Case Name: Josiah Newman, Administrator, vs. Lewis Williams et al.
Court: High Court of Errors and Appeals of Mississippi
Jurisdiction: Mississippi
Decision Date: 1855-04
Citations: 29 Miss. 212
Docket Number: 
Parties: Josiah Newman, Administrator, vs. Lewis Williams et al.
Judges: 
Reporter: Mississippi Reports
Volume: 29
Pages: 212–238

Head Matter:
Josiah Newman, Administrator, vs. Lewis Williams et al.
The principle is well settled, that where a note is ‘made without any reference to a usurious loan or raising of money, and is complete and valid in the hands of the holder, it may be sold for a sum less than its value, and at a rate of discount that would render it usurious if it had entered into the original transaction, and that the holder is entitled to recover upon it.
But in order to render the transfer valid, it must be a bond, fide sale of the paper upon a consideration paid or secured, and not in anywise a security for the usurious loan of money by the indorsee or party taking the paper or note of the party from whom he receives it, and it must not be taken at a usurious interest or discount in consideration of forbearance and giving ’>/ time of payment for a debt due the party receiving it; for if it be transferred either upon a loan at unlawful interest, or as a security for a preexisting debt agreed to be forborne at an illegal rate of interest, it falls within the statute against usury.
Where L. W. was indebted to N., and being unable to make payment, N. proposed to give him time for payment if he would allow him ten per cent, upon the amount then due, to which L. W. acceded, and thereupon transferred to him the note in controversy on W. & W., together with two others to the amount,of L. W.’s debt, and ten per cent, added thereto up to the time of payment allowed by the arrangement, and the notes constituting L. W.’s original indebtedness were discharged and delivered up to him: — Held, that this transaction, by which N. was to receive more than the legal rate of interest for “the forbearance and giving day of payment” of the debt due him, is fully within the prohibition of the statute. Hutch. Co. • 641, § 1.
Tlie assignee or indorsee of a note who lias derived title to it by means of an illegal contract, cannot maintain an action upon it, even where tlie note itself is valid and free from objection as between tlie original parties to it.
Tie same rule must apply where the illegality of the consideration extends only to a part of the demand, as in tlie present case, where the contract of transfer is illegal and void only as to interest; and the defence must prevail, so far as to prevent the recovery of all interest. Carlton v. Rohertson, 14 S. & M. 18, cited and confirmed.
Under the provisions of our statute, the plaintiff can recover nothing but the principal of his debt on a usurious contract.
Mr. Justice Fisher, dissent.- — Jt is a general rule, that where a debtor indorses tlie note of a third person to his creditor corresponding in amount with the debt, or if the note be credited so as thus to correspond, and the original evidence of debt is taken up, that such indorsed note is intended by the parties to operate as a payment of the previous debt. Held, that whenever a bill or note in its inception is a real transaction, so that the payee or promisee may at maturity maintain a suit upon it, a transfer by indorsement on a discount, though beyond the legal rate of interest, shall be regarded as a sale of the note or bill, and a valid and legal transaction.
Mr. Justice Fisher, dissent. — The contract, so far as N.’s title to' the notes is concerned, was completely executed the moment the indorsement was complete ; and he was authorized to sue on them, and he ought to recover the full amount in controversy.
Ow appeal from the superior court of chancery ; Hon. Stephen Cocke, chancellor.
This was a bill filed in vice-chancery court at Natchez by Newman, administrator, &c., against Mary Williams, S. B. Williams, Lewis Williams, G. G. Torry, and J. W. Darden, and the bill charges that on the 24th November, 1840, Mary Williams and Stephen B. Williams made their note for $5,000 in favor of Lewis Williams, due 1st January, 1848; and on the same day they made a mortgage, to secure this note and others, to said Lewis Williams. •
On the 25th November, 1840, Lewis Williams transferred this note by indorsement to complainant’s intestate, Reuben B. Newman. The note is credited with $100.
On the 17th December, 1845, after Williams had transferred the note to complainant’s intestate, Williams entered acknowledgment of satisfaction' upon the mortgage. This is charged to be void as to complainant.
The prayer of the bill is to make Mary, Stephen B., and Lewis Williams defendants and for process, and for decree that the money be paid; and in default thereof, for foreclosure and sale of the mortgaged property, and for general relief.
Answer of Mary and S. B. Williams admits they made the note and mortgage as charged, and that no part thereof has been paid.
