Case Name: Dunham against Dey
Court: New York Supreme Court of Judicature
Jurisdiction: New York
Decision Date: 1816-01
Citations: 13 Johns. 40
Docket Number: 
Parties: Dunham against Dey.
Judges: 
Reporter: Johnson's Reports
Volume: 13
Pages: 40–47

Head Matter:
Dunham against Dey.
Where A. re¡ceives-B.’s note, on giving B. his note at 10-days, ' for the purpose of raising 'nK* ?*ey tin B.’s note, and pays • B. two and a half jner cent, commission,this is a loan within the statute ’of usury, and A.’s note is usurious and void.
Evidence that it "was the usage of trade • to take two and a half per cent, ¡commission * on ‘ the exchange of paper, is inadmissible ; for usage is of no pvail, if the transaction^ comes within the meaning of the statute.
It seems that a person may lawfully receive a commission for hecomiDg security for another.
It secnis that the practice of the banks, of issuing postnotes,, is-not, in itself,usurious.
THIS was an action of ássumpsfy, brought by the plaintiff against the defendant, as endorser of a promissory note, dated the 8th of May, 1812, drawn by Matthias William Ward, for, 750 dollars, payable to the defendant, ten days after date, The cause Was tried at the New-York sittings, in April, 1814, before Mr*. J. Yates* , .
The note in question was one, of several notes executed by M, & W. Ward, dated the 8th of May, 1812, and payable to different persons, at different periods ; in the whole amounting to 9,000 dollars, These notes were delivered by M. 8r W* Ward to the plaintiff, in exchange for his notes, payable at different periods, and amounting to the same sum of 9,000 dollars. This exchange was made on the 8th of May, 1812; and M. & W. Ward paid the plaintiff, as a commission for making the exchange, two . and a half per cent.,, amounting to 225 dollars, which was paid, at the time, in money, It appeared that' ill. # W. Ward, when this transaction took place, were indebted to the plaintiff, for borrowed money, in the sum of 4,000 dollars, Qn the 7th of May, the plaintiff wrote a letter to one of them, . couched in the following terms : “ If the sum borrowed is not returned, or some person’s check left, payable to-morrow, in whose signature' reliance can be placéd, and that attended to before half’ past 4 o’clock, this day, I shall take such steps for the recovery of it, which may be considered of an unpleasant nature.” The plaintiff, a&tMs-tirrre, had a judgment whweh«fea4-feesjQ^entéréd up against Matthias Ward, on a bond conditioned for the payment of 20,000 dollars.
On the same, or the next, day, M. Ward applied to the plaintiff for an advance in notes of the plaintiff. The plaintiff asked what security he would give ; Ward then exhibited a list of names of persons whom he would get to endorse his notes, and gave as a reason for wishing the plaintiff’s note, that he could negotiate it better than his own; and it was understood that Ward was to negotiate the plaintiff’s notes to .raise money, out of which the debt of the plaintiff was to be paid; and it was accordingly paid on the 8th of May, It was testified, that the . application for the loan of the notes was separate and distinct from any other transaction;
Evidence was given as to the usage and custom of merchants ; and several witnesses were examined, some of whom stated it to be usual and customary to charge and receive two and a half per cent, on the exchange of paper, on advancing a responsibility ; but others knew nothing of any such custom.
The judge charged the jury, that if they believed the transaction between the plaintiff and Ward, to have been for the purpose of raising money at a greater rate of interest than seven per cent, per annum, which they were warranted to infer, from the evidence before them, then such intention made it intrinsically a loan, 'and the transaction was usurious and void; that the evidence of usage was not sufficient, and, if proved, that it could not prevail against the existing law.
The jury found a verdict for the defendant.
A motion was made, on the part of the plaintiff, to set aside the verdict, and for a new trial.
Hoffman, for the plaintiff.
This is clearly not a usurious loan, within the words of the statute; nor does the transaction show a shift-or contrivance to get rid'of the statute. It is rió more than the charge of a regular mercantile .commission of .2. U2 per cent. The-brinks óften issue post notes, .payable at -distant periods, for which they receive the amount in cásh-J yht no person has considered.such.n‘transaction as usurious, within the,meaning of the Matute. . A commission is often paid,for .becoming surety at ti-ie custom house, or for endorsing bills of ¿exchange. There was, also, sufficient evidence of a usage of •trade, to repel the. charge, of usury,. All these considerations -would have- had weight with the jury, if they had ,been, permittéd ,ío.-delibera te upon .them; but the judge was-positive inihis -charge to. them, that the transaction, was. usurioüs, - that tihé evidence- of usage was mot sufficient, and, if clearly, proved, would be. of no avail.
