Case ID: ohio-st_6/html/0020-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William W. Corcoran and George W. Riggs v. Benjamin Powers, Hosea Williams, and others.
    Where H., for the purpose of raising funds, proposes to C. &R., bankers at Washington City, to sell them three drafts, each for $6,666.66, to be drawn by him on the post-office department, at Washington City, and made payable, one at six, one at nine, and one at twelve months from date, out of the pay which may become due to the drawer under his contracts for mail transportation, and to take for said drafts the sum of $16,000 — the drafts to be made payable to the order of V., and their payment at maturity secured by his accommodation indorsement, as well as by a power of attorney to be executed by H., in favor of C. & R., authorizing them, upon the dishonor of the drafts, to sell and transfer 145 shares of bank stock, owned by H.; and C. & R., accept the proposal, advance the $16,000, and receive the drafts and securities; the transaction is at least prima facie a loan, and nót a sale.
    
    The validity of such agreement depends upon the lex loci of the contract, and under the statute of Maryland, in force at Washington City, such contract is utterly void for usury.
    The form of a contract is by no means decisive .of its real character. The question in such case is not what did the parties call it, but what do the facts and circumstances require the court to call it.
    In such cases, the distinction is well taken between business and accommodar lion paper.
    Collateral securities taken on a contract void for usury are .also void in the hands of the usurer.
    Where H. makes an absolute general assignment and transfer of such securities, for full consideration, to P. & W., though they receive the same with full knowledge of the claim of C. & R., the assignees may set up the defense ':;:'of usury to a bill subsequently filed against them and H., by C. & R., [20 seeking to subject the securities thus assigned to the payment of a balance due on the drafts.
    Nor will this right of the assignees be affected by a stipulation which H., after suit brought, filed in the cause, waiving the defense of usury.
    It is sufficient if the usury proved be substantially, the same with that averred in the pleading.
    
      In chancery. Eeserved in the district court of Franklin county
    The facts are sufficiently stated in the opinion of the court.
    
      Swan & Andrews, and P. B. Wilcox, for complainants.
    
      N. H. Swayne, and Finch & Jones, for the defendants, Powers & Williams.
    The Eeporter has not been able to find the original argument of Swan & Andrews.
    
