Case Name: Mrs. M. S. Martin vs. E. W. Petit and L. F. Petit
Court: South Carolina Court of Appeals
Jurisdiction: South Carolina
Decision Date: 1860-04
Citations: 11 Rich. Eq. 416
Docket Number: 
Parties: Mrs. M. S. Martin vs. E. W. Petit and L. F. Petit.
Judges: O’Neall, C. J., concurred.
Reporter: South Carolina Equity Reports
Volume: 32
Pages: 416–431

Head Matter:
Mrs. M. S. Martin vs. E. W. Petit and L. F. Petit.
Usury.
Where the obligor of a bond, when about to re-issue it for the purpose of raising money, represented to the new lender that the bond would be punctually paid at the end of the year: — held, that such representation did not preclude the obligor from setting up the defence of usury.
Where a bond was originally negotiated at a usurious, and then taken up and re-negotiated at a less usurious interest, to another lender, ignorant of the original usury, held, that the obligor could not be compelled to pay to the new lender more than the amount he received when he first negotiated the bond.
BEFORE INGLIS, OH., AT CHARLESTON, FEBRUARY, I860.
This case will be sufficiently understood from the circuit decree.
Inglis, Ch. In January, 1856, Edmund W. Petit, one of the defendants in this cause, being under the necessity of raising a sum of money wherewith to meet demands then pressing upon him, applied to J. E. P. Lazarus, a broker, who had been in the habit of doing business for him, to negotiate on his behalf, a loan of $5,000. Proposals for this end were duly advertised, and an offer in reply was received from one W. K Stewart, to advance the required amount for one year, at a discount of ten per centum, as the consideration therefor, in addition to the lawful interest of the whole sum. Thereupon, on 15th day of that month, the defendant, E. W. Petit, made his bond of that date, conditioned for the payment of $5,000 on the 15th day of January, 1857, with the interest on the said sum, payable semi-annually; and to secure the payment of the same, according to the condition, by deed of the same date, mortgaged an improved lot on Hasell street, in the City of Charleston, particularly described in the pleadings. This mortgage was duly recorded. The bond was made payable to the broker, and he was likewise the grantee in the mortgage. On the same day on which these securities bear date, they were, each, by endorsement duly made, assigned by the nominal payee and mortgagee to the lender of the money, W. K, Stewart, and the defendant, E. W. Petit, received the sum of $4,500, of which he paid $50 to Lazarus as his commissions for his services as broker in negotiating the loan. The interest was paid regularly and promptly by E. W. Petit, according to the condition of the bond during its currency.
As the year of credit was about expiring, E. W. Petit was advertised by Lazarus of the necessity of being prepared to pay the bond at its maturity; not being provided with the means to do this, he employed the same broker to negotiate a new loan of the same amount upon other security, with a view to discharge the former. Proposals were again advertised, but this time without success. “Petit desired Lazarus to raise the money” for him, in order to take up the bond: Lazarus knowing that the plaintiff sometimes had mouey for investment, offered the bond “ for sale,” as it is said, to Mr. Aiken, the plaintiff’s agent. A negotiation between the plaintiff and Petit was thereupon carried on, through Mr. Aiken on the part of the former, and the broker, Lazarus, on the part of the latter.
The bond was already past due, the condition broken, but a new currency was, as the result of the negotiation, given to the old securities for a new period of another year, in consider ation of a discount of seven per centum, in addition to the lawful interest payable semi-annually as before. There was, at this point, no negotiation between the plaintiff and the assignee and holder, Stewart. The latter did not, either personally or by agent, sell the bond to the plaintiff; he only required payment from the obligor. Lazarus, in this second transaction, as in the first, was acting as the agent of Petit, from whom, in each instance, he received his compensation for the service rendered. This negotiation was consum mated on the 10th February, 1857, when the plaintiff paid into the broker’s hands, as the net proceeds of the bond, now issued anew, the sum of $4,650, and Petit paid the balance, $350, together with the interest in arrear from the date of the maturity of the bond, to wit, twenty-six days. The semiannual interest on the whole sum was duly paid by Petit, on the 18th August, 1857, at the expiration of six months, and again on the 19th March, 1858, at the expiration of twelve months from the date of the re-issue, or bargain with the plaintiff, to wit: February 10th, 1857.
