Case Name: The Fulton Bank of the City of New-York versus Lewis Benedict
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1829-02
Citations: 1 Hall 480
Docket Number: 
Parties: The Fulton Bank of the City of New-York versus Lewis Benedict.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 1
Pages: 480–559

Head Matter:
The Fulton Bank of the City of New-York versus Lewis Benedict.
Feb. Term, 1829.
The Hudson Insurance Company of the city of New-York, on the 22d of Octo-’ ber, 1825, through M. Spencer, their President, made a temporary loan of §14,000 to the firm of Keeler and Rogers. As collateral security for this loan, the borrowers put into the hands of Spencer two promissory notes, one for §15,000, and the other for §10,000 ; each of which was signed by the defendant, (among others,) and payable twelve months After date to the order of Keeler & Rogers, and which notes were made,"as the defendant alleged, for their accommodation. K. & R. at the same time owed the Company about §22,000 for other and anterior loans, made upon bills and notes which had been discounted by the Company for their benefit.
The terms upon which the Hudson Company usually made their discounts were these: The borrower took the amount of his note in bonds of the Company, bearing an interest of six per cent., which were made payable at a day more' distant than that on which the loan would fall due; and at the same time the borrower paid to the Company in cash a discount of six per cent, on the note, together with a premium, at the rate of six per cent, per annum, on an insurance of a life or lives, during the running of the note; which life insurance the borrower was supposed to apply for; but no policy, in fact, was ever issued, and the rate of insurance was uniformly the same, without regard to the condition of the life to be insured.
When the aforesaid loan of §14,000 was made, it was" agreed_betwecn Spencer and Keeler, that the two notes which were put into the hands of the former should remain as a security for that sum, until a certain arrangement, which was then pending between other parties for a loan of §50,000 in favour of Keeler & Rogers, should be completed, and[then the §14,000 were to be returned, and the notes given up. And it was also further agreed, that, in case the loan of §50,000 should not be raised, and the house of K. & R. should stop payment, the Hudson Company should hold the notes as security, not only for the $14,000, but also for any other debts then due, or which might become due from K. & R. to the Company.
The loan for $50,000 was not effected; and on the 29th of October, the house of Keeler 4- Rogers stopped payment. Before this period, however, (to wit, on the Ssth of October,) the two notes above mentioned were exchanged by the Company for two other notes executed by the same parties; one of which (the note in controversy) was for $15,000, and the other for $5000 : but at the time of this exchange, nothing was said relative to the terms on which the new note should be held. Subsequently to this, (in the month of June, 1826,) the note for $15,000 was transferred by Spencer to the Fulton Bank, under circumstances somewhat peculiar, and they instituted this suit thereon against the defendant, (one of the makers,) who set up usury (among other things) as a defence. The Judge, at the- trial, (for the purpose of bringing up the question of law,) charged the jury that tire note, although it might have been negotiated to the Hudson Co. to secure the payment of pre-existing usurious paper, was not therefore usurious in their hands. The jury having found a general verdict for the plaintiffs under this charge, the defendant tendered a bill of exceptions, and upon the'argument, It was held, that if on the discounting of the accommodation notes and drafts held by the Company on the 22d of October, the premium of six per cent, on life insurance was taken as a cover for exacting more than legal interest on those loans, these notes and drafts were usurious. Held also, that if the note on which the action was founded was made solely for the accommodation of Keel-er 4" Rogers, and was negotiated by. them to the Hudson Co. as security in whole or in part for such usurious paper, then the note itself was usurious and void. That these were questions of fact nevertheless to be submitted to the jury: and however strong the evidence might be, the Court had no right to determine them, A new trial, therefore, was granted upon these points, for the purpose of causing the questions of fact to be determined by a jury.
I. It seems that the note in question having been given to, or negotiated by, a Company, which, by its charter, had no banking powers, was void under the restraining act. II. But if not void by that act, a s it was taken by the Hudson Company in a. transaction not authorized by their charter, no action could be sustained on it by the Company. III. If the plaintiffs had notice, when they took the note, that it had been negotiated to the Hudson Company contrary to its charter, the illegality of the transaction could be set up against them as a defence.
IV. Notice.—What shall be considered as notice to a corporation is not settled; but under some circumstances notice to a director ought to charge the corporation,—as where the director acts as the agent of the corporation.
V. Jls to extent of the recovery.—The plaintiffs cannot in any event recover beyond the amount of their advance.
VI. Evidence.—A witness cannot be asked, whether from his personal knowledge of an impeached witness, he would believe him under oath. The true rule is to inquire of the impeaching witness his means of knowingthe general character of ' the witness impeached, and whether from such knowledge he would believe him underoath-
VII. If a witness’ character is declared by an impeaching witness to be tad front some particular cause, an inquiry may be made into the origin of that-opinion, for the purpose of enabling the jury to estimate it properly. [See the opinion of Oaklet, J. upon these points.]
Quiere. Whether Keeler (one of the persons for whose benefit the note was made and discounted) could be a witness to prove the usury ? •
This action was brought to recover the amount of a joint and several promissory note for $15,000, made by Lewis Benedict, (the defendant) W. S. Dezeng, J. H. & E. S. Beach, Gilbert F. Lush, Gregory & Bain, Chandler Starr, Elias Mather & Co., Spencer Stafford, and H. and S. Stafford, in favor of Messrs Keeler & Rogers and endorsed by them to the plaintiffs. The note bore date the 22d of Oc. vf .; dv twelve months thereafter to Keeler & Rogers, at the Fulton Bank.
The declaration contained two special counts upon the note, together with the common counts for money. The first count set forth the making of the note by the defendant and the other makers jointly, and then alleged a, joint and several promise on their part to pay the same according to its tenor and effect. The second count described the note as having been made by the defendant alone, and each count averred a direct endorsement thereof by the payees (Keeler and Rogers) to the plaintiffs.
The defendant pleaded the general issue, and added a notice to his plea, setting forth, that the note described in the declaration was discounted by the “Hudson insurance Company” for Keeler and Rogers, at a time when said company were a corporation created by an act of the legislature of the state of New-York, and that by their charter they had not any right, power or authority to trade, traffic, discount, or otherwise deal in promissory notes or other securities for the payment of money; and that therefore said note was inoperative and void in the hands of the Hudson Insurance Company. The notice also stated that the note was passed by that company to the plaintiffs, and that the plaintiffs at the time it was so passed had full knowledge that it had been discounted by the Hudson Insurance Company, and that said company was a corporation which by its charter had no right to deal in promissory notes, and that therefore said note was void in the hands of said company.
Upon these pleadings issue was joined, and the cause was brought to trial before Mr. Justice Hoffman, on the 13th of December, 1838.
At the trial the plaintiffs having offered the note upon which they had declared in evidence, and proved the signature of the defendant,—the endorsement by Keeler and Rogers was admitted without controversy. The defendant also admitted, that the interest upon the note from the time when it fell due down to the day of trial, amounted to the sum of f2,260,36, and the plaintiffs thereupon rested their cause.
The defendant then opened his defence and called James Keeler, one of the payees and endorsers of the note, as a witness, when the plaintiffs objected to his competency, upon the ground, that as the defendant had avowed that one part of his defence would rest upon the statute against usury, this witness could not testify as to the origin of the note, he having brought it into circulation by putting his name upon it. This objection was overruled by the presiding Judge, and the plaintiffs excepted to his opinion.
The plaintiffs then objected to Keeler as a witness, upon the ground that he was interested in the event of the suit, and to prove that interest, introduced in evidence two assignments, one executed by the firm of Keeler & Rogers, and the other by Keeler & Mather, wherein they had conveyed the whole of their property to certain individuals to secure to their creditors the payment of their demands, but reserving to themselves the residue, if any there should be, and the note in question was one of the debts secured by the assignment.
To remove the apparent interest of the witness, the defendant then offered to prove that the property assigned was not sufficient to cover the claims of the first class of creditors named in the deeds, by forty thousand dollars. This testimony being objected to by the plaintiffs, was overruled by the Judge ,and the defendant excepted to his opinion. The defendant, then exhibited a release executed by Keeler, wherein he conveyed to the assignees named in the deeds, all his interest in the assigned property, and all claim to any residue reserved therein: but the counsel for the plaintiffs still insisted on their objection to the competency of Keeler, upon the ground that his interest could not be released. The presiding Judge, however, overruled the objection, and the plaintiffs excepted to this opinion.
Keeler being sworn, testified, that the house of Keeler and Rogers, (consisting of himself and Jedediah Rogers,) was established in the city of New-York, and transacted business there during the year 1825. That the house of Keeler & Mather (consisting of Jasper S. Keeler and J. G. Mather) was at the same time established at Albany, and these persons were partners, although they transacted business at different places. • Of the signers of the note, one, (Dezeng,) resided at Geneva, two, (J. H. & E. S. Beach,) at Rochester, and the others at Albany, and all these parties were customers of the house of Keeler and Rogers.
On the 22d day of October, 1825, the witness' being at the time a director in the Fulton Bank, applied to that bank for a loan of $50,000, and laid before the board of directors two notes, one for $15,000, and the other for $10,000, signed by Dezeng, Benedict, J. H. & E. S. Beach and H. & G. Stafford. These notes (which were dated on the 22d of October, 1825, and made payable twelve months after date to Keeler & Rogers, or order, at the Fulton Bank,) were not offered for discount, but were to be used as collateral security for a temporary advance, until a note for $50,000 should be brought down from Albany : and upon this last, the loan was to be founded. This note was also to contain other names, besides those last above mentioned, and Benedict left New-York for Albany on the morning of the 22d of October, to obtain those names, the note for $50,000 having already been signed (as the witness thought) by the persons whose names were upon the two notes first presented to the bank.
The board of directors seemed willing to accommodate the witness with the loan, although they were not disposed to act upon the matter that day ; but the witness stated to them, that it was necessary for his house to have money immediately to save them from stopping their payments. Mr. M. Spencer, (who was president of the Hudson Insurance Company, and a director also in the Fulton Bank,) was present at the board, when Keeler made his application for the Joan, and he signified to the witness privately, that he would furnish him with whatever money Keeler & Rogers might want for that day, and told the witness that the Hudson Insurance Company would take twenty thousand dollars of the loan applied for at the bank, if he would take half of it in the bonds of the Hudson Company. The witness replied that it would cost too much, but offered to take five thousand dollars in said bonds. He afterwards, however, stated to Spencer, that if he would furnish him with $14,000 in cash he would take the residue ($6,000) in bonds. Spencer having acceded to this proposition advanced to the witness $14,000, by a check of the Hudson Company on the Fulton Bank, and received from him the check of Keeler & Rogers for a like sum on the same bank as a receipt for the money. The witness also delivered to Spencer the two notes, (amounting to $25,000,) which were to be left with him until the defendant (Benedict) returned from Albany. There was no specific arrangement made relative to the note for $50,000, but Spencer was to have an interest in it to the amount of $20,000.
Benedict returned from Albany on the 24th of October with the note for $50,000, which was executed by the same persons who had signed the note now in controversy. It was payable to Keeler & Rogers or order, at the Fulton Bank, one year from date ; but the bank finally declined to discount it after it arrived. It being intimated, however, that the bank would take a part of the loan if the name of a Mr. James were upon the note, Benedict went again to Albany to procure his signature. He returned on the 26th or 27th of October, bringing with him $20,000 in money which James had loaned, for the benefit of the parties concerned hi the matter, and three notes, one for $15,000, (the note now in su¡q) 0De for $5,000, and one for 10,000. This last note, however, was never used in any way. The witness and Benedict went to the office of the Hudson Company the morning after the return of the latter from Albany, when Benedict took up and destroyed the two notes, (amounting to $25,000,) which ■had been lodged there by the witness, and left with Spencer in lieu of them the note now in question, and a note for $5,000, in all respects like the other, except as to amount. Nothing was then said about the bonds. On the 29th of October, the witness called at the office of the Hudson Company, to complete the business and receive his bonds for the balance of the loan ; but Spencer being engaged, stated that they were not then made out. Nothing however was mentioned at this time about life insurance.
The bonds which the witness expected to receive, were bonds of the Hudson Company, payable six months after date. These bonds drew interest, and were, by agreement between the witness and Spencer, to be taken at par, although they were at that period at four and a half per cent, below par in the market.
The counsel for the defendant here asked the witness what was understood by the parties, as to the arrangement to take $6,000 in the bonds of the company. To this question the counsel for the plaintiffs objected : but the defendant’s counsel insisted that it was a proper question, inasmuch as by former transactions of a similar character between the parties the taking of bonds might have acquired a conventional meaning. The Judge, however, sustained the plaintiffs’ objection and the defendant excepted to his opinion.
The witness further testified, that all the proceeding notes were made for the sole purpose of raising money to carry Keeler & Rogers through their difficulties. On the 28th of October, Mr. Spencer loaned to the witness $3,000, out of his own pocket, for his accommodation, and this sum was never returned, as the house of Keeler & Rogers stopped payment on the 29th of that month. The defendant knew nothing about the arrangement made by the witness relative to the bonds, as he did not deem it expedient communicate those facts to him. Nothing, however, had been said, up to this period, about a life insurance. This was the substance of Keeler’s testimony, and upon it the defendant rested his cause.
The plaintiffs then called Mr. Spencer as a witness, who testified, that he first took his seat as a director in the Fulton Bank on the 22d day of October, 1825, and on that day he found Keeler at the hank applying for the loan of $50,000 ; that the Hudson Company had an interest in sustaining the credit of Keeler & Rogers, and he, therefore, (the witness,) finding that the bank were not likely to act on Keeler’s application, immediately offered to advance to that house the sum of $14,000, until they could raise the $50,000, before spoken of by Keeler.
The terms of the arrangement between the witness & Keeler were, that Spencer should advance to Keeler & Rogers $14,000, on the two ilotas first before ■ '.>ntio- 1, unti’ + > e negotiation for the loan of $50,000 was completed, a. 4 when that money was raised the advance of $14,000 was to be repaid, and Spencer was to surrender up the two notes. If the loan of $50.000 was not effected, and Keeler & Rogers stopped payment, then Spencer was to hold the two notes as security, not only for the $14,000 advanced, but for any other sums which Keeler & Rogers then owed or might thereafter owe the Hudson Company. The company at this time held a good deal of Keeler & Rogers’ paper which was falling due.
The witness then asked Keeler whether he had a right to dispose of the notes, and being informed that he had, the witness called into his presence Joseph H. Cunningham, the • Secretary of the Hudson Ins. Co., and repeated the terms of the agreement to him in the presence and hearing of Keeler. The notes were then endorsed by Keeler, and Spencer gave him the Company’s check on the Fulton Bank for $14,000, and received in return the check of K. & R. for a like sum. Subsequently it was ascertained, that the Bank would not make the loan of $50,000, and on the 25th or 26th of October, Spencer loaned to K. & R. $. 0,000 for their accommodation, which sum was repaid on the 27th without interest. When this sum was repaid, Keeler and Benedict were b°th present, and the defendant applied to Spencer to exchange the two notes held by him for the note in controversy, and the other note for $5000, before described by Keeler. This exchange was then made, but the witness heard nothing of bonds-until the 27th, when Keeler asked the witness if the Hudson Company would not take the notes absolutely ; offering at the same time to take one half of their amount in bonds. This proposition was declined by Spencer, and Keeler never called for any bonds in connexion with the agreement for the advance of $14,000, and nothing was said about interest, although the witness expected to charge it. The money was to be returned when the loan of $50,000 should be obtained, and this loan, it was expected, would be effected in a few days. On the 28th of October, Keeler applied to the witness for a loan of $3000, and the witness advanced that sum to him without any stipulation as to interest, receiving the check of K. & R. in return, payable on the 29th; but Keeler & Rogers stopped payment on the 28th, and this sum was not repaid.
The witness further testified, that it was no part of the agreement that there should be a substitution of notes, and when the exchange was made, nothing was said about a continuance of the loan. When K. & R. failed, they owed the Hudson Company about $18,000, exclusive of the advances of $14,000 and $3000 before mentioned. The agreement in relation to the loan made on the 22d of October was, that in case K. & R. went on with their business, then they were to repay the loan of $14,000, and take back the notes deposited; and this was to be done as soon as the loan of $50,000 was effected.
On his cross-examination, the witness stated that it was also a part of the agreement, that if the advance of $14,000 was not repaid, and Keeler & Rogers did not go on with their business, then the notes were to remain as security for any further claim which the Company might have upon that firm. Nothing was said about bonds or interest, and no part of the loan was to be made in bonds.
The witness was then asked by the defendant’s counsel what were the usual terms of loaning money in the Hudson Ins. Co.’s office, in reference to the compensation taken for loans. This question being objected to on the part of the plaintiffs, the obiection was sustained by the Judge, and the counsel for the defendant excepted to his opinion.
The defendant’s counsel then put a variety of questions to the witness relative to other transactions,and to the testimony given by him in another cause, which are not deemed material to a correct .understanding of this case. But on further cross-examination, the witness stated that he was a director of the Fulton Bank from the 22d of October, 1825, until July, 1826. That the Bank became possessed of the note in question in February, 1826, having at first received it as collateral security for a loan of $10,500, made to the witness on his own note, payable in 60 days. When this last note came to maturity, the witness paid $500, and gave, the Bank a new note for $10,000 on the same security. Subsequently, in June, 1826, the Bank made a settlement with the ■witness, and as he thought, surrendered up his note to him, receiving in exchange the note now in suit.