    
      N. U. Swayne. The second ground of defense relied upon is usury.
    The answer avers that the contract was made at Washington City, and to be performed there; that at the time of the making of the contract, and for a long time before, and ever since, the following statutory provisions were in full force there as law
    “ That no person upon any contract shall exact or take, directly or indirectly, for loan of any money above the value of six pounds for the forbearance of one hundred pounds for one year; and so after that rate for a greater or less sum, or for a longer or shorter time.”
    “ That all bonds, contracts, and assurances whatever, made for the payment of any principal money lent, or covenant to be per-. 21] formed upon or for any usury, whereupon *or whereby there shall be received above the rate of six pounds in the hundred for money, as aforesaid, shall be utterly void.”
    “And that any person taking more than the rate aforesaid shall be liable to pay treble the value of the money lent, to be recovered by action of debt, bill, plaint, or information; one-half to the informer,” etc.
    1. If the complainants are entitled to a decree for anything, it can only be for the unpaid balance of the amount advanced by them and interest. Ch. on Bills, 667, 668; Sedgwick Dam. 241; Wiffin v. Roberts, 1 Esp. 251; Braman v. Hess, 13 Johns. 52; Cram v. Hendricks, 7 Wend. 569.
    2. Whether the facts. make a case of usury is to be determined by the lex loci of the contract. If the contract be void there, it is void everywhere. All securities tainted with the usury ai’e void. Story’s Confl. of Laws, 202; 2 Kent’s Com. 461; DeWolf v. Johnston, 10 Wheat. 367; Chapman v. Robertson, 6 Paige, 627; Morgan 
      v. Tipton, 3 M’Lean, 345; Loyd v. Scott, 4 Pet. 228; Panning v. Dunham, 5 Johns. Ch. 136, 142; 3 Gill & Johns. 123, 482; 5 Ib. 23.
    3. Receiving or reserving usurious interest, sufficient evidence of an usurious' agreement. Bank of Utica v. Wager, 2 Cow. 769; Powell v. Waters, 8 Ib. 696; Bank United States v. Owens, 2 Pet. 538. Usury paid, or promised to be paid, is the same thing. Hammond v. Hoping, 13 Wend. 505.
    4. If there be usury, the intention of the parties, ignorance of the legal effect, and usage are immaterial. Manhattan Bank v. Osgood, 15 Johns. 152; 13 Johns. 40; N. Y. Firemen’s Ins. Co. v. Ely, 2 Cow. 672; Bank of Utica v. Wager, Ib. 712; 1 Vesey, 527, note; 11 Paige, 660; 3 Sandf. 215; Ib. 315; 7 B. & C. 430; 9 Mass. 55.
    *5. Usury defined — where it exists any shift, device, or pre [22 tense unavailing to protect the usurer. Bank United States v. Owen. 2 Pet. 537; Loyd v. Scott, 4 Ib. 205; Floyer v. Edwards, Cowp. 112.
    6. Where usury is charged, and the paper is claimed to have been sold, the test as to usury is, whether before the holder took the paper, a suit could have been maintained upon it as between the prior parties to it. In other words, whether the paper was of any validity before it was transferred to the alleged usurer.
    According to this principle, the facts of this case make out a clear case of usury. Munn v. The Com. Co., 15 Johns. 55, 56; Bennet v. Smith, Ib. 356; Powell v. Waters, 17 Johns. 181; S. C., 8 Cow. 607; Wilkin v. Roosevelt, 3 Johns. Ch. 68; Churchill v. Suter, 4 Mass. 156; Knight v. Putnam, 3 Pick. 184; Ely v. McClung, 4 Porter, 383; Sock v. Parker, 2 McCord Ch. 383; Fleming v. Mulligan, Ib. 174; Holman v. Hobson, 8 Humph. 127; Nat. Fire Ins. Co. v. Fitch, 11 Paige, 660; Anderson v. Rapelye, 9 Paige, 483; S. C., 4 Hill (Cowen’s opinion), 472; Yanke v. Lockhart, 4 J. J. Marsh. 277; Belden v. Lamb, 17 Conn. 441, 452; Cutler v. Johnson, 8 Mass. 266; 2 Denio, 24; 7 Blackf. 540; 10 Eng. C. L. 75; Mitchell v. Winston, 2 Story, 639; Woodworth v. Sherman, 3 Ib. 174; Price v. Ridger, 4 Price, 50; Bernard v. Young, 17 Vesey, 43.
    7. See the following cases, decided under the statute relied upon in this case: Sauerwine v. Bruner, 1 H. & G. 477; Nichols v. Fearson, 7 Pet. 103.
    The holders of the stock in question have a right to make this defense.
    The cases of Post v. Dart, 8 Paige, 639; Lloyd v. Scott, 4 Pet. 205; and Trumbo v. Blizzard, 6 Gill. & Johns. 18, will be found conclusive on this subject.
    See also Brooks v. Avery, 4 Comst. 225; Cummins v. *Ware, 2 Halst. Ch. 73; Doub. v. Barnes, 1 Md. Ch. Dec. 127.
    The case of DeWolf v. Johnson, 10 Wheat. 367, cited by the complainants’ counsel, does not affect this case. • Here there is no new •agreement purging the usury, and creating a new obligation to pay the amount equitably due. Here the defendants are not the purchasers of a mere equity of redemption. They are the absolute alienees of the stock, for a full consideration.
    Aftpr the transfer of the stock to the defendants, Hinton could do no act which can affect their rights.
    The doctrine upon this subject will be found fully discussed in the cases cited from 8 Paige, and 6 Gill & Johnson.
    Where usury statutes exist, questions arise under them as to two classes of paper — first, business paper, and, secondly, accommodation paper.
    