In May, 1858, the mortgaged premises were sold to L. F. Petit, who is made a party defendant in the cause; and he, afterwards, in November of the same year, sold and conveyed with warranty against incumbrances, to a third person, who is not made a party.
E. W. Petit having failed to satisfy the bond according to its condition as modified in the regard of the parties, and having ceased even to pay the semi-annual interest,, the plaintiff has filed her present bill to enforce the payment by decree of this Court, and, if necessary, by a foreclosure of the mortgage security. The defendant, Edmund W. Petit, after having derived from these several transactions, originated by himself, and into which the other parties have been decoyed, at his instance, all the benefit for which, in his circumstances, he can hope, now repudiates them, and interposes between himself and the demands of those who, in his extremity, relieved him on terms, certainly in a commercial community not obnoxious to censure, the defence of usury. The law permits him to do so. The other defendant, L. F. Petit, being a purchaser for value of the mortgaged premises, and a vendor with warranty, bound to his vendee to remove the incumbrance, naturally and reasonably desires to do this, at as little cost to himself as possible, and he puts up the same defence. The law accords to him this privilege. The duty of the Court is to administer the law.
The disguises which men’s purposes put on may not be permitted to cheat the Court, when called to pass judgment on the legal character of their acts. No doubt, “ bona fide notes and other securities are subjects of legitimate traffic,” and perhaps this is generally known among those who trade in money. It seems quite probable that the defendant, E. W. Petit, and those too perhaps who dealt with him, designed to rescue their several bargains, now passing under review, from the imputation of usury, by clothing them with the semblance of such a traffic. But it is without controversy, that the transactions of 15th January, 1856, in which the existence of the securities before the Court had its origin; and the subsequent transaction of the 10th February, 1857, wherein there was imparted to them a new vitality for a further term, when their real nature is discerned through their outward form, was, each of them, in fact, tainted with usury. The bargain made between the defendant, E. W. Petit, and W. K. Stewart, through the agency of Lazarus, was usurious. The bargain made through the same agency, between the same defendant and the plaintiff, was equally so, in the quality of the transaction, though not in its extent.
Where bonds, or other securities, are originally usurious, the taint of usury, and the reprobation of the law consequent thereupon, follows them even into the hands of an innocent holder. And so in the instance before the Court, if the plaintiff, on the 10th February, 1857, had in fact purchased this bond of Petit, and W. K. Stewart, the assignee, she must have taken it subject to the infirmity wherewith the original usury had affected it, however ignorant she might have been of the real character of its origin. The question how far, as between her and E. W. Petit, this infirmity might have been, in effect, cured by any misrepresentations or assurances on his part, whereby she was entrapped in the purchase, which would have, in this Court at least, precluded him from setting up this defence, is not intended to be touched. Here the interest of the purchaser claims protection.
If, however, E. W. Petit had, on the 10th February, 1857, borrowed $5,000 from the plaintiff, at seven per centum discount, and for the securing the re-payment thereof, had delivered and made to her a new bond of that date, conditioned for the payment of that sum at twelve months, with interest semi-annually, and a new mortgage of the lot on Hasell street; and with the money thus raised, and the addition from his other resources of such further sum as was necessary, had satisfied and extinguished the present bond and mortgage, it is apprehended that such new bond and mortgage would not in that case have been, in any sense, tainted with the vice of the original securities.