The witness became a director in the Hudson Insurance Company in February or March, 1825; but the Company was incorporated on the 4th of April, 1811. [See the Acts of that year, as the act of incorporation made a part of the bill of exceptions.] One branch of business pursued by the Company, was the making of loans in their own bonds. They also effected some insurance against fire, and some on vessels; but the witness did not know that the Company ever issued a policy on a life insurance, although he thought they did issue one to a person in Delaware county.
The Company usually transacted their business in the following manner. When a loan was applied for, the Company took a note for the amount, and issued a bond to the applicant, payable three months after the note would become due, which bond bore an interest of six per cent., payable quarterly. The borrower, at the time of his application for the loan, also applied for insurance to the amount of the note on a life, until the note fell due, The Company charged a discount on the note of six per cent., and a premium of six per cent, on the insurance also, which was Paid bythe borrower in cash when th e loan was made. This was the usual mode of transacting business, and it was rarely departed from.
The witness also testified, (among other things,) that on the 22d of October, 1825, K. <$-. R. owed the Hudson Insurance Company about $22,000, on notes and bills discounted for them by the Company, of which $18,000 still remained due and unpaid. These notes and bills which were specifically described by the witness, were all discounted by the Company for K. & R. in their usual way of doing business, and the notes and bills were all made for the accommodation of K. & R. When these notes were discounted, the Company’s bonds were given in exchange for them, and these bonds were under par ; but the discount of six per cent, and the premium of six per cent, for the life insurance, were paid by the borrowers in cash.
The plaintiffs then called Cunningham as a witness, and he corroborated the statements of Spencer, as to the terms of the loan and the agreement made with Keeler in his presence.
The plaintiffs then also called Joseph Ketchum as a witness, who was a Director in the Fulton Rank in October, 1825. His testimon5'- tended, in some degree, to corroborate that of Spencer, in relation to the loan, but it is here omitted as unimportant to the history of the cause.
The plaintiffs having here again rested their cause, some testimony was introduced by the defendant to support the evidence of Keeler. The plaintiffs then also produced testimony to the same point. They also offered in evidence the assignments made by K. & R. and Keeler & Blather for the benefit of their creditors, for the purpose of showing, tiiat the note in question was not an accommodation note, but was given on good consideration, and for that purpose these assignments wore admitted and made a part of the evidence in the cause. The first assignment was an indenture bearing date on the 22d of October, 1825, between Keeler & Rogers and Keeler & Mather of the first part, and E. S. Beach, W. S. Bexeng, Lewis Benedict, Peter Bain, Spencer Stafford, Chandler Starr and Elias Mather, of the second part. It recited, that J. H. & E. S. Beach, Lewis Benedict, W. S. Dezeng and others, had that day executed and delivered to the parties of the second part, as a loan, their joint and several note for $50,000, &c. ; that the parties of the first part were indebted to the persons who had signed said note, tysome of them ; that the persons who had signed said note, or some of them, had also incurred liabilities for the parties of the first part, by drawing, endorsing and accepting bills, drafts or notes not then due ; that the parties of the first part, for the purpose of indemnifying the persons who had signed said note of $50,000, and who had or should have claims against the assignors on account of the said other notes, drafts or bills, “ and in order to provide a fund for the ultimate satisfaction thereof,” had assigned and transferred unto the parties of the second part “ the outstanding debts, sloops and other property and effects” thereinafter mentioned and specified for that purpose, &c. The assignment then provided, that if the note of $50,000, or any part of it, should remain unpaid when it came to maturity, that then the parties of the second part should appropriate the property assigned, in the first place to the satisfaction of said note, and then to pay and satisfy all such sums of money as were then due from the assignors to any of the persons who had signed said note, or which might be due to them or either of them when said note should come to maturity, for or by reason of the drawing, accepting or endorsing said other bills, drafts or notes, or the renewal thereof, &c. If there chanced to be a sur~ plus, after paying or satisfying said claims, then said surplus was to be paid over to the assignors. [There were also other covenants not material to this cause, which are here omitted, and the foregoing is a mere sketch of the assignment.]
The second assignment bore date on the 29th of October, 1825, and was made between the same assignors of the first part, and Dezeng, Beach, Benedict, Bain and Russell C. Wheeler, of the second part. It recited, that the parties of the first part were indebted unto certain individuals, (confidential creditors,) whose names were set forth in two schedules attached to the deed and marked B and C ; that being desirous of providing for the pay» meat of these debts, she parties of the first part conveyed to the parties of the second part, all their estate, real and personal, wheresoever situated, in trust, in the first place to make good the ’ . \ provisions of the said first assignment, (which was particularly referred to,) if the same should not be satisfied out of the property therein conveyed. Ir^ie second place, “ to pay off, satisfy and discharge all such debts” as might be due or owing to the persons whose names were specified in the schedules B and C, and then to pay over the surplus, if any, to the assignors.
Several witnesses were then called on the part of the defendant, for the purpose of showing how the Bank became possessed of the note in suit, and one of them, (Mr. Leavitt, the former President of the Bank,) testified, that it was discounted by the Bank upon his (Leavett’s) application, without the knowledge of Spencer. That Spencer was largely indebted to the bank at the time, and had agreed that any paper belonging to him, found there, should be held by the bank as security for his debts. The witness found the note in the bank in June, 1826, and having been informed by Spencer that he had advanced $14,000 upon it, the witness caused it to be discounted for that sum, and the amount was carried to the credit of Spencer. The check of K. & R. for $14,000, was also received by the bank from the Hudson Company, subsequently to July, 1826, and Spencer then informed the witness, that the check was given for the $14,000, advanced on the note for $15,000.
The defendant then called William P. Rathbone, as a witness, who testified that he was a director in the Fulton Bank, during the year 1825, and during the first quarter of the year 1826. The note in question, was first presented by Spencer to the directors, as collateral security for his own note of $10,000. A committee was appointed to examine and report upon the sufficiency of the security offered by Spencer, and the witness was one of that committee. The witness knew that the Hudson Insurance Company made K. & R. a loan, after the Fulton Bank refused to make one on the notes offered. He was aware of this, when the note in question, first came into the bank, and he supposed it to be a part of the paper offered by K. fy R, The matters in relation to it were the subject of conversation at the board of directors ; but the witness knew not whether all the directors heard it or took part in it.
The defendant then, for the purpose of impeaching the testimony of Spencer, by • showing discrepances in his statements, offered in evidence, his (Spencer’s) testimony, taken on his examination in Chancery, on the 19th of April, 1828, in a cause wherein the present plaintiffs were complainants, and E. S. Beach and others were defendants : and several portions of that testimony were read to the jury for that purpose, and also to establish other facts.
The counsel for the defendant then called several witnesses to impeach the character of Spencer; and the counsel for the plaintiffs called many others of the most respectable standing, who spoke in unqualified terms as to the fairness of Spencer’s character for truth and veracity.
One of the witnesses was asked by the defendant’s counsel, whether, judging from the general character of Spencer and his own knowledge of him, he would consider him entitled to credit under oath. The plaintiffs objected to this question, on the ground that the witness had no right to take his own knowledge into the account in forming his opinion as to the credit of the witness. His honor the Judge decided that the question was improper, and the counsel for the defendant excepted to this opinion.
It appeared that the impression against Spencer had been excited by his connexion with the Green-County-Bank, which had failed, and from his being implicated in the prosecutions instituted against various individuals for conspiring to defraud certain institutions, &c., commonly known here as the “ Conspiracy Cases.” [See Cowens Rep. vol. 9p. 578.] And the plaintiffs having called Mr. Murray Hoffman as a witness, he testified in favour of Spencer’s general character for truth and veracity ; but on his cross-examination, he testified that Spencer’s general character, without limiting it to the matters of truth and veracity, was bad. Being asked by the Judge, whether he founded liis testimony as to the general character of Mr. Spencer, on what he had heard of him as connected with the conspiracies before mentioned, Mr. Hoffman answered that lie did principally ; and thereupon the Judge decided, that the testimony given by the witness on his cross-examination, was inadmissible, and rejected the same : to ’ . which opinion and decision the counsellor the defendant excepted.
After the testimony had been closed, the counsel for the defendant, before arguing the questions of fact to the jury, insisted before the court, that if the plaintiffs were entitled to recover at all, they were not entitled to recover more than fourteen thousand dollars, with interest thereon from the twenty-second day of October, eighteen hundred and twenty-six, when the note became due. First, because the plaintiffs had only discounted it for that sum. Secondly, because the plaintiffs were trustees, either for Mr. Spencer or the Hudson Insurance Company, for all beyond the fourteen thousand dollars and the interest thereof; and as neither Mr. Spencer nor the Hudson Insurance Company could recover on the note, the-plaintiffs ought not to be allowed to recover as trustees for them. But the Judge decided that the plaintiffs, if entitled to recover at all, were .entitled to recover the whole amount of the note: for this court could not look into nor regard the rights of their cestui que trusts, and he should so charge the jury; to which opinion the counsel for the defendant excepted. The counsel for the defendant further insisted, that if the contract for the negotiation of the notes in question to the Hudson Insurance Company was as stated by Mr. Keeler, then there was usury in it, and the note was void : and if the contract for its negotiation was as stated by Mr. Spencer, then it clearly appeared that the note in controversy, and the five thousand dollar note accompanying it, were negotiated to secure paper, which was usurious and void, and was itself therefore void; and insisted that his Honor the Judge ought to charge the jury, that if they were satisfied that the note in question was taken to secure usurious paper belonging to the Hudson Insurance Company, and known to be usurious to their President, Mr. Spencer, when he received the note in question, then they should find a verdict for the defendant. And the counsel for the defendant insisted on this view of the subject the further, because a part of the- usurious paper, the payment of which this note was negotiated to secure, was made by the same parties as those to the note in question. The Judge stated that this appeared to be a serious question: and as there was no dispute about the facts, he should decline to charge the jury on the subject; but for the purpose of bringing up the question, he decided, that although the note in controversy might have been negotiated to the Hudson Insurance Company, to secure the usurious paper referred to, still it was not void; to which opinion the counsel for the defendant excepted.
The counsel for the defendant also insisted before the court, that notice to any of the directors of the Fulton Bank, at the time the note in question was received by said Bank, that it had been negotiated to the Hudson Insurance Company, was sufficient to charge the Fulton Bank with notice of that fact. But the Judge decided that notice to one or two of the individual directors of that fact was not sufficient to charge the Bank with knowledge of it: to which opinion the counsel for the defendant excepted. After these decisions and exceptions, his honor the Judge stated to the counsel that he should put only two questions of fact to the jury, viz: First, whether the note in question was negotiated and delivered to the Hudson Insurance Company on a corrupt agreement to take their bonds, which were under par, in part payment, for the purpose of covering usuiy. And secondly, whether the Fulton Bank, when they received this note, had notice that it had been negotiated at and to the Hudson Insurance Company : and that he should put this last question to the jury for the purpose of bringing fairly before the court the question whether the note was valid or invalid in the hands of the plaintiffs; and to bring that question fully before the court he should decide that the negociating of the note to the Hudson Insurance Company, unless usurious, did not render it invalid; to which opinion the counsel for the defendant excepted. These questions were discussed by the counsel for both parties, at great length, and on this examination the counsel for the plaintiffs used the examination in chancery of Mr. Spencer, to establish facts unconnected with his impeachment.
The Judge charged the jury in substance as follows :—That he had already declared his opinion, that if the plaintiffs were entitled to recover at all, they were entitled to receover the whole av mount of the note ; that he had also for the purpose ofbring¡ng up the question, decided, that if the note in controversy was taken in part to secure usurious paper, still that circumstance did not make it void; and that if it had been negotinted to the Hudson Insurance Company, yet if that fact was not known to to the plaintiffs when they took the note, it was good in their hands. That he should present for their decision, two questions of fact. The first one was important and difficult. It regarded the terms on which the note was negotiated to the Hudson Insurance Company: and on it the witnesses Messrs Keeler & Spencer, were at issue; It was simply this : whether it was a part of the arrangement between Mr. Keeler and Mr. Spencer on the twenty-second day of October, when this note was negociated to the Hudson Insurance Company, that a part of the amount should be paid in Bonds, which were under par with a view to cover an usurious agreement or not. If they believed Mr. Keeler, then they ought to find a verdict-for the defendant; and if Mr. Spencer, then for the plaintiffs. That these witnesses both appeared to be respectable men, and he had no doubt both intended to speak the truth; but they unhappily differed, and it was for the jury to decide between them. That on this point he felt it his duty to state to them, that no man ought to suffer for imputed offences, of which he had been acquitted, and on that account, he had, in the course of the trial, decided that Mr. Spencer’s connexion with the conspiracy trials, ought not to be received as evidence to impeach his character as to truth and veracity. It had been decided by the highest tribunal of this state, that the alleged conspiracy was no offence. The whole community on that occasion was excited on the subject, and it was the duty of courts of Justice, to protect individuals from suffering unjustly : it was his duty to state that the defendant had failed in impeaching Mr. Spencer, and the jury were to lay out of view all impressions as to general character formed from Mr. Spencer’s connexion with the conspiracy cases. The question for the jury to decide, as to the credibility of Mr. Spencer, was whether he was entitled to be believed under oath.
His honor further stated to the jury, that if they should decide the question he had just put to them in favor of the plaintiffs, then there was another question to which he wished them also to respond : which was, whether the Fulton Bank, when they received this note, had notice that it had been negotiated at and to the Hudson Insurance Company. Teat he should give them no particular instructions relative to the kind of notice, which the bank ought to have, further than what he had before stated—that notice to individual directors of the bank was not notice to the corporation, unless the proof went further, a.nd showed that the directors had made the communication to the board or to the officers of the bank; but he should leave the question broadly to them as he had already stated it.
Under this charge the jury retired; and thereupon, the counsel for the defendant excepted to the charge of the Judge, so far as it related to the amount to be recovered ; so far as it related to the question, whether the note was usurious by reason of its having been taken in part to secure usurious paper ; so far as it related to the general character of Mr. Spencer as derived from the conspiracies, and so far as it related to the notes not being void in the hands of the plaintiffs, unless they knew when they took it that it had been negotiated to the Hudson Insurance Company ; and because his Honor omitted and declined to instruct the jury, that notice to the individual directors of the bank was notice to the bank itself.
The jury afterwards came into court with a general verdict for the plaintiffs, for seventeen thousand two hundred and sixty dollars and thirty-four cents. After the verdict was recorded, the Judge inquired of the jury, how they found the fact, as to notice to the bank, of the note’s having been negotiated to the Hudson Insurance Company; to which question, the jury answered that they found, that the bank took said note without such notice.
Mr. S. A. Foot, on the part of the defendant, now moved for a new trial, and contended,
L That proof, that there was not sufficient property embraced by the assignments of Keeler Rogers and Keeler <$• Mather to pay even the first class of their creditors, was inadmissible, to show that Keeler, the witness offered by the defendant, had no real interest in the controversy, by reason of the residuary trust in the assignments in favour of the assignors. An interest (he contended) to exclude a witness, must be direct and certain. Loss or gain in money, specific and inevitable, must result to the witness by the event of the suit, in order to exclude him. ' In this case, Keeler could not have an interest in the event of the suit; for he did not stand within an hundred thousand dollars, oí a possible interest. He was an utter bankrupt. All bis property embraced by the assignment would not be sufficient, by $40,000, to indemnify those creditors, who were in the most favoured class, and he could not by a possibility have any interest in the termination of the cause. True it is, the witness was afterwards admitted by the force of a release, but the defendant ought not to have been compelled to resort to that expedient, because the credibility of his witness might be, and probably was, affected before the jury by the course pursued.
II. If an “ agreement to take bonds” on a contract of loan, had acquired a conventional meaning between the officers of the Hudson Insurance Company and Keeler & Rogers, by reason of previous dealings and similar transactions, such conventional meaning ought to have been disclosed, for the purpose of ascertaining what the contract was, as understood by the parties to it.
Where words, in any business, have acquired a specific meaning, parol proof may be introduced to show what that meaning is. [Astor v. Un. Ins. Co. 7 Cowen R. 202.] The “ taking of bonds” in point of practice, had this meaning, namely: whenever a loan was made by the Hudson Insurance Company, instead of giving money to the borrower, they furnished him with their own bonds, payable at a future day. When these bonds were issued, a discount of six per cent, was deducted from their amount, and the borrower was also charged with a life-insurance of six per cent, upon the sum borrowed, although in point of fact no life insurance was ever effected. By this means, the Company, in point of fact, received twelve per cent, interest; their contracts were usurious, and the life insurance was a mere cloak to cover the unlawful practice. The defendant ought therefore to have been permitted to prove what the “ taking of bonds” signified in this course of dealing.
III. It was proper to inquire what were the usual terms on which the Hudson Insurance Company loaned money, for the purpose of testing the accuracy of Mr. Spencer’s memory, (he being a witness for the plaintiffs, and contradicted by Mr. Keel-er,) as to the terms of the loan in question. If the defendant had been permitted to prove the terms upon which the Hudson Insurance Company usually transacted their business, it would have turned the scale in his favour before the jury.
