Court Opinion

ID: 6679618
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:19:33.448138+00
Date Added: 2024-06-11T16:00:48.357149
License: Public Domain

Mr. Chief Justice McIver
*146i *145dissenting. I cannot concur in the conclusion reached by Mr. Justice Pope in this case, as I am satisfied the contract sued on was usurious, and should *146be so held. I cannot now spare the time for anything like an extended discussion of the question involved, and must content myself with indicating some of the grounds of my dissent. It is not, and cannot, be denied that, if the contract is enforced according to its terms, the practical result will be that the plaintiff will receive more than the interest allowed by law upon the amount of money which she loaned to the defendant; and that is exactly what the usury law forbids. - While I do- not, for a moment, suppose that either the plaintiff or her husband, who acted for her in this matter, had any intention to violate the law, or was actuated by any corrupt or improper motive in making this contract, j^et that is not necessary to show that this was a usurious transaction. As is said in the case of Thompson v. Nesbit, 2 Rich., at page 75: “No proof of a corrupt agreement is necessary, for the contract may be usurious, though the parties did not know that it was against law.” But'it cannot be denied that Mr. Newton intended and expected that his wife, under the terms of the contract, should and would realize something more than eight per cent, for the use of her money, for he substantially says so in his testimony; and this result he, no doubt, honestly believed he could accomplish without violating the usury laws. The question here is a purely legal question, as to the proper construction of the terms of the written contract. Inasmuch as it is quite clear that the practical result of this contract is to give the lender a greater rate of interest than that allowed by law, it would seem to follow necessarily that there must be something in the terms of the contract which provides for or permits such a result. If so, that is quite sufficient to render this contract usurious. It is contended, however, that the only provision in this contract, which enables the lender to receive interest at a greater rate than eight per cent., is that whereby the borrower stipulates for the payment of each year’s interest, dur-. ing the currency of the contract, in advance, and if not paifl in advance, then that such interest shall bear interest at the same rate from the time it begins to accrue; and-that it has *147been held that the lender may require the interest in advance, without any violation of the usury laws. In 3 Pars, on Con., 131, it is said: “The'practice of discounting bills or notes, by discounting from their face the interest for the whole time they had to run, began with our banks, and was soon so firmly established that it was sanctioned by the Courts, almost of necessity.” The author goes on to say that this practice, originating with banking corporations, was gradually extended to individuals who- loaned money. But he adds there is a strong disposition to limit this practice to paper having but a short time to run, and not to allow it to be applied to long loans or discounts. The author cites the case of Marsh v. Martindale, 3 Bos. & Pul., 154, to show that this practice was and should be confined to‘ commercial transactions, and allowed only in the interests of trade. That case was decided as far back as 1802, and in delivering the opinion of the Court, Ld. Alvanley, C. J., emphasizes the necessity of confining the practice to such transactions, and refused to apply it to the case in hand, because the transaction amounted to a mere loan of money, and as1 such was usurious, even though the lender had no intention to violate the law. That case, it seems to me, is in principle very much like the case now under consideration. This practice on the part of banks may be sustained as legal upon another ground. Usually, if not universally, banks, by their charters, are authorized to discount bills and notes, and this necessarily carries with it the right to demand and receive the payment of interest in advance, for that is the very meaning of the word discount. As is said by Mr. Justice Story, in Fleckner v. Bank of the United States, 8 Wheat., at page 354: “It has always been supposed that an authority to discount, or malee discounts, did, from the very force of the terms, necessarily include an authority to take, the interest in advance. And this is not only the settled opinion among professional and commercial men, but stands approved by the soundest principles of legal construction. Indeed, we do not know in what other sense the word discount is h> be in*148terpreted.” But there is another, and, as it seems to me, a still better reason, which has been suggested to' me by a remark made by the Circuit Judge in his decree, why the taking of interest in advance will not make the transaction usurious. His language is as follows: “The truth is, the statute has not said at what time the hire must be paid, whether at