Case Name: Henry R. Coulter et al., Executors of Joseph Collins, vs. William Robertson, Trustee of Commercial Bank of Natchez
Court: High Court of Errors and Appeals of Mississippi
Jurisdiction: Mississippi
Decision Date: 1850-11
Citations: 14 S. & M. 18
Docket Number: 
Parties: Henry R. Coulter et al., Executors of Joseph Collins, vs. William Robertson, Trustee of Commercial Bank of Natchez.
Judges: 
Reporter: Mississippi Reports
Volume: 22
Pages: 18–30

Head Matter:
Henry R. Coulter et al., Executors of Joseph Collins, vs. William Robertson, Trustee of Commercial Bank of Natchez.
Where an original contract is illegal, any subsequent contract which car-K ries it into effect, is also illegal. When the consideration of a contract is impeached for illegality, if the subject-matter of the contract can be traced back to an original illegal contract, the substituted security is void; and this is the case even though the parties sought to be charged on the substituted a security were ignorant of the illegality of the original contract, if the party seeking a recovery was a privy to the original contract.
A. made a loan of depreciated bank notes to B., at par, and took, his note for their nominal amount; afterwards, C. being in debt to B., for valuable consideration, agreed with him, in consideration of his indebtedness to him, to discharge his debt, by taking up B.’s note to A., and substituting his own ; and he accordingly gave his note to A. for the amount of B.’s note ; and A. gave B. up his note, and subsequently sued C. upon the note thus given in lieu of B.’s : held, that the taint of usury still existed in the transaction, and A. could only recover of C. the actual value of the depreciated paper loaned B., without interest. t
A different rule would prevail, if, in such case, the consideration of the note between A. and B. had merely failed, and not been illegal; A., then, so far as C. would be concerned, could collect the full amount of his note from him ; C. could take advantage of neither a want nor failure of consideration between A. and B.
Objections not raised in the court below, would be reluctantly noticed in the high court; and where both parties took the same view of the evidence in their instructions in the court below, it will be, on appeal, regarded as the proper one.
In error from the circuit court of Madison county; Hon. Robert C. Perry, judge.
William Robertson, trustee of the Commercial Bank of Natchez, sued Henry R. Coulter and James Richards, executors of Joseph Collins, in assumpsit on promissory note, made by the testator and others, for $1,100, payable twelve months after 22d June, 1841, to the Commercial Bank of Natchez. Plea, non-assumpsit of the testator. The declaration contains but one count, which is a special one on the note.
On the trial, after the plaintiff had read the note sued on, the defendants proved, by John Mann, that the note was made upon the following consideration : That one D. M. Porter, before the date of the note, had obtained a loan of money from said bank, one third of which was in good funds, and the other two thirds were in depreciated bank notes, worth about seventy cents in the dollar, and for that consideration Porter had executed his note to said Bank; that afterwards the defendant’s testator, Collins, and Slaughter, (another of the makers of the note sued on,) being indebted to said Porter, agreed with him in consideration thereof, that they would discharge their indebtedness to him (Porter) by taking up his said note to the bank, and giving in its place their note to the said bank; and said agreement was carried into execution by the consent of the bank, and the note in this suit was therefore executed by the said Collins and Slaughter, and their sureties, to the Bank.
Upon this state of facts, the plaintiff prayed the court to instruct the jury as follows: —
“If the jury believe, from the evidence, that the note sued on in this action was given by defendants to the Commercial Bank of Natchez, to pay a debt due from them to a debtor of said bank, by which said debtor’s liability to the bank was taken up by him and discharged, then the note sued on is not usurious as between defendants and said bank, and must be regarded in the same way as if it were a loan of par funds.” Which instruction the court gave to the jury.
The defendants prayed the court to instruct the jury as follows : —
“ If the jury believe, from the evidence, that the note sued on in this case was given by the defendants to the Commercial Bank of Natchez, in discharge, and by way of taking up, of a note before that time executed by Porter to said bank, which said note of Porter had been given to said bank in consideration of a loan by said Bank to said Porter, of a certain sum of money, one third of which said loan was in good funds and two thirds in depreciated bank notes; that afterwards the makers of the note now sued on, being indebted to said Porter, agreed with him, in consideration thereof, that they would discharge their indebtedness to him by taking up his aforesaid note to the said bank, and substituting their note to said bank, in its place; and that said agreement was carried into' execution by the consent of said bank, and that the note in this suit was thereupon executed by the makers thereof to the said bank; then the plaintiff is not entitled to recover any interest on the note sued on, and must deduct from the sum due on the face of said note, the amount of the depreciation of the bank notes loaned to said Porter, testing the value of said depreciated bank notes by the standard of gold and silver.” Which instruction the court refused to give.