IV. A witness called to impeach the general character of another witness, may, after having testified that his general character is questionable, use his own knowledge of him on the question, whether he would believe him under oath. There is no specific rule laid down in the books, to point out the manner in which a witness may be impeached; but the English rule will be found in Starkie, part 2. 146, 147. [See also 1 Phil. Ev. 212. Swift’s Ev. 143. Note to Stark. 146-7.]
From these authorities (said Mr. F.) I deduce two questions, which may be put concerning the witness sought to be impeached. 1. What is his general character 1 and if the answer be that it is bad, then, 2. Would you believe him under oath 1
The last question is given by the English rule. As to general character for truth, a man who is perfectly worthless in every moral sense, may have no character upon the point, one waj or the other. But the English rule is not extensive enough, for the answer comes from the private opinion of one person only, and that person may be prejudiced. If the first question be put, and the answer cast suspicion upon the witness, then the second may be put also. In this case, the witness was asked, if Spencer’s character for truth and veracity was not bad 1 He replied, “ it was some time since.” He was then asked, if he would believe him under oath 1 This question was excluded by the Judge, and the defendant claims the right to put it. If a man’s character he good no witness ought to be permitted to say that he would not believe him; and a man of good character will be always ready to vindicate his reputation.
V. General character consists of reputation acquired by particular transactions, and if one be excluded, then another may, and then all; and thus a character decidedly bad may be protected from exposure.
I dissent from the law as laid down by his honour the presiding Judge, in relation to the testimony of Mr. Hoffman, the witness; and from his sentiments also. The public have long since determined against the sentiments; and I trust this Court will against the law. If the rule laid down be correct, then the most infamous man may e>cape impeachment.
VI. The Hudson Insurance Company or Mr. Spencer is entitled to the balance due on the note over and above the $14,000, (with interest,) for which the Fulton Bank discounted it: and if neither of them could recover that balance on the note, then the plaintiffs ought not to be permitted to recover for their benefit.
The previous points relate entirely to the application for a new trial; but this part of the defence comes directly to the merits of the cause. It is perfectly clear that the rights of the plaintiffs cannot be superior to those of the Hudson Insurance Company, or Spencer; That is, as the plaintiffs have taken Spencer’s or the Hudson Company’s claim subordinate to his or their rights, they cannot in any event, recover beyond the sum of $14,000, and the interest on that sum. True it is, an endorsee may sue for the benefit of other persons: but if his character of trustee be disclosed, then the same defence which would prevail against the principal, may be set up against the trustee. [Denniston v. Bacon, 10 J. R. 198.)
VII. The note in question was made solely for the accommodation of Keeler & Rogers, and accommodation paper, taken to secure the payment of usurious notes or bills, is itself usurious, and particularly so if made by the same persons, who made the usurious paper. If these notes were void in the hands of the Hudson Insurance Company, they were clearly void in the hands of the Fulton Bank. It is proved by the witness of the plaintiffs, (Spencer) that Keeler' & Rogers were indebted to the Hudson Insurance Company, anterior to the date of the loan for $14,000, and prior to the making of the note now in question. When Spencer made the advance of $14,000, it was made upon the security affordt d by ; he two notes, which amounted to $25,000; and the agreement between the parties was, that these notes should stand pledged not only for the advance, but also to secure the payment of the pre-existing debts. When the two notes last mentioned, were taken up by the defendant, he placed the note in controversy, together with the note for $5,000, in the hands of Spencer, in lieu of the two first notes, and they were to be held upon the terms under which the first notes were deposited.
As the notes in question were merely substituted for other notes, and subject to all the terms of the agreement applicable to the first notes, they stand in the place of these last, and are obnoxious to every objection, which could have been made to the first notes. They take the place of the first notes in every particular, and were to be held by Spéncer or the Hudson Company, not only to secure the advance of $14,000, but as security also for any other debts, which Keeler Rogers might owe the company. True it is, they were subject to a contingency, to wit: the contingency of a failure in business, on the part of the borrowers. But that contingency has happened, and the claims of the company to the two notes last deposited, have been asserted in courts of justice.
The contingency was not of a nature to put the lenders in any hazard of their debt, but on the contrary, the advance of $14,000, was to be secure at all events, and the company were to hold the difference between the advance and the amount of the two notes for other demands, which they had, or might have, upon Keeler if-Rogers. If these gentlemen had continued to carry on their business, then there would have been no necessity for holding the notes on the part of the company, because the advance of $14,000, was to be returned out of th.q,loan for $50,000, and Keeler & Rogers would have been able to meet their engage ments with the company, as their demands became due and payable.
^ stands clearly proved then, that Spencer or the company was t0 hold the two notes last deposited, as security, not only for the advance, but for the other claims, which the Hudson Company had against Keeler & Rogers. It becomes now necessary to show, what those other demands were, and if it can be proved that they were usurious and void, then every part of the agreement was void, and payment of this note cannot be enforced. [Harrison v. Hannel, 5 Taunt. 780.]
Spencer has testified, that the debts which were contracted by Keeler &r Rogers with the company, anterior to the time of the advance of $14,000, were contracted upon the same terms with the other debts, which were contracted with the company for loans; or in other words, those other debts of Keeler & Rogers, were for loans made to them by the Hudson Company. And how were those loans made 1 In cash 1 No, but in the bonds of the Hudson Company, payable at a future day. These bonds were neither cash nor the representatives of cash. The borrower, who was compelled to receive these bonds, took them at their par value, when in point of fact, they were from 4 to 6 per cent, below par. In other words, whenever he gave his notes to the company for an hundred dollars, he received that in return, which produced to him but ninety-five or six dollars. In addition to this losing bargain, six per cent, for discount was deducted from the amount of the bonds at the time of the loan, and six per cent, more upon the same sum for an insurance upon the life of the borrower during the period of the loan! And these two last exactions,— these twelve dollars in the hundred, were to be paid in cash at the time of the loan !
If an insurance upon the life of the unfortunate borrower had been in fact made, there would at least have been some little plausibility for the claim. But Spencer swears that such insurances were never made, and at all events, they were not made in the case of Keeler & Rogers.
What, then, are we to call this loan? Is it a fair and bona-fide transaction, or a screen to hide unlawful dealings 1 The borrower pays twelve per cent, for his money in discount and insurance, while he receives nothing but a loan of the Company’s bonds. It were a sufficient extortion to take from him lawful interest upon bonds, which were themselves below their par value; but what are we to call the transaction, where an interest of twelve per cent. is charged upon a loan of paper, which, when sold, produces to the borrower but ninety-five dollars, for each hundred dollars he assumes1? I think it is but a device, and a poor device to take unlawful interest, and the covering is too thin to conceal any part of the corrupt transaction. The contract, therefore, is entirely void; every part of it is tainted, and no part of the notes can be collected. They were given as security for a corrupt agreement; they are the pledge of usury; they are unlawful, and therefore utterly void in the whole, and in every part. No portion of their amount can be collected, and even if the Hudson Company can recover of Keeler fy Rogers the amount of their advance in proper actions, still this nóte is void, and can never be collected. It was in the first place a mere accommodation note, and having been used for corrupt and unlawful purposes by the payees, the makers are not bound, either legally or morally, to pay it. These plaintiffs, in point of fact, had little right to this note at all. It belonged, in fact, to the Hudson Company, if to any body, because-that Company made the advance upon it. Spencer never furnished a dollar of the loan, and bad no just claim to the note. But he, it seems, was indebted to the plaintiffs, ánd they finding the note in their office, very kindly discounted it for Mr. Spencer, by passing $14,000 to his credit! The plaintiffs have never been prejudiced by the note at all; they have paid no value for it; they have advanced no money upon it. Their credit to Spencer can be reversed, when it is proved that he had no right to the note, and then it would go back to its true proprietors. The plaintiffs, therefore, have no claim to sympathy, and as the note they hold was given for an unlawful purpose, to secure a usurious debt, it is void.
Mr. Foot also cited to this part of the case, the following authorities, viz: [Tuthill v. Davis, 20 J. R. 285. Cuthbert v. Haley, 8 Term R. 392. Jackson v. Henry, 10 J. R. 195, 3 Com. Law. R. 237. Preston v. Jackson, 2d Starkie R. 237. Harrison v. Hammond, 5 Taunt. R. 780.]
VIII. The Hudson Insurance Company not being authorized to do banking business, or any other business than that appertaining to insurance, the negotiating of the note in question to that Company, under the circumstances stated in the bill of exceptions, rendered it void. They had no right to issue bonds for the purpose of effecting loans to borrowers: they were not incorporated for any such purpose, and their acts in these particulars were in violation of the restraining act. Cases perfectly analagous, which have been fully settled by Courts of the highest authority here, have put the question upon this point at rest. [Laws of 1811. ch. 154. p. 34 2 R. Laws, p. 234. vol. 4. Laws 40. Sess. ch. 242. 41 Sess. ch. 236. Utica Ins. Co. v. Hunt, 1 Wend. R. 56. People v. Bartow, 2 Cowen, p. 290. Sturgess v. The Utica Ins. Co. 8 Cowen, p. 20. 15th Johns. R. p. 383.]
IX. If this note is not void by the restraining act, still it is void in the hands of any party having notice of its negotiation to the Hudson Company; and we contend that the plaintiffs had notice in this case. Notice to individual directors of a corporation, is notice to the corporation itself; especially if those directors are charged with the particular business in question.
Spencer was a director in the Fulton Bank, and had a perfect knowledge of the manner in which the note in question came into existence, and all the purposes for which it was negotiated. He himself tainted the note with usury, and Rathbone, who was a director, had full knowledge of the fact that the note had been passed to the Hudson Company. A committee was appointed to examine the security offered by Spencer, when he applied for his loan of $10,500: that committee examined the security, and of course must have known from whence the note was derived.
There is nothing in the books upon this subject to guide us, as there is no decision to point out what is notice to a corporation. But it will never do to say that a corporation has no notice of facts, of which each one of its directors is fully aware. If the communication were addressed directly to the Bank, it would of course come before the directors, and before them only. Now, when two of the directors have knowledge of 'all the facts attending an application for a particular loan, that ought to be deemed a sufficient notice to the corporation; for it was their duty to com-implicate those facts to the board. At' all events, there was enough to put the Bank on inquiry, and they are neither innocent, nor bona fide holders without notice.
Messrs D. B. Ogden and J. Hoyt for plaintiffs.
I. Keeler was an incompetent witness.—He was interested to defeat this claim, for if it were defeated, he would owe nearly $20,000 less; and the trust premises in that case would go to pay other debts for which it was admitted he was liable ; and though there might be no surplus to come to him, yet he would be exonerated from debts to which the trust property would be applied.
Here then was the direct interest, which the counsel for the defendant contends the witness must be exempt from. Though he might not gain any thing which would go into his pocket, he might and would in this case, if the defence prevailed, gain by reason of keeping that in his pocket, which was already there.
II. The inquiry of what was meant by terms used in conversation, was an improper inquiry, because the parties would differ as to the meaning. The inquiry is, or ought to be, as to “what was said,” and the court and jury are to determine the meaning. You ma;y give evidence as to the meaning of “terms of art” but not as to ordinary conversation, by which a parol contract is formed.
There isno such thing as a “ conventional meaning” given to the language of persons, except in cases of such general and universal use, as to have become known in the community, to such an extent, as that courts will take notice of such meaning, and give to it the solemnity of a usage. Any contract the parties may have made before, could have no connexion with the one in question, unless reference was expressly made to it. The case o Astor v. The Union Insurance Company, was an insurance upon hides and skins. The question there was a question of usage, and form s the exception we have adverted to.
III. The inquiry for the reasons stated in this proposition'was equally improper. You cannot test the accuracy of a witness, or impeach a witness in this manner. Stark, on Evid. [part 2. page 134.] shows this rule as we state it. But the bill of exceptions does not put the question on this ground. ’
IV. The rules of evidence on this point are too. well established to be overturned to meet the convenience of a particular suitor. The question is, “ what is the general character of the witness for truth and veracity 1” [Stark. part 2, page 145,146. Swift, 143.] The general character cannot be formed on the knowledge of one individual or two. The character of the purest man in the community might, in this manner, be impeached; for there is none so pure as to be exempt from personal enemies; no man can be the enemy of another whom he thinks honest, and therefore, if one is called upon to testify as to the character of that enemy he must speak of him, if he tells the truth, as a man unworthy of confidence. Chappie had already stated he would take the oath oí the witness: He had then in forming his opinion, taken into consideration his own knowledge, as well as the knowledge of others.
V. We admit general character consists of reputation acquired by particular .transactions. But we add, it does not become general if confined to one person.. There is, however, an answei to all the points and suggestions. The Judge submitted the question of character tothe jury, and the counsel for the defendant had tile benefit of all the prejudice he could raise out of the conspiracy cases, and the jury passed upon it all, and found the witness not only unimpeached, but unimpeachable, and that must end the enquiry, for this suit at least.
VÍ. This is the first question presented by the defendant’s points of any importance. The Hudson company advanced on the 22d October, 1825, to Keeler & Rogers $14,000, on this note which then had one year to run. The interest for that year was $980, so that the amount the company would be justly entitled to, when the note arrived at maturity; would be $14,980. But this suit is against the drawer of the note, and he is liable to pay the whole amount upon the happening of either of two conditions.
1. That it was founded upon a consideration.
2. If not founded upon a consideration, that it passed to an innocent holder, upon consideration, without knowledge of its origin, and before it became due.
We contend that both these contingencies occurred. It was founded upon consideration as between the makers and payees, ' and the latter could have sued and recovered. [Munn v. Commission Co. 15 J. R. 55.] The Hudson Company paid a valuable consideration, as did also the plaintiffs; and as against the drawers of the note, it is not a matter of fit inquiry what the plaintiff . gave for it. It is enough that they took it before it was due, and paid value for it.
VII. If this proposition of the defendant be true, it does not affect our right to recover. The note in question was not made or taken to screen usurious paper. We do not deny the authority of the cases cited by the defendant’s counsel, but we contend they have no application to this case. The advance of the $14,000 was a temporary advance, to be returned in a few days, and nothing was said about interest or bonds, or any thing else which could be tortured into a corrupt agreement.
VIII. The verdict of the jury, on the finding of the fact, submitted distinctly to them by the Court as to the knowledge of the Bank when they took this note, that it had passed through the Hudson Company, relieves us from the necessity of looking into the charter of that company. The charter does not make the note void, if the company had not consented to take the note, and the Bank having taken it without knowledge, are entitled to recover. But it is said the note is void by reason of the restraining acts of 1804 and 1818.
The act of 1804 applies to the creation of a fund for three purposes, issuing notes, receiving deposits, and malting discounts. The fund must not only be applied to these purposes, but it must, have been created for the purpose of being so applied. Where the fund has been so created, to constitute an offence against the statute, it requires the application of it to all the combined purposes material in the act. So we understand the opinion of Mr. Justice Sutherland in the case of The Firemen’s Ins. Co. v. Ely, [2 Cowen, 702.] and this is the effect of the decision in The Utica Ins. Co.’s case. [1 Wend. R. 56.] There is no proof in this case of the creation of the fund for the purposes mentioned m the act, and no proof of the application of the fund. There is no pretence that the Hudson Company ever received a deposit; they certainly issued no bills; they made no discounts. Their operations were exchanges of bonds for other paper connected with a life insurance, which the charter gave them the right to do. ' It is true, the habitual use of a fund for any given purpose, is evidence that the fund was created for that purpose. There is no proof of their ever having loaned money. T}ie money advanced to K. & R. was not a loan; it was an advance without a contract for interest or compensation, and the transaction did not assume that shape for the purpose of “ cheating the law,” or evading the statute, but it was to confer a benefit, without reward. The act of 1818, imposes a penalty-, and nothing more. It. makes nothing void;' .and if its phraseology is broader than the act of 1804, it harms us not. The case of the People v. Barstow was under that act, and therefore is not an authority against us. • The Court can impose ■ no greater penalty than the statute inflicts. When a statute imposes a penalty, the remedy is a forfeiture of that penalty, and nothing more. [De Wolf v. Johnson, 10 Wheat. 392.]
IX. The Judge at the trial put the question on the true ground. The jury have passed upon it as a question of fact, and that fact cannot again be disturbed. The knowledge of Spencer was not .notice to the Bank. He did not act in that, negotiation with the Bank as a director of the Bank, but as a contracting party in another .interest.

Opinion:
Jones, C. J.
This was an action by the plaintiffs, as endorsees of a joint and several promissory note for $15,000, payable months afterdate, to the'order of Keeler & Rogers, at the Fulton Bank, against the defendant, one of the makers of the note. It was an accommodation note, made by the defendant and others, at the request of Keeler & Rogers, for. the sole purpose of relieving that house from the immediate pressure of pecuniary difficulties, which threatened to overwhelm them. This note, with another similar note for $5,000, having the same time to run, created by the samé makers, at the same time, and for the same purpose with the note in suit, were negotiated by Keeler, to the Hudson Insurance Company,—an incorporated company deriving its powers.and operating under a charter granted by the legislature of the state of New-York,—and by that company the larger note • for $15,000, now in suit, was transferred to the Fulton Bank, the present plaintiffs.