    The general rule upon the subject of usury is laid down in the Bank of the U. S. v. Owen, 2 Pet. 536.
    As to the transfer of business paper, the rule is clearly laid down in Yanke v. Lockhart & Burton, 4 J. J. Marsh. 277.
    The samo principle is fully recognized in the case of Anderson v. Rapelye, 9 Paige, 483, and in S. C., 4 Hill, 472.
    For the rule as to paper other than business paper, see Munn v. The Com. Co., 15 Johns. 43. See also 1 Hill, 10.
    The point mainly relied upon by the counsel for the complainants is, that the drafts in controversy were an equitable'assignment pro tanto of Hinton’s mail pay, and, as such; might be sold at the market rate of such paper without reference to the usury statute. To this view of the subject there are several answers:
    1. There was nothing to assign. There could not be an assignment without there was something to be assigned.
    2. This argument, if it prove anything, proves too much. Every bill of exchange which is not a fraud, so as to dispense with the necessity of demand and notice, is an equitable assignment pro tanto of the funds of the drawer, which it presupposes to be in the hands of the drawee.
    3. The rule upon which we insist recognizes no such exception or qualification. No trace of anything of the kind is to be found in the books. Wherever the fact exists, that the paper had no validity until transferred, that fact fixes the character of the transaction, and is conclusive. The transaction is ipso facto usurious, and the paper in the hands of tho usurer void.
    If the court should desire to examine the learning upon the subject of assignments, I refer them to Comyn’s Digest, tit. Assignment, chap. 1-3.; Williams v. Everett, 14 East, 582; Clayton, v. Fawcet, 2 Leigh, 184; Leppard v. Vernon, 2 Ves. & B. 54; Brainerd v. Benton, 5 Vt. 97; Hagman v. Sempeyrack; 2 La. 154; Bradley v. - Bridge, Ch. Cas. 194; Mandeville v. Welch, 5 Wheat. 277; Malcolm v. Scott, 1 E. L. & E. 84.
    
      Finch & Jones. As to usury:
    The contract in-this case was made in the District of Columbia, and is governed by its laws.
    By the law in force there on the subject of interest, all contracts in which a greater sum than 6 per cent, per annum is agreed to be paid for the use of money loaned are utterly void.
    We insist that this contract is clearly usurious and void.
    Under this statute usury may be defined to be any agreement to give and receive for the use of money a greater ^compensation [25 than 6 per cent, per annum. It is true the words of the statute are “for money lent; ” but the above definition of usury implies a loan; for a money loan is any agreement for the use- of money for a stipulated time, at the end of which it is to be returned or replaced with a compensation for its use; and a usurious loan is one in which tho compensation agreed upon is greater than the legal rate.
    The essence of a usurious agreement, therefore, is the undertaking to pay and receive too great a compensation for the use of money.
    But it is contended by the complainants that here was a fair sale of these drafts for their full value, and that such sale is not obnoxious to the imputation of usury; that in such cases discount beyond legal interest may be made on account of risk of insolvency.
    We recognize fully the doctrine that a mere sale of a note or hill, or chose in action, may be made at a greater discount than the legal •rate of interest, and not be usurious, but it must be in fact as well as in form a sale.
    The sale of a note is nothing but a transfer of the right to receive its proceeds, if it shall be paid, or to collect it if collectible. And danger of the insolvency of the maker very properly enters into the estimate of the value of a note; and in such case it is impossible to say that the transaction involves a usurious intent, because it is not susceptible of proof how much of the discount was intended to cover risk.
    But, though there is necessarily, in all loans, more or less risk of ■loss, yet it is obvious that no allowance can be made for this in questions of usury; or, if permitted, forbearance and risk can, together, never be estimated higher than the legal rate of interest, for if this were allowed, usury could never be established, as it would 26] be impossible’*to prove how much of the discount was, in the minds of the parties, set down to the account of risk and how much to forbearance.
    We have said “a note may be sold,” etc. What do these other-words imply? Clearly two things:
    1. ’ That the note has been signed and delivered; for till that is done, it is not a note.
    
