Case ID: mass_9/html/0052-01.html
Source: Caselaw Access Project
Author: {"author": "Sewall, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The President, Directors, and Company, of the Maine Bank versus Samuel Butts.
    Banking companies are within the provisions of the statute against usury.
    This action was brought to recover possession of certain lands, mortgaged to the plaintiffs by the defendant, as collateral security for the payment of his promissory note for 4000 dollars, payable in two years, another note for 6000 dollars, payable in three years from the date, and eight other notes for smaller sums, payable at sundry times respectively within three years from the dates, all the said notes being dated October 19, 1807, which was also the date of the mortgage deed.
    The defendant, among other pleas about which no question arises in the case, duly pleaded the statute against usury, alleging that on Che date of the deed of mortgage, the plaintiffs loaned to him the sum of 10,000 dollars, and that it was then corruptly agreed between the plaintiffs and the defendant, that the latter should allow and give them at the rate of more than six- per cent, per annum for * the loan and forbearance of the same ; and that, in pursuance of said agreement, the defendant then made and delivered to the plaintiffs the two large notes mentioned in the deed, to secure the repayment of the sum so loaned; and that he also then made and gave to the plaintiffs the eight small notes mentioned in said deed, as and for the interest of said 4000 dollars for two years, and of said 6000 dollars for three years from the date of the deed; and alleging that the sums so reserved and secured to the plaintiffs by said eight small notes exceeded the rate of six per cent, per annum, for the loan and forbearance of said 10,000 dollars. The plaintiffs traversed the corrupt and usurious agreement alleged by the defendant, and thereon issue was joined to the country.
    At the trial of this issue, which was had before Thatcher, I., at the last October term in this county, it was shown in evidence that the notes and mortgage aforesaid were given in consideration of the cancelling of a bond, in which the defendant had been a co-surety for one D. Hale, and on which the president of the bank had minuted the receipt of 10,000 dollars from the defendant. From another memorandum in the hand-writing of the president, it was endeavored to prove that the eight small notes were given to secure the payment of the interest payable semiannually on the two large notes, and it was apparent that the interest thus secured was more than six per cent, per annum upon the said two notes; the aggregate amount of the said eight notes being 1827 dollars 36 cents.
    It was proved that no notes were taken at the bank, whereon or whereby a greater interest was taken, reserved, or secured, than at the rate of six per cent, per annum; although, by the manner in which business was transacted there, a greater profit accrued on the moneys loaned there than at that rate of interest. This arose from the borrowers, whose notes were payable in sixty-three days, procuring a new loan of the same amount, a week previous to the * expiration of the time of credit given for the former loan, with which to meet the payment of such former loan. It was also proved that at the Portland Bank, (a similar establishment in the same town,) no more than at the rate of six per cent, per annum had been taken or secured on loans of money for six months or more, and collaterally secured by mortgage.
    Upon this evidence touching the said issue, the cause was com mitted to the jury. The counsel for the defendant contended that there was satisfactory evidence that the eight small notes were given for the interest on the two large notes, and for no other consideration ; that it clearly appeared, from the amount of those notes, that there was secured by them more than six per cent, interest; and that, of course, the whole contract was void.
    But the judge instructed the jury that there was no direct evidence of usury in the case; that the jury were left to presume it; that criminality was not to be presumed, but that the presumption should be in favor of innocence; that if a party would avoid his deed or instrument under seal, appearing upon the face of it fair, he must clearly prove his defence, as stated in his plea; that in this case, the small notes were said by the defendant to have been given for the interest on the larger ones; but that there was no direct evidence of that fact, and the jury could not infer it from the memorandum in the hand-writing of the president of the bank; that it was fair to presume that the small notes were given for something besides interest, as they do not appear to have been given for six per cent, interest; that if they should believe that the said small notes were for interest, then they contained more than at the rate of six per cent, per annum. But in that case, they must "consider whether what was called bank interest, which it was said would amount to seven and a quarter or a tenth per cent., had been cal culated and included in the said small notes, as the interest on the larger notes; that if they should find this to have been the case, it could not be * considered as usury, because the plaintiffs would not have secured more than it was admitted they might have obtained by discounting notes in the usual way"; and that if the small notes did contain such bank interest, and it had been calculated under the idea that the plaintiffs had a right to secure it in this form, although exceeding six per cent, per annum, yet it would not render any of the notes or securities void; but that such excess over and above six per cent, might, if the plaintiffs, in the opinion of the Court, had no right to exact it, be deducted on the hearing in chancery in this cause, to which the defendant would be entitled.
    A verdict being found for the plaintiffs, the defendant’s counsel filed exceptions to the judge’s directions to the jury, and the action stood continued for the consideration of the said exceptions.
    