The defence to the plaintiffs' right to'recover upon the note, was opened, as resting upon these two general grounds : first, that the note was usurious and void; and secondly, that the discount of it by the Hudson Insurance Company, and its subsequent transfer from that company to the plaintiffs, were in violation of the statutory provisions of the law of the state, usually denominated the restraining act; or if not in contravention of that statute, were unauthorized by the act of incorporation of the Hudson Insurance Company, and was in either case illegal, and the note for that reason inoperative and void asra security in the hands of the Hudson Insurance Company; and that the plaintiffs being, as they are alleged to be, chargeable with notice, at the time of the transfer to them, of the' previous history of the note, no action could be sustained upon it by them.
The course taken at the trial, for the support on the one side, and the refutation on the other, of these general grounds of defence, gave rise to other questions, chiefly questions of evidence, , which, so far as they may be material to a correct understanding of the views I have taken of the merits of the defence, will be noticed in their order. First then, was the defence of usury sufficiently sustained by admissible evidence to preclude or bar the plaintiffs' right of recovery upon the note t The witness called by the defendant to prove the fact of usury was James Keeler, one of the payees and endorsers of the note. His competency was called in question by the plaintiffs, who objected to him on the n ^ ' , . . , ground that a party whose name is upon negotiable paper, and who has contributed to its circulation, as a good and available security, shall not be afterwards allowed to testify as a witness in subversion of its validity by proving that it was, in point of fact, polluted with usury at the time he gave it the sanction of his name; but the objection was overruled, and I think correctly.
The question of the competency of a party to .negotiable paper to prove it usurious in its origin, has undergone much discussion, and received different determinations at different times, wholly irreconcileable with each other. In this state the leaning of the courts was for many years strongly against the competency of the witness, under such circumstances, to testify, and during that period,"the current of decisions took that direction; yet the question was still treated as unsettled. But after floating for some time in uncertainty, it has finally been settled by our Supreme Court, that a party to negotiable paper, who is not disqualified by interest, may testify to facts which" show the note to which he has given the sanction of his name to be polluted by the taint of usury. Thus in the case of Waters v. Powell, [17 John. 176.] that court held, that a party to a negotiable note may be permitted to testify to any facts arising subsequently to his becoming a party to the note, which does not involve his own turpitude, and if the note receives its taint when it is negotiated to the party xvho discounts or otherwise acquires it by the facts then happening,'the witness would be atliberty to disclose those contaminating facts."
The distinction taken by the decision in this case, between the corrupt agreement, which enters into and pollutes the note in its original concoction, and the taint it may receive in its negotiation after it is perfected as a security, to the party who discounts it, may be supposed to reconcile the principle of the decision, with the rule previously insisted upon as the law of the court. .But in the more recent case of the Bank of Utica v. Hilliard, [5 Cowen 153.] that distinction was disregarded, and it was broadly ruled by the court, that the maker of a negotiable note was an admissible witness to prove that the note was originally given for a usu- nous consideration : and so long as these decisions remain in force, the rule must be considered as settled in favor of the competency of the witness.
But another objection was taken to Keeler as a witness, on the ground of interest. To sustain this objection, the plaintiffs introduced the two assignments mentioned in the case, from Keeler & Rogers, and Keeler & Mather, by which the whole of the property of the assignors was assigned to trustees to secure their creditors, who, with the exception of the makers of the $50,000 note, were arranged into two classes (the one preferred to the other) for the payment of their debts, the assignors reserving to themselves the residue, if any there should be. The first assignment was of part of the property for the exclusive benefit of the makers of the note for $50,000, and the second assignment gave that note the preference to both classes of their creditors. And-it appeared, and was admitted, that the note in question was one of the debts secured by the assignment, and -entitled to the preference given to the note for $50,000, which was to be first paid. On these facts the plaintiffs insisted that Keeler was interested in the event of the suit. To obviate the force of the objection, the defendant offered to prove that the whole of the property covered by the assignment was insufficient to pay the first class 'of creditors by $40,000. This evidence was rejected, and an exception taken to the opinion of the judge on the point. The defendant then offered a release from Keeler, acknowledged in open court, granting and releasing to the trustees named in the assignment, all his interest in the assigned property, and in the residue reserved to the assignors. The counsel for the plaintiffs still insisted on their objection to his competency, on the ground that his interest could not be released ; but the judge was of opinio.n that he was admissible, and overruled the objection. To this opinion, the counsel for the plaintiffs excepted ; and our next inquiry in order, will be, whether the exception taken by the defendant to the decision of the judge against the relevancy of the testimony offered by him, or that taken by the plaintiffs to the admission of the witness, upon his release to the trustees, can be sustained,
First, was the proof offered by the defendant, that the property embraced in the assignments was insufficient to satisfy the first °f creditors sufficient or material to show that the witness had no interest by reason of the residuary trust 1 It is difficult to conceive how the answer to this question* considering the course the cause took, can be material to the defendant: for the witness released his interest in the residuary trust, and. was on that ground admitted to testify. The defendant has had the full benefit of his evidence; and the notion, that the credit of the witness suffered by the imputation of an interest, to which the Court gave its countenance, by requiring a release to extinguish it, appears to me too refined and unsubstantial to form the basis of a judicial decision. And even if the Judge erred in excluding the proof, and thereby sustaining an objection to the witness which that proof would obviate, yet the objection being removed by other evidence, and the witness admitted to testify, the error became harmless, and it would be against the settled rules of the Court to disturb the verdict for that cause. But the Judge was right; for the testimony offered by the defendant did hot obviate the objection. It might, have shown in a striking point of view • the apparently remote and illusory prospect of a residuary fund, and the seemingly forlorn hope of benefit to the witness from that source ; and from these premises, a cogent argument might have been drawn against the probable influence of such a valueless and mere nominal interest upon the witness to swerve him from the truth. But the fact of the interest, such as it was, would still remain. It was a direct interest in a fund which was contemplated as possible, at least, to exist, and which the witness himselfihad reserved as a substantial or expected benefit, we are to presume, to him. The general rule of evidence is to exclude a witness having a direct interest in the event of the suit, as incompetent, without regard (except in special and peculiar cases) to the value and importance of that interest to the witness; and this case does not come within any exception to the rule. We are not at liberty to speculate'upon the influence which a greater or less degree of interest might have upon the witness. It is sufficient to exclude him that he has a direct interest which may be available to him.
Here the objection to the witness was the interest he had in the contingent residue of the trust funds reserved to the assignors, which his testimony tended to disencumber of the charge of tire note in question". The assignments were sufficient prima facie evidence of the residuary interest of the witness in the trust-premises, to disqualify him until the objection was removed. The most obvious and effectual course was to extinguish that apparent interest by release. It would be dangerous, and withal most inconvenient in practice, to allow the party calling the witness to repel the evidence of interest resulting from the assignments which are his own acts," and speak his own language, by an exposition of the property and debts embraced in the deeds, and proofs, and estimates of the values of that property, in order to ascertain the probable results of the trusts, and the chances of a surplus. Such an ordeal for testing the interest of a witness in a surplus fund, would partake too much of an ex parte inquiry to be consistent with even-handed justice. It would, moreover, be open in every stage of it to exception, and lead to interminable and vexatious controversies, and it would seldom end in any satisfactory result. The items composing the stock in trade, which mercantile houses, on the eve of insolvency, assign for the security and benefit of. those they wish to favour, usually consist of merchandise more or less unsaleable, and outstanding demands against debtors of different degrees of responsibility. The actual values and probable avails of such items, seem to be mere matters of opinion, and with the exception perhaps of flagrant cases, approaching to fraud, the estimates of them will seldom be satisfactory or sufficiently certain to exclude all chance of a surplus in every possible turn of events.
This may be a strong case ; but even in this case, the sources from whence the residuary fund was to flow, had not been exhausted. The assigned property was still in the hands of the trustees, and desperate as the defendant represents the hope of a surplus to be, the witness may have been under very different impressions. It is not unusual for the insolvent, who is familiar with the property he assigns, and too apt to be sanguine in his hopes and expectations of favourable dispositions and avails, to retain his confidence in the full payment of the debts he secures, long after his trustees and creditors have lost all hope of satisfaction from trust estate. Yet the insolvent, if he believes in the sufficiency 0f the fund to yield him a surplus, will be governed by that supposed interest, as being a real and substantial benefit to him.
Rut again: why resort to an argumentative refutation of the charge of interest from the'inadequacy of the fund, or the insufficiency of sources to create it, when a far more simple, direct, and satisfactory answer would be given by the release of the witness on the stand 1 When a witness is called to testify, and the tendency of the evidence will be to create, disencumber, or increase a fund of which he may be entitled to partake, it must be conceded that the best and most satisfactory answer to the objection to him on that ground, is a release of his interest in the fund. It effectually extinguishes all possibility of benefit to him from that source, and silences all his hopes and pretensions, whether well or ill founded, to any present or future advantages to himself from the result of the fund, in any possible turn of events or change of circumstances. And it seems to me to follow, from this acknowledged operation of the release, which it is always in the power of the witness to give, that the defendant, who showed no obstacle in the way of attaining it, was bound, if in his power, to produce such a release from this witness, and could not substitute for it the proof he offered. It is manifest that he had the power to produce the release, for in the sequel he did produce it. Yet he chose to put himself upon the weak ground of an offer of proof to show a deficiency of the assigned premises to satisfy the debts, as conclusive against all possible interest in the witness.
The considerations to which I have referred, satisfy me that the resort to that species of proof to repel the charge of interest, was inadmissible. It was an argumentative and inconclusive answer to the objection, substituted without necessity, for the more efficacious and decisive refutation by the release of the witness; and the proof, moreover, which was offered, however clear and convincing it might be to others, could not divest the witness of any interest or possibility of interest he might have, or suppose and believe himself to have, in the trust estate under the residuary trust in his favour, and the consequent avoidance of the note in question, as a charge upon that estate. These interests, real imaginary, would be reached by the general release of the witness himself, and could not be otherwise extinguished. The exception of the defendant to the exclusion of the proof he offered, is of course untenable.
But, secondly: Did the release itself fully restore the witness to competency to testify, or were the plaintiffs still well founded in the objection to which they adhered % The object and operation of the release was to restore the competency of the witness, by removing all temptation to diminish the debts, for the purpose of increasing the residuary fund in which he was to participate. It did extinguish all the interest he could possibly have in any such residuary fund, and so far it operated to remove the objection to his competency. Itdid not exonerate him from his liability to the plaintiffs as endorser of the note in question. But his engagements, as endorser, did not expose him to the objection of interest; for the endorser is not answerable over to the makers of the note in case of a recovery against them; and if his testimony should defeat the suit of the holders against the makers, the record in that suit would not be evidence for him in a subsequent action against himself; and the holders in such subsequent action (his oath no longer standing in the way) would recover against him, unless he could establish the usury by other proof. But this was an accommodation note, created by the makers at the request and for the accommodation of Keeler & Rogers, the endorsers, and negotiate ed by them for their own benefit. It was to be paid by them. They, by their assignment, recognised it as a debt of their own; acknowledged their obligation to pay it, and made provision for such payment. They stand, therefore, as regards liabilities between them and the defendant, on the footing of makers, and the testimony of Keeler tends directly to the discharge of a debt which he was bound to provide for and to pay. He was bound to defend the makers of the note in the suit of the holders upon it, and to indemnify them against its results. He would consequently be answerable over to the defendants in an action adapted to the case, for the amount of the recovery against him, in the event of the ultimate success of the plaintiffs in the suit; and from that liaas regards the cost at least, his own testimony is to shield him. The verdict which his oath would secure to the defendant would not operate to discharge the note, nor be an available defence for him in an action upon it by the holders against him. The holders, in their suit against him, would recover simply the amount of the note with interest; but the recovery over of the defendant, after a verdict against him by the holders, would subject the witness to the costs also of the previous suit against the original defendant. From these costs, his own evidence in this suit undeniably had a direct tendency to protect him. His release to his assignees could not reach that ground of interest, and if it be such as the law will regard as substantia], it must disqualify him. If, therefore, the objection taken at the trial to his continuing interest, was upon that ground, and was sufficiently pointed and explicit, he ought to have been freed from that badge of interest, or to have been excluded; and if improperly admitted to testify, his evidence ought not to be allowed its weight in the scale against the plaintiffs' verdict.
But the objection to the competency of the witness, after his release to bis assignees, was general and indefinite, and the reason assigned for it was, that his interest could not be released. Could such an objection be fairly understood to refer to his liability to the costs of the suit? Did it either expressly or Implicitly point to that liability as the ground on which it rested 1 And if that liability was the interest to which the plaintiffs intended to object, was not the cause they assigned for their ob- jection delusive and calculated to mislead? was the liability to the costs of the suit, an interest which could not be released ? The witness was offered by the defendant, in whom alone the right to the remedy over for the costs of the suit against him resided, and he might surely have extinguished that right by a release, or by a suitable covenant and indemnity, if a formal release would, from any cause, be ineffectual against any resort or recourse by the defendant, in the event of judgment against him, to the witness for the costs of the suit. And if, therefore, the responsibility of the witness for thpge costs, in an action against him by the defendant, was the true ground of the continuing interest, to which the obiection was intended to applj-, it might have been removed, and if had been disclosed at the trial, would most probably have been obviated. Howthen could the plaintiffs,if they referred to that liability as the ground for persisting in the objection, be warranted in representing it as an interest which could not be released? It was in the power of the defendant himself to discharge the witness from it, and as he seems to have supposed that his defence rested solely upon the testimony of that witness, he could not have hesitated to exercise the power he possessed to remove the impediment, if aware of its existence, which obstructed his competence to testify, and if in fairness the plaintiffs were bound to disclose the true ground of their objection at the trial, and to apprise the defendant that the ulterior responsibility of the witness to the defendant for the costs of the suit was the continuing" interest to which he objected. As he withheld the disclosure at the trial "where the objection might have been obviated, it may be questionable whether he ought to be permitted to avail himself of the benefit of the exception here, I state it, however, as an open question upon the whole objection of incompetency, by reason of liability for costs : and as the views I have taken of the general merits of the application before us for a new trial, render that question of minor importance in this cause, I shall forbear to express any decided opi-~ nion upon those points I conceive it to present, and to which I have thus fully adverted.
But if the testimony of Keeler was properly admitted, does it prove the fact of usury t the substance of his evidence bearing upon the question, was that his co-partnership being pressed by pecuniary embarrassment which threatened to overwhelm them, Benedict the defendant, and other customers and friends of their establishment, agreed to aid them, with a credit of §50,000, to enable them to raise the funds their necessities required. That application was made by him (Keeler, who was one of the directors) to the Fulton Bank for a loan upon this credit, by the discount of a note for $50,000, payable in twelve months at the Fulton Bank, to be drawn by the parties who were to befriend him, in favor of Keeler & Rogers, and to be negotiated by them for their use and accommodation, and that to provide for the inimediate wants of the house, a further application was at the same time -made by him to the board of directors, for a temporary advance until the note for $50,000, should be obtained, for which advance, two notes, one for $15,000, and the other for 10,000, then laid before the board, signed by some of the parties who were to be the makers of the note for $50,000, were offered as collateral security. That the board of directors appeared favourable to the loan, but not disposed to act upon the matter that day; that he (Keeler) represented to them that his house must have an immediate advance of money to save them from the necessity of stopping their payments. He does not inform us what reply, or whether any reply was made by the board to this appeal; but he observes that Mark Spencer a co-director of the bank, and then the president of the Hudson Insurance Company, who was present at the time, signified to him privately, that he (Spencer) would furnish the money the house of Keeler & Rogers might want for that day, and told him that the Hudson Insurance Company would take $20,000, of the loan applied for by him at the bank, if he would take one half of it in the bonds of that company. That those bonds were at that time at 4~ per cent, below par. That Keeler objected to the proposition, that it would cost too much, but offered to take $5000, in bonds. That he afterwards proposed to Spencer, that if the lenders would furnish him with $14,000 in cash, he would take the residue, $6000, in bonds, to which proposition Spencer acceded. And it was, thereupon agreed between them, that $20,000, of the proposed loan of $50,000, should be taken by the Hudson Insurance Company, that $14,000, should be advanced by the lenders in money, and the residue, $6000, be taken in the bonds of that company at par. That in pursuance of this agreement, $14,000, was advanced to him, (Keeler) and he deposited with Spencer the two notes which had been offered to the bank, and which were to be left with him until the loan for $50,000, should be consummated. That after the note for $50,000, had been obtained, the application to the bank, for the discount of it was declined; but that the loan of the Hudson Insurance Company was, nevertheless, con tinued, and the note for $50,000, having been exchanged for other notes of smaller amount, but with the same parties for makers and endorsers, two of the smaller notes, one for $15,000, being the note now in suit, and the other for $5000, were substituted for the notes for $25000, temporarily deposited with Spencer on receiving the advance of 14,000, as aforesaid, and were received and accepted by Spencer as the stipulated security for the loan of $20,000, from the company to Keeler, and the two notes temporarily deposited with him, given up and cancelled. Keeler further stated that he, on the 29th October, called at the office of the Hudson Company to complete the business and receive the bonds for the balance of the loan, but that Spencer said that they were not then made out. The house of Keeler & Rogers stopped payment the same day, and it does not appear that any bonds ever were issued or delivered to them or to Keeler, for the balance of the loan.