Wells, and D. B. Ogden, contra.
The words of the statute^ :are. broad .enough .to reach this. case ; but it .is 'sufficient if it ¿omes within the- ihtpnt and scope of the statute. This is a palpable contrivance to raise money at more than the legal rate of interest. The .case of a surety-or guarantee'is' not analogous-. That is not a loan. A commission for endorsing bills of-ex.change, which pass- into foreign, countries,, may -be allowable, as it is merely to give credit to the-bill. So, post notes -circulate abroad,.and do not return within the times at' which they are made payable. But if these are usurious practices,- they cannot justify similar practices., To alknv them would,- virtually, be-a repeal of the statute.
In Parr v. FAiason-, an agreement, on discounting a bill, to. take another bill;,'which had time to run, as cash, was.held usurious. In Kent v. Lowen, the very -point was decided by: Lord EL lenborough,thnt a commission of 2 1-2 per cent., for accommodating another with an acceptance, was usurious. The same- point was,, afterwards, decided by Xe Blanc,. J., in^Acklandv. Pearce. -‘‘In all .questions of'this kind,”-Lord, Mansfield - observed,: in Flayer v.. Edwards, ‘‘ we must get at the nature-and sub stance of the transaction;” and that where there is a loan of money for more than legal' interest, “ the wit of man cannot find á shift to take it- out of the statute.” Usage.cannot .be set up to' avoid the provision of a statute; the evidence; of ysage, there fore, cannot avail. It becomes the duty of the court to frown upon such usurious practices. .
T. A. Emmet, in reply.
The usage is universal, and coextensive with commerce, to allow a commission, on a lending of a credit, guaranty, Or responsibility. True, such a usage may be made, sometimes, to cover a usurious transaction; but the only question is, has there been an attempt to evade the statute ? The most enlightened writers on political economy have questioned the utility of statutes against usury; believing it would have been better to have left each-individual case to a court of equity to decide on the good conscience of the particular transaction. The legitimate object of the statute, no doubt, is to protect the ignorant, inexperienced, and needy, against the oppression of the rich, and the arts of avarice. It ought not to be extended to commercial dealings between merchant's, who understand each other, who calculate all the advantages which are to result from their various. operations, and who know their own interests too well to require any legislative aid or protection.
This is a question-as to a mere mercantile transaction, in the exchange of paper. The plaintiff had no concern with-the purpose for which Ward wanted the notes, nor with the manner he intended to use them. .It is a very interesting- and important question to the commercial world, whether such an exchange of paper is, in every case, to be considered ’ as a cover for a usurious loan. To make it .usury there must be a loan, anda sum taken for a forbearance of payment. This is not a loan ; it is a mere barter Or exchange of notes ; and there may be á great difference in the value of the things exchanged. • In barter, a party may lawfully take bool. The note .or thing is not to .be returned : it is sold or exchanged; and it is like the exchange of a chattel. In a bona fide commercial transaction, a merchant may receive a commission ■ for. lending his name or credit, and taking the risk of payment ; what is done with the note, afterwards, cannot affect him. . In Floyer v, Edwards, the distinction was taken between a bona fide commercial transaction, and a mere cover for usury; tfye former will be supported, though it exceeds the established rate of interest.
' These extra allowances, in trade, not being for the forbearance of a loan, are not within the words of the statute ; and the usage of- trade is not' so much to show that they aré warranted;. repel the presumption that might, otherwise, arise, -that they . were, in. truth, paid as usury, though under the name of commissions, with a: view to evade, the statute.
The notea given by M. b IV. Ward, were as follows:
One note payable at 10 days after date, (the note in question,) for 750 dollars,.
