# Andrews v. Pond

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United States Supreme Court
38 U.S. 65
Andrews v. Pond
IN error to the Circuit Court of the United States for the southern district of Alabama.
The plaintiff in error instituted a suit on a bill of exchange, dated at New York on the 11th of March, 1837, drawn by D. Carpenter on Sayre, Converse and Company, Mobile, Alabama, for $7287 78 in favour of the defendants, Pond, Converse, and Company; payable and negotiable at the Bank of Mobile, sixty days after date.
The plaintiff in error was a citizen of New York, and the drawers and endorsers of the bill were citizens of Alexandria, Alabama.
The evidence in the Circuit Court proved that Lewis W. Pond, one of the defendants, was in New York in March, 1837, and being indebted to the plaintiff in the sum of six thousand dollars, on a bill which had been returned protested from Mobile, and on which suit was about to be brought by the plaintiff, agreed to pay ten per cent., the legal damages on the bill, and ten per cent. in addition, with the legal interest of New York on the bill for the time of its return, being eighteen days, and the charges of protest and postage, by a bill of exchange on Mobile. The bill was drawn in New York, being for the sum of $7287 78, and was endorsed by Mr. Pond, in the name of the firm, the defendants in error. The bill was endorsed by the plaintiff in error and was remitted by the plaintiff to S. Andrews, at Mobile, and was by him set to the credit of H. A. Andrews and Company, of New York. It was received by S. Andrews, with the endorsement of the defendants, before its maturity; and it was a cash credit in the account current between H. M. Andrews and Company, and S. Andrews. The defendant offered evidence under the issue, the statute of New York against usury, and certain depositions, to prove that the bill of exchange was usurious.
One of the witnesses stated that the consideration for this bill was made up by the following account:
E. Hendrick's draft on Daniel Carpenter,
Montgomery, Alabama, protested, dated at New York,
December 20th, 1836, at sixty days, for $6000
Exchange, 10 per cent., being difference of exchange
between Mobile and New York on the 11th March 1837, 662
$7287
John Delafield, President of the Phoenix Bank, examined on the part of the defendant, stated that the exchange between New York and Mobile on the 11th of March, 1837, was from three to five per cent. This knowledge of exchange was acquired from having dealt an exchange during the period, for the Phoenix Bank.
Robert White, cashier of the Manhattan Company, stated that, by a reference to the books of the company, the exchange between New York and Mobile was, during the month of March, 1837, from five to seven per cent.: and Morris Robinson, agent for the Bank of the United States in the city of New York, said, that, during the month of March, 1837, he found by a reference to the books, the dealers with the bank were charged from three to five per cent.; three for short, and five for long paper.
The plaintiff excepted to the reading of the statute and laws of New York against usury: and in order to disprove the allegation of usury in the transaction, as the contract was not made subject to the statute laws of New York, and the contract was subject only to the laws of Alabama as to its obligatory form and solidity; and was or was not usurious according to these laws. The plaintiff then offered to prove by Joseph Wood, that the banks purchased bills at a far less exchange than others; that they never bought any other than undoubted paper; that from the facility of collecting, remitting, & c. they had many advantages over the citizens at large; and that the exchange of the banks was therefore much lower than that of the community at large: that there was no fixed rate of exchange between Mobile and New York; that it varied from one to twenty per cent., according to the solvency, punctuality, risk, &c. of the parties; that exchange was ever fluctuating, and was high or low as the risk was great or small. The Court refused to admit this testimony, and the plaintiff excepted.
The plaintiffs asked the Court to instruct the jury, that if they were satisfied that the excess over legal interest retained in this bill was taken and contracted for, innocently, by the parties, without intending to violate the laws against usury; they might find for the plaintiff. The Court refused to give this instruction, and the plaintiff excepted.
The plaintiff moved the Court to instruct the jury that the contract expressed in this bill of exchange, if to be executed in Alabama, was subject, alone, to the laws of Alabama against usury; and that the usury laws of New York had no force, or any thing to do with this investigation: this was refused by the Court, and plaintiff excepted.