To the granting the instruction asked by the plaintiff, and the refusal of the instruction asked by the defendants, the defendants duly excepted, and (the verdict and judgment being for the plaintiff) bring the case up on said exceptions.
A. H. Harding, for the plaintiff in error.
1. It is not denied that the original note to the bank was usurious, under repeated decisions of this court. It is also well settled that a note, usurious as to part of the consideration, is vitiated as to the whole; and under our statute, no interest is recoverable upon it. Harrison v. Hannel, 1 Eng. C. L. Rep. 780; Jackson v. Packard, 6 Wend. 415 ; Fleming v. Mulligan, 2 McCord, 173; 1 lb. 350 ; Chitty, Contr. (6th Amer. edit.) 707; 7 Pick. 40; 15 lb. 167.
The instruction asked by the defendants below, as to this point, was therefore unexceptionable.
2. The note sued on is but a continuation of the original usurious contract, held by the bank. The question is, What consideration passed from the bank for the note, not what consideration or benefit Collins received. She sues upon the note, and can only recover upon the validity of the consideration she gave for it. True, a benefit received by the defendant is generally a good consideration to support the contract. But, in cases of illegal consideration, the benefit received by the defendant will not sustain the contract, and this on principles of public policy entirely distinct from the moral justice of the case, as between the plaintiff and defendant; for in such case the rule is potior est conditio defendentis. Holman v. Johnson, Cowp. 343.
The bank gave up one illegal security, and took another in its place, without giving any additional consideration. The substituted security is therefore contaminated by the original illegality. Comyn on Usury, 186; Cuthbert v. Haley, 8 T. R. 394; Adams v. Rowan, 8 S. & M. 638; Torrey v. Grant, 10 lb. 97; 20 J. R. 285; 15 Mass. 96; Steele v. Whipple, 21 Wend. 103; Edwards v. Skirving, 1 Brevard, 548; Story, Prom. Notes, § 193.
Here the bank was a party to, and beneficiary of, both the original and substituted notes, and her recovery in this case would be but “ reaping the fruits of her illegal contract.”
This case is wholly different in principle from one of a mere failure or want of consideration. If it were a case of failure of consideration, the good consideration between Porter and Collins-would support this note, and the execution of the note would be considered a waiver of the question of consideration.
But it is a case of a consideration prohibited by law. of which there can be no waiver. Torrey v. Grant, 10 S. & M. 97;. Cowp. 343.
E. G. Henry filed an elaborate brief on same side.
J. C. Tapper, for defendant in error.
1. From the facts of this case, as disclosed by the record, it does not appear that the original note, given by Porter to the bank, was founded on a usurious contract. No inference against the legality of a contract can be drawn without evidence to support it. 7 Cow. 719. And I contend that the record does not contain any evidence that Porter gave his note to the bank for a larger amount than the specie value of the funds received by him. See Walker v. Meek, 12 S. & M. 495.
2. But on the supposition that the original contract between Porter and the bank was usurious, it does not follow that the note now in suit, in this case, is tainted with usury. The proof is to the effect that Porter paid and took up his note, by procuring the note of Collins and Slaughter, for their indebtedness to him, and transferring the same to the bank; by which Porter’s indebtedness to the bank was fully discharged. Thus, it seems, the debt of Porter was as fully paid and discharged as it could have been with specie. And as to the note now in suit, its consideration, as the record shows, was the indebtedness of the makers to Porter. There is no pretence that there was usury in the contract on which this indebtedness was founded; nor does it appear that Collins and Slaughter were privy to, or had notice of any usurious contract between Porter and the Bank. They have given their note for a confessedly legal and valid debt; and now it would seem unjust that they should be heard in their attempts to avoid the payment of that debt, solely upon the ground of the disposition which their creditor made of it.
To constitute usury, it is well settled, there must be a corrupt agreement either expressed or implied between the parties. There was no agreement of this kind between Collins and'Porter, or between Collins and the Bank; and it is difficult to conceive how, on this principle, the note of Collins can be affected with usury,
But it is insisted by counsel, that the note now in suit, as it was appropriated by Porter to the payment of a usurious debt, is itself affected with the usury that entered into the original contract of Porter; or, in the language of counsel, “the bank can recover only upon the validity of the consideration which she gave for the note.” This position is not sanctioned, I believe, by reason or by authority. This might be true, as between the bank and the original debtor, Porter, but not as to Collins. He has no right to inquire into the consideration, passing from the bank to Porter, for his note. As between Collins and the bank, it is immaterial to Collins what disposition Porter may have made of his debt, or what he may have received for it.