In what does the real nature of the transaction of the 10th February, 1857, between the plaintiff, and the defendant, E. W. Petit, differ from the case supposed ? The fact, that, in order to avoid the expense of new papers, or for convenience or other cause, the parties, instead of passing new securities, chose to set up again the old ones, and give them a new term of probation, cannot, as it seems to the Court, change the substance of the transaction, or transmute its legal character, though it may embarrass the mind in its efforts to apprehend it. Contemplate all the circumstances of the transaction as we may, it comes at last to this — the negotiating a new loan by Petit from the plaintiff, the taking up by him of the old securities by payment thereof in full, effected chiefly by means of this loan, and the putting those old securities anew into currency and circulation, by their delivery to the plaintiff with the formal assignment of the last holder. If the plaintiff had in fact bought this bond from the assignee, Stewart, by the payment to him of its full amount, she would, as has been seen, have been entitled to recover from Petit only the amount actually received by the latter from Stewart, reduced by all the payments made in the meantime. If having so bought it, after its maturity, she had agreed to forbear, and bad forborne the debt for another year for the additional discount of seven per centum, the premium for such forbearance, and all subsequent payments, must have gone that much further to reduce the recovery. But the actual transaction does not seem to be either the one or the other of these supposed cases. The plaintiff lent or advanced her money directly to the defendant, Edmund W. Petit. Mr. Aiken, the agent of the plaintiff, in his note of 23d August, 1S58, addressed to the defendant, E. W. Petit, says: “ Mr. J. E. P. Lazarus, from whom, as your authorized agent, I purchased, in February, 1857, a bond of yours for $5,000.” Mr. Petit himself says, that “on the 10th February, 1857, he paid Lazarus $50, commissions for his services in getting the money for him” — and that “Lazarus was his agent in this matter.” And Mr. Lazarus says it was at the request of Mr. Petit that he (Lazarus) tried to negotiate the bond. The bond produced is the one he negotiated with Mr. Aiken to enable Petit to pay Stewart the bond, Mr. Petit gave; “he was authorized by Mr. Petit to get a loan, or the extension of the bond for one year more.”
The Act of Assembly, A. A., 1830, 6 Stat., 409, now in force on the subject of usury, does not make void the bond, note, or other security, given for a usurious consideration; on the contrary, so much of the former Act as so provides, is, by the present Act, expressly repealed. The bond, &c., now stands as security for the re-payment of the amount or value actually lent and advanced.
The present is not the case of a borrower seeking the interposition of the Court for his relief against a usurious contract, and therefore the familiar principle of equity, affirmed in Jones vs. Kilgore, 6 Rich. Eq., 64, cited in the master’s report, and designed for cases of that kind, does not apply.
The usurer, or lender, is here, seeking to enforce the usurious contract, and the statute has declared in positive terms, that “ the principal sum, amount, or value, lent or advanced, without any interest, shall be deemed and taken by the Courts to be the true legal debt or measure of damages, to all intents and purposes whatsoever, to be recovered without costs.”
It will have appeared from what has been already said, that in the opinion of this Court, the plaintiff is the lender, and the defendant, E. W. Petit, the borrower, from her; the principal sum, amount or value lent, or advanced, is the sum ($4,650) actually received by Petit from the plaintiff, on the 10th February, 1857; and that for the re-payment of this sum the bond and mortgage were, by the agreement of the parties, to stand as security. $350, in two equal parts, intended as interest, have been received by the plaintiff. To this state of facts the provisions of the statute are to be applied.
It is adjudged and decreed, that the plaintiff, M. S. Martin, do recover against the defendant, E. W. Petit, the sum of $4,300, without interest, and without costs, and have leave in the 'usual manner to make the mortgage security effectual for enforcing the payment of the same; and that for this purpose such further orders as are necessary may be taken by the plaintiff at the foot of this decree.
The complainant appealed on the ground:
It is respectfully submitted, that the defendants are not entitled to set up the defence of usury upon the case made by the evidence, because whatever might have been the nature of the dealing between Stewart, the former holder of the bond, and the obligor, yet the latter and his assigns were estopped by his conduct and assurances from setting up s'uch a defence afterwards against the innocent assignee who had taken the bond upon the faith of this.
The defendants also appeal on the ground:
Because it is respectfully submitted, that they are entitled (in addition to the discount allowed on the bond) to the further «discount of $500, being the difference between the amount specified in the condition of the bond, and that actually received at the time of its execution.
Mitchell, for complainant.
It is submitted, on behalf of the appellant, that whatever may have been the rights of the original parties to the contract, the present defence cannot now be set up against the complainant.
It may be admitted, without interfering with the positions taken on behalf of the complainant, that as a general rule, the assignee of a bond takes it in the condition in which it was, as between the original parties, and subject to the same equities; and therefore, that any objection on the ground of usury would follow it, even in the hands of a bona fide assig-nee for value; but then to enable the obligor and his assigns to take any benefit from the application of this rule, it must appear that he has not lost it by any subsequent assurances or dealings which would make it fraudulent or unconscien-tious to set up such defence.