    2. That the proposed seller owns it, has a title to it, and a right to claim and collect the amount of it from a third party.
    It would, therefore, be a perversion of language to say that a man might sell his own note, for it only becomes such by its negotiation.
    With these limitations, then, a sale may be made of a note or other similar claim at a greater discount than the legal rate of interest, and not be usurious, always remembering, however, that the note, etc., so to be sold, must not be the obligation of the party selling; for it is obvious, that if this were allowed, the usurer and his victim would have only to agree to call the giving a note or drawing-an order for the payment of borrowed money a selling of the note or order, and the law would successfully be evaded.
    Hence it has been uniformly hold in New York, and everywhere else where usury laws were in force', that if a note is made only to raise money upon, and is not to become effective until it is negotiated, its negotiation is treated as a loan, and too great discount is, prima facie, usurious; and it makes no difference that the note has been indorsed for the accommodation of the maker. See Belden v. Lamb, 17 Conn. 441; 2 Denio, 621; Jones v. Hake, 2 Johns. Cas. 60; Walker v. Roosevelt, 3 Johns. Cas. 69; S. C., 3 Johns. Cas. 206; Bennett v. Smith, 15 Johns. 335; Munn v. Commission Co., Johns. 44; Yanke v. Lockhart, 4 J. J. Marsh. 277; 9 Cowen, 647.
    *In these cases (as well as many others) this doctrine is so ably argued and so fully sustained, as not to need further argument or illustration.
    
      Again : though a note, etc., may be sold at any price that may be fairly agreed upon' by the parties, yet if sold at a greater discount than the legal interest, and the seller at the same time agree that the purchaser shall be reimbursed the full face of the instrument sold, this is usury; for this is, in substance and fact, a loan ; and it makes no difference how the purchaser is to be reimbursed, whether by the maker or indorser, or partly by each ; the material matter is, that the seller undertakes that the full sum is positively to be paid. N ow here the usury is not in the sale but in the absolute undertaking for full payment. True, there is a class of cases in which the New York courts have held that the indorser of a note sold at a discount is only liable to his immediate indorser for the amount he received for it and interest, and not the full face of the note sold; and that, therefore, such indorsement is not necessarily usurious; that is, they have refused to presume that the parties intended by such indorsement, etc., a greater liability than the law imposes; and in these cases it will be observed, that the plaintiff only claimed the amount paid by him, with legal interest.
    Such are the cases of Bramin v. Hess, 13 Johns. 52; Cram v. Hendricks, 7 Wend. 569; Mazuzan v. Mead, 21 Wend. 285; 4 Hill, 472.
    Now it is to be observed that in all these cases, the ground on which the courts ruled that the contracts were not usurious, was, that it did not appear that there was any usurious intent, that is, that the parties understood that they were contracting for the payment of anything more than the face of the note sold and interest.
    But in this case, on the contrary, complainants and *Iiinton [28 both understood when the contract was made, that not the $16,000 advanced, with the legal interest, but the full' .$20,000 was to be paid ; and such is the legal effect of these bills or orders.
    The result of this analysis, and of the authorities cited, is, that in all cases, whatever may be the name or form of the transaction, if there be an agreement for the advance of a sum of money for a stipulated time, at the expiration of which it is to be returned or rejilaced in full, together with a compensation for its use greater than the legal rate of interest, the transaction is usurious.
    To this proposition there are no exceptions.
    
      Bwan & Andrews, in reply:
    
