Court Opinion

ID: 6543378
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:17:36.846444+00
Date Added: 2024-06-11T15:55:53.809274
License: Public Domain

Battle, J., (dissenting). The practice of discounting bills or notes by deducting from their face the highest rate of interest allowed by law for the whole time which must expire before they become due is undoubtedly usurious, in the strict sense of the word ; for the lender receives interest on the whole amount of the principal for the use of only a part. But this practice, says. Mr. Parsons, in his work on Contracts, “began with our banks, and was soon so firmly established that it was sanctioned by the courts almost of necessity.” It. was allowed and tolerated by the courts for the benefit of trade, and was confined to such paper as will, and usually does, circulate in the course of trade. “In Marsh v. Martindale (3 Bos. & Pull. 158), Lord Alvanley expressly admits this to be the established law in relation to the negotiation of bills of exchange made in the usual course of trade ; but he held the transaction in that case to be usurious, principally because the bill discounted was a bill at three years. He says: ‘The jury were impressed with a notion that a bill at three years was such a bill as no reputable man would discount; though it was said that some Bast India bills at two years had been discounted. Indeed, Bord Chief Justice Byre seems to have thought that the length of the date of a bill was sufficient to afford a presumption that the discount was intended as a cover for a loan. And if we consider the effect of discounting bills at very long dates, the strength of this presumption will be manifest; for, if the practice be carried to a great length, the interest will annihilate the principal.’ ” After a short review of the English cases in N. Y. Firemen Ins. Co. v. Ely, 2 Cow. 703, Mr. Justice Sutherland said: “The principle to be extracted from these cases, and from a variety of others which might be cited in confirmation of them, I hold to be this: that the taking of interest in advance is allowed for the benefit of trade, although, by allowing it, more than the legal rate of interest is, in fact, taken ; that, being for the benefit of trade, the instrument discounted, or upon which the interest is taken in advance, must be such as will, and usually does, circulate or pass in the course of trade. It must, therefore, be a negotiable instrument, and payable at no very distant day; for, without these qualities, it will not circulate in the course of trade. Under these limitations, the taking of interest in advance, either by a bank, or incorporated company without banking powers, or an individual, is not usurious.” In Vahlberg v. Keaton, 51 Ark. 541, this court said: “As the American States have adopted the Bnglish statute as a model, so the American courts have adopted the construction given it by English courts. So we find the statement that ‘the courts uniformly hold, at the present day, that the interest for ordinary paper having the usual time to run, such as is the custom of banks, may be taken in advance by way of discount, and not subject the paper to the taint of usury.’ ” It is obvious that the right to take interest in advance can be exercised to such an extent that any amount of excessive interest may be collected, and our usury laws will cease to be a protection to the necessitous borrower. Thus, if A discounts the note of B for $2500, payable at ten years, by taking ten per cent, per annum interest in advance for the whole time the note has to run, he would take the whole of the $2500, and B would not receive a dollar, and A would have his note. There must be some limit to the right. Where shall it be ? It seems to me it should be confined within the limits it existed when first sanctioned by the courts — that is to say, to such short time paper as will, and usually does, circulate or pass in the course of trade, according to the long established custom of banks. It should not be extended further than it did when the courts, constrained by the necessities of trade, first sanctioned it. In speaking of it, Mr. Parsons says : “There seems to be a strong disposition to limit this practice to short paper, or at least not to apply it to long loans or discounts.” 3 Pars. Cont. *131. There is no valid reason for extending it further. Newell v. Bank of Somerset, 12 Bush, 57. We should keep within the limits of the rule established by Vahlberg v. Keaton, 51 Ark. supra. See Smith v. Parsons, 57 N. W. 311. I think the note and mortgage in question are usurious and void. Riddick, J., concurs with me in this opinion.