The plaintiff next requested the court to charge the jury, that if they believed S. Andrews received the bill before maturity, for a valuable consideration, without any notice of usury, and that the plaintiff received it from S. Andrews, without notice of usury, and before maturity, that the plaintiff might recover; notwithstanding plaintiff offered no proof of the consideration he gave for it. The plaintiff excepted to this refusal of the Court.
The plaintiff next moved the Court to charge that the variance between the bill declared on, and the one set up as the same bill by defendant's deposition, was fatal in a plea of usury; to which the Court refused, and the plaintiff excepted.
It appeared that before the bill was delivered by S. Andrews to plaintiff, it had been, while in the hands of S. Andrews, protested for non-acceptance, which appeared on the face of the bill. There was no evidence of any settled account between H. M. Andrews & Co., and S. Andrews, or which was creditor or debtor upon the statement of accounts. It was also proved that the expense of transporting specie from New York to Mobile, including insurance and interest, would not exceed one and one half per centun on the sum transported.
Upon the whole case, and the several points stated, the Court charged the jury; that if they believed from the evidence, that by the usages of trade between New York and Mobile, there was an established rate of exchange between those places, the drawers and drawees of the bill of exchange here sued on, had a right to contract for such rates of exchange; and that even a higher rate to a small amount, if under the circumstances it did not appear to have been intended to evade the statute against usury might be allowed by them; but if they believed that no such usage existed, the parties had no right to contract for more than the actual expense of transportation of specie from one place to the other, including interest, insurance, and such reasonable variations therefrom, as above stated: and further, if they believed from the evidence that the drawers of the bill of exchange contracted with the drawers in the state of New York, at the time the bill was drawn, for a greater rate of interest than seven per centum per annum, for the forbearance of the payment of the sum of money specified in the bill; although it may have been taken in the name of exchange; the contract is usurious: and unless they believe from the evidence, that the plaintiff took the bill in the regular course of business, and upon a fair and valuable consideration bona fide paid by him, and without notice of the usury, they ought to find for the defendant; otherwise for the plaintiff: to which opinion, and charge of the Court, the plaintiff, by his counsel, excepted. The jury found a verdict for the defendants; and the plaintiff prosecuted this writ of error.
The case was argued by Webster, and Mr. D. F. Webster, for the plaintiff in error; and by Mr. Ogden for the defendants.
For the plaintiff it was insisted, by Mr. D. F. Webster:
1. That the contract in all that relates to interest, was to be governed by the law of Alabama.
2. That in the Court, sitting in Alabama, the defence of usury could not be set up under the general issue.
3. That certain evidence offered by the plaintiff on the question of usury, was improperly rejected.
4. That the rulings and direction of the Court on the points of law, as stated in the bill of exceptions, were erroneous.
The provisions of the laws of New York, 1 Revised Stat. 772, on the subject of usury, declare the contract, on which usury shall be taken or received, absolutely void; with a saving from the influence of the statute as to bills of exchange, or promissory notes payable to order or to bearer in the hands of an indorsee; who shall have received the same in good faith and for a valuable consideration, and who had not at the time of discounting the bill actual notice that the bill had been originally given upon a usurious consideration, &c. By the laws of Alabama, the interest alone is forfeited.
It is contended that the contract is to be governed by the laws of the place where it was to be executed. The contract on the face of this bill of exchange expresses that it was to be executed elsewhere than where it was made. The parties entered into it with a view to its performance at another place. It is a foreign bill, (2 Peters, 586,) and of course is dated in one place, and in one state, and made payable in another state.
The lex loci is to govern, unless the parties have had in view, by the contract, another place of performance; that is to say, if the parties have in view, by the terms of the contract, the city of Mobile, for its performance, it is the law of the place of performance which is to govern and construe the terms of the agreement. 2 Burr, 1077. 8 John. 190. 4 Peters, 111. 7 Peters, 586. Alabama was not only the place where the contract was to be executed, but this action was instituted in Alabama.
