Case ID: tenn_19/html/0585-01.html
Source: Caselaw Access Project
Author: {"author": "Turley J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Burton vs. The School Commissioners.
    CONSTITUTIONAL Law. particular and general laws. Tile legislature may, by a particular law, prescribe, as a duty, the doing of certain, acts, which, if done, without stick authority, would be indictable by the general law
    Same. Usury. The act of 18á6, c 53, making it the duty of the Bank of the State of Tennessee to loan the depreciated notes of the Nashville Bank, to be repaid in par funds, is constitutional; and an action upon a security executed for notes so loaned, cannot be resisted by the plea of usury.
    
      Qucere — Whether the amended constitution has left this power to the legislature? Art, 13, § 7.
    In order to prevent the depreciation of the Nashville Bank paper, the Legislature, by the act of 1826, c 41, provided fhát the notes of that institution and its branches should be received at par from the purchasers of Hiwassee, academy and college lands, — and in payment of one half of all loans and calls upon loans made by the Bank of the State of Tennessee.
    It was forseen that this Bank, by these means, would become possessed of the depreciated notes; and, among other means of making them available, provided by the fourth section of the act, the directors were empowered to reloan them at six or twelve months, or for the shortest time and on the best terms practicable, payable in sound funds, bearing an interest of six per cent. The directors, moreover, were vested with a discretionary power for converting the depreciated paper into sound funds.
    One of the modes adopted, for this purpose, was, to loan the notes in their possession to the debtors of the Nashville Bank, to enable them to liquidate their liabilities to that institution; and the effect of this process was, of course, the same as allowing the Nashville Bank to redeem its notes by assigning to the State Bank its customers’ paper, — thus transferring their liabilities from one Bank to the other.
    The plaintiff in error, Burton, was one of those customers; and he borrowed from the State Bank an amount of Nashville Bank notes now deprecated equal to his debt to the Nashville Bank with which he paid that debt at par. To secure the repayment of the money thus borrowed from the State Bank, he gave his bills single, which were executed to a friend, by whom they were endorsed to another friend, who endorsed them to the bank. These bills were renewed from time to time till the first of April, 1834, when two bills were given, one of them for $1,362 50 cents, payable at twelve months to William Ledbetter, or order, at the office of discount and deposite of the Bank of the United States at Nashville, endorsed by Ledbetter and Samuel Anderson; the other for $1,400, payable the 1st of December, 1834, endorsed as the first.
    In the mean time the legislature passed the act of 1827, c 64, whereby all the capital and interest of the State Bank, with a certain exception, and all moneys then in it, &c., were appropriated to the encouragement and support of common schools forever. The reformed Constitution of 1834, art. 11, § 10, ordained that the Common School Fund should remain a perpetual fund, and that the General Assembly should appoint a board of commissioners, who should have the general superintendence of said fund. In compliance with this provision, the legislature, by the act of 1836, c 23, constituted the Treasurer of the state, the Comptroller of the Treasury, and an executive officer to be called the Superintendent of Public Instruction, a body politic and corporate, by the name and style of the Board of Commissioners of Common Schools for the State of Tennessee, to have perpetual succession, &c., but to be subject, nevertheless, to legislative modification, alteration or repeal.
    The aforesaid bills of the plaintiff in error, Burton, remaining unpaid, came into the hands of this Board, who, on the 7th of January, 1837, sued him and his endorsers thereupon, in debt, in Davidson circuit court. They pleaded payment, and being at issue upon that plea, it was submitted to the court, upon an agreed case, of which the foregoing is the substance, whether the contract between them and the State Bank was usurious or not?
    If the court should be of opinion in.the negative, the board were to have judgment for the principal, interest, &c., after all just credits, Burton having paid some part of one of the bills. And if the court should hold said contract usurious, the causes were to remain open until it should be ascertained by agreement or the finding of a jury what amount was due ihe plaintiff.
    February 1.
    At May Term, 1838, without previously obtaining from the court any opinion upon the question submitted, the causes were brought to trial before his Honor Judge Rucks and a jury of Davidson, and the plaintiff had a verdict for principal and interest; and his Honor, being of opinion that the contract was not usurious, gave judgment accordingly, — from which judgment the defendants appealed in error.
    F. B. Fogg, for the plaintiffs in error.
    Trimble, for the defendant in error,
    said, 1. Upon the ground that the contract between Burton and others and the Nashville Bank was not in itself usurious, it is denied that this contract is usurious. An usurious contract is one in which a higher rate of interest than is allowed by law is directly or indirectly contracted for. The effect of the con-contract between these parties was simply to shift a debt, which Burton owed the Nashville Bank from that bank to the State Bank, giving him further time for the payment thereof at the rate of six per cent.
    