      The substance of, the transaction was a sale and assignment protanto, of a certain amount of Hinton’s mail pay.
    As to the legal questions arising in this case, we claim:
    1. That the quarterly payments, to become due from time to-time, to Otho Hinton upon his mail contract with the government, were a salable article, and that drafts drawn by him, for them, in favor of the purchaser, would vest in the purchaser the right to such payments, as they should become due. There can be no doubt on this point. 1 Vesey, 280; 5 Paige, 640.
    If there had been no mail contract between the government and Hinton, but the whole transaction had been a mere sham, got up-by the parties, the test, referred to by defendant’s counsel, might be applicable; but it has no application to this case. This test does not apply to a bill of exchange drawn in good faith. See 3 Edw. Ch. 146; 2 Call, 98. See, also, 4 Conn. 156; 2 Hen. & Mun. 14; 2 Munford, 36.
    . It is claimed, however, that if, in making such a sale, any secur 29] ity, whatever, is given to the vendee, that the ^payments to become due from the government shall be in fact made, in such cáse, the sale must be at a discount not greater than the legal rate of interest; amd that, if such sale be at a discount greater than the-legal rate of interest, it is necessarily usurious and void. We have referred the court to the following authorities: 3 Edward’s Ch. 143, 424; 7 B. & C. 458.
    We have also cited 1 Clark, 432; 3 B. Mon. 67; 7 Pet. 110. These authorities are to the point that a sale of a note on credit, with a guaranty or indorsement, if made in good faith, is valid. The case in 7 Peters, 110, arose in the District of Columbia, under the statute relied on in this case, upon the sale of a promissory note, indorsed by the vendor. These authorities, and some others, are collected and commented on in the note to 1 Vesey, Jr. 527.
    The question in all such cases is: Was as a sale, in good faith, contemplated and intended by the parties? If so, the law will not infer something that was not intended. In some cases where the' parties intended a loan of money, but supposed the rate of interest to be lawful, when it was in reality unlawful, courts have held that the parties must abide by their acts, and that the intention can not relieve a party from the consequences of such acts. But no case,, we think, can be cited where the parties intended, in good faith, a purchase and sale of a salable commodity, and a court, against tha intention of the parties, has held that the transaction was impliedly a loan. There' can be no such thing as a sale in reality honest, as between fhe parties', but which is at the same time technically, and in the eye of the law, corrupt, usurious, and void.
    
    See 4 Hill, 472; Nickols v. Fearson et al., 7 Pet. 103; 17 Conn. 443; 14 Ib. 605; 3 Pick. 186; 2 Day, 483.
    In the ease of Archibald v. Thomas, 3 Cow. 290, it is laid down as a rule, in the construction of contracts claimed *to be usurious, [30 that where a contract admits of two significations, that ought to be adopted which renders it opersitive, rather than that which renders it null and void..
    ■ As to the right of these defendants to raise this question of usury, we have cited De Wolf v. Johnson, 10 Wheat. 367. This case is full to the point, that the holder of an' equity of redemption can not avail himself of this defense, whether he purchased with or without notice.
    See also Sands v. Church, 2 Seld. 347.
    P. B. Wilcox, in substance:
    1. The usurious contract .set out in the answer is substantially different from that proved; the variance is fatal; the defendants must prove the usury as laid.
    
      “ The rule is established, that any pleading which sets up usury, either as ground of defense, in a plea or answer, or a substantive cause of action, shall set it up in clear and distinct terms; and the terms of the usurious contract and the quantum of the usurious interest or premium must be specified and distinctly set out. The defendant must also prove the usury as laid; and any substantial variance between the allegations and proof is fatal to the defense.” 12 Barb. S. C. 602; 4 Paige, 526; Clarke’s Ch. 362; 8 Paige, 457; 11 Ib. 17; 3 Hill, 565; 2 Sandf. Ch. 15; Comyn on Usury, 203.
    Thus, in 3 Term, 531, a plea of usury stated the forbearance, absolutely till the first of September, 1785. The proof showed that, in one event, the forbearance was to be till that day, but in another event, it was to be till the first of January, 1786. And Lord Hen-yon held the variance to be fatal.-
    So, in 4 Paige, 526, the chancellor held the contract of usury sot out in the answer to be substantially different from that proved, and so held the variance fatal.
    *And in 3 Sandf. Ch. 564, the same rule is applied. In that case [81 the answer, in setting up a usurious contract, alleged that Hetfield advanced $2,000 of the money loaned, and Dayton $600. The proof showed the whole $2,600 advanced by Hetfield. And this the chancellor held to be a fatal variance.
    Sc, in Cowp. 671, the pleading set out the usurious contract as mado on the 21st December, 1774, and the day of payment, December 23, 1776. There was but one witness to prove the contract, and he said the contract was mad,p on the 23d, instead of the 21st December, and was for two years.
    Mr. Davenport argued, “ that, supposing the contract was made on the 23d December, and the forbearancd to be for two years, it was equally usurious, and, therefore, the variance was immaterial.”
    But, “ by Lord Mansfield, there is no color for the plaintiff’s recov- • ering upon this count. The usurious contract must be proved as laid; whereas, the' contract, proved in this case, is totally different from the contract stated in the declaration.”
    So, in 6 Gratt. 287, it is held, “ that a party who pleads usury must prove it; and the burden does not shift to the other party, by proving some circumstances tending to show it.”
    And the reason of the rule is thus given: “It is reasonable that strictness should be required in this, inasmuch as the effect of such pleading, if sustained, is to set aside the entire contract, and to deprive the party lending the money, of even the monev lent.” 12 Barb. S. C. 601.
    See Catlin v. Gunter, 1 Duer, 253, where the cases of variance are reviewed.
    2. But there was no loan at all.
    *The original contract between the government and Hinton being a valid one, and Hinton being allowed by it to draw bills on the post-office department, to be there registered and paid, on condition that Hinton faithfully performed his contract; the subsequent transaction between Hinton and the complainants was not a loan of money, but a sale and transfer of a part of Hinton’s interest in the concern. Western Reserve Bank v. Potter, 1 Clarke’s Ch. (N. Y.) 432.
    See Mumford v. American Life Ins. Co., 4 Comst. 463, where the leading authorities are collected.
    Comyn on Usury, secs. 3, 22.
    The stock was to be transferred in Ohio. The laws of Ohio are, therefore, to govern, because the contract is to be performed in Ohio. Burge on Surety, 74-79; Davis v. Coleman, 11 Iredell, 303.
   Scott, J.

