounts had been settled between the two institutions, the
balance ascertained and placed to the credit of the plaintiffs on
the books of the Bank of Kentucky as a deposit, upon which the Bank
of Kentucky agreed, in consideration of forbearance, to pay
interest at the rate of six percent per annum, and the interest, as
it accrued, was carried, at stated intervals to the credit of the
plaintiffs on the books of the bank. This agreement was punctually
performed by the Bank of Kentucky, and the balance which remained
due to the plaintiffs was finally settled and discharged in specie
or its equivalent in about seven months after the negotiation,
which will be immediately noticed.
In this state of things, Owens, one of the defendants, made
repeated applications to the Lexington office of the Bank of the
United States for an accommodation of $5,000, in Kentucky Bank
notes, of which the office had a considerable sum on hand, stating
that such notes would answer his purpose as well as gold or silver,
and agreeing to receive them at their nominal amounts. These
applications were rejected, and finally, at his urgent suggestions,
an application was made to the parent bank at Philadelphia to
permit the Lexington office to grant the application, and the
parent bank accordingly gave the permission. The note now in suit
was accordingly given, with a mortgage of real estate as collateral
security; and $1,100 were received in Kentucky Bank notes, and the
remaining $3,900 were paid by a check drawn on the Bank of
Kentucky, which was duly honored, and the amount of the check was
deducted from the balance due to the plaintiffs, and interest
thereon immediately ceased.
It further appeared at the trial that the Bank of Kentucky was
never insolvent, but had always sufficient effects to pay its
debts; that it has been several times sued for its debts, which
Page 34 U. S. 395
had been always paid in specie or other arrangements had been
made satisfactory to the creditors; it had discharged the greater
part of its debts, and had distributed among its stockholders $10
in specie and $70 in notes of the Commonwealth Bank of Kentucky
(which were at a great depreciation), and that all its funds had
not yet been distributed.
The Bank of Kentucky never resumed specie payments, and at the
time of the negotiation above stated the notes were depreciated
from thirty-three to forty percent, and were current as a
circulating medium at this rate of depreciation. They were,
however, by law receivable for state taxes and county levies at
par, and had accordingly been so received.
Upon this evidence the plaintiffs moved the court to instruct
the jury as follows.
"1. That if it believes from the evidence that the consideration
of the note sued on was $3,900 paid in check on the Bank of
Kentucky and $1,100 in Kentucky Bank notes, and that the contract
was fairly made, without any intention to evade the laws against
usury, but that the parties making the contract intended to
exchange credits for the accommodation of Owens; that the Bank of
Kentucky was solvent, and so understood to be, and able to pay all
its debts by coercion; that the contract is not void for usury nor
contrary to the fundamental law or charter of the bank
notwithstanding it was known to the parties that said bank did not
pay specie for its notes without coercion and that the difference
in exchange between bank notes of the Bank of Kentucky and gold and
silver was from thirty-three to forty percent against the notes of
the Bank of Kentucky."
"2. To instruct the jury that if it believed from the evidence
that the contract was made on the part of the bank fairly and with
no intention to avoid the prohibition of their charter by taking a
greater rate of interest than six percent, or the statutes against
usury, but at the instance, and for the accommodation and benefit
of the defendant Owens, and that at the time of the negotiation and
contract for the check on the bank, and the $1,500 in bank notes of
the Bank of Kentucky, the Bank of Kentucky was indebted to the Bank
of the United States, at its office aforesaid, the sum of $10,000
or more, bearing an interest of six percent, which sum,
Page 34 U. S. 396
it was understood and believed by the parties to the contract at
and before its execution the Bank of Kentucky, with interest, was
well able to pay, and which sum it did pay after deducting the
$3,900 paid to the defendant Owens, with interest in gold or silver
or its equivalent; that the contract was not usurious unless it
believed that the contract was a shift or device entered into to
avoid the statute against usury and the prohibition of the charter,
notwithstanding the jury should find that the check and notes
aforesaid were, in point of fact, of less value than gold and
silver."