Mr. Tupper reviewed at length the authorities cited by counsel on the other side, and insisted, that when carefully examined, they did not sustain their position, but on the contrary overthrew it. He insisted that the debt of Porter was discharged and paid by the arrangement. On this point, he referred- to Parsons v. Gaylord, 3 J. R. 463; also 6 Cranch, 253; 9 Porter, 145; 1 How. 139; 2 Shep. 202; 6 Ib. 249; 1 Richardson, 111, &c., &c. As to what constitutes a payment, I refer particularly to Whitbeck v. Van Ness, 11 J. R. 409; Witherby v. Mann, lb. 518; Porter v. Talcott, 1 Cow. 359; lb. 290; Rew v. Barber, 3 Cow. 272.
3. He contended that there was no evidence that any illegal interest was paid to or received by the bank, in this transaction. The evidence is, that Collins being indebted to Porter, discharged that indebtedness by taking up Porter’s note in bank, and giving his (Collins’) note in its place. It does not appear that the last note was given for the same amount as the first. The presumption is always in favor of the bona fides of a contract, til., the contrary is proved; and the onus rests upon the defendant to make such proof. Walker v. Meek, 12 S. & M. 495.
A. H. Handy, in reply for plaintiffs in error.
I. The preliminary objection, taken in behalf of the defendant in error, cannot prevail, because, 1. No such point was made in the court below, as was done in the case of Walker v. Meek, 12 S. & M. 495, .relied on. The sole question presented was, whether admitting the original note of Porter to be usurious, by reason of his having received from the bank, as part of the consideration depreciated bank notes, at their nominal value, the note of Col lins, which was given to the bank in its place, is also usurious. 2. It is manifest, by the record, that it was treated as proved or conceded on the trial, that the depreciated bank notes were paid out by the bank at their nominal, and not their intrinsic value ; for not only does the testimony as stated hold this idea, but the instruction asked by the plaintiff below treats if as conceded. The same idea is held in the instruction asked by defendants. It is familiar to the court, that when a case turns on a particular point in the court below, and is so treated by the parties, the bill of exceptions is drawn up with reference only to so much of the evidence as will clearly present that point for the consideration of the appellate court. Hence this court has constantly set its face against entertaining any points not made in the court below; and any other rule would work the greatest injustice, and offer an inducement to quibbling. In the case of Walker v. Meek, this objection was distinctly made in the court below, and the case turned solely on that point.
II. 1. In the arrangement made between Porter, Collins and the bank, Porter’s note to the bank was not paid, as is insisted on; for if so, the bank’s claim would have been paid, and the present note, which was given on account of it, would be without consideration, and no recovery could be had on it. On the contrary, it was a mere change of securities to the bank; and all the authorities cited to show that this was a payment are inapplicable to the point here presented. They apply to the question of payment or non-payment by an exchange of securities where there was a failure of consideration; but none of them turn upon the point of the illegality of the consideration, which was the origin of the claim, and the fruits of which illegal contract the plaintiff was endeavoring to reap.
The error in all the reasoning of counsel is, that he does not discriminate between contracts in which there is a mere want of consideration, which is waived by the execution of a new contract upon good consideration, and contracts founded either directly or remotely upon an illegal consideration, which cannot be waived. Nor is there any force in the assumption that Collins’ note was made between him and Porter, as an independent transaction, without the participation of the bank, and was after-wards delivered to the bank. If there was any doubt upon this point, it was a question for the jury, and was fully presented for their determination by the defendant’s instruction, which was refused.
2. It is not necessary, as counsel contends, that, in order to constitute usury, there must be a corrupt agreement between the parties. This was once the tenor of the authorities; but modern authorities have qualified the doctrine (which has been repeatedly sanctioned by this court) to be “that the receiving usurious interest intentionally is sufficient evidence of a corrupt agreement.” And this doctrine has been often applied by this court to cases of the loan of depreciated bank paper, by banks.