2. As to the second point. Under the laws of Alabama, where on an usurious contract the interest only is forfeited, it was not allowable under a plea of non assumpsit, to put in evidence of usury; because although by the usury the interest is lost, yet the amount of the bill, deducting the interest, may be recovered. The lex loci is to be regarded, and the trial is to be conducted according to it; and what might under the plea be offered in evidence in New York, could not be admitted in Alabama. The plea was not sustained by the evidence, and did not suit the case.
Supposing the plaintiff to have been in that situation as to the bill, as to be liable to lose the interest on it, as upon a usurious contract, yet it was not under such a plea as this that evidence to charge him with this liability could have been admitted. Supposing that by the law of New York it was usury, yet it was to be punished by the laws of Alabama only.
But if, contrary to these views of the law, the statutes of New York on the subject of this contract are to be applied to it, yet, between the parties to this suit the law has no force. The statute of New York declares that its provisions shall have no application where there has been a bona fide holder of the bill, or an endorser thereof, without actual notice that the bill has been originally given for a usurious consideration. This is an action on a bill of exchange brought by the endorsee, and no proof was given on the trial that he was not an innocent holder, ignorant of the consideration given for this negotiable instrument. It does not anywhere appear to the contrary, but on the contrary the proof was clear and explicit that the bill had been regularly transferred to him before its maturity, and had been placed as a credit in the accounts between him and the house in New York. Nor did it appear that the plaintiff had any knowledge of the asserted usury of the transaction. Supposing, then, that the law of New York must regulate the contract; yet on the proof submitted on the trial in the Circuit Court, the plaintiff ought to have recovered the amount of the bill.
3. The plaintiff in error contends, that certain evidence was refused by the Court which ought to have been given.
To prove the contract to have been usurious, certain depositions were read by the defendants; some going to show the original nature of the bill, and the circumstances under which it was made; and other witnesses were examined to show the rate of exchange between New York and Mobile.
The witnesses examined were all connected with banks; and they proved differences in the rates of exchange from three to five per cent., and even seven per cent. Those institutions had great facilities in doing business in exchange; and they took undoubted and endorsed paper, at short dates. If there was any fixed rate of exchange between New York and Mobile, it would have been known to these witnesses; and it would have been stated. A charge beyond a fixed rate might be asserted to be usurious. But no fixed rate existed.
When the Circuit Court allowed the defendants to give evidence as to the rates of exchange between New York and Mobile, it would seem no more than proper that the privilege should be allowed to the plaintiff. The facts which would have been exhibited by such evidence were essential to the full exhibition of the plaintiff's case. Charges for exchange vary with the credit and position of the parties to the bills of exchange, and the length of time the bills have to run; with many other circumstances; and among them the balances of trade, influence the amount of such charges materially.
There was no unreasonable charge made upon this bill. It was taken to pay a protested draft, and from a party who had been on the dishonoured bill. The credit of such a bill must have been exceedingly doubtful; and the circumstances of the dishonour of its predecessor having been known, it would not have commanded as much as was allowed on it in the exchange market in New York, where it was received.
The plaintiff contends that the ruling and direction of the Court on the law were erroneous.
The plaintiff asked the Court to instruct the jury that if they were satisfied the excess over legal interest was taken by the parties, without intending to violate the law against usury, they should find for the plaintiff. The Court refused to give the instruction.
The question was one of intention. Did the parties mean to violate the law against usury? It was incumbent on the defendants to prove that the original parties to the bill intended usury; and that it was not considered by them a regular mercantile transaction. On the bill itself no usury appears. The parties giving the bill consented to allow a high rate of exchange for the advantages which they obtained in the exemption of one of the defendants, then in New York, from a suit, which was about to be commenced on the protested bill.
The plaintiff was altogether disconnected with the circumstances under which this bill was originally given. He received it as a remittance from New York; and before it came to maturity it was placed to the credit of the house in New York as a cash credit. When he presented it for payment, it was refused on the ground of its having been made in fraud of the law of New York against usury. Thus, negotiable paper, which had passed through different hands, and which was obtained in good faith; was discredited by circumstances which could not have been known to the subsequent holders of it. A purchase of a bill of exchange may be made at any deduction from its amount; and the contract of purchase is legal.