"3. If the jury finds from the evidence in the cause that the
defendants applied to the plaintiffs to obtain from them $5,000 of
the notes of the President, Directors, and Company of the Bank of
Kentucky, and in consideration of their delivering or causing to be
delivered to the defendants $5,000 of such notes, and the said Bank
of Kentucky was then solvent and able to pay the said notes, and
has so continued up to this time, and that the holders thereof
could by reasonable diligence have recovered the amount thereof,
with six percentum per annum interest thereon from the time of the
delivery of them by plaintiffs to defendants up to the time of such
recovery, and that said arrangement and contract was not made under
a device or with the intent to evade the statutes against usury or
to evade the law inhibiting the plaintiffs from receiving or
reserving upon loans interest at a greater rate than six percentum
per annum, then the transaction was not in law usurious or unlawful
and the jury should find for the plaintiffs."
"4. That unless the jury finds from the evidence in the cause
that the advance sale or loan of the notes on the Bank of Kentucky,
made by plaintiffs to defendants, was so made as a shift or device
to avoid the statute against usury or in avoidance of the clause of
the act of Congress which inhibits the plaintiffs from taking or
reserving more than at the rate of six percentum per annum for the
loan, forbearance, or giving day of payment of money, the law is
for the plaintiffs, and the jury would find accordingly."
"5. That unless they believed from the evidence in this cause
that there was a lending of money and a reservation of a greater
rate of interest than at the rate of six percentum per
Page 34 U. S. 397
annum, stipulated to be paid by defendants to plaintiffs, the
law is for the plaintiffs and the jury should find for them. Unless
it further finds that there was a shift or device resorted by the
parties with the intent and for the purpose of avoiding the law by
which something other than money was advanced and by which a
greater rate of interest than six percent was allowed."
"6. That if the defendants applied to the plaintiffs for a loan
of $5,000 of the notes of the Bank of Kentucky, and agreed to give
therefor their note for $5,000, payable three years thereafter,
with interest, and the Bank of Kentucky was then, and continued
thereafter to be solvent, and the said Bank of Kentucky did
thereafter pay and discharge to the holders thereof the said notes,
the said contract was not unlawful although the notes of the Bank
of Kentucky would not then command, in gold or silver, their
nominal amount when offered for sale or exchange as a commodity or
money."
"7. That if it finds from the evidence that the defendants
obtained from the plaintiffs $5,000 of the notes of the Bank of
Kentucky, or $3,900 in a check upon said bank, and $1,100 of its
notes, and in consideration thereof, made the note sued upon, the
said transaction was not therefore unlawful or usurious although
the notes of the Bank of Kentucky were then at a depreciation in
value of thirty-three percent in exchange for gold and silver."
"8. That there is no evidence in this cause conducing to prove
that there was a loan by the plaintiffs to the defendants of notes
on the President, Directors, and Company of the Bank of
Kentucky."
The court refused to give any of these instructions, and upon
the prayer of the defendants, instructed the jury as follows:
"That if its finds from the evidence that the only consideration
for the obligation declared upon was a loan made by the plaintiffs
to Owens of $5,000, in notes of the Bank of Kentucky, estimated at
their nominal amounts, part paid in the notes themselves, and the
residue in a check drawn by the plaintiffs on the Bank of Kentucky,
on the understanding and agreement that the said Owens was to
receive the notes on said bank in payment thereof, and he
accordingly did so; that
Page 34 U. S. 398
the Bank of Kentucky had before that time suspended specie
payments, and did not then pay its notes in lawful money; that the
said notes then constituted a general currency in the State of
Kentucky, commonly passing in business and in exchange at a
discount of between thirty and forty percent below their nominal
amounts, and could not have been sold or passed at a higher price;
that the said facts were known to the plaintiffs and said Owens,
yet the plaintiffs passed the said notes to the said Owens, the
borrower, at their nominal amounts, then the transaction was in
violation of the act of Congress incorporating the plaintiffs, the
obligation declared on is void, and the verdict ought to be for the
defendants."