20 750
30 750
40 750
50 750
SO - 750
70 750
80 750
90 750
100 750
110 750
120 750
9,CQ0
£or which Dunham gave, in exchange, his notej,
One note at 2 months, for 2,250
3 2,250
4 2,250
. & 2,250'
e,oco
1 East, 92.
1-Camp. N. P. Rep. 177,
2 Camp. N. P. Rep. 599.
Corvp. 112.
1 Bos. & Pull. 144. Ord. on Usury, (3di ed.) 58, 59.

Opinion:
Spencer, J.,
delivered the opinion of the court.
If the case was correctly submitted 'to the jury, there is an end of the question; for, certainly, they have considered the transaction- as usurious. The. plaintiff's counsel complain, that the judge, at first, permitted them to go into .evidence of usage; and then. withdrew it from the cdhsideration of-the jury; arid they now-insist that proof of usage was admissible, to show, that the transaction was not intended as a cover for usury, and that, the-proof-having been given; the jury ought to have been permitted to take -if iri.to consideration, in deliberating oti; their Verdict. 1 They further insist, that the transaction,perse,-is not cither within the letter or the mischiefs of the statute.
In Floyer v.Edwards, (Comp. 112.,) Lord Mansfield permitted an inquiry as to the usage of the trade; but he said the,practice and usage would avail nothing, if meant as an .evasion of the statute, for that usage..certainly would not protect usury,, but that it -went a great way to' explain a transaction, and was, in that case, strong evidence to show that there was'.-no intention to cover a loan'of money. These observations were applied to the case of a sale, and, under, the circumstances of that case, it might, have been proper, and probably was so, to inquire into-the usage of that'particular branch of business ; but- it cannot be. admitted, as a'general rule, that, usage may, in all cases, be given -itt evidence, Or that the usage, if proved, shall-determiné whether the' transaction is usurious or riot. ' Every case . must, - in a great degree,-depend on jits' «wn circumstancqs-; and Lord Flarisfibld lays down the rule, in the case already cited, .with-much perspicuity and force : he gays, d it depends, principally, ori the contract being a-'foo»;-ánd. the. statute uses the Words «directly or indirectly';' therefore, in all questions, in whatever -respect, repugnant to the statute, we'must get at the nature and substance of the transaction.; the view1 of- the parties must be ascertained, to satisfy .the court that there is a loan and borrowing, arid, that the substance was to borrow, on the orie part, and to lend,, on the other;, and-where the real truth is a loan of .jnbney, the wit of man cannot, find a shift to take if out of the. statute. If the substance is a loan of moneys, nothing will protect the taking more than 5 per cent.; and though the statute mentions only, ' for loan of moneys, wares, merchandises, of other com-modifies,' yet, any other contrivance, if the substance of it be a loan, will come under the word 1 indirectlyIt is impossible to conceive a more just, sound, and lucid exposition of the statute of usury, than the one given by this really great man.
. If,Then, the evidence before the jury, independent of the usage, exhibited a transaction, the substance of which was to borrow on the one part, and to: lend on the other, at a greater rate of interest than 7 per cent, per annum, and if this entered into the concoction of the bargain, then, undoubtedly, the transaction was usurious, and the notes were contaminated by it, and void. In this point of view, the usage was properly laid out of the case, because it does not go to show, that the negotiation between the plaintiff and'M. Sr W. Ward was not a loan on the one side, and a borrowing on the other; but its tendency was to prove, admitting it to be so, that there was a usage to lend and borrow at a higher rate of interest than that allowed by the statute.
I perfectly concur in the opinion expressed by the judge, at the trial, that the evidence in this case warranted the jury in inferring, that the transaction between the plaintiff and M. $ W. Ward was for the purpose of raising money at a greater rate of interest than 7 per cent., and that that made it, intrinsically, a loan, and, therefore-, the transaction was usurious and void.
The testimony clearly shows, that the object of M. <$/ W. Ward, in the exchange of the notes, was to obtain the plaintiff's-notes, for the purpose of raising money on them, and that his notes were considered better adapted to that object than the notes which M. fy W. Ward gave in exchange ; and although the witness declares, that the exchange of the notes was separate and distinct from the money M. $• W. Ward owed the plaintiff, yet we find that thé plaintiff^ notes were immediately used by M. <£- W. Ward, to raise money on, and that the plaintiff was immediately paid the 4,000 dollars due to him. This debt, undoubtedly, was distinct .from the exchange of the notes, but we have a right to infer, and cannot but believe, that M. W. Ward entered into the arrangement under the pressure of that debt, and that it was in the contemplation of the parties, that the plaintiff should be forthwith paid, out of the mofteys to' be ra-iseb °n his own notos, by M. 8c W. Ward.
