Court Opinion

ID: 5549217
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:29:23.534643+00
Date Added: 2024-06-11T08:35:01.148295
License: Public Domain

The Vice-Chancellor :
This is probably a case where, if usury does exist, the complainants, waiving, as they do, a discovery and answer from the defendants under oath, were at liberty, however unconscionable it may seem to be, to come into this court for relief, without paying or offering to pay any part of the notes or offering to refund the money actually received by them upon the bills of exchange. The defendants having the power in their own hands to obtain payment by means of the collateral securities, without giving the complainants the opportunity of setting up the defence of usury at law, brings this case within the rule of Harris v. Livingston, 3 Paige, 528, and 11 Wendell, 329, on- this point. The complainants are, therefore, at liberty to come into this court in the manner they do, provided it is a case of usury. I agree with the counsel for the complainants, that the denial of a corrupt, usurious and illegal agreement or of a device, shift or contrivance to evade the statute, can have little or no effect, if, from the facts which are admitted, it necessarily follows that the statute has been violated. Such denials are not, therefore, to be deemed denials of matters of fact, but of the inferences of law from the facts; of which the court must judge and not the parties for themselves.
Is this, then, a case of usury according to the facts disclosed by the pleadings 1 The drawing and sale of a bill of exchange, in the ordinary course of mercantile business, at a premium or price exceeding the par value, when that price is regulated by the state of trade between the place where the bill is drawn and the place where it is to be paid, has never yet, to my knowledge, been deemed a usurious transaction. A bill of exchange drawn upon funds, which the drawer has in the hands of the person on whom it is drawn, or drawn upon the strength of a credit which he has with such person, operates, according tp my understanding of it, as a sale and transfer of the amount of money for which the bill is drawn. If that money is in another state or country, it is more.-or less valuable to the *147owner or person entitled to draw for it; this value depending on a variety of circumstances, such as the state of trade, the demand for funds abroad, the facility afforded by commercial intercourse for bringing the funds home, and the expense and risk of transportation. The less these difficulties are, and the greater the demand, the more valuable will be the foreign funds to the owner; and, like any other commodity, he may sell them for the best price he can obtain. In well regulated mercantile communities, both foreign and domestic exchange, like every thing else which is the subject of negotiation and sale, will have a determinate market value, varying, however, from time to time, according to the demand and the fluctuations of trade.
When, therefore, a man draws and sells a bill of exchange, it seems to me perfectly consistent with the nature of the transaction to consider him as selling funds which he has or is entitled to in the hands of the drawee or acceptor at the place where the bill is to be paid ; and to regard the bill itsel merely as the instrument by which those funds are transferred to the purchaser or subsequent holder of the bill. Such a transaction is" not, then, the lending and borrowing of money, but a sale of foreign or absent funds ; and however high the market price may be, it cannot give rise to the question, whether excessive interest has been taken upon a loan or for the forbearance of money (both of which are essential to usury) : because, there is no lending and borrowing in the transaction and no indebtedness or forbearance, except what results from the bill itself governed by the law merchant applicable to negotiable paper.
I will not deny, however, that there may be cases of lending and borrowing carried into effect by the drawing of bills of exchange; as, where one man has funds abroad and another, having occasion for money at that place, applies to borrow it and the owner agrees to lend it to him upon certain terms; and then, for the purpose of carrying the agreement into effect and placing the borrower in possession of the mo ney, the lender gives him a draft or order, in the form of a bill of exchange, upon his banker or correspondent abroad. Here, the application and agreement, being for a loan, would be subject to the law against taking excessive or usurious interest, *148either at the place where the contract is made or where it is to be fulfilled. But such is not the present case. The appli cation, on the part of the complainants, was not to borrow money or effect a loan, but to purchase bills of exchange. Such is the plain import of the complainants’ allegations; and the defendants’ answer expressly says, that the application was to purchase from them certain bills of exchange upon credit, and that the agreement was to sell them bills upon the terms as to premium, credit and security before mentioned. It appears to me there is a manifest distinction between an agreement for the sale and purchase of bills of exchange, which, as I have said, is virtually selling funds abroad, and an agreement for the loan of money, though the latter may bé the subject of a bill of exchange for the purpose of putting the borrower in possession and that we must be careful not to confound the one case with the other. If the money, for which a bill is drawn, is in all cases to be deemed lent money, and the transaction that of a loan, then I apprehend in no case will the drawer of a bill be perfectly safe and free from the imputation of usury, where the difference of exchange, which he receives by way of premium on the par value of the bill, however well founded that difference may be, and however just and necessary it may be for the sake of trade to allow it, happens to exceed the amount of lawful interest for the time the bill has to run before maturity. I cannot, therefore, agree to the proposition, that the drawing of a bill of exchange, by which money abroad is transferred to the holder of the bill, is a loan or advance of money, unless indeed the transaction is foufided upon an express agreement for a loan.
In the absence of such an agreement, and when a bill is drawn to be used for the ordinary purpose of remittance, and, with that view, is purchased at the current rate of exchange and the amount either paid or secured, it has none of the characteristics of a loan or advance of money by the drawer.