the beginning, midway, or at the end of the year; it has only fixed the amount of the hire.” This is true; and to apply this language practically, the statute does not forbid the taking of interest in advance; but simply fixes a limit to the amount which may be taken as interest, without making any provision whatever as to the time when such amount shall or may be paid; leaving that matter entirely to the agreement of the parties. If, therefore, the lender, when applied to for a loan of money for a stipulated time, chooses to exact from the borrower the payment of interest, at a lawful rate, on the amount loaned for the time agreed upon, and the borrower pays, in advance, such interest, there is nothing in such a transaction that would conflict with any provision of the usury law. But I cannot assent to the inference drawn by the Circuit Judge: “If it be lawful to pay the interest a year in advance, it must be lawful to agree to so pay it;” as that would be losing sight of the marked distinction between an executed and an executory transaction. When the lender asks the aid of the Court to enforce a contract for the payment of the money which he has loaned, the Court will closely scrutinize the terms of the contract, and if it is found to contain any provision by which the lender would be entitled to demand and receive interest to a greater amount than that allowed' by law, such provision will taint the contract with usury, no matter how honest the intention of the lender may have been in making the contract. It is unquestionable that, under the terms of the contract, which the Court is here called upon to enforce, the borrower is required to pay interest on the sum loaned at a greater rate than that allowed by law; and this result is accomplished by the provision in the contract requiring the borrower to pay *149interest on the amount of each year’s interest, before a single cent of such interest has accrued. This case is very different from that of the very common contract, whereby a per-' son promises to pay a specified sum of money — say, five years after the date of the contract — with interest from date payable annually, under which it is said (incorrectly, as I think,) that the practical result is that the creditor is entitled to receive a greater rate of interest on the original amount of the debt than that which 'is allowed by law. But it is not true that the creditor, under such a contract, becomes entitled to receive a greater rate of interest on the original amount of the debt than that which is allowed by law. Let us see. Suppose A. borrows from B. the sum of $1,000, and gives his note for that amount, payable three, five or ten years after date, with interest from date payable annually. Under such a contract the lender never would be entitled to receive interest on the sum loaned, $1,000, at a greater rate of interest than seven per cent., though he would become entitled to interest, at the same rate, upon the new debt of $70 from the date of its accrual; to wit: at the end of the first jrear, unless it was then paid; and so on from year to' year, at the end of each year a new debt would accrue, which would be entitled to bear interest at the same rate, from the date of its accrual until it was paid. It is, therefore, incorrect to say that the practical result of such a contract is that the lender becomes entitled to receive interest on the sum loaned at a greater rate of interest than that allowed by law, although he does become entitled to interest on each new debt as it accrues, at the rate allowed by law. Such a contract cannot, therefore, be regarded as any violation of the usury law. But in the contract now under consideration, the borrower is required to pay, and promises to pay, interest on a debt before it has accrued. Such a promise would be without any consideration, unless it rests upon- the promise to repay the principal sum loaned, with interest as provided for in the contract, and if so that-would taint the whole contract with usury, as it would enable the lender to recover interest on the *150sum loaned at a greater rate of interest than that allowed bylaw. The case of Bank v. Parrott, 30 S. C., 61, which is relied upon to sustain the judgment below, is not applicable to the question which this Court is now called upon to determine. I do not see that any such question was decided or -even considered in that case. It was nothing but the ordinary case of a discount of a note by-a bank, and the vice in the transaction was that the bank charged discount at a greater rate than was allowed by law or provided for in the contract; and that was all that was practically decided in that case.
It seems to me, therefore, that in any view which may be taken, this contract, which is certainly novel in its form, as I have not been able to find any case, and none has been cited, in which such a contract has come before the Court for construction, must be regarded as usurious; and that to hold otherwise would practically emasculate the usury law, and enable lenders to receive greater rate of interest than that which is allowed by law.