The usury then, which infected this loan, if it was usurious, consisted in this feature of the agreement, that $6000, of the consideration was to be taken in bonds, at par, which were at that time, at 4J- per cent, below par in the market; and if we are to take for granted, (the case being silent on this point,) that the discount, or interest at the customary rate was deducted from the notes for $20,000, for the twelve months they had to run, and that the 4; per cent, upon the bonds, was in addition to the regular discount of the notes, there would be a semblance of usury in the transaction. But if the defence of usury had rested upon that circumstance alone, I should hesitate to sustain it; because I feel the force of the answer to the objection, and cannot well see how the Hudson Insurance Company are to be charged with usury on that ground, since their bonds carried interest, and they were bound to pay the full amount of them and could not profit by the discount at which they were sold in the money market. The borrower, if he must turn the bonds into money, will lose the discount, and by that operation receive less than a purely cash loan would give him. But how do the lenders benefit by that operation? They pay the full consideration for the notes they discount in money, and their own bonds at par carrying interest. In what sense can they be understood to exact or receive more than at the. rate of legal interest for the use and forbearance of I°an thfey make % If the agreement to take the bonds, was merely nominal, and the real contract had béen that this discount of 41 per cent, should be returned by the lenders, and the full proceeds of the bonds after that deduction paid to the borrowers, instead of the delivery to them of the bonds; or if the company was in the habit of purchasing up the bonds they issued, at the market price, and such purchases and sales were to be effected at the office of the coippany, and that operation was understood to make part of their course of dealing; and if it was averred in general terms that such purchases and sales were to be effected at the office of the company, these considerations might peradventure give to the agreement a different aspect from that which it now wears. But of this there is no evidence in the case. If, therefore, the fact of usury had b.een left upon the testimony of Keeler, I should strongly incline to coincide with the jury in their verdict against the defence on that ground. I observe, however, that the counsel for the defendant inquired of this witness what was understood by the parties, as to the arrangement to take $6,000, in the bonds of the company ; and insisted that the question was proper, inasmuch as, the taking of bonds by previous dealings, and similar transactions might have acquired a conventional meaning. The plaintiffs objected to the question, and the. Judge sustained the objection.
It was certainly competent to the defendant to prove by this witness the agreement under which notes were discounted, or the joan upon them contracted. And if in settling and adjusting that agreement between them, reference was had to any general regulation or course of dealing for the rates of discount, or ofinterest to be charged to the borrowers; and the witness, by his own previous knowledge on an explanation at the time, was apprised of the terms, which such regulation or course of dealing would prescribe, and gave them his assent, they became a part of the contract and were capable, of proof by the witness. He was fully examined to the agreement, and if the defendant was not satisfied with his explanations, he had it in his power to pursue the enquiry* But the question to which the plaintiffs objected, did not point to the agreement or any fact or circumstance within the knowledge of the witness. It enquired of him, in substance, what the parties understood by the arrangement for taking bonds for the six thousand dollars of the loan; and upon the supposition that the question was pointed to this particular loan, the parties intended by it must have been the witness himself and Spencer. But the witness had already testified to his own exposition and understanding of the arrangenent, and had affirmed it to be, that the bonds which were at 4 1-2 per cent, below par in the market, were to be taken by the borrowers at par. The question could not be expected to draw from him any other answer; and if he had sworn to a different understanding, or ascribed a meaning to the terms of the arrangement relative to the bonds, inconsistent with the sense of them admitted by his previous examination, he would have discredited his own evidence, and have shown himself unworthy of belief.
As respects his understanding, therefore, the question was unnecessary; still if it had been put to him in legal form, and the nature and real terms of the arrangement made the subject of inquiry, instead of his understanding of what the arrangement was, it might have been admissible, and though superfluous, not improper. But it went further, and inquired of the witness what Spencer's understanding of the arrangement was, which clearly transcended the bounds of legal evidence. The witness might testify to the agreement made by Spencer with him, and the terms of the loan as settled between them; but he could not testify to the understanding of Spencer not embodied in the agreement, nor made part of it, as to the arrangement between them relative to the bonds; for he could have no knowledge of any such understanding, otherwise than by the information of Spencer : and it must be conceded, that he could not testify to the point upon that representation. Indeed, it would be difficult upon any acknowledged rule of evidence, to sanction the interrogatory or to permit it to be answered. The words it would profess to interpret, are perfectly intelligible, and express a clear, distinct, and rational meaning, in all respects well suited to the arrange ment to which the witness applied them, and entirely consistent with the tenor of his general testimony. He obviously used ^iem in their ordinary sense, to explain the terms of the loan as agreed upon between Spencer and himself. The grievance he complained of, was the loss his house must sustain by the sale of the bonds he was to take at par, which were at the time at 4 1-2 per cent, below par in the market; hence his objection that the loan, if the half was to.be paid in bonds, would cost too much. He knew that the necessities of his house must force the bonds immediately into market for sale, and he was of course desirous, in negotiating the loan, to reduce the amount of bonds he was to take. There is no intimation in any part of his testimony of any other dissatisfaction with the terms of the loan, or of any hidden or secret condition or usurious contract covered by the arrangement for talcing the bonds. There is no room, therefore, for explanatory proof of the meaning of the phrase.
But the defendant insists that the question was proper, because the words might, by previous dealings and similar transactions between the parties, have acquired a conventional meaning, and the case of Astor v. The United Insurance Company, [7 Cowen, 202.] is cited to show that where words in any trade or business have acquired a specific meaning, parol evidence may be introduced to show what that meaning is. That case was decided upon the doctrine of the usage of trade, and the point decided was, that the phrase, " usage of trade," applies in respect to that class of merchants who deal in the article. Words by known usage of trade, or by long and habitual use of them, in a peculiar sense, by any particular class of men, do acquire a technical or specific meaning peculiar to the class who use them in that sense, and differing from the ordinary acceptation of them by the public at large. And in such cases parol evidence is, from necessity, admissible whenever they are used in the technical or peculiar sense, to prove the fact of the usage, or habitual use of the words in such peculiar sense of them, and the specific meaning they have thereby acquired. But this is not a case of usage, or of words acquiring a specific meaning by the long and habitual use of them by any class of merchants or traders in a sense peculiar to themselves. It is indeed vindicated as an analogous case, supported by the same principle. But what just analogy is there between them] The specific meaning ascribed by the defendant to these words, is by his own admission confined to the Hudson Insurance Company and its dealers, and he traces back its origin no further than the commencement of the monied operations of that institution.
The defendant himself does not claim for the phrase any specific meaning as impressed upon it by usage, or long and habitual use of it, in a sense peculiar to itself. It is a conventional meaning that the words are alleged to have acquired. What are we to understand by the conventional meaning of words! Must it not be the meaning which the parties who use them, mutually agree, for reasons of their own, to affix to them, as the sense in which, in dealings between themselves, they are to be understood ! How then does a convention between the lender and borrower of money differ from an agreement between them as to the terms of the loan, or the phraseology by which those terms shall be expressed or signified! And to charge or affect these borrowers with a signification of words materially differing from their ordinary and popular sense, as being the conventional meaning of them, must they not be parties to the convention by which that peculiar and unusual meaning was affixed to those words ] Or if the peculiar signification ascribed to them has been acquired by the long, uniform, and habitual use of them by the lenders in the negotiation of their loans with their customers, must not the borrower be first charged upon proper evidence, with knowledge or notice of that peculiar signification of the words employed in describing the arrangement, before he can be held to have contracted his loan in reference to it, or to havé given any consent, express or implied, to the terms which the words, when used in such peculiar meaning of them, would import or signify ! If so, any conventional meaning the words in question may have acquired, which could have any bearing upon the terms of the loan, must have resulted from an agreement between the immediate parties to the contract, or from the assent of the borrowers to the terms and rates of discount and loans established by the company, in their dealings as lenders, and fully known or explained to the borrowers at the time, as the regulation, to which they were to conform.
The conventional meaning of the phrase, " taking of bonds," according to the .defendant's exposition of it, was acquired by the practice of the Hudson Insurance Company, and in its course of ¿ealing; and a broad and most artificial signification is ascribed to it. The words are alleged to signify, that in all loans by that company, the bonds of the'company are to be taken by the borrower instead of money, and that a discount of six per cent, is to be deducted from the whole nominal amount of the bonds, and the borrower is also to be charged with a life insurance at a premium of six per cent, upon the sum borrowed: a signification purely artificial, and entirely foreign from the natural meaning of the phrase, and indicating terms of the loan which the words could by no possible construction be made to express; and which borrowers, not possessed of the key to the secret conventional meaning of them, would not understand them to imply. And, admitting that the Hudson Insurance Company had established a system of rates and terms of discounts and loans, upon which, in their course of dealing, as lenders of money, they acted and required others to observe, and which the phrase in question was understood by them and their regular dealers to signify, must not those facts be known or explained to the applicant, and the rates •and terms of the loan required by the course of dealing of the lenders, receive the assent of the borrower, to make the arrangement and the signification of the words employed to express it, conventional between them and binding upon him? These facts, then, and the terms upon which the notes were negotiated to the insurance company, were the material points to which the defendant,—especially upon the direct examination- of his own witness,—was, by the rules of evidence, to apply his interrogatories, to.elicit the truth of the transaction which he professes to have, had in view.
But the question put. to the witness was, what the parties (referring to himself and Spencer,) understood by the arrangement for taking the $6000, in bonds: and it was insisted upon as a proper question, on the ground that those words might, by former transactions of a similar character, between the parties, A have acquit ed a conventional meaning, which the defendant ought to bt, permit .--i to show. This was the principal question upon which the Judge passed. Now it seems to me, that a preliminary objection occurs to this course of inquiry, which was decisive against its admissibility. It was not shown that there had been any former transaction of a similar character, or any previous dealings whatever between those parties, nor was the witness interrogated to that point. The question put to him could not even be regarded as the first link in a chain of proof to establish the terms of the loan, which the phraseology of the arrangement between the parties is said to indicate. Keeler was the only witness, v. ho had been examined, and his testimony up to the time that this question was propounded, and indeed throughout, was confined to the single negotiation, in which this loan originated. The foundation, therefore, on which the defendant builds his right to interrogate the witness to the conventional meaning of the words in question, was not so laid as to authorize the step he proposed to take. There could be- no previously settled conventional meaning of words between parties, who had never had occasion to employ them in any monied operation before. The defendant, before he could be entitled to an answer to his question, was bound, upon his own principles, to establish the fact of former similar transactions, or previous dealings, by which the words used by the witness could have acquired the conventional meaning, which he was required to testify.
But if in point of fact the words in question had, and were known to the witness to have, the signification ascribed to them by the defendant, and he, with such knowledge, contracted in reference to that signification of them, then the agreement he entered into with the company was in conformity with the terms which-these words in that special or peculiar meaning of them imported. Arid he was subject to a direct examination to the point, and must have answered to proper interrogatories, as to the actual agreement "as it was finally arranged, and in fact subsisted between tl tem. His own knowledge on this subject and the real and true nature and terms of the contract, and actual rates of the discount or loan he effected, however disguised, and. whatever token, artifice or device may have been employed to conceal and cloak them, he was bound to disclose. He might have been subjected to the scrutiny of a strict examination and the most searching interrogatories, to elicit from him the truth. But the rules of evidence required that the enquiry should be directed to the developement of the facts and circumstances of the case, and the terms of the arrangement and agreement for the discount of the notes, and the disposition to be made of the residue beyond the advance upon them. And I am satisfied, from the views I have taken of the question put to the witness, enquiring into the understanding of the parties, as to the arrangement for taking the $6000, in bonds, that it was not admissible, and was properly overruled.
The arrangement, as explained by Keeler, was a simple operation of discount, on terms not unfavourable to the borrower unless the condition of the $6000, made them so; but the words employed in describing that arrangement, as expounded by the defendant, unfold to us new and different terms of a most grave and impressive character. None of these harsh conditions appear in the arrangement or agreement as described by Keeler. He not only observes an unbroken silence touching them, but so far as he was examined to the point, he denies and disproves \ that they enter into or qualify the contract. Before the objectionable question was proposed, he had stated that when he applied for the bonds for the $6000, nothing was mentioned about life-insurance, and after that question had been overruled, upon his further examination, he testified in answer probably to a more direct and pointed question, that nothing had been said up to the time of the failure of his house, (which was after all negotiation was at an end,) about a life-insurance. He positively affirms too, that $14,000, was advanced upon the two notes in money, and the residue or $6000 only, of the amount, left to be paid in bonds;—features of an agreement entirely dissimilar from those which would belong to the arrangement which the supposed conventional meaning of the phrase in question would signify. Could the witness be under a mistake as to the terms of his agreement or have forgotten them 1 His memory might have been refreshed by proper and pertinent interrogations to circumstances which occurred at the time, and the exactions or demands actually made of him as the price of the advance or loan upon the notes.
But the witness, if he had ever been apprised of the alleged conventional meaning of the words he used, and was fully aware of the special contract they are affirmed to have signified, could not have foi'gotten the circumstance, nor have been under any misapprehension of the bearing and practical operation of the agreement. With his attention specially directed to the cost of the loan he was negotiating, and his solicitude to lessen the amount he was to receive in bonds;—the twelve per cent, discount, and a life insurance must have made too deep an impression upon his mind for so short a lapse of time to efface or obscure. It is not probable that with security of such high order as he had to offer he would accept a loan upon such grossly ruinous terms, or if driven by his necessities into the measure, the fact could not have escaped his recollection, and he could have had no sufficient inducement intentionally to suppress or conceal (especially upon his examination on oath) the circumstance of the extortionate discount exacted from him. But it does not appear that any premium for a life insurance was ever exacted of him, or that any claim was ever preferred or suggested by the lenders to any such item, as part of the price of the loan. And the entire omission of the witness to notice those extravagant terms, which the words in question are alleged to signify, and his express denial of any mention of a life insurance, at any stage of the treaty for the loan, and the absence of all proof of any exaction, demand, or claim by the lenders from him of those oppressive rates of discount, compel me to conclude, that he did not understandingly contract in reference to any course of dealing which would subject him to such onerous conditions. If so, the usual course of dealing established by the company in regard to their discounts and loans, must have been dispensed with on that occasion by Spencer, their agent; and the agreement between Spencer and Keeler, must have been an exception to the general practice pf the company, and the terms of it settled by the parties themselves. . And such is the character given of it by Spencer, when he comes to testify. He does not pretend that those notes were to be dis- " r , counted at the rates, or upon the terms ordinarily exacted by the company; or that bonds were to be taken by the borrowers instead of money for the amount of any premium charged them for life insurance. On the contrary, he virtually excludes all such pretensions by the account he gives of the operation; for he agrees with Keeler, that the sum of $14,000, was by the terms of the agreement between them, to be advanced in money. And the points on which they differ chiefly refer to the $6000, residue of the notes upon which the advance was made.
Spencer too, is equally silent with Keeler as to any conventional meaning acquired by the words in question. He states the course of dealing and mode of transacting business in reference to discounts and loans at the office of the company, and admits, in substance, that loans were paid in bonds of the company, and that six per cent, of the amount of the bonds, and á premium of six per cent, for a life insurance, never.intended to be effected, were required of the borrowers in cash at the time, and as the terms of thé discount or loan. But he speaks of no conventional meaning of any particular "phrase or words to signify or indicate those terms to borrowers. He proves that Keeler was a dealer of the company, and had previously contracted other debts to them, by the discount of bills and notes at the rates required by them in their ordinary course of dealing. But the whole tenor of his testimony goes to shew that the arrangement between him and Keeler, relative to those notes was not brought within the pale of the general practice of the company, and had no reference to the course of dealing, for the terms or conditions of the advance or loan upon them; but that it was an independent agreement for the discount and loan in question, upon terms negotiated and agreed upon between themselves. •
• Why, then, does not the testimony of. Spencer furnish all the information and discovery which the question excluded by the Judge could, in its widest range, have elicited from Keeler % If so, a new trial to let in the further examination Of Keeler, would be useless and vain. I have been led into more extensive views of the bearings of this excluded question, and the disclosure avowed on the argument, as the object of it, than the vindication of the decision of the Judge might seem to call for; as well from the. consideration that the evidence of Spencer on the subject, appeared to me, when collated, so fully to meet the professed objects of the inquiry, as to supersede the necessity of that inquiry altogether, and thus obviate the force of the defendant's objection, as from the impression and belief also, that other matters of material bearing upon the defence of usury could be advantageously noticed and explained in that mode of treating the subject,
Spencer was obviously the most competent witness to testify to the practice and course of dealing of his own company, and the peculiar signification any words might have acquired by that practice and course of dealing; and the deep-rooted aversion, which the defendant in the sequel of the trial discovered, to the introduction of Spencer as a witness, is the only assignable reason why he should resort to the secondary, and at least questionable species of evidence, he offered to prove those matters: when Spencer himself, who was the president of the company, and the immediate party to this arrangement with Keeler, and who was present in court, must have been familiar with the facts, if they existed, and must have known, moreover, how far Keeler contracted with notice of those facts, and in reference to any settled rates and terms of discount by the company. He must have had cogent reasons for his course, and must either have distrusted Spencer's integrity, or the sufficiency of his own evidence—if drawn from the best and highest sources—of the facts he wished to prove, or he could not have preferred to abide by Keeler's evidence, as the case represents it, rather than call a witness who was fully possessed of personal knowledge of the whole matter. The testimony of Keeler certainly was not satisfactory, and it would, I think, have been difficult to prevail upon judicious and impartial men to make >t the basis of a verdict ajrmst the purity of the notes, and in avoidance of the plaintiffs' demand. But my views of this testimony would seem not to agree with the opinion respecting it of either of the parties to the suit. They both attached to it the weight and importance of decisive proof. The defendant so impressed with its conclusive force as prima facie evidence at least °f the fact of usury, that he rested his defence upon it alone f and the plaintiffs viewed it with such apprehensions of danger, that after vigorous but unsuccessful struggles to exclude the witness, they called Spencer to discredit him and disprove his statements. Spencer's account of the arrangement with Keeler, as we have already seen, varies materially from the statements of Keeler; and on some points they are in direct collision. Spencer, for example, is positive that nothing was said about bonds or interest, and that no part of the loan was to be made in bonds:—a statement utterly at variance and wholly irrecoucileable with the testimony of Keeler, who makes it the prominent feature of the arrangement, that $6000 of that loan was; in effect, forced upon him reluctantly in bonds at par, which, at the time, were 41 per cent, below par in the market. But Spencer represents that it was a part of the agreement, that if the advance of $14,000 was not repaid, and the house of Keeler & Rogers did not go on with their business, then the notes were to remain as security for any further claim, which the company had or might have upon that firm. But all the-pre-existing claims of the company were upon usurious discounts; and it was upon this appropriation of the notes ia question, to secure those tainted demands, that they received their contamination. If, then, Spencer is to be believed, his testimony establishes the defence Keeler was called to prove. Spencer was introduced by the plaintiffs to correct the errors of "Keeler, and to give the genuine and accurate version of the agreement which Keeler was charged with having mis-stated. He was assailed by the defendant as an adverse witness to him, and a witness, whose credibility it was iris interest to impeach and destroy ; upon those principles the parties acted, and much of the time of the court appears to have been consumed in attacks upon, and defences of, the credit and character of that witness, the defendant producing all the proofs in his power to discredit him, and the plaintiffs putting forth their whole strength to sustain him.