Answer of Lewis Williams admits the making of the note and mortgage as charged; says that in 1839 he purchased negroes on a credit from complainant’s intestate, and in payment thereof gave his three notes to complainant’s intestate, each for $1,500, one due 1st January, 1841, one due 1st January, 1842, and the other due 1st January, 1843. After the first note matured, he found he could not phy it, and he proposed to Newman to return the slaves and cancel said notes. Newman refused, and said he did not want money; that all he wanted was ten per cent, interest on his money, and that he would give several years to pay the notes, if defendant would pay that rate of interest. Finding that Newman would not take the slaves back, defendant finally concluded to pay said rate of interest.
The whole amount of the three notes of $1,500 was then calculated at ten per cent, interest from their maturity, $1,000 to be paid 1st January, 1846, $1,000 January 1, 1847, and the balance 1st January, 1848, making an aggregated sum of about $6,900, about $2,300 of which was interest calculated at ten per cent.
For the purpose of paying this sum of $6,900, defendant transferred to said Newman three notes of said Mary and Stephen Williams, one for $1,000, due 1st January, 1846, one for $1,000, due 1st January, 1847, and said note of $5,000 named in complainant’s bill.
-He insists that in the settlement with Newman, he transferred paper to him to the amount of $2,300 more than he is bound to pay or complainant should receive; that $2,200 was the interest on what the defendant owed Newman, calculated at ten per cent, per annum, which interest was illegal and usu rious. The other two notes of $1,000 have been paid, arid he insists that said $2,300 of interest shall be deducted from the $5,000 note, and he is willing to pay the balance.
Says he 'saw Newman in October, 1846, and talked with him about the* note, and that Newman admitted that illegal and usurious interest had been charged; that he entered satisfaction on the mortgage by mistake, not to defraud any one.
Torry and Darden, who purchased a part of the mortgaged property, answered.
The court decreed in favor of Williams et ah, and Newman appealed.
Thrasher and Sellers, for appellees.
The defence in this case is usury; and yet there is no foundation for such defence. The simple question is, Was there any usury in the body of the note sued on ? Was there any loan of money at a usurious rate of interest, and that interest incorporated into the body of the note ? Was there any given day of payment or of forbearance at a usurious rate of interest, whereby the debt was renewed, and that interest embodied in the face of the note? Was the note valid in its inception, and has it been illegally altered since? Was the note a real and substantial business note, and had it a valid foundation for its origin? Had the note been negotiated by the makers and put into circulation at the time complainant ..bought it?
If these questions be answered in the affirmative, 'the defence must fail. Even in an action at law, against drawers and indorsers of such a note, usury could not be made out upon the facts; because it is a case of the purchase and discount of a note already negotiated and put into circulation by the makers, and having its legal foundation and origin in a pure valuable consideration. But the court is particularly reminded, that this suit is a proceeding in rem, to do what? Not to enforce the contract, as between Williams and Newman, although that contract is valid; but it is a proceeding to force the makers of the note to comply with their contract made with Williams, which contract they admit to be legal by their answer, and which contract has been assigned to complainant’s intestate. Complainant’s intestate took this note as money in payment of a debt due him.
His debt was founded upon the sale of a lot of negroes, and it is admitted that the notes which he had made in payment of the purchase of those negroes were valid, and - unaffected with any thing illegal. The note sued on in this case, and which complainant’s intestate took as money at a discount in payment of his debt, is founded upon the purchase of a plantation and negroes, and the drawees admit in their answer that they justly owe it. Now where is the usury ? Had not Lewis Williams the right to sell this note upon any terms he chose? Surely he had, because he was the owner of it. It had been delivered, negotiated, and put into circulation upon a valuable consideration by the makers. Had not Newman the right to buy it at a discount, or to take it at a discount in payment of a debt due him ? Surely he had, because it had been negotiated by the makers. .
This proposition is equally true, even if the transaction between Williams and Newman had been usurious. Williams and Newman have settled. The old debt is paid. We are not trying to recover upon that; but we are trying to make the drawees of the note pay for the land and negroes they bought. It is immaterial to them what we gave for the note.' It is sufficient that they obtained valué for it.
“ As between the makers and assignee, it is immaterial what the. latter pays for the note. The price he pays does not diminish the maker’s liability. The maker contracts to pay so much, and by the assignment the assignee becomes entitled to the amount of the note.” Turner v. Bremen, 3 S. & M. 438.
A note valid in its inception, may be sold at a discount greater than the legal interest, and yet be enforced against the maker, such transactions not being usurious. See 17 Conn. 441; 8 Cow. 669; Ring v. Johnson, 3 McCord, 365; 2 Dali. 92.