But the question still remains, whether there is not usury in the transaction we are now considering, arising from the credit price charged for the bill, and from reserving interest, at the rate of six per cent., for the period of such credit in addition ? There is some plausibility, at least, in the argument. *149that the difference between the cash price and the credit price of bills, which, in this instance, was from three to four per cent., is but a cover for usury; that there is no other reason for the difference, where interest is also charged, than, to use the common phrase, “the value of money in Wall street;” that where there is a deficiency of circulating medium, so as to cause what is called “ a scarcity of money,” and money is said to be worth one, two or three per cent, a month and some are found ready to lend and others, in needy circumstances, to borrow at those rates of interest, these circumstances enter into the consideration of parties in making the difference between a cash price and a credit price, such as was charged in this transaction. I confess it looks very much as though this was the inducement, and as if this credit price was regulated by the Wall street standard alluded to. But there may be other circumstances entering into the consideration of parties in fixing this difference of price! In times of great pressure, when confidence in mercantile credit is shaken or impaired, something is due to the hazard of making a bad debt in the sale of property, even when the vendor takes security deemed at the time sufficient; and in making his contract for the price, under such circumstances, he may properly demand more than if he were making a cash sale, though interest also should be charged for the forbearance of payment. It often happens that a man is willing to sell an article of property at a much less price for ready money than on a credit. His own necessities may require the sacrifice ; but if he cannot obtain ready money and can get more than the regular cash price by selling on a credit, why may he not sell for the best price he can obtain and give the credit and then make the sacrifice, if necessary, in the conversion of the security he has taken into money ? I know of no law to prevent men from making their calculations, based upon the present state of the money market, so called, in regard to the price of any commodity they are about to sell and to fix one price, when .payment is to be immediate, and another price when payment is to be postponed ; and to graduate the difference by the value attached to the use of money at the -time, provided it be a real sale, in good faith, and not amere .cover or disguise for usury upon a *150loan. It will be perceived, according to these views, that while this can be regarded as a sale of bills of exchange, and not as a lending and borrowing of money, it is immaterial, as respects the validity of the contract, what was the amount of premium charged or what the difference between a cash and a credit sale or for what cause and upon what principle that difference was made.
That I may not be considered as speaking upon this subject without some authority or precedent, at least, I would refer to three or four English cases cited upon the argument, which appear to me to support these views. The first is Beete v. Bidford, 7 Barn. & Cress. 45. Lord Tenterden, Ch. J. there observes: “ the case presented arises out of a contract for the sale of an estate and not for the loan of money. The agreement was founded, partly, upon what was considered the present price of the estate and partly upon what was considered its price, if paid for at a future day. The only difficulty has been occasioned by calling the difference between the two prices interest; but it is our duty to look not at the form and words, but at the substance of the transaction. It appears, in substance, to be a contract for the sale of the estate at the price of twenty thousand eight hundred pounds, to be paid by instalments ; in that there was no illegality. The defence therefore fails.”
The next is Stoveld v. Eade, 4 Bing. 81, where A. having a bill for twenty-five thousand pounds payable at two months after date, which he could not readily negotiate in London, requested B. to give him, in exchange, an acceptance of B. a London banker, payable at the same date and for the same sum. B. did so, deducting sixteen pounds and ten shillings by way of commission. And it was held, that there was no pretence for calling the transaction a loan of money; it was an exchange of bills.
The other, Evans v. Whyle, 3 Moore and Payne, 130, is a case of an actual discount of bills, which, of course, assumes the character of a loan. There, on the discount of the bills, one half of the amount was paid in cash, and gold, considered as an article of merchandize, was supplied for the other half. On the gold was charged an extra price per month, according *151to the length of time which the bills had to run ; that is, for ready money the price of gold being four pounds and seven shillings per ounce, on a bill at two months four pounds and nine shillings per ounce was charged, and on a bill at three months four pounds- and ten shillings per ounce ; and so on progressively. Interest was also charged on the money advanced, at the lawful rate of five per cent. The discount of the bills was bona fide; and it appeared that no higher charge was made for the gold than if it had been sold on a credit, as it was the universal custom of the trade to charge per ounce an extra shilling per month beyond the ready money price.
And it was held, that there was no ground for imputing usury to the party in these transactions.
So, in the case of Floyer v. Edwards, before Lord Mansfield, Cowp. 112, and Lofft, 595, where one sold goods (gold and silver wire) at three months’ credit, under an agreement, at the time of the sale, that, in case the money was not paid at the end of the three months, then the vendee should allow an halfpenny an ounce per month for so long a time as the money should remain unpaid. This allowance was according to the usage in that particular trade, but it exceeded the legal rate of interest. Upon this, an objection was taken to the vendor’s right to recover, upon the ground of its being an usurious contract, and meant only as a color to avoid the statute. Lord Mansfield remarks upon the case, that, in the ordinary course of dealing, the one party buys and the other sells a commodity; there is no pretence of any negotiation for a loan ; not one word passed-about borrowing money; that if a man goes to borrow, under color of buying, the contract might be usurious; but where it is a bona fide sale, as in the case before him, it certainly could not oe so considered.
These cases appear to me to establish the distinction between a sale and a loan, which should always be attended to -in considering the question of usury; and they show that though, in making a sale, an increased price may be charged where a credit is given, which, upon a loan or for the forbearance of a debt, would amount to usurious interest and avoid the contract, yet, where the contract is in fact a sale, that consequence does not follow.
*152Believing the case in hand to be one of that description, I must dissolve the injunction,(a)

) This cause came to a final hearing before hie honor, Aseistant Vice-Chancellor Hoffman; and the hill waa dismissed, with costs. An appeal was entered; but it is believed that the suit was compromised.