It turns out, that his disclosures on the stand have made him in effect the witness of the defendant, and arrayed him in hostilily with the plaintiffs' demands. He has unfolded a system of operations by the Hudson Insurance Company in the discount hills, and the loaning of money upon negotiable paper, which was confessedly illicit and indefensible. And his testimony shows, that the notes in question were, by the terms of the arrangement concerning them, devoted not only to the reimbursement of the advance upon them, but to the protection also of debts usuriously contracted under that system of operations ; and they received from this preconcerted, and in part, as I conceive, illicit appropriation of them, a taint of the usury with which those debts were imbued. It can no longer be the interest, of the defendant, therefore, to urge his objections to the credit of the witness ; and the plaintiffs cannot repudiate him, nor disclaim the history of the transactions, which he has given them. It was competent to them to have shown, that lie was under a mistake, or had been incorrect in his statements: but they offered no evidence to explain or correct his testimony. They, on the contrary, insisted upon its verity, and called a witness to corroborate him, who confirmed his statements, as to the terms of the loan, and the agreement with Keeler, which composed the material points of his evidence, on the question of usury.
There is certainly a discrepancy between the statements of Keeler and of Spencer relative to the residue of the notes beyond the advance upon them. But the plaintiffs would resort, with ill grace, to a witness, they denounced as incompetent to testify, (and against whose whole examination they object) for proof to outweigh the evidence of their own witness. And if, as they insist, his testimony is to be objected to, or laid out of view, and the verdict left to stand upon that of Spencer, the embarrassment, if any, which would result from the discrepancies between them, would necessarily disappear. But if both are held to be competent and credible witnesses, the "evidence of Cunningham, must give the preponderance to Spencer. Cunningham is wholly unimpeached. The agreement between Keeler and Spencer was made in his presence, and he is full, clear, and posi= live in his statements as to the terms of the loan, and the agreement between the contracting parties. And on these important points, he in all respects corroborates Spencer. But I pass by exceptions taken to the credit of Spencer, and the evidence in support, of them, without further comment; as well for the reasons a ready ags¡gned, as upon the ground also, that the decision of the Judge upon the. question of usury, to which the material evidence of the witness applied, entirely superseded all necessity or use ot any discussion of the weight of evidence or credibility of witnesses.
The jury, I am bound to presume, were guided by his opin. ion and direction, and came to the conclusion they did, against the defence of usury, without examining or deciding upon the credit of the witness. The Judge decided, and he instructed the jury, that if in point of fact the note in controversy was taken in part to secure usurious paper, still that circumstance did not make it void. This, it is true, was explained by the Judge, at the time, to he a mere formal decision made by him for' the purpose of bringing up the question for the consideration of the court, and not intended to express any deliberate opinion of his own upon the point; yet the influence of it upon the jury was the same as the settled opinion of his honor would have been. They were told, that in judgment of law, a note taken to secure usurious paper, was not for that reason void. The jury under such a decision, if they acted discreetly, would, as a matter of course, find against the usury, and the validity of their verdict must depend upon the correctness of the rule of law given them by the Judge for their guidance. And as that, rule of law was, in my judgment, erroneous, I should be unable, whatever might be my viervs of the evidence in support of the facts, to sustain the verdict. Upon the same grounds we might decline to express an opinion upon the proposed inquiry into the usual terms of loaning in the Hudson Insurance office in reference to the compensation taken for loans. That inquiry was defended as allowable and proper for testing the accuracy of Spencer's memory as to the terms of the loan in question. But if the Judge w'as correct in tli.e position he assumed, that the facts were undisputed, and the point in controversy reduced to a question of law, any inquiry instituted to test the accuracy of Spencer's memory, ¡roust be regarded as immaterial, because inapplicable to this branch of the defence, and immaterial as respects the usuiy, on which the defendant relies.
But there are other reasons against, its admission for any purpose. And first, it is irrelevant; for the true point of inquiry, as respects those parties, was the terms of this particular loan, which might be in conformity to the general practice of the lenders, or might deviate from their usual terms, and be arranged by special agreement between the immediate parties to this particular contract. And secondly, the witness did, in the course of his cross-examination, in fact answer the question, by disclosing the course of dealing and practice of that company in their loans of money, and the usual rates of compensation and terms of the loans taken of them; and he superadded, that the practice and course of dealing to which he thus testified, was the usual mode of transacting the business, and was rarely departed from : a disclosure, which must, I think, be acknowledged to have fully satisfied the inquiry in its broadest requisitions.
I express no opinion upon the form or substance of the interrogatories proper to be put to a witness, who is examined to the character of another witness, or upon the right of the impeaching witness to take his own knowledge into the account, in forming his opinion as to the credit of the witness he comes to impeach. And upon the much litigated question of the competency of an objecting party to examine to general character—without limiting his questions to the points of truth and veracity—and upon the correlative question also, whether—if testimony to general character without such restriction be admissible, and the opinion of the witness is unfavorable, and he assigns a cause for believing the character of the witness he impeaches to be bad—an inquiry is proper, into the origin and source •of that opinion, and as to the solidity of the grounds, upon which he professes to found it, in order to enable the jury to estimate them correctly: I also refrain from expressing my opinion, because those questions, whatever might be the decision of them, could hot (as regards this particular branch of the defence of usury, in the turn given to that defence by the Judge) be relevant, or have any material bearing upon the present, application. The opinions expressed by the Judge upon the evidence, and his directions to the jury, had the effect virtually to withdraw from them all con^deration of the facts—upon which the charge of usury now under consideration was founded—as not being in dispute, and to place that branch of the defence exclusively upon a point of law, which he, at the same time, decided against the defendant. It would be a waste of time to discuss questions of evidence in the face of that decision; for the principle of it is, that the facts in evidence, (admitting them to be true,) and presuming the note in controversy to have been taken in part, as a security for the payment of usurious debts of Keeler & Rogers to the company, do not impress the stain of usury upon the note itself, or avoid it as a valid security. Consequently that decision, if sustained, puts an end to that branch of the defence; and if erroneous, the error must first be corrected, and a new trial awarded, before these questions of evidence reserved for the opinion of the court, if material to the defendant, and determined in his favor, can be available to him.
But independently of the charge of the Judge, and upon the supposition that his decision is less absorbing of other points than I conceive it to be, still, none of the questions of evidence I have passed over, appear to me to affect the defence of usury, upon which I place my decision, in the views I take of the merits of that defence; for Spencer was admitted to testify, and proved the note in controversy to be infected by the taint of usury. The plaintiffs* by whom he was introduced, accredited, and defended, must admit him to be a credible witness. And if it should be conceded, that the defendant had the right to pursue the course of examination to credit, which was denied him, the redress for the injury, if any was sustained by him, would be a new trial; and to that redress the testimony of the witness, if admitted to be correct, and taken as true, will, as I understand the rules of law applicable to the case, entitle him. We must decide the principal question, upon the rule of law laid down by the Judge, which is directly in issue between the parties, and vitally affects the validity of the verdict: and as my opinion is clearly against the plaintiffs on that ground, an opinion upon those collateral points cannot be necessary.
But another objection is taken to the verdict, which is equally fatal with that of usury. It is this, that the plaintiffs discounted the note for $ 14,000 only, and the recovery is of the whole amount of it with interest. This finding of the jury was also in conformity to the opinion and charge of the Judge, who decided that the plaintiffs, if entitled to recover at all, were entitled to recover the whole amount of the note, as the court could not look into or regard the rights of the cestui que trusts. To this part of the charge the defendant objects, because the plaintiffs were not restricted in their recovery, as he contends they ought to have been, to the $ 14,000 of the note discounted by them, with interest from the time it fell due; and the question is, whether they showed any right to recover beyond the amount of such discount. The plaintiffs justify their recovery of the full amount, upon the, ground that the title was vested in them as the holders and possessors of the note, which was an entire security for themselves, and those to whom the surplus interest in,it belonged, and that they were entitled to recover- that surplus interest as trustees for whomsoever might be the beneficial owners of it. But the defendant insists, that the party who limits his discount to a part only of a note, takes it in effect as a note for the amount, for which he discounts it, and that the ownership of the residue, which he declines to take, is left in the original holder, who offered it for discount, and remains subject to his disposition and control. And it is suggested, that when the reduction of the note itself is practicable, the course is actually to reduce it to the sum agreed to be discounted, by the substitution of a new note for that amount in its place; and where such reduction is not practicable—as in the case of business paper for example—a memorandum is accustomed to be made of the sum agreed to be discounted: but that, whether those precautions are taken or not, the fact of the discount of part only of the note, necessarily restricts the title and ownership of him, who makes the discount or purchase, to the part he discounts ;—the residue or rejected portion of it continuing absolutely vested in him, who offered it for discount.—And that an agreement is implied between the new party in interest and the original proprietor, whereby they become part owners in proportion to their respective rights of aliquot parts of the note thus partially discounted: but that no part of the residue results to the discounter ®-om discount of the. part he consents to take, and the possession he necessarily acquires and retains of the note.—And that he would not be entitled to recover upon it, beyond the portion of it, which was discounted or purchased by'hitn, and could not inter-meddle with the residue, which he had refused to take, and had rejected.
What the precise effect of such a partial discount of a note may be, and what the-legal'and equitable rights and interests of the respective parties, who offer it for discount, and who discount it, in part, would be, in the several portions of it, and in the entire note;—and especially whether—in the eventof theinsolvency of all the parties to it, and the previous transfer in good faith of the undiscounted portion of "the noté to a purchaser for a full consideration, or the intervention of general assignees claiming title to that part of it, which the discounter déclined to take—the party, who discounted it in part, and is the holder of it, would be entitled to the security of the whole note for the repayment of the amount of his discount, and have a right to the dividends, on that principle, of the estates of the insolvent drawers and endorsers, until fully repaid his advances, with interest and costs of suit;—or whether he must be content with dividends upon the amount only, which he discounted, and leave the dividends upon the portion he refused to take on discounts for the use and benefit of the particular purchaser, or the general assignees, as the legal or beneficial owners pro tanto of the note—are questions, perhaps, of some delicacy, hut which it is not necessary for the purposes of this application to consider or decide.
Whatever the rights and interests of the discounter may. be, in cases of the insolvency of the parties to the note, and the consequent dishonor of the paper, and pursuit of his remedy by action, his demand, under any circumstances, against the makers, if discounted for them, could not exceed the amount of his advance, with interest and costs of suit; and upon the paynaent of that amount, he would be compellable, unless clothed with rights or equities to the surplus in it, on other grounds, lo deliver up the note. In the present case, the note had been negotiated and passed to the Hudson insurance Company, was afterwards deposited by Spencer, the President of the Company, with the plaintiffs—by what authority, does not appear—as collateral security for a loan of $10,500, made to him on his own note at 60 days ; and we learn from Leavitt, the former President of the bank, that it was discounted by the bank upon his own application without the knowledge of Spencer: that Spencer was largely indebted to the bank at the time, and had agreed that any paper belonging to him, found there, should be held by the bank as security for his debts; and that the note in question was, in June, 1826, found in the Bank, and he, Leavitt, having been informed by Spencer, that $14,000 had been advanced upon it, caused it to be discounted for that sum, and the amount carried to the credit of Spencer.
Hence it appears, that the plaintiffs knew at the time they appropriated the nole to their oxvn use, that the sum of $14,000, and no more bad been advanced upon it by Spencer, who deposited it with them; and it was afterwards taken by them under the form of a discount, at the instance of the president, for that amount only, and Spencer credited xvith that sum as the avails realised for the discount of it by them. If, then, it be conceded, that lenders, who discount a note for part only of its amount, become trustees for those, xvho are interested with them in it, as to the surplus and residue of the note beyond the discount or loan upon it, that trust xvould enable the discounter, as holder, to recover of the maker—for the sole use of the endorsees or cestui que trusts, for xvhom it was discounted, to the extent only that the maker would be liable to those indorsees themselves—in an action by them directly against him upon the note; and he would be entitled to all the defence against the trustee, as to the residue of the note beyond the discount,'that he would have in an action against him by the cestui que trusts. Now it is in proof, and it is not denied, that the whole advance of the Hudson Insurance Company to Keeler upon the two notes they received of him, was $14,000, and no more. How could that company claim to recover of the de - fendant a larger sum 1 It. is true, that the loan contracted as stated by Keeler, was $20,000, and that the two notes amounting together to thatsum, were negotiated and delivered to Spencer for the lenders, in the fulfilment of the terms of that contract; but upon the implied condition, surely, that the contract should be performed and the loan completed by them. Then, was the res¡¿ue anc¡ balance of $6,000 of the loan, or any portion; of it, or the notes given for it, recoverable by those lenders against this defendant^ The whole current of admissions and proofs on both sides, exhibits clear and decisive defences in every aspect of this branch of the case against such recovery. It is conceded that no part of this residue has ever been advanced or paid. Has any title been acquired to it, against the owners or indorsers of the note, which the plaintiffs can make available to themselves in this suit 1
The answer is found in the testimony of Keeler and Spencer Keeler testifies, that it was to be paid in bonds of the company at par; Spencer denies that any part of the loan was to be paid in bonds, but his explanation is, that the notes in the events that occurred, were to be held for the advance of $14,000, and the security and payment of other debts of Keeler & Rogers to the company: and the proof was clear, that all the other debts of that firm were for usurious loans made to them by the Hudson Insurance Company, by the discount, of notes and bills for their accommodation. Whether Keeler or Spencer is correct in the views thus given of the arrangement between them, the lenders, even if they could reclaim their advance, could have no legal or equitable right to any portion of this residue and surplus o: $6,000 beyond the advance; for if Keeler is right, the considera!ion tor the $6,000, of the loan,admitting it to be free from the taint of usury, has wholly failed by the neglect and virtual refusal of Spencer to deliver the bonds. And this being an arrangement between the immediate parties to the loan personally or by agent, and the notes being made for the accommodation of Keeler & Rogers, as the endorsers, and never negotiated or endorsed, and fully consummated by delivery—so as to make them available to the holders against the maker as operative securities, until the transfer of them to the company by Keeler under that arrangement-—thei'ewas no obstacle to an inquiry into'the consideration of that negotiation of them as between the immediate parties to the arrangement. And the disclosure of that consideration, and proof of the total failure of it, showed the claim of the company or of Spencer to any part of those notes, or any interest in them beyond the advance of $14,000, to be unconscionable and unjust. And if Spencer's account of the agreement be true, an equally conclusive defence is shown; for the residue of the notes beyond the advance, being, according to his statement, (by the express terms of the agreement under which they were taken) to be held and applied, in the events that occurred, for the security and payment of pre-existing usurious debts of Keeler & Rogers to the company, the notes were, as I apprehend, contaminated throughout by the taint of usury, which infected the debts they were to secure. Or, if the rules of law could safely indulge the actual advance upon the securities with an exemption from the operation of the principle,—no excuse could be offered for the residue or surplus amount of $6,000— devoted as it was exclusively to the furtherance of the fulfilment of the corrupt agreement—under which the previous debts were contracted, and to the security and payment of those usurious debts.
