Court Opinion

ID: 3664865
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:15:13.405205+00
Date Added: 2024-06-11T13:39:54.182595
License: Public Domain

Debt, upon a promisory note for $4,400, dated 17 June, 1842. The defense relied upon was the statute against usury. Upon the trial it *Page 482 
appeared in evidence that Williams and Green, merchants, the principals in the note, had on 17 June, 1842, three notes in the branch of the bank at Elizabeth City, one for $2,000, and two for $1,200 each, and, at their instance, the cashier agreed to consolidate the said notes, and take the note in question in renewal thereof. The usury was alleged to have been committed in taking the $2,000 note above spoken of. As to this note the evidence was that it was offered for discount on 25 February, 1842, and was then discounted for $1,000, and on 4 March following, for the remaining $1,000, and that, when discounted, the proceeds were placed on the books of the bank, as a credit to the said Williams and Green, in Virginia bank bills. Williams and Green were then charged with the amount of several claims the bank had received for collection against them, and the balance was paid out to their checks in Virginia bills. There was evidence tending to show that the terms upon which the $2,000 note was discounted were that the borrower should receive Virginia bank notes and pay the notes when due in North Carolina bank notes or specie. It was also in evidence that on 25 February, 1842, and for two or three months (693)  afterwards, the notes of the Virginia banks were six or seven per cent below specie in the money market, and between two and four per cent below North Carolina bank notes; that on 2 February, 1842, the bank at Elizabeth City made a rule that all deposits in Virginia bank notes should be considered and entered as special deposits and paid out in the same kind of bills; that, on the 18th of the same month the bank adopted a resolution, which was entered on their books, that all notes discounted on that day and afterwards should be paid in North Carolina bank notes or specie. And, on the 25th of the same month, another resolution was adopted that one-half of the payment upon all notes discounted prior to the 18th inst. should be in North Carolina bank notes. A copy of these resolutions was posted up in the banking room. Several witnesses swore that, although in February there was a difference in the money market of two per cent, and, after the resolution of the bank, of four per cent in favor of North Carolina over Virginia bank notes, still the latter continued current and passed at par in the payment of debts and in the purchase of produce. The sheriff of Pasquotank testified that he had many executions to collect, returnable to March Term, 1842, and received Virginia bank notes, except in two cases, when he was instructed to require specie, but in these cases the instructions were withdrawn in a short time, and that, as far as he knew, Virginia bank notes were received at their nominal value in the payment of debts, and answered that purpose as well as North Carolina bank notes, except at the bank. It appeared further, that the board of directors, in February, 1842, *Page 483 
refused to take Virginia bank notes in payment of claims sent to them from the North to collect, but at that time took such notes in payments of notes discounted previous to February, 1842. The plaintiff introduced as a witness John C. Ehringhaus, cashier of the bank, who testified that when Williams applied for the loan of $2,000 the witness objected, stating that the bank was preparing to resume specie payments in May following, and did not wish to increase its circulation by making new discounts; that Williams replied that                (694) the bank had a plenty of Virginia bank notes and might pay them out, and that they would be as good to him as North Carolina bank notes; that the witness still objected, upon which Williams urged it as a duty upon the bank to assist the merchants generally, and his house particularly, as it had had long dealings with the bank and had materially assisted the institution; that Williams then applied to the directors, and, urging upon them the same reasons, obtained from them (his partner, Green, being one of them) the loan as above stated. This witness testified further, that it was the practice of his bank to have quarterly settlements with the Virginia banks, and exchange to them such of their notes as his bank had received for the notes of his bank which they had received, and that the excess was entered to the credit of the bank having the largest amount; that, about the month of February, and for some time afterwards, the credit of excess was in favor of his bank for a considerable amount, and that this account did not draw interest from the debtor bank. He stated, also, that the Virginia notes were worth as much as the North Carolina notes to his bank, as it wished to use them to meet the probable demands of the Virginia banks on the resumption of specie payments in May, 1842.