3. Let us examine the authorities relied on to show that the original taint of Porter’s note is not communicated to that of Collins. Turner v. Brown, 3 S. & M. 425, was a case of want of consideration, not one of illegal consideration. It was a case of a purchase of a note legally made, and not originating in usury, by a person in the market, and the court very properly say, “As between the assignee and the maker, it was immaterial what the former had paid for the note.” But the case is vastly different, when the very party and beneficiary in the original illega.. contract, by arrangement between all concerned, takes the note of a third person as a substitute for, and in continuation of, the original illegal contract.
Bearce v. Barstow, 9 Mass. 45, is evidently an ill-matured opinion. But one or two of the oldest authorities are cited, and among them especially the nisiprius decision of Lord Kenyon, in Turner v. Hulme, 4 Esp. N. P. C. 11, repeatedly overruled in banc, and especially by him in Guthlert v. Haley, 8 T. R. 394. The case is brief, the law not elaborately considered, and it cannot stand as authority against the numerous and learned decisions, cited by us.
But the case is fully overruled in Bridge v. Hubbard, 15 Mass. 96, and two of the three judges who constituted the court in Bearce v. Barstow, unite with Justice Wilde in Bridge v. Hub bard, in overruling the former case. And the opinion of the Court is one of great learning and strength.
It is manifest, therefore, that the court below erred in granting the instruction asked by the plaintiff, and in refusing the instruction asked by the defendants.

Opinion:
Mr. Justice Smith
delivered the opinion of the court.
David M. Porter had obtained a loan of money from the branch at Canton of the Commercial Bank of Natchez; one third of which was in par funds, and the remaining two thirds in paper, which was depreciated thirty per cent. For the loan thus obtained, he made and delivered his note to the bank. Plaintiffs' testator, and one Slaughter, being indebted to Porter, agreed with him, in consideration of their indebtedness to him, to discharge this debt, by taking up his note in the bank, and substituting their own. This agreement was carried into execution, and the note of Collins and Slaughter was received in lieu of Porter's note. This note was made payable to the bank. Porter was no party to the note; either as maker, indorser, or assignor. This suit was brought upon that note; and the defence is predicated on the alleged usury in the transaction.
On the trial, at the instance of the plaintiff's counsel, the court charged, " That if the jury believe from the evidence that the note sued on in this action, was given by the defendants to the Commercial Bank of Natchez, to pay a debt due from them to said bank, by which said debtor's liability to the bank was taken up by him and discharged, then the note sued on is not usurious, as between defendants and said bank, and must be regarded in the same way as if it were a loan of par funds."
The court, on the application of defendant's counsel, refused to instruct the jury, "That if they believed from the evidence, that the note sued on in this case was given by the defendants to the Commercial Bank of Natchez, in discharge, and by way of taking up of a note, before that time executed by Porter to said bank, which said note of Porter had been given to said bank, in consideration of a loan by said bank to Porter of a certain sum of money, one third of which said loan was in good funds, and two thirds in depreciated bank notes; that afterwards the makers of the note now sued on, being indebted to the said Porter, agreed with him, in consideration thereof, that they would discharge their indebtedness to him, by taking up his aforesaid note to the said bank, and substituting their own note in the place thereof; and that said agreement was carried into execution by the consent of the said bank; and the note in this suit was thereupon executed by the makers thereof, to the said bank; then the plaintiff is not entitled to recover any interest on the note sued on; and must deduct from the sum due on the face of the said note, the amount of the depreciation of the bank notes, loaned to said Porter; testing the value of the said depreciated bank notes, by the standard of gold and silver."
Before we proceed to the examination of the main question in the cause — the question of usury — it will be proper to notice two grounds assumed by the counsel, for the defendant in error; for if they be well taken, it will obviate the necessity of an inquiry into that question.
The first position is, that it does not appear from the evidence that Porter, the original debtor to the bank, made and delivered his note to it for a larger amount than the specie value of the funds received by him at its discount.
This point seems not to have been raised on the trial below; and is for the first time presented in this court. The charges asked on either side, regard the usury of Porter's note as a conceded or established fact. We would reluctantly notice an objection not raised on the trial of any cause in the circuit court; moreover, we think the construction which both parties placed upon the evidence, was the proper one.
The second point is subject to the same objections. It was not brought to the'attention of the court, and was not relied on in the charge requested by the plaintiff's counsel. The ground which appears to have been relied on solely by his counsel was, that the note substituted or given in lieu of Porter's note, was not tainted by the usury of that note, as a valid consideration had passed between the defendants' and Porter. The proof shows that there was an exchange of credit by the receipt of defendant's note, in the place of the note of Porter, then held by the bank. It is true that it is not stated by the witness in express terms, that the substituted note was given for the amount called for, on the face of Porter's note. But the obvious interpretation of the evidence leads to that conclusion. From the record it would seem that this construction was given to it by the plaintiff, and he must be held bound by that construction in this court.