The Hudson Insurance Company, if any recovery at all could have been had by them, clearly could not have recovered in any action against this defendant, if properly defended, beyond the actual advance to Keeler, with interest. And neither that company nor Spencer, who was privy to the whole history of the notes, could transfer to .the plaintiffs, or vest in them any greater right or interest in the surplus beyond their advance, as trustees for their own benefit, than they themselves possessed at the time of the transfer; and it follows, as a necessary consequence, that the plaintiffs could not recover for the Insurance Company or for Spencer as cestui que trusts, what those cestui que trusts would not themselves be entitled to demand. The Judge erred, therefore, in charging the jury that the plaintiffs, if entitled to recover at all, were entitled to recover the whole amount of the note in controversy. I am satisfied that the objections against the verdict—-as improperly overruling the defence of usury, and fo? that it exceeds in amount the interest of the plaintiffs in the note, and for the misdirection of the Judge to the jury, upon the ques' which those objections involved—are decisive m favor of the application for a new trial. But the defence of usury went to the avoidance of the entire note, and, if proved, entitled the defendant to a general verdict. In my judgment the proof ot the usury was sufficient. It comes, I admit, from Spencer, and it may be objected, that his credibility was at least shaken at the trial. But is the plaintiff, who introduced him and so strenuously affirmed his claim to confidence, at liberty now to take the exception? or, if a party has the right to avail himself of the shade of discredit thrown upon his witness by his adversary, are not the statements of this witness corroborated by Cunningham 1 and do they not derive additional support also from the conceded facts of the case 1 On these points I have already given my impressions ;—they incline me against the validity of the objection as taken by the plaintiffs, in opposition to the present application. Besides, the question of the title of the witness to credit, if open, belonged to the jury ; and the Judge in his charge to them, told them that the defendant had failed in impeaching this witness, and it was his duty so to instruct them. In the same charge he distinctly presented to them two questions of fact for their decision; one of which referred to another branch of the defence, and the other, although it had reference to the defence of usury, was confined to the conflicting evidence of Keeler and Spencer as to the fact of an agreement, t hat part of the loan upon the notes should be paid in bonds of the lenders; and dicl not touch the question as to the pollution of the paper by the usurious debt it was in part to recover, and which (as we have seen) was treated by the Judge as a point of law arising upon undisputed facts. The only question put to the jury on this head was, whether it was a part of the arrangement between Keeler and Spencer on the 22d of October, when the note in controversy was negotiated to the Hudson Insurance Company, that a part of the amount should be paid in bonds at par, with a view to cover an usurious agreement or not. - And the Judge told them that if they believed Keeler, then they ought to find a verdict for the defendant; and if Spencer, then, for the plaintiffs.
The jury found a verdict for the plaintiffs, and have thereby given their sanction to Spencer as a credible witness, and acted upon his evidence as of sufficient weight to countervail the testimony of Keeler. Now if his evidence was so decisive upon the alleged arrangement for taking part of the loan in bonds, with a view to cover an usurious agreement, are we not fairly to presume, that it would have been equally conclusive of the fact of an agreement for the application (in given events) of the $6000, the residue of the notes, as a further provision and security for the payment of antecedent usurious loans 1 And if so, the jury to whom the general question of the fact of usury belongs, if the decision of the Judge upon the law had been different, would, upon that evidence, probably have given their verdict for the defendant. But it may be proper in this view of the subject, to collect and present in a more distinct and condensed form the material facts proved by Spencer, bearing directly upon the point. In order to judge of the sufficiency of the proofs applied to the rules of law, are we so to expound them, as to induce another jury to find a verdict in favour of the defence of usury 1 And I confess, that if his evidence is entitled to credence, (and I properly appreciate its bearings and force,) the matters it discloses—taken in connection with the conceded facts of the case,—so fully and so clearly establish that ground of defence, that no impartial and intelligent jury could—under proper instruction from the court upon the law—find a verdict against it.
It is conceded, that the note in controversy was, with anote for $5,000, substituted by mutual consent for the two other notes, in the first instance deposited by Keeler with Spencer; and that the substituted notes grew out of an arrangement for the relief of Keeler & Rogers, and Keeler & Mather, from commercial embarrassment, by the interposition of the credit of the defendant and others, in procuring funds to enable them to meet their engagements: that the substance of the arrangement was, that the defendant and those who associated with him, for the aid of these establishments, should make a joint and several negotiable note for $50,000, in favour of K. & R., payable at 12 months, which K. & R. were to negotiate, by procuring it to be discounted for their own accommodation; and that the two co-partnerships, to secure the makers against their liability to pay the note, were to execute to trustees assignments of property to an adequate amount. It is also a conceded fact, that under this arrangement, Keeler, who was a director of the Fulton Bank, on the 22d October, 1825, applied to that bank for the discount of the note for $50,000, so agreed to he furnished him, and at the same time laid before the Board of directors two other notes—one for $15,000, and the other for $10,000—as collateral security for an immediate but temporary advance, until the note for $50,000 should be obtained, and which advance be represented to be indispensable to him, to save his house from stopping their payments; that the board declined acting upon the application at that meeting; and that Spencer, who was President, immediately interposes with an offer of aid to the applicant.
Thus far the witnesses substantially agree, and at this point the discrepancies between them may be said to begin. I proceed to notice the prominent features of Spencer's testimony as to the subsequent events in the history of the note. He testified, in substance, that on the 22d October, on which day he first took his seat as a director in the Fulton Bank, he found Keeler at the bank applying for the loan of $50,000 by the discount of the note for that amount, which he expected to obtain: that the Hudson insurance Company (of which Spencer was then the President) had an interest in sustaining the credit of Keeler & Rogers, and therefore he, Spencer, judging that the bank was not likely to act on Keeler's application, offered to advance to the house of K. & R. the sum of $14,000, until they could raise the $50,000 by the discount of the note spoken of by Keeler; that the terms of the arrangement between him and Keeler were, that he, Spencer, should advance to Keeler & Rogers $14,000 on the said two notes—one for $ 15,000 and the other for $10,000, then held by them—and which Keeler had just before offered for a similar purpose to the bank as aforesaid, until the negotiation for the loan of $50,000 was completed; and when that money was raised, the advance of $14,000 was to be repaid, and Spencer was to surrender up the two notes. But if the loan of $50,000 was not effected, and Keeler & Rogers stopped payment, then Spencer was to hold the two notes as security not only for the $14,000 advanced, but for any other sums, which Keeler & Rogers then owed, or might thereafter owe, the Hudson Company. The offer was accepted, and the notes thereupon endorsed by Keeler, and delivered to Spencer, who gave him the company's check for $ 14,000. It was subsequently ascertained, that the bank would not make the loan of $50,000, and on the 27th October, Benedict, the defendant, (Keeler being also present at the time,) applied to Spencer to exchange the two notes then held by him as aforesaid, for the note in controversy, and the note for $5,000 described by Keeler on his examination : that the exchange was made; that on the 28th October, Keeler applied to him (Spencer) for a loan of $3000, and Spencer advanced that sum to him on the check of Keeler & Rogers, payable on the 39th; but that Keeler & Rogers stopped payment on the 28th; and this sum was not repaid. That it was no part of the original agreement that there should be a substitution of notes, and when the exchange was made, nothing was said about the continuance of the loan. And upon his further examination, he distinctly stated, that the agreement in relation to the loan made on the 22d October was, that in case Keeler & Rogers went on with their business, then they were to repay the loan of $14,000, and take back the notes deposited, as soon as the loan of $50,000 was effected. And that it was also a part of the agreement, that if the advance of $14,000 was not repaid, and Keeler & Rogers did not go on with their business, then the notes were to remain as security for any further claim, which the company might have upon that firm ; but that, nothing was said about bonds or interest, and no part of the loan was to be made in bonds. He further states, that one branch of the business, pursued by the Hudson Company, was the making of loans in their own bonds, and the business was transacted as follows: When a loan was applied for, the company took a note for the amount, and issued a bond to the applicant, payable three months after the note would become due, and bearing an interest of six per cent., payable quarterly ; the borrower, at the time of his application for the loan, also applied for insurance to the amount of the note on a life, until the note fell due; and that the company charged a discount 011 t^le note °f six per cent., and a premium of six per cent, on the insurance, which was paid by the borrower in cash, when the loan was made. But the witness admitted that he did not. know that the company had ever issued a policy on a life insurance, except that he thought they did issue one to a person in Delaware county: he further stated, that Keeler & Rogers, on the 22d October, 1825, at the time of the agreement between Keeler and Spencer for the loan made them on that day, owed the Hudson Insurance Company aboul $¿2,000 on notes and bills discounted for them by the company, of which $18,000 still remained due and unpaid at the time of the examination of the witness. That these notes and bills were all made for the accommodation of K. & R., and were all discounted for them by the company, in their usual way of doing business. That when they were discounted, the company's bonds at par were given in exchange for them, and those bonds were at that time under par, but that the discount of six per cent., and the insurance of six per cent, for the life insurance, was paid by the borrowers in cash.
From these statements it is clear, the two substituted notes were taken by Spencer for the Hudson Insurance Company, as security for the advance of a loan of $14,000, previously made on the credit and security of the two first notes for $25,000, by that company to K. & R., and for the further security of the other subsisting debts of the borrowers to the company. Whether the substitution of them for. the first notes, was in pursuance of a provision for that purpose in the original agreement, upon which the $14,000 was advanced, as Keeler stated the fact to be, or by the mutual consent and agreement of the parties, at the time of the exchange of the notes, as Spencer represents it, does not appear to me to be material. They both agree in the important fact, that the note in controversy, and the note for $5000, which accompanied it, were exchanged and substituted for, and accepted and taken in lieu of the two first notes. It is not alleged or pretended, that any new arrangement was made, or that the prior agreement underwent any change or modification for settling- or regulating the terms upon which the exchange of notes took place, or the substituted notes were taken and to held. Nor was it necessary. It-was simply an exchange of security. The two substituted notes took the place'in all respects of the two first notes, and were to be held upon the terms and subject to the agreement under which the first notes were deposited, and they are open to all the exceptions, and the same defence against them, which could have been taken to the notes they replaced. The fact admits of no other inference or conclusion, and it is decisive of the understanding and intention of the parties on the subject, that _ they have uniformly acknowledged, and treated those notes as substitutes for those on which the advance was made, and have asserted the same right and interest in them as they would have been entitled to claim in the first notes. Now, the advance of $14,000, made by Spencer for the Hudson Company, was upon the security of the two first notes, which amounted together to $25,000, and the agreement was, that those notes should stand and be held as security, not only for that specific advance upon them, but as a provision and security also, for the payment of the pre-existing debts of K. & R. to the company, which were contracted by the discount of accommodation notes for them ; and those debts or loans upon that discounted paper were undeniably usurious, for the borrowers were constrained to allow an interest of six per cent, upon the sums borrowed, and to pay a premium of six per cent, for an insurance upon a life, to the amount of the loan, for the time the note had to run.
The bare statement of the terms thus exacted for the loan, unexplained as they are, is sufficient to show the negotiations to have been stamped with rank usury. Hay no stress upon the fact so strongly pressed at the trial, that the loans were made in the bonds of the company, which were under par in the market at the time, because, for the reasons-already assigned, I am unable to discover in that operation any corrupt agreement, or any premeditated cover of an usurious loan. I base my judgment of the character of the loans upon the evidence which shows that six per cent, was taken for the loan, and an additional six per cent, exacted under the form and pretext of a premium of insurance. I cannot view this pretended insurance in any other light than that of a cover for the usurious premium. No policy appears to have ^eeil |ssued to the borrower, nor anx contract given him to mani- / ° fest and sustain his claims in case the life should fall in. We find that in the solitary instance in xvhich a real insurance was effected on a life, by the company, a policy was issued and delivered to the assured ; and the fact, that in the case of a life insurance unconnected xvith a loan or discount, a policy was issued to the assured which was understood by the company as obligatory upon them, appears to me to show, that in other cases where a discount or loan, and not a life insurance, was the primary object of the parties, the life insurance for which the borrower was required to make a formal application, and to pay the premium of six per cent., but for which no policy was issued, was not regarded by the parties to the arrangement, as an effective and binding contract; but was merely colourable and intended and designed as a device and contrivance for cloaking the illicit interest exacted for the loan.
If, then, the character of the dealing was a loan at twelve percent., or a higher rate of interest in proportion to the shorter time of the note, as I distinctly understand it to be, it was clearly usurious ; and the note in controversy for $15,000 and that for $5,000 which xvere substituted for the first txvo notes for $25,000, on which the advance was made, being taken and held, as respected the residue and surplus of the contract, beyond the advance and interest, as a further provision and security for those antecedent and still subsisting- usurious loans, were illegal and void. And the note in suit is equally irrecoverable in the hands of the plaintiffs, however innocently they may have taken it, as it would have been in the hands of the original parties to the corrupt agreement. It is well settled, that if any part of the loan or debt for which the note or security was given is usurious, the security, is void; and I understand the courts now to hold, (in consonance, as I conceive, to principle and sound policy,) that it is not necessary that the usurious agreement and the security for the accomplishment of its illicit purpose be simultaneous ; but that if an usurious loan or debt is previously contracted, and at any subsequent time any security is given to the original parties to the contract, or any exchange of securities takes place with them, for the furtherance of the corrupt agreement, as an additional provision and security of the usurious loan or debt; such security becomes equally infected with the taint of the usurious debt, as it would have been if taken at the moment the debt itself was contracted. In the case of Cuthbert v. Haley, [8 Term Rep. 390.] it is admitted and ruled by the Judges, that if one security is stipulated for another, and the first is contaminated by usury, the second, which is substituted in lieu of it, if given to the party to the original contract, is void. And in the case of Tuthill v. Davis, [20 John. 285.] it is held, that a mere change of securities for the same usurious loan, with the usurer himself, can never legalize or purify the original consideration, or give a right of action; but that a new note, given in renewal or exchange for former notes infected with usury, then in the hands of the original party to the usurious contract, without any new consideration, is equally infected with the first notes. The case before me comes fully within the principle of these authorities; for in this case, the previous notes for which the two notes were taken in exchange, were clearly tainted with the usury which infected the debts they were in part given to secure ; and those tainted securities were in the hands of the usurers at the time of the exchange. But the case of Harrison v. Francis Hannel, [5 Taunton, 780.] is still more apposite. In that case, several usurious transactions had taken place between the defendant's son and the plaintiff, in which the former was indebted to the plaintiff in a considerable amount. On the last transaction the son applying for another advance, the plaintiff agreed to make him a further advance of £180, on legal interest, but as the condition of doing so, the son was to obtain from his father three acceptances, two for £100 each, and the third for £50, payable at different periods, to be securities for the whole of his debts,—parts of which debts, to the amount of £100, were for legal, and the residue for illegal consideration. The whole of the father's acceptances, however, if applied to the sound parts of the debts, would not be enough to discharge the same, together with the further advance of £150. The bills of the son, accepted by the father, were given to the. plaintiff under this agreement, and the bill for £50, had been Pa'4 The action was brought on one of the bills for £100 , and it was held that the plaintiff could not recover, and the decision was put, not upon the ground that the father's acceptances were 0f themselves upon illegal consideration, for they clearly were not,—but because they were deposited to ensure another contract which was usurious. It was the agreement to obtain them, and the actual transfer and deposit of them under that agreement, as a provision and security for a pre-existing debt, mixed up and Composed of sound and unsound items, that gave them the taint which polluted them. And it was because the part of those debts which were usurious, was, by the agreement, entitled to partake, and might partake, of the benefit of that security, that the acceptances were all held to be tainted and void, notwithstanding that they were not given or contracted for at the time of the corrupt agreement, but long subsequently, and for a new consideration to the extent of the advance of £150, and no usury was exacted upon them, notwithstanding that they were separate and distinct hills, capable, each of a distinct application, and the entire amount of them was insufficient to repay and satisfy the advance upon them at legal interest, and the sound part of the subsisting debts.
The Court said, in answer to the arguments drawn from these sources, that the bills were agreed to be deposited for the security -of the whole debt, and were consequently given for the one part as well as the other; that the court or the defendant had no power to direct or controul the proceeds, or to cause the same to be applied to the legal debts, but that the plaintiff might apply the money, if allowed to recover it, to the satisfaction of the usurious debts, and then sue the son for those which were legal; and Chambre, J. said, that contract was entire, and the security given as well for the illegal as the legal part of the debt. A single •glance at the two cases will show the striking analogy between them, and how closely they resemble each other in their leading features. If that case be sound, the rule it so fully discloses must govern this.
In that case, the father's acceptances were long subsequent to the son's usurious contracts with the plaintiff, and the consideration for them was, in part, a further advance of £150 at legal interest, the residue only being made applicable to the payment of the antecedent debts, two of which were upon legal considerations, and which legal debts, with the advance, were more than sufficient to exhaust the whole security. Yet, because the residue of those pre-existing debts of the son were upon usurious considerations, the whole of the acceptances were adjudged to be void; and in this case, the first notes, from those substituted for them, received their taint, though given long after the usurious debts of K. & R. to the Hudson Company were contracted; and not taken under, or simultaneously with, the corrupt; and, though the consideration of the long advance upon them was free from the taint of usury, yet because they were given as an entire provision, and provision not only for the legal loan, but for the subsisting debts anteriorly contracted upon corrupt considerations also, they must, upon the principle of the case cited, be held irreconcileable in a court of law.