The counsel for the defendant contended that it appeared from the evidence that the bank had made the loan of $2,000 to Williams in Virginia bank notes to be paid in North Carolina bank notes or specie, and that, as the Virginia notes were then worth less than the North Carolina notes or specie, the agreement was for more than lawful gain to the bank, and was therefore prohibited by the statute against usury, even though the parties may not have thought at the time that they were violating the statute. Counsel for the plaintiff contended, (1) That, if the Virginia notes lent by the plaintiff to Williams wereintrinsically worth to him as much as the same numerical amount in cash or North Carolina bank notes, the loan was not usurious, and they argued to the jury that the declarations of Williams to Ehringhaus, the cashier, showed that such was the fact; (2) That, if the parties believed that the Virginia notes were               (695) intrinsically worth to Williams as much as the same numerical amount *Page 484 
in cash or North Carolina bank notes, though in point of fact they were of less value, the loan was not usurious; (3) That, if Williams represented to the bank that the Virginia notes were worth as much to him as the same numerical amount in cash or North Carolina bank notes, though in point of fact they were of less value, yet if the bank believed and acted upon the representation, the loan was not usurious.
The court instructed the jury that if nothing more appeared in the case than that the plaintiff lent to Williams the sum of $2,000 in Virginia bank notes, upon an agreement to be paid in North Carolina notes or specie, and that Virginia notes were then at a discount below the North Carolina bank notes or specie, the agreement would be usurious under the statute, and the plaintiff could not recover in this suit upon the $4,400 note, taken in part for the renewal of the $2,000 note; but that, if the Virginia bank notes, though at a discount with all other persons, were intrinsically
worth as much to Williams as the same numerical amount in cash or North Carolina notes, or the parties believed so, though in fact it were not so, or if Williams represented the fact to be so and the bank acted upon the representation, believing it to be true, though it were not so, the loan was not an usurious agreement and the plaintiff ought to have a verdict. The court further instructed the jury, that William's declarations to Ehringhaus, as to the value of Virginia bank notes to him, might be considered by them as evidence tending to show, that the Virginia notes were worth as much to him as the same numerical amount in cash, or North Carolina notes, but it was not conclusive evidence of that fact, and that the same declarations might be considered to the same extent in reference to the belief of the bank and Williams, or the belief of the bank alone, acting upon the representations of Williams as to the value to Williams of the Virginia notes.
Counsel for the defendant then requested the court to instruct (696)  the jury that the Williams's credit was so bad as to induce his creditors to receive the Virginia notes from him at par
in the payments of their debts, that circumstance would not be sufficient to establish the fact, that they were intrinsically worth to him as much as the same numerical amount in cash or North Carolina notes. The court declined giving the instructions as prayed without adding an explanation, to wit, that if the bank knew that the Virginia notes would answer answer as cash or North Carolina notes in the payment of the debt of Williams in consequence of his bad credit, and made the loan with that knowledge, then it would be usury; but if the bank did not know that such was the case, but believed that the Virginia notes were truly intrinsically worth to him as much as the *Page 485 
same numerical amount in cash or North Carolina notes, then the loan was not usurious.
The jury returned a verdict for the plaintiff, and judgment being rendered pursuant thereto, the defendant appealed.
The Court has sought to discover some ground on which this case can be distinguished from what it was when it was here before in the name of the cashier, Mr. Ehringhaus, against the same defendant (Ehringhaus v. Ford,25 N.C. 522), but there does not appear to us to be any difference. The facts are substantially the same, and the legal result must also be the same.