We present it as a well-settled rule of equity jurisprudence, that one who relies upon the intentional representations or conduct of another, in a matter of business, shall be protected against any subsequent disavowal of the party making such representation, or any claim inconsistent with it; and this principle may even be applied to the protection of one who has relied upon the mere passive conduct of another.
The earliest application of this was probably to the protection of the purchasers of land against those who, having claims, were held bound to expose such claims at the time of the purchase.
“ There is no principle better established in this Court, or one founded on more solid considerations of equity and public utility, than that which declares that if a man knowingly, although he does it passively by looking on, sutlers another to purchase and expend money on land under an erroneous opinion of title, without making known his claim, he shall not afterwards be permitted to exercise his legal rights against such person. It would be an act of fraud and injustice, and his conscience is bound by this equitable estop- pel.” P. Ch. Kent, Wendel vs. Van Renselaer, 1 Johns. Ch., 354.
Here, it will be seen, the principle is held to extend to an instance of mere passive acquiescence on the part of the claimant.
To the same effect is the case of Higginbotham vs. Burnett, 5 Johns. Ch., 1S4. And the principle is held to extend even to a case in which the party setting up a claim alleges ignorance of his title. Slorrs vs. Barker, 6 Johns. Ch., 166.
But the principle is not confined to purchasers of land, but governs wherever the circumstances warrant an application.
“ It is said to be a very old head of equity, that if a representation is made to another person going to deal in a matter of interest, upon the faith of that representation the former shall make that representation good, if he knows it to be false. To justify, however, an interposition in such cases, it is not only necessary to establish the fact of misrepresentation, but that it is a matter of substance, or important to the interests of the other party, and that it actually does mislead him.” Story Eq., 191.
“ If any man, upon a treaty for any contract, will make a false representation, by means of which he puts the person bargaining under a mistake upon the terms of bargain, it is a fraud: it misleads the parties contracting on the subject of the qontract.” P. Lord, Ch., Neville vs. PVilkinson, 1 Bro. C., 546.
It is difficult to suppose a case in which, to use the expression of Chancellor Kent, there could be “ more solid considerations of equity and public utility” for the application of the principle, than in that of one dealing for a bond on the faith of the representations of the obligor, made to persuade him to the purchase.
In the case of Holbrook vs. Colburn, the claim to relief was founded on the application of this principle, the plaintiff alleging that he had taken the bond in question on the faith of a written representation, made at the time that the bond was executed — that the obligor had no discount, &c. The Court held that the principle did not apply to the case presented, but affirmed the principle generally. “ If, however; the obligor, from fraud, negligence, or folly, represent himself to be liable on a bond to one about to deal for assignment, (and perhaps the consequences may be the same as to any substituted purchaser who acts on the faith of the representation,) or even if the obligor, in the full knowledge of his defence, acquiesces in an assignment without disclosure of his defence; such representation or concealment will amount to an estoppel in pais upon the obligor from setting up his defence. It is indispensable to such estoppel that the obligor should induce, promote, or encourage the assignment, and that the assignment should be accepted in consequence of his representation or concealment.” Wardlaw, Ch., 6 Rich. Eq., 300.
Now, all the conditions indicated by Mr. Justice Story, as well as the opinion in Holbrook vs. Colburn, for the application of the principle, will be fouud in the present case.
Mr. Aiken, the plaintiff's agent, was induced to tske the bond upon the faith of the assurances of the obligor, through his agent; indeed, he would not take the bond until he had this assurance, that the bond would be paid in a year; here was the dealing upon the faith of the representation which induced that dealing.
It may be said, however, that there was nothing in these representations specially excluding the defence now set up, but neither the reason of the rule, nor the precedents, require this; indeed, the least consideration will make us see that this is always out of the question; to suppose the inquiry pointed to this or that particular defence, “supposes a knowledge of it to exist;” the inquiry, therefore, from the condition of things, must always be general, and any assurance which induces the dealing, requires the interposition of this protection. The assurance that the bond would be paid in the year, carried with it the exclusion of all exception or objection on the part of the obligor. Nor can it make any difference that Lazarus, the broker, besides being the agent of the obligor, was also to some extent the agent of Stewart, the former holder of the bond; for though the latter did not know the mode by which his money was to be got, yet as the bond belonged to him when he assigned it in pursuance of the bargain, he ratified it to that extent.