The cases differ in this particular, that in the case cited, the sound debts of the son to the lender, and the further advance by him, were sufficient to absorb the whole amount of the acceptances. But in this case, the advance is insufficient to exhaust the note in suit, and a surplus of $1,000 of that note, and the whole of the note for $5,000, would be applicable, and to be carried to the credit of the usurious paper. That decision has therefore" gone further for the suppression of usury than we are in this case called upon to go. I am aware that Spencer, on the 28th October, lent Keeler $3,000 on the check of K. & R. payable on the 29th October, and that K. & R. stopping payment on that day, the check was not paid. No interest appears to have been taken or charged on this loan; and it was pressed upon us at the argument, as a pure and legal debt, towards the payment of which, the residue and surplus of the note in suit ought to be applied. I have not particularly noticed this loan, because it has not struck me as a material ingredient in the merits of the controversy. In the first place it is not sufficiently shown that the company were the lenders, or could exercise the right, if permissible by law, to apply the security to its satisfacti°n* Keeler testifies that this loan was made to him by Spencer out of his own pocket. K., therefore, did not regard if as an advanee by the company, or intend that it should partake of the benefit of the security furnished by the notes for other debts. And Spencer says, that he made the loan on the application of Keeler, and upon the check of K. & R. He does not say that the loan was made by him for the company, or was so explained or understood by Keeler. He dees, indeed, make use of this expression, that when K. & R. failed, they owed the Hudson Insurance Company, #10,000, exclusive of the advances of $11,000, and #3000; from which mode of expression it might be inferred, that both advances were understood and intended by him to be made by the company. But he nowhere avers, nor does it appear in evidence, that the company were the lenders. But suppose such to be the fact, still both advances would fall short of the amount of securities, and the sum of $3000, would remain for the furtherance of the corrupt agreements. Neither that check nor the note for $5000 are in evidence, and the case is silent as to their destiny or disposition. How could they, then, be available to the plaintiffs at the trial for any purpose 1 The check, if produced, might be found to be clearly out of the pale of the protection of the note. But the decisive answer to its pretension to that protection, is, that upon the plaintiffs' own showing, it must deduce its title to partake of the surplus fund, from an agreement which devoted that fund to the security and satisfaction of subsisting debts, which were grossly usurious, and which it commingles with both the former and subsequent advances, and entitles to a common interest in it, with them. The privity and knowledge of the advance of $14,000, which this note was first to repay, or the soundness of the subsequent loan, cannot rescue them from the deleterious effect of the corrupt agreement for the application of the residue and surplus of the notes beyond the advance of $14,000, to the security and payment of the antecedent and subsisting loans. The taint of the infected notes polluted the whole security and avoids it in toto. This rule may seem rigor ous, but experience has shown it to be necessary, in order to reach and counteract the devices and schemes of the usurer, whose interest would tempt him on all occasions to intermix the corrupt with innocent loans; if the sound part of the loans was in .jeopardy by the operation, and a security given at the time, or subsequently taken for the whole debts, though invalid as a provision for the corrupt loans, it could still be made available td him, as being for the satisfaction also of those which were untainted with usury. The lender would always be safé in realising the value of the security. Having parted with his whole power and controul over it, and vested the same in the lender without any special agreement or direction for the application of the avails of it,—must not the lender, thus possessed of the security with thése ample powers over it, have the right to apply the proceeds to the payment of the debts for which it issued in such order as he may think proper 1 If so, the usurious loans as being precarious demauds-, would have the preference and be first paid. And the only effectual remedy, for the mischief would seem to be, to adjudge the whole security void, if any one of the debts which are to partake of its benefit is tainted with usury.
On these grounds, the defence appears to me conclusive, and withal so impregnable, that the plaintiffs, on the same evidence, and with instructions from the court upon the law, corresponding with our opiniohs, could hot hope to escape on another trial, from a verdict against them. And I deem it proper, therefore, to refrain from expressing my opinion upon the other branches of the defence; for, if it should be conceded that the negotiation of the notes to the Hudson Insurance Company, and the advance of that company upon them, did not bring them within the prohibition of the restraining act, and that the operations" of the company with them were not so entirely unauthorised by their charter as to affect their validity, or the right of recovery at law upon them, in the hands of that company, and that the plaintiffs at the time the note in controversy was taken by them, had no knowledge, and were not chargeable in law for actual or constructive notice of any part of its previous history, some of which are, however, in part conceded; yet if the note was tainted with usury, it is void. And, admitting Usury to have been a question of fact for the jtiry, that, question, in the views I have taken of it, was not submitted on this trial to the consideration of the jury, and must be referred to another jury. The motion for a new trial is granted on the payment of costs,
Oakley, J.
This was an action on a joint and several promissory note, dated the 22d of October, 1825, for $15,000 payable in twelve months at the Fulton Bank, without interest, to the order of Keeler & Rogers. The note was signed by the defendant and W. S. Dezeng, J. H. and E. S. Beach, Gilbert F. Lush, Chandler Starr, Elias Mather & Co., Spencer Stafford, H. & S. Stafford and Gregory & Bain. The plea was the general issue with notice of special matter. The jury found a genera] verdict for the plaintiffs for the full amount of the note. The defendant now moves for a new trial on several grounds. I. It is contended, that the note in question is void on the ground of usury, and that the Judge at. the trial did not direct the jury correctly on that point. I shall first examine this feature of the case. [The Judge here stated the facts of the case as far as they relate to this point, and proceeded as follows:]
The law on this subject seems to be well settled. If, on the discounting of the notes and drafts held by the company on the 22d of October,the premium of six per cent, on life insurance was taken, as a cover for exacting more than legal interest on these loans, these notes and drafts were clearly usurious. It is also clear, that if the note on which the action is founded, was made solely for the accommodation of K. & R., and was negotiated by them to the Hudson Company, as security in whole or in part, for such usurious paper, it is also usurious and void. These however, are questions of fact, which ought to have been submitted to the jury, and however strong we may consider the evidence on these points, I do not see that we are at liberty, as the case comes before us, to determine them. The Judge at the trial charged the jury, that if the note in question, was negotiated to the Hudson Company to secure pre-existing usurious paper, in the hands of the company, it was not therefore, itself usurious. If the Judge erred in this opinion, it folloAVs of course, that there must be a neAV trial.
In the case of Tuthill v. Davis, [20 Johns. Rep. p. 283.] the Supreme Court held, that a mere change of securities for the same usurious loan to the same party who received the usury, or to a party having notice of the usury, does not purge the original illegal consideration, so as to render the new security valid. The same doctrine was held in Jackson v. Henry; [10 Johns. Rep. p. 195.] and the case of Cuthbert v. Haley [8 Term. Rep. p. 390.] is there cited and sanctioned. In Tate v. Wellings, [3 Term Rep. p. 537.] the same rule was laid down by Lord Kenyon, and more recently in Preston v. Jackson, [2 Starkie, 211.] by Holroyd J., at nisi prius.
The principle of all these cases is familiar, and Avell settled. In the present case, however, it is said that the loan of the 14,000 on the 22d of October, being clear of any usurious taint, affords a new and valid consideration for the notes negot.ated by K. & R. on that day; and although they were to remain on the happening of a certain contingency, as a security for other paper, Avhich might be usurious, that circumstance cannot make them void. It is to be remarked, that the contingency alluded to, actually happened, and the notes were accordingly held by the Hudson Company as valid notes for the full amount under the original agreement, upon Avhich they Avere negotiated, and I am of opinion, that the new consideration for the notes arising out of the loan on the 22d of October, being coupled with the agreement that they should be held as security for other usurious paper, does not take them, out of the operation of the statute against usury. The contract, on which they were negotiated, Avas entire, and being void in part by the statute, must be considered wholly Aoid. This principle is fully recognised and established in Harrison v. Hannel, [5 Taunt. p. 780.] and in a case stronger than the present, in favour of the impeached security.—In that case, the acceptances in question, applied to the sound part of the transactions, would not pay the money actually advanced, withoutusurious interest; Avhereas, in the case now before us, the neAV loan 6f the 22d of October, with the subsequent advance of $3000, is less than the amount of the two notes negotiated at that time.
R was contended on the argument, that the note in question was not an accommodation note for the benefit of K. & R., and , and was, therefore, a valid subsisting contract at the time it was passed to the Hudson Company. If this was so, any usury in the agreement at the time of its negotiation to the company would not affect it. This view of the subject was thought to be supported by the assignment of the property of K. & R. to the makers of the note. It was said that that assignment constituted a good consideration for the note of $50,000 mentioned in if, as between the makers and payees ; and that K. & R. could have enforced payment of it, though it had never been negotiated by them. Assuming that the note now in question, may be considered as having the same connection with the assignment as the note for $50,000, it is quite clear, that it was not the intention of the parties that it should be paid, unless it should be negotiated by K. & R., and the money raised on it for their benefit; and the other evidence in the case is quite conclusive to show, that all the notes in question were made exclusively for the accommodation of K. & R. They were not, then, subsisting notes in judgment of law, until they were negotiated by the payees, and any usury in such negotiation is fatal to them. [Marvin v. McCullum, 20 Johns. Rep. p. 288. Mann v. Commission Company, 15 Johns. Rep. p. 44. Powell v. Waters, 17 Johns. Rep. p. 176.]
It is also contended, on the part of the defendant, that the note in question is void by virtue of the 2d section of the act to restrain incorporated Banking Associations. [2. R. L. p. 214.] That act provides, "that no person unauthorized by law " shall become a member of any association institution or " company, or proprietor of any bank or fund for the " purpose of issuing notes, receiving deposits, making dis- " counts, or transacting any business, which incorporated banks " may transact." The act inflicts a penalty on any person coming within its scope, and then provides, that " all notes and securi- " ties for the payment of money or the delivery of property made " or given to any such association, institution, or company, not " authorised as aforesaid, shall be null and void." The note in question having been negotiated to the Hudson Insurance Company, partly on a loan of money, and partly in security for notes and drafts previously discounted by that company, it becomes necessary to ascertain whether that company was acting within the scope of its authority, as derived from its act of incorporation. In the case of the People v. The Utica Insurance Company, [15 Johns. R. p. 358.] the general principle is laid down, that a corporation has no powers except such as are specially granted by the act of incorporation, or such as are necessary to carry into effect the expressly granted powers. And this principle has since been constantly recognized. This company was incorporated for the purpose of making insurance against fire, marine insurance, and all other insurances not prohibited by law. [Ses. 34. Ch. 154.]
The first section of the act of incorporation, provides, among other things, that the Company shall have the power of " con- " tracing and being contracted with, relative to the purposes and business," for which the corporation was created, as declared in the said act. The second section prescribes the mode of securing the the capital stock, which is to be by " lien on real estate." By the 9th section, the company is authorised to invest the capital stock, from time to time, in any of the public stocks. The 7th section specially defines the kinds of insurance which the company is at liberty to make. The 11th section prohibits the company from making any contracts for the payment of money only, unless under the seal of the corporation.
Here, then, is a corporation with clearly defined powers—its objects specially pointed out, and its right of making contracts strictly limited to the purposes and business for which it was created. The mode of investing and securing its capital stock, is distinctly prescribed, leaving no room for implying any power of loaning money generally for the purpose of such investment. It is true that it had, by fair implication, the right to make contracts for the payment of money under seal, but such right cannot be considered as general and unlimited, without disregarding all the other provisions of the act. The general restriction of the power of contracting to the purposes of insurance, taken in connection with the power of making contracts under seal for the payment of money, clearly shows, that the latter power must be confined to the giving of bonds or making of contracts for the payment of . , , , , , , . such debts as the company should incur m the course oi its regular business. Any other construction would conflict with the general intent of the act of incorporation, and would, in its practical effects, defeat most of the restrictions and limitations contained in it.
It is quite clear, from this view of the act, that the company had no right either to discount a note or to loan money in any manner on the security of a note. It is not given to it expressly by its charter, nor is it in any degree necessary to carry into effect any power delegated to it. The case comes entirely within the principles laid down by the Supreme Court, in the People v. The Utica Insurance Company, and in the cases of The New-York Firemen Insurance Co. v. Sturges and Ely. [2 Cow. R. 664. 678.]
It appears from the testimony of Spencer, that the company, acting under this charter of strictly limited powers, abandoned almost entirely all the objects for which it was created ; that it made little or no insurance of any kind, and that its general and usual business in the employment of its capital, was discounting notes, and loaning money on notes, or other personal security.
Here, then, was an existing fund diverted from its legitimate jpurposes, and applied to one, at least, of the kinds of business generally transacted by incorporated banks; and in the case of The Firemen Ins. Co. v. Ely, Sutherland, J. says that the " ordinary and habitual application of a fund to any of the purposes " of banking, is conclusive evidence of its creation for such pur- " poses."
In the People v. Bartow, (6 Cow. R. p. 294.) the Court say, that " the discounting of notes is the principal business of a banking " institution," and it would be doing violence to common sense to consider that the loaning of money on notes, when the interest is taken at the termination instead of the commencement of the loan, is not a discounting of such notes within the fair meaning of the restraining act. Nor can it be successfully contended, that the giving of bonds in exchange for notes discounted in lieu of other notes or contracts, for the payment of money not under seal, (as is ordinarily done by banks,) can at all vary the case. Such distinctions, if sustained, would effectually render the restraining act a dead letter.
Here, then, we have a company or association unauthorized by law to carry on any kind of banking business, possessing a fund, and habitually devoting that fund to some of the ordinary purposes of banking. It does not seem to admit of doubt, that in doing so, it was in the constant habit of violating the provisions of the restraining act; and it follows, that all notes or securities given to it are null and void by the express terms of the law.
The Judge, on this part of the case, held at the trial, that the negotiating of the note in question to the Hudson Company, unless it was usurious, did not render it invalid. In this, I apprehend, there was error, and that upon this ground, also, a new trial ought to be granted.
There are other questions involved in the case, upon which I have not thought it necessary to give any decided opinion, in the present stage of the cause. I will, however, state my present view of them.
I. The note, if not void by the restraining act, is clearly taken by the Hudson Company without authority; and it may well be contended that no action can be sustained on it by the company. If the plaintiffs had notice of the fact, that the note had been negotiated to that company when they took it, the illegality of the transaction can be set up against them. This question of notice was left to the jury, but under instructions too narrow. They were told, that notice to individual directors was not notice to the corporation, unless brought home to the board, or to the officers of the bank. I think that, under some circumstances, notice to a director ought to charge the corporation, as where the director acts in any particular business, as the special agent of the bank, as in the case of Rathbone. He was one of a committee to inquire as to this very note, and he knew, or thought he knew, that the note had been negotiated to the Hudson Company. He may have been mistaken in this, but that matter ought to have been left to the .jury. I think that, under the circumstances, whatever ought to have put Rathbone on inquiry relative to the note, were it If - n i vid-ai case, ought also to be considered sufficient to ° charge the corporation with the duty of making inquiry also. The true question is not, whether the bank had positive knowledge of the fact, but whether they had knowledge of circumstances which, in the exercise of ordinary prudence, ought to have put them on their guard.
II. As to the extent of the recovery by theplain tiffs. I am inclined to thipk, that the Hudson Company could not sue on this note: and the plaintiffs cannot, in any event, recover beyond the extent of their adva nee on the note. If the note itself was void in the hands of the company, it seems that the money loaned might have been recovered back by that company, and that for any thing advanced by them on the note, beyond the sum received from the plaintiffs, the company may still have their action against Keeler & Rogers. [10 John. Rep. 198. 8 Cowen's Rep. 20.]
III. In relation to the questions, which arose on the trial as to the impeachment of the character of witnesses. I think that a witness cannot be asked, whether from his personal knowledge of the impeached witness he would believe him under oath.
The English rule seems to be, to inquire of the impeaching witness his means of knowledge of the general character of the witness impeached, and whether, from such knowledge, he would believe him under oath.
This seems to me the true rule. To inquire only as to general character for truth seems too narrow. His general character for truth and honesty must be the ground of his general credit as a witness. If a man when asked that question says, that it is good, no further inquiry is necessary, as the law then implies, that the witness is entitled to credit. If the answer is, that it is bad, the other party may inquire into the general grounds of such opinion, in order to enable the jury to determine as to the extent of such bad character, and how far it ought reasonably to discredit the witness ; and it is competent also, in such a case, to ask whether, notwithstanding such general bad character, the impeaching witness considers him entitled to credit upon oath, because seems to fix the extent and nature of the general bad character attributed to him. '
IV. As to the question put to M. Hoffman. It seems to me, that the Judge erred in telling the jury, that they were to lay out of view entirely the evidence of Spencer's bad character, if it connected itself solely with the conspiracy cases. A bad character .may, and often does arise from a particular transaction. Suppose the case of a man tried for perjury and acquitted, but on grounds of a technical kind. That trial may justly fix his character as a witness, to be infamous.
The true rule is, that you may inquire into the origin of the opinion, that a witness's character is bad, for the purpose of enabling the jury properly to estimate it; but it is going too far to tell them, that they cannot notice such evidence at all, if it arises from a charge made against the witness, of which he was acquitted.
New Trial granted.
[Ward & Hoyt, Att's for the plff's. R. C. Wheeler, Att'y for Deft.]
Upon this last point, vide 4 Wend. R. 229. The People v. Mather.