The facts of this case, essential to a proper understanding of the points considered and determined by the court, are substantially these:

About the 1st of'May, 1846, Otho Hinton, of Delaware, Ohio, who then was, and for some years prior thereto had boon, extensively engaged as a contractor for carrying the mails of the United States, being in want of funds, applied to the complainants — who are bankers- — at their office in the city of Washington, for the purpose of raising money, and submitted to them, in writing, the following proposal:,

“ Messrs. Corcoran & Riggs : — I want to sell you three drafts upon the department, of $6,333 each, in all $20,000 — first, 1st of November, second; 1st of February; third, 1st of May, 1847 — for which
I will take $16,000, as follows : First,
*1 want, 12th inst.............................................$1,224 80
One draft or certificate of deposit, payable at June..... l-,600 00
Do. one certificate of deposit, payable 14th June............. 1,500 00
Do. one certificate payable 14th June........................... 2,500 00
Do. one 15th July..................................................... 2,500 00
Do. one for certificate in favor of the Bank of Delaware,
Delaware, Ohio (1st July).................................... 5,000 00
Do. cash, Virginia or western paper............................ 675 00
Do. one sight draft upon New York............................. 1,000 00

Considerable negotiation followed,- but finally, about the 20th of May, 1846, the parties came to an agreement, in pursuance of, which three drafts were drawn by Hinton on P. G-. Washington, auditor of the post-office department, Washington City, each calling for $6,666.66, and payable'out of his pay for transportation of the United States mails. One of these drafts was dated May 14, 1846 • and was payable to complainants, November 1, 1846 ; the other two were drawn in favor of, and indorsed by Peter Voorhes, and were payable respectively on the 1st February and 1st May, 1847. Voorhes was a mere accommodation indorser. It was, at the same time, agreed that Hinton should further secure the payment of these drafts at maturity, by giving the complainants a lien upon 145 shares of the capital stock of the Delaware County Branch of the State Bank of Ohio, for which he held a certificate, and on which he had paid $9,000. The three drafts were then delivered to complainants, and Hinton received from them, in consideration of the px’emises, $16,000, partly in cash, and partly in certificates of deposit, and drafts payable at sight, or on short time, and at such points as his convenience dictated.