It is unimportant to inquire whether the effect of the transaction, which resulted in the substitution of defendant's note to the bank, for the note of Porter, previously held by it, was a discharge of the demand held by Porter against the defendants, or of that which subsisted on the part of the bank against Porter. The true point of inquiry is, Was there a sufficient consideration for the note in suit, to enable the plaintiff to recover 1
If Porter's note had been without consideration, or if the consideration as between him and the bank had entirely failed, there could be no question of the validity of the makers'. The consideration which passed between them and Porter, would be sufficient to sustain the action. In such a case, the mere want or failure of consideration would not be a legitimate subject of inquiry, as it would be perfectly immaterial whether the bank had or had not given a consideration. This point was decided by this court, in the case of Turner v. Brown, 3 S. & M. 425.
A very different question, however, is presented, where it is alleged that the consideration of the original note is illegal. The distinction between a mere failure, or want of consideration and its illegality, is obvious. The principle which recognizes the distinction, is founded in public policy, for although the party sought to be charged, may, at his option, waive a failure, or want of consideration, the courts, upon a fixed principle, refuse to lend their aid for the enforcement of a contract made in violation of the law. In the case of Adams v. Rowan, 8 S. & M. 638, the distinction between the illegality and mere want of consideration in the assignment of a note is recognized, and the regularity of inquiring into it is directly decided. In that case, the appellees were the assignees of two promissory notes, the payment of which was secured by a mortgage of lands. The notes were assigned by the payee to the appellees, in payment for slaves, introduced into this state, as merchandise, in contravention of the provision of the constitution on that subject; who filed their bill for a foreclosure and sale of the mortgaged premises. There was no question as to the validity of the notes assigned. Yet this court held, that the illegality of the consideration for the assignment, deprived the appellees of all right of recovery against the maker.
It is settled, that where an original contract is illegal, any subsequent contract which carries it into effect, is also illegal. Where the consideration of a contract is impeached for illegality, if the subject-matter of the contract can be traced back to an original illegal contract, the substituted security is void. And this principle applies, if the parties sought to be charged on the substituted security were ignorant of the illegality of the original contract, if the party seeking a recovery was a privy to the original illegal contract. The case of Adams v. Rowan, above cited, is a direct authority on this point, and is sustained by many decisions of high authority. See Bridge v. Hubbard, 15 Mass. R. 96; Tuthill v. Davis, 20 J. R. 287; Edwards v. Skirving, 1 Brev. 528. The facts of this last case were these: A bond was given to secure usurious interest, by a party who died before it was taken up. A mortgage had been executed by the borrower, to secure the payment of the usurious loan. A friend of the deceased, to prevent injury and expense to his estate, which might arise from a threatened enforcement of the mortgage, gave his own bond for the balance due by the decedent on his bond, and took an assignment of it and the mortgage. Upon these facts the court held that the substituted bond was void, on account of the illegality of the first.
Let us apply this principle to the facts of the case before us. Porter was indebted to the bank, and the defendants were his debtors. By an agreement between all of these parties, the note of defendants was substituted for the note of Porter, and they became directly the debtors of the bank. It is obvious that the demand of the bank was not satisfied, although Porter may have been discharged. The money loaned to Porter was not collected; but another security was taken, the consideration of which, as passing from the bank, was the same consideration of Porter's note. The whole transaction in substance, though not in form, amounted to an assignment or transfer of the defendant's note by Porter, in lieu of, or in satisfaction of his own note. In the language of the court, in the case above referred to, of Edwards v. Skirving, " it was, as to the plaintiff, a mere renewal " of Porter's note. Upon this view of the subject, the defendants note was affected by the illegality in the consideration of the first, and to aid in a recovery of the full contents of the note in suit, would be to lend assistance to a violation of the law.
According to the settled doctrines of this court, upon the view tve take of this case, the plaintiff was entitled to recover only the amount of the par funds received by Porter, on the discount of his note, and the specie value of the depreciated bank notes, without interest. The court therefore erred in giving the instruction requested by the plaintiff's counsel in the court below, and in not giving that asked on the opposite side.
Let the judgment be reversed, a new trial awarded, and the cause remanded.