      King and Emery,
    
    of counsel for the plaintiffs, (being called on by the Court to support the verdict,) contended that there was no evidence of a corrupt agreement in the case, or of any thing showing a covinous or fraudulent intention. Indeed, such an intention was negatived by the verdict. At most,, it was a mere mistake of their rights on the part of the plaintiffs; and although, in equity, the excess of the interest may properly enough be deducted, as secured by mistake or a miscalculation, it can never be a ground to avoid a solemn and fair contract. The case shows, too, how the mistake, if it be one, arose. The practice of all banks is to grant renewals of notes discounted by them a week before the money loaned falls due. In this way, for every eight weeks’ loan nine weeks’ interest is received. This is perfectly understood at the time of the original loan, and no objection is ever made to it. There is no essential difference between such a mode of renewing the loans, and calculating how much benefit would accrue to the bank in that way for the term of a longer loan, and securing the interest accordingly. This must be the meaning of the legislature, in
    authorizing this and other banks *to loan their moneys on banking principles, for such securities as they shall think advisable.
    
      But, though this transaction should be held usurious, it is further contended that banking corporations are not within the prohibition of the statute against usury. They have all been incorporated long since that statute, and are all authorized to loan on banking principles, "which is universally understood as authorizing the receipt of more than six per cent, interest. Corporations are not named in the statute. They are not indictable for taking usurious interest. Nor can they avail themselves of the privilege of swearing, provided by the statute for other creditors.
    
      Mellen, Whitman, and Longfellow, for the defendant.
   Sewall, J.,

delivered the opinion of the Court.

The direction more particularly excepted to in this case is, the-opinion of the presiding justice, under which the jury returned a verdict against the defendant, that interest exceeding six per cent., but not exceeding the usual profits upon loans made on banking principles, is not; when taken by a banking company, (as I presume is to be understood,) to be viewed as illegal or usurious interest.

The counsel for the plaintiffs have argued in support of this opinion, upon a supposed license to companies incorporated, with an authority to discount notes according to banking principles, to exceed, in their discounts and loans of every kind, the rate of legal interest; and upon a supposed exemption from the prohibitions and restraints enacted in. the statute against usury, which a banking company obtains in the act of the legislature by which they are incorporated, or which is necessarily to be implied by their being incorporated with the authorities and privileges of a public bank. In this argument, the term banking principles (a very vague expression, employed by the legislature in the act by'which the plaintiffs were incorporated, and in other similar statutes) has been explained to mean the renewals of discounts, by which the customers of banks are accommodated with a continuance of their loans.

* But a course of business, depending altogether upon the voluntary act of the parties concerned, hardly deserves notice as a legal principle of any kind. No bank or other corporation, any more than _ an individual, has authority to make a discount or loan at a greater rate or profit, for the forbearance or time of payment given, than six per cent, per annum; or are to be considered as exempt, in any respect, from the restrictions of the statute against usury. Nothing like an exemption of that nature is expressed ; and it is very difficult to imply one from the vague expression alluded to. That expression, if "it has any peculiar meaning, is an authority to deduct the interest at the commencement of loans, or to make loans upon discounts, instead of the ordinan forms of security for an accruing interest. But individuals have a like authority, although in both cases the construction is a relaxation of the prohibitions of the statute against usury, and allows a rate of interest which may be estimated at a small extent beyond six per cent, per annum. Banks in their discounts never venture to exceed that rate, in the deductions which they make from their loans, although this anticipation of interest in effect gives more than the fixed rate upon the sum actually paid out.

The other advantage which they have, and which is much more considerable in the effect upon their gains, arises from the course of their business, consisting in a long-continued renewal of loans. A borrower, who is unable to discharge his note at the expiration of the usance, or when the day of payment arrives, is under the necessity of preparing himseli by requesting a discount of another note, which being to be presented on a certain day appointed for the business, the second discount is generally made some days before the preceding note is due; and as the purpose is only the punctual payment of that note, the proceeds of the second discount are never-drawn from the bank, which has the benefit of the deposit until the adjustment is made.

* But banks are not distinguished in this respect from individuals, where the same necessity might give occasion to a similar course of negotiation; and while each note sustains a discount or deduction, at the established rate of interest only, there is no offence against the statute for the prevention of usury,

Upon the whole, where unlawful interest is reserved, whether in one contract or in more, each contract is liable to be avoided, if the objection made and insisted on should be maintained in point of proof. How that is in the case at bar, we are not called upon to decide at this time. But we are all of opinion that the defendant is entitled to a new trial; for, in calculating an interest which has accrued, or" which is accruing, upon any one loan, banking companies are as much restricted as individuals are to the legal rate of interest; which they cannot exceed without endangering the validity of their securities.

It is probable that, in this case, there was no intentional deviation on the part of the bank, but a mistake of their right. This, how ever, is a consideration which must not influence our decision. The mistake was not involuntary, as a miscalculation might be considered, where an. intention of conforming to the legal rule of interest was proved, but a voluntary departure from the rate. An excess of interest was intentionally taken, uppn a mistaken supposition that banks were privileged, in this respect, to a certain extent. This was, therefore, in the sense of the law, a corrupt agreement; for ignorance of the law will not excuse-.

New trial granted. 
      
      
        Prake's N. P.Rep. 200. — 7 D. & E. 185.
     
      
       2 D. & E. 52. — 7 D. & E. 185.
     
      
       [Vide Manhattan Company vs. Osgood, 15 Johns. Rep. 152.— Ed.]
     
      
      
        Cro. Jac. 508.