Case Name: James Moffat, Thomas Cochran and others v. M'Dowall and Black Assignees of James M'Dowall
Court: South Carolina Court of Appeals
Jurisdiction: South Carolina
Decision Date: 1826
Citations: 1 McCord Eq. 434
Docket Number: 
Parties: James Moffat, Thomas Cochran and others v. M’Dowall and Black Assignees of James M’Dowall.
Judges: 
Reporter: South Carolina Equity Reports
Volume: 6
Pages: 434–442

Head Matter:
James Moffat, Thomas Cochran and others v. M’Dowall and Black Assignees of James M’Dowall.
Assignment certain'creditors valid.
In what cases equity will set aside an usurious am^ngcredi-tors.
All allega-pTvecTnot admitted in the answer.
conclusive unless rebut-witnesses, or cumstánces"
This was a bill of interpleader filed by M ’Dowall and Black, assignees of James M ’ Dowall, against James Moffat, Thomas Cochran and others, creditors of the said James M’Dowall, to obtain the direction of the court as to the distribution of the funds in their hands, By the assignment James Moffat was postponed to the other creditors made defendants to the suit, and being dissatisfied instituted an inquiry into the dealings of the said James M’Dowall; and suspecting that most of the money transactions of the said James in the latter part 0f his life were usurious, gave notice to the assignees , . , , . . „ T not to pay any notes which were not clearly bona fide transactions. In consequence of this notice, the assignees, having been advised by counsel that they ought not to assume upon themselves the determination ot what notes were good or bad, filed a bill of interpleader against the said James Moffat and the creditors holding the suspected notes, and who were expressly provided for in the said assignment in preference to the said James Moffat. To this bill the defendants severally put in their answers; and in answer to the charges of the bill replied, that they had given valuable considerations for the said notes; and Adam Tunno and Rapeyle, Bennett Co. denied the usury, while Timothy Street and Co. Jacob R. Valk and Thomas Cochran alleged the same, and did not admit the charge of usury.
Between creditors the debtor is a competent witness to prove usury.
1826.
Charleston.
James M’ Dow all, the original maker of the notes and assignor of the fund in dispute, was examined as a witness before the Commissioner respecting the notes held by Adam Tunno, Jacob R. Valk, Timothy Street &/■ Co. Thomas Cochran, send Napier Rapeyle, and Bennett. With regard to these he proved that his habit of doing business was the following. He drew the note, and obtained the endorsement of M ’Bowall and Black, for the purpose of raising money. He then delivered them to a broker with authority to raise money upon them, and generally received from the broker on the same day, but not at the time of giving him the note, a sum considerably less than the face of the note with the legal interest discounted from them. Sometimes only double bank discount was taken off, and at other times twice as much. He could not say whether any brokerage was also deducted, nor could he say whether the amount withheld from him, or any part thereof, was retained as brokerage, or usurious interest. He was always paid in cash and not by .a check. He did not know what became of the notes after they were delivered to the broker, nor did he know how much the brokers received upon the transferí of the notes. He knew no persons in the transactions but the brokers.
James Moffat, at whose instance the bill was filed, ant who was also made a defendant, put in his answer, in sisting upon his claim as a bona fide creditor, and call ing upon the Court to place his debt on a footing with the other defendants, although his claim was in the second class and theirs in the first class, according to the terms of the assignment.
The parties went to trial upon the bill, answers and testimony of James M’Dowall.
Thompson, Chancellor.
One very important question in the case is, whether these notes are to be considered usurious “? Without referring to authorities I lay it down as a general rule of law, that notes of this description, created and thrown into the market for the express purpose of raising money, have generally been considered usurious, provided the discount exceeds the legal interest. These notes therefore, at law, would be null and void, but in equity not so. This Court will compel the borrower to pay the principal with the legal interest, and only lop off the excess. It is contended, however, that James Moffat, being a third person, had not a right to insist on the statute against usury. As well might it be said, that a man, having a rightful claim against another, cannot insist on setting aside a fraudulent conveyance for the purpose of letting him in to recover a just and legal demand. It is further urged, that Mr M’Dowall hada right to select whomsoever of his creditors he pleased, and give them a preference. Generally speaking the law is so; but not when there is fraud or collusion. In this case the defendants by exacting exorbitant interest from Mr M’Dowall contributed to his failure and ruin. Mof-fat on the contrary, by furnishing him with goods, set him up in trade, and enabled him to rank with the merchants of the place. And.it was amoral, as well as legal, fraud, not to have placed him at least upon a footing with his other creditors; and what was just and right for him to have done, which has not been done, the Court will do for him. It is therefore ordered and decreed, . that James Moffat be placed on the schedule containing a list of preferred creditors, that it be referred to the Commissioner to ascertain the excess of the discount over and above the lawful interest, and that such excess be deducted from each note according to the rates of the discounts; and the aggregate of the estate of the said James M’Dowall be divided in average and proportion between the said .preferred creditors. And should there remain any surplus the same is to be divided in the same manner amongst the creditors named in schedule No. 2. each party to pay his own costs.