It may, perhaps, be contended, that there is something in the special defence of usury which will preclude the application of this general principle. It seems hard to suppose that the statute of usury was intended to give effect to fraud. Nor let it be said that this would apply to the application of the statute itself; in such case, both parties know that they are entering into a contract which the law avoids, so that neither party is misled, and therefore there can be no fraud.
But the case under consideration is essentially different; it is admitted to be legal and unobjectionable to deal for a bond in existence, on the best terms on which it can be obtained. Everything appeared to be legal and -regular in the present case; although it would now appear that Stewart did not know how the money was to be obtained, yet it was his property, and, therefore, in legal contemplation, could only be offered on his behalf; he ratified this by assigning it subsequently. ■ The assurance that the bond would be paid was the strongest form in which the legality of the bond could be affirmed. Our own decisions, even at law, quite exclude the defence set up, and that such will extend its protection to .screen one in the perpetration of a fraud against an ignorant and innocent purchaser, coming in subsequent to the original contract.
“ It is a clear and long established rule of law, that no man can take advantage of his own wrong. He who violates a law, comes with a bad grace to ask to be restored to rights which he had surrendered or lost by his illegal act. And for this reason, he who pays money on an illegal consideration, cannot maintain an action to recover it back.” Miller vs. Kerr, 1 Bail., 6.
But the following decision seems to meet precisely the present case :
Though a note made to raise money, and sold at usurious discount, is usurious and void, yet, as bona fide notes and other securities are subjects of legitimate traffic, if an indorser of a note made to raise money at an usurious interest, represent to a purchaser that it is a business note, &c., and the maker is present and acquiesces, it is a fraud on the purchaser, and they are both liable. Odell vs. Cook, 2 Bail., 59.
And this decision, too, must have been before the change in the law, showing more indulgence to contracts subject to a charge of usury. It would, therefore, be allowing the defendant to perpetrate a fraud, if, after drawing the plaintiff to purchase this bond, he were allowed to set up a defence of this sort.
Nor can the purchaser be in a better situation than the obligor; the bond was assigned to the complainant, 10th February, 1857, and the premises were conveyed to the purchaser, 8th November, 1858, with full notice by record of the amount claimed by the complainant.
It is, therefore, submitted, that the complainant is entitled to a decree for the full amount due on the bond and mortgage.
Macbeth £? Buist, contra,
cited: Payne vs. Tresvant, 2 Bay, 23 ; 1 McC., 350 ; Willard vs. Reeder, 2 McC. Ch., 369; 1 McM., 229 ; Stork vs. Parker, 2 McC. Ch., 396 ; Clark vs. Hunter, 2 Sp., 83; 1 Rich., 52; 2 Rich., 74; Caughman vs. Drafts, 1 Rich. "Eq., 414; 6 Stat., 409 ; 1 Strob., 466.

Opinion:
The opinion of the Court was delivered by
Johnstone, J.
The Chancellor has properly observed, that this is not a case where the borrower of money at usurious interest comes to be relieved from the literal performance of his contract: but a case where the holder of the contract comes into Court to enforce it according to the legal effect of its terms. In such cases, the contract is enforced only according to its legal validity.
The Chancellor has concluded, from the evidence, that the sum advanced by Mrs. Martin was by way of loan to the obligor of the bond, and not by way of purchasing the instrument from Stewart; and that the bond was continued and passed over to her at an usurious discount, as her security for this loan. We cannot discover that, in drawing this conclusion of fact, he has erred: and, therefore, according to the settled practice of this Court, his decision must stand.
Assuming the correctness of this position, the Chancellor's legal deduction is unquestionable, that the debt contracted by the borrower is not to be measured by the face of the bond, but by the amount actually advanced on it. So the statute of 1830, 6 Stat., 409, expressly declares: and the statute is the law of the case.