The defence set up is nothing more nor less than a suit brought by the Williams family to recover back money paid by Lewis Williams upon one of his transactions alleged to be usurious. In the first place, such a suit could only be brought by a direct action at law by Lewis Williams. In the second place, Stephen and Mary Williams could not bring such a suit, because they have paid nothing, neither principal, interest, nor usury. In the third place, the extent of recovery in such suit is merely the excessive interest paid. This is the universal law in such cases.
But how can a man pay usury, when he is paying a valid debt? Williams’s notes to Newman were valid. They were never changed or renewed. They were paid and cancelled. So says Hoopes. They were paid by taking the nóte sued on at ten per cent, discount, so says Purnell, the mamwbo made the calculation and was present at the settlement. Williams transferred the note in payment of his debt. The indorsement on the back of the note shows this, when taken in connection with the testimony of Purnell. There is no proof that Williams was required to guarantee the note, or to indorse it further than to perfect Newsman’s title to it, and the indorsement indicates strongly that it was made for that purpose. Purnell’s testimony proves it. He does not prove that there was ten per cent, interest in his calculation. He says the note was discounted at ten per cent. He is defendant’s witness, and makes this answer to their question about the settlement.
The payment cannot be made usurious. But if it could, the drawees could not set it up in any suit. Lewis Williams cannot set it up in this suit.
The distinction between the purchase of a note, and a loan upon it by way of discount, is well settled. A note which has been negotiated by the maker, and might if at maturity be enforced against him by the holder, may be sold at a greater discount than the rate of seven per cent., without involving the purchaser in the penalties of usury. But the note must be perfect and available to the holder to make it salable by him. The test is, the right to maintain an action upon it against the parties to it, if it was then due. 8 Cow. 685.
The sale of a negotiable note, free from usury when made, and available as a good.note before sale, at a greater discount than legal interest, is not usurious, although indorsed by the party making the sale. French v. Grimble, 3 Shep. 163; Lane v. Steioart, 2 App. 98.
Thus, whenever the note or bill in its inception was a real transaction, so* that the payee might at maturity sue upon it, a transfer by indorsement, though beyond the legal rate of interest, shall be regarded as a sale of the note or bill, and a valid and legal transaction. 7 Pet. R. 107; 2 Johns. Ca. 60; 3 lb. 66; 15 Johns. R. 44.
The question whether a contract is usurious or not, is to be decided with reference to the time when it was entered into ; a contract legal at such time cannot be made usurious by subsequent events. ' Pollard v. Baylors, 6 Munf. 433.
There are two cardinal rules regulating the doctrine of usury: 1, to constitute usury, there must be a loan in contemplation by the parties; 2, a contract which in its inception is unaffected by usury can never-be invalidated by any subsequent usurious transaction. Nichols v. Fearn, 7 Pet. 109 ; 3 Dev. 30.
For otherwise, a contract wholly innocent in its origin, and valid and binding upon every legal principle, is rendered valueless, and a party to whom the provisions of the act against usury could never have been intended to run, would be discharged of a debt which he justly owes to some person. 7 Pet. 110.
The contract and security for usury are void only as between the original parties, or where the suit is upon the very instrument infected with the usury. Jackson v. Dewy, 10 Johns. R. 185. A stranger to a contract cannot take advantage of the fact that it is usurious. 1 Barb. 271.
But the obligor cannot take advantage of a usurious contract between the assignor and his assignee. Littell v. Lord, Hard. R. 81; 2 Munf. 36; 1 Bay, 456; 3 McCord, 365; 5 Rand. 33 ; 2 Hen. & Munf. in the case of Kenner v. Reid.
Usury between the indorser and indorsee in the transfer of a negotiable note, only affects the promise of the indorser, and cannot be set up in defence in an action by the indorser against the' maker; consequently, the indorsee cannot be admitted as a witness to prove such usury. Knight v. Putnam, 3 Pick. 184.
For what purpose is 'Williams, Lewis Williams, made defendant to this bill ? He is not sought to be made liable for ■debt. None of his property is sought to be sold. He is made defendant solely because there are other notes in the mortgage secured to him thereby. Those notes have all been paid, and. he don’t deny it, or ask any protection for them. His indorsement on the mortgage shows they are paid. Complainant having a perfect right to the note by purchase and transfer, or by receiving it as money, is entitled to the decree sought.