Early in June, 1846, Hinton, in pursuance of the agreement for further security, transferred to complainants his said certificate of stock, and also executed and delivered to thejn a power of attorney, authorizing them to sell and transfer said stock on the books of the 34] bank, with a condition *of defeasance, upon the payment of the drafts at maturity. The Delaware County Bank, of which the defendants, Powers and Williams, then were, and still are, directors, and Powers also cashier, had previously consented that Hinton might transfer his stock to complainants, and had caused an entry to that effect to be made on its books; and had also given Hinton a certificate, under date of June 1, 1846, signed by said cashier, and which Hinton exhibited to complainants, setting forth that Hinton was owner of said stock, had paid $9,000 thereon, that he had full power to transfer it, that, according to the charter and by-laws of the bank, stock could be transferred by power of attorney, that the directors had knowledge that a transfer was about to be made to Corcoran & Riggs, and had made an entry on their books of their consent thereto, and that, on jmesentation at the bank of a power of attorney for that purpose, a transfer would be made on their books and a now certificate of stock issued. Some correspondence ensued, shortly afterward, between complainants and the bank, in which, by way of answer to inquiries on that subject, complainants were informed by the cashier, that the bank had full knowledge of their power of attorney,, and that complainants could, under it, at any time, obtain a transfer of the stock to themselves, by directing the bank to enter the same on its transfer books.

The drafts payable February 1, and May 1, 1847, were each protested at maturity for non-payment, and due notice was given to charge the parties. Hinton failed early in 1847, and is still hopelessly insolvent.

On the 22d of February, 1847, Hinton transferred on the boobs of the bank, and with its assent, and for a good and valuable consideration, the said 145 shares of stock, to the defendants, Powers and Williams, in pursuance of an agreement made by him with 35] them in December, 1846, when *they became sureties for him in large sums, on promissory notes. After the dishonor of the-drafts, complainants forwarded Hinton’s stock certificate and power of attorney to the defendant, Powers, as cashier of the bank, and requested him to transfer the stock to them, which Powers declined doing, and claimed, for himself and Williams, to hold said stock under Hinton’s absolute assignment and transfer to them.

Complainants thereupon filed their bill in the court-of common-pleas of Franklin county, against Powers and Williams, the Delaware Bank, Hinton, and Yoorhes, seeking mainly to subject this-bank stock to the payment of' a large balance still due them on the two protested drafts. Answers were filed by Powers and Williams, and by the Delaware Bank. Hinton failed to answer, and, during the pendency of the cause in the common pleas, filed a stipulation waiving the defense of usury and all other defenses, and consenting that a decree might be taken against him for the sum which might be found due on the drafts. Such decree was accordingly rendered at the March term of said court, 1849.

The answer of the defendants, Powers and Williams, among other matters of defense, avers that the contract between complainants and Hinton was made at Washington City, and to be performed there; that at the time of the making of the. contract, and for a long time before, and ever since, the following statutory provisions were in full force there as law:

“ That no person, upon any contract, shall exact or take, directly or indirectly, for loan of any moneys, above the value of six pounds, for the forbearance of one hundred pounds for one year; and so after that rate for a greater or less sum, or for a longer or shorter time.”
“ That all bonds, contracts, and assurances, whatever, made *for the payment of any principal money lent, or covenant [36-to be performed upon or for any usury, whereupon or whereby there shall be received above the rate of six pounds in the hundred for money, as aforesaid, shall be utterly void,” etc.

The answer charges that Hinton gave the three drafts before-mentioned, amounting, in the aggregate, to $20,000, for a loan of $16,000; that the contract of the parties was corrupt and usurious, in providing for the payment of interest on said loan at a rate-greater than that of six per centum per annum, and was therefore, by force of said statute, utterly void.

After the decree was taken*against Hinton, his deposition was* taken in this cause by the defendants, and on the hearing, complainants obtained a decree in their favor, from which the defendants, Powers and Williams, appealed, and the case was reserved by the district court for decision here.

. We do not deem it necessary to consider any of the points made by counsel in the case, except such as arise from the defense on the ground-of usury. The first and main question arising from this branch of the defense, is, was the contract of complainants with Hinton usurious ? By the statute of Maryland, in force at Washington City, and which, being the lex loci of the contract, must govern the case, all bonds, contracts, and assurances, whatever, whereby there shall be reserved an interest above the rate of six per cent, on money loaned, are declared to be “ utterly void.” Now it can not be doubted that, if the $16,000 was loaned by the ■complainants to Hinton, the contract is void for usury; for the drafts, having an average time of but nine months to run, were discounted at the rate of 25 per cent. — equivalent to 33-J- per cent, per annum. The subject of inquiry, then, is, what was the real 37] character of this transaction ? *Was it a purchase of three bills of exchange, or a loan of money?