The statute of usury of Kentucky of 1798 declares that no person
shall hereafter contract, directly or indirectly, for the loan of
any money, wares, merchandise or other commodity above the value of
six pounds for the forbearance of one hundred pounds for a year,
and after that rate, for a greater or a lesser sum, or for a longer
or shorter time, and all bonds, contracts, &c., thereafter made
for payment or delivery of any money or goods so lent on which a
higher interest is reserved or taken than is hereby allowed shall
be utterly void. This clause of the act is substantially a
transcript of the statute of 12 Ann, stat. 2, ch. 16, sec. 1, and
therefore the same construction will apply to each. In the present
case, no interest at all has been taken by the plaintiffs on the
$5,000. There was no discount of the accruing interest from the
face of the note, and the interest was payable only with the
principal, at the termination of the three years mentioned in the
note. If the case therefore can be brought within the statute, it
must be not as a taking but as a reservation of illegal
interest.
The ninth article of the fundamental articles of the charter of
the Bank of the United States, Act of 1816, ch. 44, sec. 11,
declares, among other things, 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 percentum per annum
for or upon its loans or discounts."
It is clear that the present transaction does not fall within
the prohibition of dealing or trading in the preceding part of the
same article, according to the interpretation thereof given by this
Court in
Page 34 U. S. 399
Fleckner v. Bank of the United
States, 8 Wheat. 338,
21 U. S. 351,
to which we deliberately adhere.
It is observable that the words of the article are that the Bank
shall not take (not shall not reserve or take) more than at the
rate of six percent. In the construction of the statutes of usury,
this distinction between the reservation and taking of usurious
interest has been deemed very material, for the reservation of
usurious interest makes the contract utterly void, but if usurious
interest be not stipulated for, but only taken afterwards, there
the contract is not void, but the party is only liable to the
penalty for the excess. So it was held in
Floyer v.
Edwards, Cowp. 112. But in the case of
Bank of
the United States v. Owens, 2 Pet. 527,
27 U. S. 538,
it was said that in the charter, "reserving" must be implied in the
word "taking." This expression of opinion was not called for by the
certified question which arose out of the plea, for it was
expressly averred in the plea that in pursuance of the corrupt and
unlawful agreement therein stated, the Bank advanced and loaned the
whole consideration of the note after deducting a large sum for
discount in the notes of the Bank of Kentucky at their nominal
value.
It is in reference to the usury act of Kentucky and this article
of the Bank charter that the various instructions asked or given
are to be examined. But before proceeding to consider them
severally, it may be proper to remark that in construing the usury
laws, the uniform construction in England has been (and it is
equally applicable here) that to constitute usury within the
prohibitions of the law, there must be an intention knowingly to
contract for or to take usurious interest, for if neither party
intends it, but acts
bona fide and innocently, the law
will not infer a corrupt agreement. Where, indeed, the contract
upon its very face imports usury, as by an express reservation of
more than legal interest, there is no room for presumption, for the
intent is apparent;
res ipsa loquitur. But where the
contract on its face is for legal interest only, there it must be
proved that there was some corrupt agreement or device or shift to
cover usury, and that it was in the full contemplation of the
parties. These distinctions are laid down and recognized so early
as the cases of
Button v. Downham, Cro.Eliz. 642;
Bedingfield v. Ashley, Cro Eliz. 741;
Roberts
Page 34 U. S. 400
v. Tremayne, Cro.Jac. 507. The same doctrine has been
acted upon in modern times, as in
Murray v. Harding, 2
W.Bl. 859, where Gould, Justice, said that the ground and
foundation of all usurious contracts is the corrupt agreement; in
Floyer v. Edwards, Cowp. 112; in
Hammett v. Yea,
1 Bos. & Pull. 144; in
Doe v. Gooch, 3 Barn. &
Ald. 664; and in
Solarte v. Melville, 7 B. & Cres.
431.
The same principle would seem to apply to the prohibition in the
charter of the bank. There must be an intent to take illegal
interest or, in the language of the law, a corrupt agreement to
take it, in violation of the charter, and so it was stated in the
plea in the case of
Bank of the United States v.
Owens, 2 Pet. 527. The
quo animo is
therefore an essential ingredient in all cases of this sort.