There was a loan of $2,000 to Williams in the notes of the Bank of Virginia, when notoriously depreciated at the place where the loan was made; and it was made a condition of the loan that the borrower should receive the proceeds of his note in those notes, as if they were at par, and should pay his note at maturity in North Carolina bank notes, then at an average value above Virginia notes of 3 per cent. That agreement has hitherto been held by this court to be usurious, because to the extent of the depreciation, the lender had a gain over and above the lawful rate of interest, and got upon a 90 days note 4 1/2 instead of 1 1/2 per cent.                               (697)
The judge who presided at the first trial thought, as the borrower said "he was willing to take Virginia bills, as they would answer to pay debts at the then nominal amount for which purpose he wanted them," and as witnesses stated that they did pass at their numerical value in payment of some debts, that there was no unlawful gain made out of the borrower; therefore, that the contract was not usurious. But we were of opinion that the use to which the notes were actually applied by the borrower could not change the character of the agreement — which last was the criterion for determining whether there was usury or not. By the agreement the lender unlawfully gained 3 per cent besides interest for the time, and the borrower lost that by the agreement, and that could not be altered by the borrower subsequently throwing the loss on some one else; for the future disposition of them could have no influence in determining whether the borrower was compelled to give the lender above the rate of 6 per cent. At all events, unless some particular mode of application of the notes was in the contemplation of the parties by which they would certainly answer the borrower all the purposes of cash, or the lender engaged, as a part of theagreement to make them worth to the borrower as much as he took them at. *Page 486 
His Honor who presided at the last trial admitted the general principle that lending depreciated bills upon an agreement for the repayment in bills not depreciated — nothing else appearing — is usurious. But the cashier stated that when the borrower was urging for the loan and the cashier was objecting, on account of the condition of the bank and the danger of issuing its own notes, the borrower said "Virginia bills would be as good to him as North Carolina bills" — omitting now, what was stated before, that the borrower gave, as the reason why they would be as good, that he wanted them to pay debts, and they would answer that purpose. In other respects the (698)  two statements are the same. Upon this evidence it was left to the jury to find that the Virginia bills were intrinsically worth to Williams as much as the same nominal amount in cash or North Carolina notes, with instructions that, if they should so find, then, though the bills were at a discount with all other persons, the loan was not usurious. Those instructions are, we think erroneous.
If there be blame upon any one for the error this Court must take to itself a due share of it, as, probably, the terms in which the directions to the jury were expressed were taken from the opinion given in the former suit. After deciding the point in that case, that the contract as there stated was usurious, Judge Gaston proceeded further to state that possibly there might be instances in which the lending of depreciated bank notes would not be usurious; and he then uses the language, adopted by his Honor, that if the notes, though depreciated in the money market, or even with all other persons, had been to the borrower intrinsically worth the value at which they were received, then there would be no usury." It is to be observed that this was an obiter dictum, and we must say, that like most others, it was not duly considered by us or the distinguished judge from whom it fell, and who was generally so clear in his perceptions and choice in his words as to reason accurately and express himself with uncommon precision. But it is obvious that the term "intrinsically" is not used in its proper sense, and in context with the admission that the Virginia notes were at a discount with all other persons, the whole position is not very intelligible. The "intrinsic value" of a thing is its true, inherent, and essential value, not depending upon accident, place, or person, but the same everywhere and to every one. Bank notes have, indeed, no intrinsic value. They only represent value, by being the promise to pay money (which has intrinsic value) by persons of undoubted ability or credit, which induces the world to take them in the stead and at the value of money. They are as good as money, though without its intrinsic value, because money can be had for them when the holder will, and they pass as money. *Page 487 
But that is in no sense true with respect to the notes of banks that will not redeem them, or which, from any cause, do not     (699) pass as money, that is, so much current coin as is mentioned in them. They are then not only without intrinsic value, but they do not represent that which has such value, namely, as much money as they purport to promise. And when "intrinsic" is used in reference to persons, as it was in this case, it is misapplied in a way that misleads; for, when a note is at a discount in the market, and "all persons" refuse to buy it or take it at par but one, and that one receives it at par, by way of loan, made upon the condition that he shall so receive it we cannot say that the "intrinsic value" of the note is thereby affected; but the fact merely is, that such single person was willing, in order to get the use of the note, to take it at more than all other people would, and more than its true value. If, indeed, the bank says to the borrower, although we cannot lend you cash, nor our own notes payable here, on which you may immediately demand cash, and, therefore, cannot make the loan you desire