    The State Bank received the Nashville Bank bills at par, and paid them to Burton at par, made a contract for legal interest only, and will receive nothing beside the legal interest. Burton borrowed money of the Nashville Bank at a time when her notes were at par, the debt became due at a time when her notes were under par; that debt was paid by the Nashville Bank notes, which Burton received from the State Bank dollar for dollar. He loses nothing by the contract. True, he might have bought Nashville Bank bills at some twenty per cent, discount, and paid his debt at the Nashville Bank, by which he would have made as much at the expense of the Nashville Bank as he complains has been made at his expense.
    This case is clearly distinguishable from the case of the Nashville Bank vs. Grundy 8f Hays. In that case, for ought that appeared in the proof, the jury were bound to find and the court to believe that the defendant, Lanier, must lose by as much as the bills he received were below par, some extravagant sum, as will appear from Judge C.’s calcu-íation. Jn the case now under consideration, the facts agreed and stated are such that this court cannot but see that the State Bank can' make only legal interest. Burton can lose nothing, unless he calls it a loss to have had the time of payment extended, at the rate of six per cent. lie only did not make' what by buying the Nashville Bank bills he might have made'.
    But if this- case- were not distinguishable from the case before mentioned,-1 have heard that case questioned and disapproved of by very eminent members of the bar..-
    2. If this- were- a case of usury within the principle of the decisions in 1 Yer. 243, 444, certain statutes of the General Assembly, under which this contract was made and entered into by the respective parties, authorised and legalized this particular contract, and all others- of the same class-. An act to prevent the depreciation of Nashville Bank paper, passed 11 Dec. 1826, c 41, § 4, in so many words required', and authorised this contract.
    This act I take to be entirely conclusive upon the question of usury; if it does not conflict with the Constitution of the United States, or Constitution of Tennessee.
    If contrary to any particular principle of constitutional law it must be that which, inhibits the passage of any partial-law.
    This is not a partial law. Nashville Bank paper was in circulation throughout the state, and making a very large part of the- circulating medium. This act had in contemplation the benefit of all who had such paper, by preventing its depreciation. Again, a portion of k was made to operate to the benefit of all’ such as had dealings with the Nashville Bank, and this possibly included- every man in the community. 2 Yer. 266.
    It may be said to be- partial in this, that it authorised the State Bank to do that which a eitizen would not have- done; it authorised the Bank to take one rate of interest, the citizen another and lower rate.
    But the State Bank was the exclusive property of the state, conducted by its own agents; and reserving a higher rate of interest to i.t, was doing nothing more than has always been allowed to banks. Tins power has never been questioned. The Union and Planters Bank now by their charters .... , . .... , , take a higher rate than is permitted a citizen,, and yet the power and right have never been questioned.
    February 5.
   Turley J.

delivered the opinion of the court.

In the year 1826, the legislature of this state passed an act to prevent the depreciation of Nashville Bank paper, by which provision was made,, that the notes of tlie Nashville Bank and its branches should be received at par by the state in payment of debts due from purchasers of Hiwassee and Academy lands, and also in payment of one half of any debt due to the Bank of the State of. Tennessee.

This statute makes it the express duty of the directors of the Bank of the State of Tennessee to loan out said money, as fast as it might be received, for the shortest time, and upon the best terms practicable to be repaid in sound or par funds. Session Acts of 1826.

Under the provisions of this statute, the plaintiff in error, Burton, who was a debtor to the Nashville Bank, borrowed the sum now sued for in Nashville Bank paper, and with it paid his debt to the Nashville Bank; and he now asks to be protected against the payment of the principal sum thus borrowed, upon the ground, that at the time the transaction took place, Nashville Bank paper was greatly depreciated, and the contract therefore usurious.

It may be observed, that this application comes with a bad grace. A debt has heen contracted with the Nashville Bank, when its paper was at par, and this debt was discharged by the money borrowed from the Bank of the .State at par, and no loss whatever was sustained by the transaction. Nothing then but strict law would justify us, in reversing the judgment of the court below. This, it is said, is to be found in the decisions of this court in the cases of the Nashville Bank vs. Hays, and Grundy & Lawrence vs. Morrison, 1 Yer. 243, 444; these cases determine that a loan of paper money greatly depreciated, to be repaid in sound funds is usurious.

Without questioning the authority of these cases, we do not think them applicable to the one now under consideration. The act of 1826, as we have seen, authorised and required the directors of the Bank of the State to Joan out Nashville Bank paper, to be repaid in par funds, when it could be done.

The legislature certainly had the power to pass this law, and it clearly makes that lawful, which otherwise might have been unlawful kinder the decisions before referred to. It would involve an absurdity to say, that the legislature had required the directors of the State Bank to perpetrate a crime, for which they might be indicted, and this would be the consequences of decision pronouncing a loan of Nashville Bank paper under the provisions of the act of 1826, usurious-

We are therefore of the opinion, that the contract is legal and that the plaintiffs in error have no cause of complainant against the judgment of the circuit court, which must be affirmed.