Now it distinctly appears in the evidence, as has been already
stated, that no interest or discount whatsoever was actually taken
on the note, and on the face of the note there was no reservation
of any interest but legal interest. So that there has been no
taking of usury, and no reservation of usury on the face of the
transaction. The case then resolves itself into this inquiry --
whether, upon the evidence, there was any corrupt agreement or
device or shift to reserve or take usury, and in this aspect of the
case the
quo animo, as well as the acts of the parties, is
most important.
With these principles in view, let us now proceed to the
examination of the instructions prayed by the plaintiffs. The
substance of the first instruction is that if the contract was
fairly made by the parties, without any intention to evade the laws
against usury, but that the parties, making the contract, intended
to exchange credits for the accommodation of Owens, that the Bank
of Kentucky was solvent, and able to pay its debts by coercion,
then the contract was not void for usury nor contrary to the
charter of the bank notwithstanding the parties knew that the Bank
of Kentucky did not pay specie for its notes without coercion and
that these notes were in exchange at a depreciation of from
thirty-three to forty percent below par. We are of opinion, that
this instruction ought to have been given. It excludes any
intention of violating the laws against usury, and it puts the case
as a
bona fide exchange of credits for the accommodation
of Owens. Such an exchange is not
Page 34 U. S. 401
per se illegal, though it may be so if it is a mere
shift or device to cover usury. If the application be not for a
loan of money, but for an exchange of credits or commodities which
the parties
bona fide estimate at equivalent values, it
seems difficult to find any ground on which to rest a legal
objection to the transaction. Because an article is depreciated in
the market, it does not follow that the owner is not entitled to
demand or require a higher price for it, before he consents to part
with it. He may possess bank notes, which to him are of par value
because he can enforce payment thereof, and for many purposes they
may pass current at par in payments of his own debts or in payment
of public taxes, and yet their marketable value may be far less. If
he uses no disguise; if he seeks not to cover a loan of money under
the pretense of a sale or exchange of them; but the transaction is,
bona fide, what it purports to be, the law will not set
aside the contract, for it is no violation of any public policy
against usury.
We are also of opinion that the second instruction ought for
similar reasons to have been given, and indeed it stands upon
stronger grounds. It puts the case that there was no intention to
violate the charter or the statute against usury; that the contract
was for the accommodation of Owens; that the Bank of Kentucky was
indebted to the plaintiffs in a sum exceeding $10,000, bearing an
interest of six percent (which the check would reduce
pro
tanto); that the Bank of Kentucky was able to pay the amount
with interest in gold or silver, and did pay it, after deducting
the check of $3,900, and then asserts that under such circumstances
the contract was not usurious unless the jury believe that the
contract was a shift or device entered into to avoid the statute
against usury, notwithstanding the check and the bank notes were in
point of fact of less value than gold and silver. So that in fact
it puts the instruction upon the very point upon which the law
itself puts transactions of this sort -- the
quo animo of
the parties. Did they intend usury, and make use of any shift or
device to cover a loan of money? Or did they
bona fide
intend a loan of bank notes, which to the lender were of the full
value of their numerical amount, and were so treated
bona
fide by the borrower? Unless the court were prepared to say
(which we certainly are not) that all negotiations for
Page 34 U. S. 402
the sale or exchange of bank notes under any circumstances must,
to escape the imputation of usury or the prohibition of the
charter, be merely at their marketable value at the time, though
worth more to both parties, the instruction was in its terms
unexceptionable.
The third instruction is governed by the same reasoning. It puts
the case that the application was made for a loan not of money, but
for notes of the Kentucky Bank to the amount of $5,000 in
consideration of the note sued on; that the Bank of Kentucky was
solvent and able to pay its notes; that the holders thereof could
by reasonable diligence have recovered the amount thereof, with
interest at the rate of six percent per annum, and that there was
no device or intent to evade the statute against usury or the
prohibition of the charter, and then asserts that under such
circumstances the transaction was not in law usurious. And here it
may be added that if the case was as stated (and the evidence
manifestly conduced to establish it), it is clear that the
plaintiffs could not by the regulation entitle themselves to more
interest than they were already entitled to against the Bank of
Kentucky. It would be a mere exchange of securities by which the
plaintiffs did not reserve and could not obtain more than the legal
rate of interest. If A holds the note of B for $100 and legal
interest, and he exchange it with C for his note for the same sum
and legal interest, and B and C are both solvent, the transaction
in no manner trenches upon the statute against usury.
