Court Opinion

ID: 3618567
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:01:01.760687+00
Date Added: 2024-06-11T14:25:04.300898
License: Public Domain

The plaintiff, in discounting the bills in suit, one of which matured in eleven days, and the other in twenty-one days from the time of such discount, and taking and receiving interest at and after the rate of seven per cent per annum in advance, not only violated an express statute, but exercised a power that the corporation did not possess. The plaintiffs were a banking corporation subject to the provisions of what *Page 477 
is called the "safety fund act," the 33d section of which declares that "on all notes or bills by it (then) discounted or received in the ordinary course of business, which shall be matured within sixty-three days from the time of such discount, the said moneyed corporation shall not take or receive more than at and after the rate of six per centum per annum in advance." (Laws of 1829, ch. 94; id., 1832, ch. 206.) The transaction was also without their corporate power. They were authorized to discount bills and notes, and other evidences of debts, but this power was limited in the discount of paper maturing within sixty-three days, to discounts upon loans, upon which only six per cent interest in advance should be taken. As to a discount upon such a loan at a higher rate of interest, the corporation possessed no power whatever.
The transaction was a loan of money by the plaintiffs to Latham, Toser  Perry, the drawees of the drafts and taking the drafts as security for the repayment, together with an agreement on the one part to pay, and the other part to receive seven per cent interest upon the loan; and the amount of the interest was reserved by the bank at the time. The bank was expressly prohibited from discounting paper that would mature within sixty-three days, reserving a greater rate of interest than six per cent. The contract was one, therefore, prohibited by statute; it was illegal and in direct violation of law, and, I think was void. It is true that the statute does not in terms declare such a contract void; but as was said by SPENCER, J., in Thalimer v.Brinkerhoff (20 Johns., 396), "it is a fundamental rule that all contracts which have for their object anything repugnant to the general policy of the law, or contrary to the provisions of any statute, are void." It is claimed that the taking of excessive interest is only prohibited, and that the contract to secure the loan of the drafts by the unlawful act, are not invalidated. I am not able to agree to this. The contract was one and entire, and the illegal element introduced into it vitiated it altogether. The substance of the agreement was to loan to the borrowers a sum of money, provided they would pay *Page 478 
interest at seven per cent, and the principal sum within sixty-three days, and secure their agreement by these drafts; and in pursuance of this agreement the loan was made and the drafts taken. To recover upon the drafts in suit the bank must rely upon this agreement; and by recovering, it reaps the fruits of the illegal contract. As was said by Sir WILLIAM GRANT, master of the rolls, in Thomson v. Thomson (7 Ves., 473), "the plaintiff cannot stir a step but through that illegal agreement, and it is impossible for the court to enforce it."
I think, also, that the loan under the contract proved was illegal, as well as the security taken. The object of the statute was to protect borrowers against the oppressive exactions of banks, and the policy of the law would be defeated by holding that the plaintiffs could recover the money loaned. If the only hazard in discounting short paper at more than six per cent was the loss of the excessive interest, it is plain that the object of the statute would be frustrated. At any rate the plaintiffs could not recover the money loaned upon the idea of a distinction between the loan and security except upon the theory of a right to disaffirm the contract represented by the drafts; which right I think the law does not give them; and although the sufferer from an illegal transaction may sometimes disaffirm the contract, and recover upon the money counts, upon the principle that the guilty party ought not to be allowed to retain the fruits of an illegal transaction at the expense of the more innocent, this principle cannot be made available to justify a recovery by the guilty party. In this case, however, it is not necessary to hold against the right of the bank to disaffirm the illegal contract and recover from the borrowers the money loaned. No such recovery could be had against the defendant. The action is upon the drafts, and the form of the action affirms the contract as made. The defendant, in form and in fact, is a surety. No money was paid to him; and an action for money lent cannot be maintained against him.
Again, the discount of the drafts by the banks was an actultra vires, and not within its corporate power. It had no *Page 479 
legal capacity to discount paper of the description of these drafts at a higher rate of interest than six per cent in advance. The charter of the plaintiffs limits their power in the discount of paper maturing within sixty-three days to discounts upon loans, upon which only six per cent interest in advance shall be taken. Discounting the drafts in this case, and taking interest at and after the rate of seven per cent per annum in advance, was exercising a power which the corporation did not possess. It requires no argument to prove that a contract which a corporation has no power to make is void and cannot be enforced.
If the taking of the seven per cent was the result of a mistake, or unintentionally done, it would not affect the validity of the transaction. But this is not pretended. The plaintiffs intended to take seven per cent interest on the discount of the drafts; and had this been a usury case, intentionally taking more than legal interest would have been,per se, usury. There must be a corrupt agreement, it is true, to violate the statute against usury; but where more than legal interest for the forbearance of money is intentionally taken, whether the party acts in ignorance of the law, or not, it is conclusive evidence of a corrupt agreement within the statute.
I am of the opinion that the proper disposition was made of the case at the circuit, and that the judgment should be affirmed.
Judgment affirmed. *Page 480