An appeal was taken up on these points.
First. That James M’Dowall ought not to have been admitted as a witness.
Second. Because there was no proof of usury to affect the defendants Cochran, Turnio or Street, or Napier Ra-peyle and Bennett and Valh.
Third. That Moffat, though a creditor of James M’Dowall, could not avail himself of the objection of usury, admitting its existence.
Fourth. That admitting that the Court had power to reduce the claims of the defendants who were creditors in class No. 1 under the deed of assignment, yet the Court had no power to place the defendant Moffat in class No. 1, or to give him a right to an equal and rateable payment with the other defendants.
Dawson, for the appellants,
cited 2 Brev. tit. Usury. 2 Powell on Contracts, 2. The assignment to M’Dowall and Black is not án undertaking to pay money; but is, in effect, the payment to his creditors. Comyn on Usury, 55. It is essential to the loan, that the money is to be returned. Comyn on Usury, 55. Not so of .this assignment. A Court of Law will not set aside a judgment founded on an usurious consideration, without compelling defendant to pay the sum actually loaned. Comyn on Usury, 95, 96. 208, 209. Whatever mighthave been the character of the loan, nothing corrupt entered into the assignment. The plea of usury can not be sustained in an action on a bond for indemnity. Cro. Eliz. 197. 588. ^ bond given on a corrupt contract between two obli-g0rs can not be atfected by it in the hands of the obligee, who was no party to the usury. Cro. Jac. 33. 1 Saund. 295. If A. gives B. his note for usury, who transfers it to C. without notice to whom A. gives his bond for the amount, it is good. 8 Term Rep. 390. 2 Caines’ Ca. 150. A substituted security is not void, although plaintiff knew that the original was usurious. Feron v. Hulm, 4 Esp. N. P. 11. An assignment to pay an usurious contract cannot be set aside. 1 Johns. Ca. 161. The defence of usury is not favoured. Amendments will not be allowed. Cro. Eliz. 104. Comyn, 209. If parties to an illegal contract think proper to waive the objection, third person cannot make it. 4 Johns. Cha. Rep. 332.
Conveyances cannot be said to be voluntary, when there is any consideration ; even when it is only conscientious. Roberts on Frauds, 15. 66. 432. The statute was made to protect creditors, and it is anxious to protect those also who have a moral obligation. 1 Fonbl. 271. The payment of an usurious debt is a moral obligation. 3 Day’s Rep. 363. Coop. 290. 294.
King, contra.
First, as to the competency of the witness M’Dowall, it was decided at the last Court that the party to an usurious contract might be a witness. Pack-hard v. JYight. M’Dow all stands indifferent between the parties ; if liable at all, he is liable to all. Executors of Thomas v. Brown, 1 M’Cord, 557. Fleming v. Mulligan, 2 M’Cord, 173.
The Court will not interfere to release against an usurious contract, without the payment of the sum really due. 1 Fonbl. 25. 5 Johns. Rep. 136. He also cited Duncan v. Faux, decided four or five years since, in the Appeal Court of Equity.
Feb. 1826.
In a suit bet^fliedebt- or is a compe-tent witness prove usu-prove usury, tender will de-onoathUSUry
Grimke, in reply.
The complainants have no interest in the question. The only question in the case arises „ , . „ ,, „ ^ , . out of the allegation ot Moffat, that the notes' were usurious ; quo ad hoc, he is the complainant, and when he comes into equity he must do equity by paying the sum loaned and interest. Smith v. Fisher, 2 Desaus. Rep. 275. The Court dismissed a bill preferred by one creditor against another, to set aside an usurious contract to let him in. The defendants have not admitted the usury, and it was incumbent on Moffat to prove it. M ’DowalVs evidence was necessary to establish it between them; but he might have been imposed on by the brokers. 1 Gilm. Rep. 42.

Opinion:
Cupja, per
Johnson, J.
The first ground of this motion has not been insisted on and is clearly untenable. However the partialities of James M'Dcmall might have been enlisted, in a legal point of view his interest was equally balanced between the contending parties. The result would be the same to him whether the one or the other prevailed. He was a competent witness, therefore, on the principles of the common law. And being called to testify as to the fact of an usury to which , , , . , , , , he was a party he was rendered competent by the tute, unless the lender would have contradicted on oath what he offered to swear and that although he had been a party to the suit. Executors of Thomas v. Brown, 1 M'Cord, 557. Fleming v. Mulligan, 2 M'Cord, 157.
The second ground denies the fact of usury, with respect to which the defendants form three distinct classes.