The form which the parties may have seen proper to give to their ■contract is by no means conclusive of its real character; for the ■statute may not be evaded by any artifice or device of the parties. The question is, not what-have they called the transaction, but, what do thq facts and circumstances require the court to call it?

In determining the character of contracts of this kind, a distinction is well taken between business and accommodation paper. A bill or note valid in its inception, and furnishing a good cause of .action as between the original parties to it, may be sold as a marketable commodity, at such rate of discount as the parties may think proper, without subjecting the purchaser to the imputation of usury. But it is otherwise, where the bill or note claimed to have been sold is mere accommodation paper, void in its inception, fictitious in its -character as between the original parties, and on which no action could be maintained till after its transfer to a third party. Such is the test established in the courts of New York (15 John. 55), sanctioned by the general current of authorities in other states, and recognized and approved by the Supreme Court of the United States in Nichols v. Fearson, 7 Peters, 103.

Let us apply this test to the case*-under consideration. Hinton is in urgent need of funds; his credit will not enable him to borrow money at the legal rate of interest; and his necessities are such that he is willing to submit to the payment of interest at the rate of 33J per cent. He has no choses in action or evidences of indebtedness-against the post-office department to sell — that department owes-him nothing. He applies to complainants (from whom, as the evidence shows, he has been in the habit, for years, of obtaining advances in a similar manner), and *to procure'$16,000 from them, [38 he proposes to draw and sell to them three drafts on a fund which has no present existence, and which, it is quite possible, may never exist. These drafts are created at the time and for the occasion; they are made payable' to Voorhes, who neither has, nor is expected to have, any beneficial interest in them, for the sole purpose of placing Yoorhes in the legal relation of indorser, and thereby furnishing additional security for the payment of the sums named in the drafts; and the complainants are fully apprised of the fictitious character of the bills as between Hinton and Yoorhes. .

We are satisfied that the application of the test referred to, and which we regard as sanctioned both by reason and authority, requires us to pronounce this transaction at least, prima facie, a loan of moneys, usurious, and, as a contract, “ utterly void ” by the statute. It is, in effect, and in truth, a borrowing of $16,000, for which the borrower and a surety engage to return $20,000, in three equal payments, at six, nine, and twelve months from date; these payments being secured by giving the-lender a lien upon a large amount of bank stock, and what counsel call an equitable assignment ” of the pay which may become due to the borrower for future services, to the extent of $20,000.

The legal presumption which arises from the admitted facts in this case, is confirmed by the testimony of Hinton, whose competency as a witness is not questioned. If any credit can be given to his testimony, there is no room for doubt as to the'character of the transaction. If, then, as we hold, the contract itself be void for usury, it is well settled that the securities, being tainted with usury, are also void.

But it is claimed that the defense of usury is personal to Hinton, and can not be interposed by the present defendants, his assignees. We do not think the objection well taken. *This is not the case [39 of the purchase of a mere equity of redemption,- in which the purchaser, by recognizing in the terms of his purchase the incum ■ brance of the mortgage, may be estopped from afterward questioning its validity. But here the assignment is general and unqualified. The defendants claim, under Hinton and in privity with him; and -the contract itself being void for usury, the collection of the tainted -securities can not be enforced either against him or against others who succeeded by assignment or otherwise to .all his rights in the premises. The authorities cited by counsel for the defendants .abundantly sustain this position. Nor is the right of the assignees to set up this defense affected by the fact th.at they took the assignment with full knowledge of complainants’ claim. A contract void for usury can confer on the complainants no rights to be enforced in this court or respected by any one.

We think it clear, upon principle, that the act of Hinton, after the suit brought, in waiving, as to himself, the defense of usury can not affect these defendants, who claim under him by a prior purchase and transfer.

We have only to add, as to the question of variance presented by ■counsel,,that we think the usury proved is substantially the same with that averred in the answer.

The bill must be dismissed.

Brinkerhoee and Bowen, JJ., concurred.

Bartley, C. J., and Swan, J., having formerly been of counsel in this case, did not participate in its decision.