The fourth instruction puts the case in a more general form, but
the same principles apply to it.
The fifth instruction puts the case in the most pointed manner
whether there was an intended loan of money and a reservation of
illegal interest and a shift or device to cover it and evade the
law by advancing something other than money on the loan. If there
was not, then it asserts (and in our judgment correctly) that the
jury ought to find for the plaintiffs.
The sixth and seventh instructions fall under the same
considerations, and are equally unexceptionable.
The eighth instruction was properly refused, and ought not to
have been given. The court could not judicially say that there was
no evidence conducing to prove that there was a
Page 34 U. S. 403
loan by the plaintiffs to the defendants of the notes of the
Bank of Kentucky. There was evidence proper for the consideration
of the jury, and the intent was to be gathered by them from the
whole circumstances of the transaction.
In regard to the instruction given by the court upon the prayer
of the defendants, it was probably given under the impression that
the case was governed by the decision of this Court in
Bank of the United States v.
Owens, 2 Pet. 527. That case, however, in our
opinion, turned upon considerations essentially different from
those presented by the present record. The questions certified in
that case arose upon a demurrer to a plea of usury, and the
demurrer in terms admitted that the agreement was unlawfully,
usuriously, and corruptly entered into, so that no question as to
the intention of the parties or the nature of the transaction was
put. The transaction was usurious and the agreement corrupt, and
the question then was whether, if so, it was contrary to the
prohibitions of the charter, and the contract was void. In the
present case, the questions are very different. Whether the
agreement was corrupt and usurious or
bona fide and
without any intent to commit usury or to violate the charter are
the very points which the jury were called upon, under the
instructions asked of the court, to decide. The decision in
27 U. S. 2 Pet. 527
cannot, therefore, be admitted to govern this, for the
quo
animo of the act, as well as the act itself, constitute the
gist of the controversy.
In our opinion, the instruction asked by the defendants ought
not to have been given. It excludes altogether any consideration of
the
bona fides of the transaction and the intention of the
parties, whether innocent or usurious, and puts the bar to the
recovery (after selecting a few facts) substantially upon the
ground that the bank notes loaned were a known depreciated
currency, passing in exchange and business at a discount of from
thirty to forty percent, and were passed at their nominal amounts
by the plaintiffs to the defendants, without any reference to the
fact whether there was any design to commit usury or whether the
notes were in reality of a higher intrinsic value or of their full
nominal value to the parties, or whether there was in the
transaction either a taking or a reservation of more than six
percent
Page 34 U. S. 404
interest contemplated by the parties. From what has been already
stated, these constituted the turning points of the case, and the
instruction could not properly be given without making them a part
of the inquiries before the jury upon which their verdict was to
turn.
Upon the whole, we are of opinion that the first seven
instructions prayed by the plaintiffs ought to have been given to
the jury, and the instruction given by the court at the request of
the defendants ought to have been refused, and therefore, for these
errors, the judgment ought to be
Reversed and the cause remanded to the circuit court with
directions to award a venire facias de novo.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Kentucky and was argued by counsel, on consideration whereof it is
the opinion of this Court that there is error in the opinion of the
Circuit Court of the District of Kentucky in refusing to give the
instructions prayed for by the plaintiffs in their first, second,
third, fourth, fifth, sixth and seventh instructions, prayed for in
the bill of exceptions stated, and there is also error in the
opinion of the court in giving the instruction prayed for by the
defendants in the same bill of exceptions stated. It is therefore
considered by the Court that, for the errors aforesaid, the
judgment of the said circuit court be, and the same is hereby
reversed and annulled, and that the cause be remanded to the
circuit court with directions to award a
venire facias de
novo.