unless you will take it in foreign depreciated notes, but the depreciation shall not be your loss, but ours, then we may agree there is no usury, as if the lender agrees to receive from the borrower the same kind of notes in payment of this or any other debts, or in deposit, as cash. There the gain and loss of the parties would be equalized by the two parts of the transaction. Or if the borrower inform the lender that he wishes to pay a debt at the place where the bank notes are payable, and the lenderengages that they shall be there worth to the borrower their numerical amount in cash, the same consequence would follow. The risk of loss being that of the lender, there could be no unlawful gain made by the lender from the borrower. But when the whole risk is left on the borrower by the terms of the contract, the imposition of the depreciated notes on him, as good money, will not lose its character of usury by the borrower's saying that they would be as good as money to him. To have that effect, the fact that they were as good as money to him ought to be shown if, indeed, in the nature of things that be possible; or it ought to appear that it formed a partof the contract that the bank should make them as good, if they    (700) should turn out not to be. In any other sense than this the "intrinsic value" of the notes to Williams can only mean that he used them at their nominal amount in certain transactions, and not that they were worth that amount. Now, that takes us back precisely to the error committed in the first trial, by endeavoring to search for evidence of the actual loss or gain to the borrower instead of abiding by the actual loss of the lender, as contracted for. Except in this last sense there is no evidence on which the jury could find the value, *Page 488 
intrinsic or nominal, of the notes to the borrower. He may not have lost on the transaction; for; perhaps, he bought property with them at half its value, or may have lent them to some one else at par and still higher rate of interest. But with money he could have done still better by the difference in value, because with money he could have bought these notes at their depreciation, and then with them made his other bargains. But such advantageous dispositions of them are his own acts and at his own risk, altogether distinct from the original contract of lending and borrowing, in which the lender made no engagement to bear the loss, but imposed it on the borrower. By that contract the lender got clear of the notes, knowingly reserving for the loan of them more than the lawful rate of interest; and thereby is its validity to be determined. It would be exceedingly dangerous, and break down all the guards provided by the Legislature for the protection of the needy against their own weakness in a time of distress, and against the exactions of money lenders, if a bank were allowed thus to bargain with men who are often ready to raise money, on almost any terms, to meet present emergencies. They always say, and it may be, often think, they can make an advantageous use of the money though obtained on hard terms. But the Legislature has said that the terms shall by no shift or device exceed a certain rate, or else the contract shall be void; and our duty is to administer the law with an even hand against as well as for lenders.
We have not overlooked the statement of the cashier, "that (701)  the Virginia bills were worth as much as the North Carolina bills to the bank, as it wished to use them to meet the probable demands of the Virginia banks on the resumption of specie payments, which took place on 1 May, 1842." At first view that struck us as a singular statement, when it appeared from the cashier that he had large balances against the Virginia banks, on which they would not pay interest, and that, so far from those notes being as good as our own, the bank had refused to take them either in general deposit or payment, and that they could be purchased in the market for their own notes at an average discount of 3 per cent. But we cannot suppose the witness meant thus to contradict the acts of his bank and his own statements, and, therefore, we cannot understand him to say that the Virginia notes were, at the time of thisloan, worth as much to the bank as the North Carolina notes. But we must understand him consistently with himself, to have meant that, if the bank kept the Virginia notes from that time (about the last of February) until 1 May following, and the banks of Virginia should then resume specie payments, they would then be worth as much as the North Carolina notes. But, besides the uncertainty of the event of resumption, *Page 489 
the delay, itself, of two months made a difference of one per cent, which was gained by lending them out. Indeed, disguise it as we may, every attempt by a bank to put upon a borrower bank bills, not its own and below par at that time and place, is prima facie usurious, and, as it seems to us, is conclusively so if the bank does not by the contract engage to make them good as cash, and requires repayment in a different and better medium. We are not aware of any other means of making such a contract consistent with the law. Here the case states that the lender required the borrower to accept these notes at par, and expressly refused to take them back at the same rate, and there was no obligation on the lender to make them of the full numerical value to the borrower, but he was to get them off on the best terms he could in the market, and the lender at the same time required payment in a medium worth one hundred cents in            (702) the dollar. It is clear the bank could not lose, but must gain the amount of depreciation besides the discount, which is usury. There was no evidence on which it could be left to the jury to say that the notes were of greater value to Williams than the market value, and it was erroneous to give the instruction founded on that hypothesis.
PER CURIAM.                                     Venire de novo.