The judge, to be sure,, gave his. opinion to the jury .on the evidence; this,.'howeveiV does, not derogate from the-full weight and effect of the finding ; the jufy had a- right to draw their own conclusions ffpm the 'evidence, before them, and-it is as-fully their verdict, as if no opinion had been expressed by the judge. In a doubtful case, or where the weight of evidence is against the verdict, I do not mean to be Understood that, on a motion fcir a new trial,, some .stress might not bela-id-on the circumstance that. the judge gave' his -opinion on/the -evidence ; but-, in this case, I clearly thiuk no argument, favourable to'the plaintiff, can be drawn from that consideration. -
Why was not this a lending on the one part,; and'ri borrowing on the Other,, indirectly ? We have the high authority of' Lord Mansfield, that any contrivance, if the substancé of it be a loan, will come under the Word " indirectly." What is the difference between a man's lending his notes to raise money upon, taking more than legal interest, and lending his money ? I confess I perceive no other difference than this, that the borrower of the' notes must,' probably, pay more usury to get them converted 'into cash; but the. transaction is, substantially, a lending of money; and b agree with the defendant's cóünsel,'that, if this device he tolerated,'the-,statute is judicially repealed.
This very case has occurred in England, arid been decided by Lord EJlenborough and Justice Le Blanc, (in 1 Camp. 177. and 2 Camp. 599.) In the first-case, which was a suit against1 the maker of a note, for 153/. 15s., payable in ninety days, to Mess. Coates 8r Co., and endorsed to the, plaintiffs, the defence was, that the note, had been given upon a usurious agreement, between the maker-rind .payees ; .and it.was proved, that Coates 8c Co..' agreed to accommodate the -maker with their acceptance .at three months, upon receiving his note for the same sum at ninety-days, together With two rind'a half'per cent.-commission. Lord Ellenborongh held, that there was no colour for a commission, and that the two and a half per cent, must be considered as usurious interest,.¿rid the commission a mere cloak for usury. The defendant had a verdict, and we do not find that, the decision was ever .questioned. , In the other case,, Judge Le Bilanc adopted, the same principle, and although the case was reviewed,.his decision, on that point, was not objected' to.-
Here Fmight conclude, but it is fit that notice should be taken of some arguments used by the plaintiff's counsel, drawn from what they consider analogous cases. It is said that it is the usage for endorsers of bills of exchange, and sureties on custom-house bonds, to take a per céntagefor advancing their responsibilities. I see nothing improper in this; there is no loan of money, directly.or indirectly, in either of these cases; they come neither within the terms or mischiefs of the statute, and they are innocent transactions. The practice of issuing post notes by the banks, is supposed to justify the taking commissions on ad-». vancing.motes, under the circumstances attending this.transaction. That practice is extremely well considered in Hammett v. Yea, (1 Bos. & Pull. 144.,) and Ch, J. Eyre draws the distinction, with great accuracy, between what will, and what will not, render such.a transaction usurious. A person- applies to a banker to have a note discounted; the .banker agrees to discount, and is ready to pa.y the money immediately, after deducting the interest for the time -the note has to run; the applicant then asks for a post'.note, payable at a future day, for his own accommodation,.and this is given him. Ch. J. Eyre held this not to be usurious, and he considered it as two contracts, the one for a loan, • and the other independent of the loan, and for a remittance; but he held that, had the banker imposed this remittance on the borrower, as a term of the discount, it would have been Usury: and in this opinion the other.judges concurred. . This case shows, I apprehend, the practice of the banks to be correct; and it fully shows that this transaction, in this case, is usurious, because, here, the two anda halfper cent, was imposed as a term on M. W. Ward, and was part and parcel of the contract. . '
The plaintiff, independent of the two. and a half per cent., was to derive considerable advantage from the transaction; the notes he took from M. S' W. Ward -fell due some time before those he gave in exchange; but it is not necessary to inquire, whether that is also usury, the other point being decisive.
Motion denied.