Lewis Williams has no interest in this controversy. He is merely a formal party,.introduced for the purpose of foreclosing against the other notes. Complainant’s title to the note sued on is admitted in the answers, proven by the depositions of Hoopes and Purnell, and proven by the indorsement on the note. There is no failure of consideration; no illegal consideration in the’ note. It was made and negotiated before complainant’s intestate bought it. His title to it was perfect. It stood then just as it now stands. It has never been renewed or altered since it was first , uttered. What Newman gave for it, or what mode of calculation he may have adopted to ascertain what he was willing to give for it, cannot taint or impair its consideration, or affect the result of this case.
We therefore ask this court to reverse the decree of the superior court of chancery, and to render the decree which the southern district chancery court ought to have rendered, namely, that the mortgaged premises be sold for the satisfaction of said note and interest of $5,000 due to complainant’s intestate, and the full amount of principal and interest due in and by said $5,000 be paid over to complainant.
No counsel appeared for appellees.

Opinion:
Mr. Justice Hakdy
delivered the opinion of the court.
This was a bill filed by the appellant in the district chancery court at Natchez, and taken by appeal to the superior court of chancery, from which it is brought here. It is a bill to foreclose a mortgage, and the case made by the record is as follows:—
In November, 1840, Mary Williams and Stephen B. Williams executed their promissory note to Lewis Williams for five thousand dollars to become due in January, 1848, and at the same time executed a mortgage to secure this note and others. Shortly after this, Lewis Williams transferred the note by in-dorsement and delivery to the complainant's intestate, and this bill is filed against the mortgagors and mortgagee to foreclose the mortgage.
The defendants set-up the defence of usury, and it appears that in the year 1843 or 1844, Lewis Williams was indebted to Newman, the complainant's intestate, $4,500, and he not being prepared to pay it, Newman proposed to give him time for payment, if he would pay him ten per cent, interest on the debt; which was agreed to by Williams, and a calculation was made for one thousand dollars payable 1st January, 1846, one .thousand dollars payable 1st January, 1847, and the balance to be paid 1st January, 1848, amounting in the whole to $6,800, the interest included in or discounted from the notes, being calculated at ten per cent, and amounting to about $2,300. For the payment of the amount thus calculated, Williams indorsed to Newman three notes made by Mary Williams to him, one for one thousand dollars payable 1st January, 1846, one for one thousand dollars payable 1st January, 1847, and one for five thousand dollars payable 1st January, 1-848, the last being credited by two hundred dollars, and these being the notes secured by the mortgage; and thereupon the debt of Lewis Williams to Newman was discharged by delivering up his notes. The notes transferred by Williams to Newman are shown to be legal and valid as between the maker and payee, and the two notes for one thousand dollars are admitted to be paid.
The vice-chancellor decreed to the complainant the original debt due at the time of the transfer of the notes by Lewis Williams, with legal interest at eight per cent, upon the original notes of Lewis Williams to Newman, and to Lewis Williams the residue of the mortgage debt, restoring the parties to their rights as they existed before the transfer of the notes, and ordered a foreclosure.
Upon appeal, this decree was reversed in the superior court of chancery and the cause was ordered to be remanded for fur ther proceedings; but no directions are given as to principles upon which further proceedings should' be taken, or as to the grounds of reversal.
From this decree, this appeal is prosecuted.
. The only question for consideration is, whether the note sought to be enforced is liable to the defence of usury under the circumstances of the case.
There is no pretence that any usury existed in the note as it stood between the maker and payee, and before the transfer to the complainant's intestate. And it is, therefore, insisted in behalf of the appellant that, as it was a valid note, founded upon a legal consideration, and complete between the parties without reference to the use to which it was subsequently applied, and in that condition was purchased by the appellant's intestate, the defence of usury cannot prevail. Let us examine these positions, and see how far they are applicable to the facts here presented.
The first point to be settled is, whether Newman can be held to be a purchaser, and his right to the note protected on that ground.
We consider the law to be well settled, that when a note is., made without any reference to a usurious loan" or raising of money, and is complete and valid in the hands of the holder, it may be sold for a sum less than its value and at a rate of discount that would render it usurious if it had entered into the original transaction, and that the holder is entitled to recover upon it. This principle has been much considered in the courts of this country; and though there are decisions to the contrary, it is sustained by the great weight and number of authorities. Munn v. Commission Company, 15 J. R. 44; Powell v. Waters, 8 Cow. 685; Nichols v. Fearson et al. 7 Peters, 103; Callin v. Nevill, 3 Dev. 30; French v. Grindle, 15 Maine (3 Shep.), 163; 3 McCord, 365.