1. Moffat, who makes the allegation. 2. Tunno and JYapier, Rapeyle and Bennett, whose answers expressly deny it. And 3. Street & Co. and Falk and Cochran, who although they do not, in express terms, deny it, yet do not admit it. James M'Dowall was the only witness who testified as to this fact. He states in substance that he was in want of money, and as the means of raising it put his notes, endorsed by the present complainants, into the hands of brokérs, who accounted with him for the amount by deducting generally double bank discount, and sometimes more; but by whom the notes were discounted, or on what terms, he was wholly ignorant. This evidence is unsupported by any other witness, nor do the circumstances necessarily tend to that conclusion, especially as the broker, Immanuel, who was then living, might have been called in aid of the other proof, if the fact existed. Admitting, therefore, that the conclusion of usury might possibly have been deduced from the evidence of James M'Dowall, yet the defendants designated as the second class would have been, protected under the rule which obtains in this Court, that where a defendant denies positively a fact stated in the bill it is conclusive unless contradicted by two witnesses, or by one witness and circumstances. The evidence of James M'Dowall does not, however, establish the fact of usury. He does not pretend to know on what terms the notes were originally negociated — all that he professes to know about it is, that the brokers employed by him accounted with him for the proceeds at an usurious rate, and whether honestly or not he was equally ignorant. They were his agents, and if no usury entered into the original negociation of the notes the contract was obligatory on him, and whatever fraud or cozenage they may have practised on him cannot be set down to the account of those who discounted the notes. The fact of usury cannot therefore be fairly deduced from this evidence, and whatever suspicions may arise out of the eva-s^ve answers of the defendants constituting the third class, they are protected by the rule that requires proof of every allegation that is not admitted by the answer.
where the defendant denies positively a fact stated in the hill it is conclusive unless contradicted by two witnesses, or by one witness and circum- . stances.
Every allega-provecUhat^s not admitted swer.6 an"
It seems the Court of Equity may set aside an usurious contract for the benefit of creditors where the usury is so excessive as to furnish a strong presumption that. the object was fraudulent.
Unsafe to lay down a general rule on the subject.
A debtor-may make an assignment of his property to particular creditors in preference to others: though it may be dishonest in the debtor 1 it is not void among the creditors.
Third. The disposition made of the preceding ground renders the consideration of the third ground unnecessary. That cases might exist, in which the Court would tye justifiable in setting aside a contract tinctured with dsuryin favour of third persons (creditors), may be readily conceived; as where the excess was so great as to furnish strong presumptions that the object was fraudulent. But it would be difficult, if not impossible, to lay down any rule upon the subject; it is indeed the language of Courts of Equity, that it would be unsafe lest it should give a covering to the artifices of avarice.
The only remaining question necessary to be considered in this case is, whether the Court had the power to place the defendant, Moffat, on a footing with the creditors who are preferred in the deed of assignment. The foundation of so much of the decree as relates to this subject is the supposed usury and fraud which entered into it. The opinion already expressed has removed this foundation, and if the superstructure rested solely on it, it would as a necessary consequence fall with it. But laying these considerations out of the question, it has been urged with much earnestness, that supposing all the transactions perfectly fair and legal, yet the fact of appropriating the whole of his funds to the payment of debts due to favourite creditors to the exclusion of others equally meritorious, is, in an equitable point of view, a, fraud against which the Court ought to relieve. If we were left to reason on this subject, without the aid of the lights with which experience has furnished us, it would be difficult to resist this conclusion. Reasoning a priori we should, I think, generally conclude, that where the estate of a debtor was insufficient to satisfy all his creditors il ought to be distributed amongst them in equal proportions, without regard to the nature of the demands or legal priorities. But beautiful and fascinating as t system built upon the basis of natural justice may be and wide as the Courts of Equity, in this and every other country where they exist, have opened their doors to admit the idol, a necessity growing out of public expedience has compelled them to preserve a few land marks by which their powers are circ umscribed. Amongst these may be safely reckoned the principle, that they are bound by the positive rules of law. That a debtor may pay one creditor, that he may give him a lien on his property, or make an assignment for his benefit, are conclusions that admit of no controversy. It is the practice of every day, and universal consent has stamped it with its sanction. Fraud, it is said, however, will vitiate any contract, and on this ground Moffal claims to set aside the deed of assignment made by James M'Dowall, and to come in on a footing with the preferred creditors. Let us suppose that it was dishonest and unfair in James M'Dowall to make this difference among his creditors, how, let it be asked, does that circumstance affect the favoured creditors 9 There is nothing in the most rigid code of morals which prohibits a creditor from using legitimate means to secure a doubtful debt, or to protect himself in the enjoyment of the fruits of his exertions. And however we may be disposed to censure the conduct of James M'Dowall, there is no reason why we should visit his sins on the heads of his creditors, who have done nothing illegal or morally dishonest.
So any other lien may be given preferring a creditor.
The decree of the Circuit Court is reversed, and it is ordered and decreed that the complainants do apply the funds assigned to them in the manner provided for in the deed of assignment — that the defendant, Moffat, pay his own costs, and that all other costs be paid out of the funds in the hands of the complainants.
Decree reversed.