Here it may be permitted to make a few observations upon the connexion between this statutp and the pre-exist-ing statute of 1777,4 Stat., 364, which it partially repeals and modifies. The latter makes the reservation of a greater interest than seven per cent, per annum upon loans or forbearance, unlawful; and declares all securities created for such purpose to be utterly void; and goes on to provide a forfeiture of treble the value of the loan : making the borrower competent to prove the offence, in any suit, brought on the bond, &c. The statute of 1830, does not repeal this prior statute generally, or throughout, but only so much of it as imposes the penalty of treble the amount loaned, &c., and so much as declares the securities taken to be utterly void: and provides that the lender may recover the principal, or sum actually loaned, forfeiting the residue of the security as well as all interest and costs. That is, a loan at a rate exceeding seven per cent, per annum, is left unlawful, as it was before, and the usurious interest, and even lawful interest, are forfeited. It is a restriction of the former enactment avoiding the whole instrument; it is only partially avoided.
As I have said, the Chancellor has correctly restricted Mrs. Martin to the principal advanced by her. This was the legal consequence of her own act of usury. And so far we approve his decree.
But the defendants have appealed, because he did not further restrict it by the amount actually loaned by Stewart, the original holder of the bond.
The bond was created for the purpose of raising money: and such securities, being tainted with usury, (though now, since the Act of 1830, only partially tainted,) have been uniformly held to carry the statutory blight with them into the hands of all persons who come in as privies to the contracting parties, however innocent they may be.
As the bond, in Stewart's hands, was affected by his usury, it was impossible for his assignee to take the bond from him for more than it was legally worth to him. The transfer did not baptise it of that usury. It was good, under the statute, only for the money he actually loaned, without interest.
It is not perceived how any effect can be imparted to the bond in the hands of the assignee, different from what it had in Stewart's hands. It was the old contract, vitiated and reduced as it was by the first act of usury, not changed in terms or in character, which passed over to a new owner. If Stewart had sold it to Mrs. Martin, her contract of purchase would have been good to make her legal owner of the security; but it would still have been a security, under the statute, only for the amount Stewart advanced on it.
This is admitted to be the effect of a long list of decisions on the subject, from Payne vs. Trezevant, 2 Bay, 23, and Solomons vs. Jones, 1 Treadway, 144, to the present time.
But the case of Odell vs. Cook, (see a collection of cases, 3 Stat., 783,) is relied on, on the other side. There is but a very imperfect note of the case to be found. It represents that "when the indorser of a note, made to raise money at an usurious interest, represents to a puchasen that it is a business note, made for a bona fide consideration, and the maker is present, and acquiesces, it is a fraud upon the purchaser, and they are both liable." It would be very unsafe to rely on a case so loose as this, in opposition to our otherwise unbroken current of decisions.
As an authority for the position that Stewart could have changed the effect of the bond by any representations he could have made, the case is totally unsupported. As an authority that it would have made the obligor more liable on the bond, had he represented it as untainted with usury, it is in direct conflict with Solomons vs. Jones. And it must be recollected that in this case, when Mrs. Martin comes to claim her legal rights, she must not stop short of evidence sufficient to change the law of the instrument. But the evidence is, not that the obligor represented the bond to be good or invalid, usurious or otherwise, but simply promised to pay it punctually, according to the new usurious contract he was about to make, not with & purchaser, but a lender.
If by any representations a borrower of money can make, he can take the taint of usury from his vicious contract, he has discovered a method by which he may evade the statute; and it is set aside and repealed, not by the legislature, but by an individual.
The effect of all this, however, is only to reduce the principal of the bond, not by taking off it both the discounts deducted by Mrs. Martin and by Stewart, but only the larger of the two, so as to reduce the bond to lowest point of principal. By adding to the larger of the' two discounts all the other payments actually made on the bond, the sum legally due on it will be ascertained.
It is ordered, that the decree be modified accordingly: and let the cause be remanded to the circuit for taking the necessary orders.
O'Neall, C. J., concurred.
If this case is understood, it related to an original emission of the security ; and it was held that the maker and endorser, by misrepresentation, conspired to sell it to a purchaser, instead of borrowing money on it. If the case is applicable, it is only applicable to the transfer of the bond to Stewart. But the Chancellor settles that matter by his conclusion of fact, that that was not a sale, but a loan.