But in order to render the transfer valid, it must be a bond fide sale of the paper, upon a consideration paid or secured, and, not in anywise a security for the usurious loan of money by the indorser or party taking the paper to or on account of the,party from whom he receives it, and it must not be taken at a usurious interest. or discount in consideration of forbearance, and giving time of payment.for a debt due the party requiring it; for if it be transferred, either upon a loan at unlawful interest, or as a security for a preexisting debt agreed to be forborné at an illegal rate of interest, it falls within the statute against usury. The first branch of this proposition is sustained by all the cases above cited; and the latter branch of it is supported by the cases in 7 Peters, 103; Gaither v. Farmers and Mechanics Bank, 1 Peters, 37; Levy v. Gadsby, 3 Cranch, 180.
Let us apply these principles >to the circumstances of this case.
It appears that Lewis Williams was indebted to Newman, and being unable to make payment, Newman proposed to give him time for payment, if he would allow' him ten per cent, upon the amount then due; to which Williams acceded, and thereupon transferred to him the note in controversy, together with two others, to the amount of Williams's debt and ten per cent, added thereto up to the time of payment allowed by the arrangement, and the notes constituting Williams's original indebtedness were discharged and delivered up.
It is plain that this was not a purchase by Newman of-the notes transferred to him, in the sense of the rule. It was proposed as a mode of giving time of payment, and was carried out as such, in order to give indulgence to Williams and ten per cent, interest to Newman. The discharge of the original indebtedness of Williams did not change the nature of the transaction, for Williams still gave interest at the rate of ten per cent, for the indulgence and forbearance given him by transferring the notes, including that amount to Newman. It was, therefore, clearly a transaction by which Newman was to receive more than the legal rate of interest for " the forbearance and giving day of payment " of the debt due him, and is fully within the prohibition of the statute. Hutch. Dig. 641.
The contract of transfer of the note being, therefore, usurious, it remains to be considered whether the makers of the note can set up a defence on that ground to the suit of the indorsee, there being no usury in the note at the time of the transfer.
This presents the simple question, whether the assignee or indorsee of a note who has derived title to it by means of an illegal contract, can maintain an action upon it when the note itself is valid and free from objection as between the original parties to it.
It is immaterial in questions of this nature, what may be the obligation of the defendant to pay. The first question to be settled is, whether the plaintiff has a right to recover; and it is unquestionably true, that if his title be founded on an illegal consideration, he cannot be heard in a court of justice to assert a fight under it. This principle has been repeatedly applied by this court to cases of illegal contracts. In the case of Adams v. Rowan et al. 8 S. & M. 638, the notes of Adams to Runnels, founded on a valid and sufficient consideration, were transferred by Runnels to Rowan' & Harris for an illegal consideration; and it was held that the maker could set up the illegality of the consideration paid by Rowan & Harris, in defence of a suit brought by -them upon the notes. In that case the defence went to the entire suit. The same principle is held in the case of Gaither v. Farmers and Mechanics Bank, 1 Peters, 37.
When the illegality of the consideration extends only to a part of the plaintiff's demand, as in the present case, where the contract of transfer is illegal and void only as to interest, the same rule must apply, and the defence must prevail so far as to prevent the recovery of all interest. .Because where thfe consideration is illegal as to a part of the demand, the defence must prevail to that extent upon the same principle by which the whole action is defeated where the entire claim is rendered void by illegality of consideration. This rule is fully recognized in Coulter et al. v. Robertson, 14 S. & M. 18; and it is now settled beyond controversy in this court, that, under the provisions of our statute, the plaintiff can recover nothing but the principal of his debt on usurious contracts.
In this case a question of some difficulty arises as to who is entitled to the interest on the note.
We have seen that the complainant is not entitled to recover it; and there is no just reason why the makers should not pay it according to their contract. If it had been usurious interest paid by Lewis Williams to the complainant's intestate, upon a transaction in which they alone were involved, Lewis Williams, upon general equitable principles, would have been entitled to .recover back only the excess paid over the legal interest. Parchman v. McKinney, 12 S. & M. 639. But there has been no payment, and the contract is executory. As no interest can be recovered by the complainant, the transfer to that extent being void, it must either belong to Lewis Williams, or the makers of' the note be released of all interest, which they do not claim, but allege that it should go to Lewis Williams.
It appears, therefore, proper that it should be decreed to Lewis Williams, he being a party to the suit.
The decree of the chancellor reversing the decree of the vice-chancellor is affirmed, and a decree ordered in favor of the appellant for the amount of the principal due upon the note without interest, and in favor of Lewis Williams for the amount of interest due thereon, and for a foreclosure accordingly; and that Lewis Williams pay the costs.