The judge of the Circuit Court charged the jury that if there was no established rate of exchange between New York and Mobile, the parties had no right to contract for more than the actual expense of transporting specie. But by the evidence given on the part of the defendants, it was fully shown that there was no fixed rate of exchange; and yet the contract was to be made usurious, because more was taken than the cost of transporting specie from Mobile to New York. Such a position destroys all operations of exchange, and thus interrupts the great means of commercial intercourse and dealing. Rates of exchange are fixed or regulated by other rules than those which would be derived from the value of specie at the place on which the bill may be drawn, and the cost of its carriage to the place from which the bill is sent. The experience of every commercial man, and the value of exchange in every commercial country establish this position.
Mr. Ogden, for the defendant, contended that the contract entered into by the bill of exchange on which the suit was brought having been made in New York, was to be governed by the laws of New York. An endorser of a bill of exchange is liable only by the law of the place where the bill is made. 3 Mass. Rep. 77. 5 East, 130. 1 East, 60. 8 Martin's Rep. 34. The law of the contract is the law of New York, where the debt was due; and where it was settled by the bill of exchange on which this suit was brought.
It is said that the evidence of usury could not be given under the plea of non assumpsit: but this is taking for granted that the law of the case is that of Alabama, and not that of New York. Evidence to show a usurious consideration is proper evidence under the plea.
There is no evidence of bona fide ownership of this bill in the plaintiff. The bill was remitted for collection; and the plaintiff was the agent of the drawee. The entry of the bill as a cash credit, does not affect this view of the case. It was no more than a mode of keeping the account between the drawer, and the person to whom the bill had been transmitted. The bill was taken in payment of an old debt, and that debt is yet due: and for it the creditor has a perfect right to proceed at law.
It matters not what was the intention of the parties; and if they had no view to a usurious dealing, still the law operates on the contract, and makes it void if there actually was usury. Where the months of a year are calculated to be thirty days, and interest for a year charged on each month, it was held to be usury.
Mr. Webster for the plaintiff in error. This is an action by the endorsee of a bill of exchange residing in Alabama, and the suit is brought in that state. The bill was drawn in New York, to be paid in Alabama; and there is nothing in the record to show that the endorsee, the plaintiff, was in New York, or had any thing to do with the bill, until it came into his hands in Alabama. The defendants are described as citizens of Alabama; and presumption is that it was endorsed in Alabama, and was an Alabama transaction.
The true place of the contract is the place of its performance; and the law of Alabama operates upon this bill exclusively, as the contract made by it was to be performed there. Story's Conflict of Laws, 252. A bill drawn in New York, to pay eight per cent. interest in Alabama, where the interest is eight per cent., would not be void by the law of New York. Where there is no actual and express agreement to pay usurious interest, it is entirely a question of intention; and the case to be made out is, that there was a design, either open or covered, to take more than the statute allows as interest.
There can be no rule of law which prohibits the purchase of a bill of exchange at any rate of discount; or which makes such a purchase, if the discount is more than the legal interest, usury. The rates of exchange are always various, and are sometimes uncertain. To apply the law of usury to such contracts would be productive of the greatest injustice.
The law of New York protects all these instruments from the prohibitions of usury, when they get into the hands of bona fide holders without notice of their origin. Every one may buy a bill of exchange in the market at any rate; but if the purchaser sells a bill, with his name upon it, at an illegal discount, it is usury, and the bill is void. Every thing in relation to this bill should have been admitted in evidence: and the jury should have been enabled to form a judgment on the intention of the parties; and should have been allowed to know every thing as to the state of the exchange between New York and Mobile, and the rate, as applied to bills of all descriptions. One of the witnesses would have proved that twenty per cent. was not a greater rate of exchange than had been paid on doubtful bills.
The party taking the bill had a right to recover from his debtor, such an amount as would have paid the amount due to him on the protested bill of exchange in New York. He had a right, then, to the exchange on Mobile, and the exchange from Mobile to New York. It is manifest that, even on this evidence of the defendants, if this were proper and just, the sum taken as exchange was even less than it should have been.
Mr. Chief Justice TANEY delivered the opinion of the Court.

## Notes

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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