French & Davies v. Rowe , 15 Iowa 563 ( 1864 )

Cole, J.

By our statute against usury, it is provided that “ if it shall be ascertained in any suit brought on any contract, that a rate of interest has been contracted for greater than is authorized by this act, either directly or indirectly, in money, property, or other valuable thing, the same shall work a forfeiture of ten per cent per annum upon the amount of such contract to the school fund of the county in which the suit is brought, and the plaintiff shall have judgment for the principal sum, without either interest or costs,” &c. Pev. of 1860, § 1791.

Whether the “ contract ” by the defendants, as evidenced in their notes, to pay plaintiffs the amount of their claim against Sargent, in consideration of defendants’ indebtedness to Cook & Sargent, can legally be said to be a contract, wherein “ interest has been contracted for greater than is authorized by law,” is not discussed by counsel, and in our view of the case need not be now determined.

The transcript fairly presents, and thé counsel have argued two propositions, necessarily involved in the decision of this cause:

First. Can an estoppel in pais be interposed and made operative against the plea of usury ? '

Second. Does one of two partners possess the authority,' by reason of the partnership, to make an estoppel which shall bind the firm against such plea ?

I. Courts of justice are established for the purpose of ascertaining the truth, and meting out justice to parties litigant, in accordance with it; and hence the doctrine of estoppel is not favored in law, for an estoppel prevents a party from alleging or proving the truth. Yet courts of law do not hesitate to enforce this doctrine where it is clearly applicable; as where, if the party was permitted to prove the truth, contrary to his previous conduct or declarations upon which the adverse party had acted, gross injustice would be done to such adverse party. Or, as the doctrine is clearly stated by Wright, J., in the case of Lucas v. Hart, 5 Iowa, 415: “ The estoppel is allowed to prevent fraud and injustice, and exists wherever a party cannot, in good conscience, gainsay his own acts or assertions ; and it makes no difference in the operation of the rule whether the thing admitted is true or false, it being the fact that it has been acted on that makes it conclusive.”

In the case of the Welland Canal Company v. Hathaway, 8 Wend., 483, the Court say: “as a general rule a party will be concluded from denying his own acts or admissions, which were expressly designed to influence the conduct of another, and did so influence it; and when such denial will operate to ithe injury of the -latter.” In Dezell v. Odell, 3 Hill, 221, the Court say: “Where a party, either by his declarations or conduct has induced a third person to act in a particular manner, he will not afterwards be permitted to deny the truth of the admission, if the consequence would be to work an injury to such third person, or some one claiming under him.” See, also, Grreenleaf on Ev., vol. 1, §§ 22, 27, 204, 207 et seq.; Frost v. Saratoga Mutual Insurance Company, 5 Denio, 154; Wendell v. Van Rensselaer, 1 Johns. Ch., 844.

The correctness of this doctrine, in its general application, cannot be controverted, and the foregoing adjudications are cited to show that this case falls, in its general scope, within the language of the adjudicated cases, rather than to establish the doctrine. The particular point of difference between the cases cited and this case is in the fact that the defense, in this case, is usury, and the estoppel is sought to be applied so as to defeat the statute against usury, which, in its nature, is a penal statute. Upon principle, it seems to a majority of this Court, the peculiarity of this case does not exempt it from the general rule. The statute •against usury was enacted for the protection of the oppressed and hopeful debtors against the cupidity and avarice of overreaching creditors, and it may be used by them as a shield against all such. It cannot, however, be made a sword with which to perpetrate injustice and frauds upon innocent third parties. To allow a party to represent to another that a note was all right, and would be paid at maturity, and specify the very means of payment, and thereby induce him to part with his money or property, and then be permitted to defeat a recovery by a plea of usury, would-be to make the statute a weapon of fraud and injustice, instead of a cover and protection. Again, it will be seen that by the doctrine of estoppel a party is denied the opportunity of either pleading or proving anything contrary to his previous conduct or declarations which have influenced his adversary; and hence, in the theory of the law, it cannot matter what a party proposes to plead or prove since the law stops him at the very threshold, and does not permit him to allege the statute against usury or any other cause, how meritorious or truthful soever it may be, against his former conduct or declarations, within the rule. The law so abhors his falsehood as that it will not hear him, though he speaks the truth. It estops him.

The principle of the law as thus stated has been exemplified in several adj udicated cases, which we will briefly examine.

By the statute of New York, in force when the decisions to which we shall refer were made, any contract whereby interest at a greater rate than seven per cent was agreed was rendered void, and the entire sum loaned or advanced was forfeited; and it was held by the courts of that state that the taking of accommodation paper at a discount greater than the lawful rate of interest was usury. Johns v. Hoke, 2 Johns. Cas., 60; Wilkie v. Rosevelt, 3 Id., 66, 206 ; Mann v. The Commission Company, 15 Johns., 55; Bennett v. Smith, Id., 355 ; Powell v. Waters, 8 Cow., 699 ; Clark v. Sisson, 22 N. Y. R., 312.

In the case of Truscott v. Davis & Robinson, 4 Barb. S. C. R., 495, which was an action brought to recover the the amount of a promissory note, made by the defendant, Robinson, payable to the order of defendant, Davis, and by him indorsed to the plaintiff, it was proved that the note was-lent by Robinson to Davis to enable him to raise money, and that- the plaintiff purchased it of Davis at a usurious rate of interest; the note having no inception till it 'passed to the plaintiff. It appeared, also, that Davis, at the time of the sale, represented to the plaintiff that it was a business note, valid in his hands against the maker, and plaintiff, relying on his representations, was induced to purchase the note. The Court say that- it is the settled doctrine of the courts that such a transaction is usurious, “ but the true inquiry in this case is, whether Davis is estopped from setting up this defense. Facts may exist, which, in the eye of the law, constitute a defense, yet a party may, by his own conduct, deprive himself of the right of setting it up, as in this case, though the transaction is technically usurious, yet Davis may have forfeited the privilege of asserting it. * * * * The law allows the sale and purchase of business paper at any price the parties agree upon. If Davis, by his representations, induced the plaintiff to believe that the note was business paper, and, under such belief, to purchase it, he cannot be permitted, after entrapping the plaintiff into an unintentional breach of the law, to make a profit out of his own falsehood, at the expense of an innocent party. It would be a gross fraud, which' ought not to be tolerated, much less sanctioned, in a court of justice.

In Dowe v. Scutt et al., 2 Denio, 621, which was a suit on a note given to take up accommodation paper, sold at a large discount beyond the legal rate of interest, the plaintiff gave evidence to show that when Southard, one of the defendants, transferred the first note to him, he represented it to be a business note. The Court say: “Although the first note may have been unavailable in the hands of Southard, having been made for his accommodation, still, if he represented it to be business paper, and-it was purchased by the plaintiff as such, relying upon the truth of that representation, then, although the purchase may have been at an usurious rate, yet as between the plaintiff and Southard, there would be no usury, and the latter would be bound by his guaranty that the note should be paid.”

In Chamberlin v. Townsend, 26 Barb. S. C. R., 611, “ the defendant made two notes to his own order, and delivered them to Holley, for the purpose of taking up other notes of the defendant, then past due. To each note he annexed a certificate' that the same was given for value, and would be paid when due. On this certificate, the note was sold to the plaintiff for an amount less than should have been paid for it, if discounted at legal interest, and the only question is, whether the defendant is estopped from setting up a defense of usury, in consequence of the certificate." The Court say: “ It has been repeatedly held, and must be considered as the settled law of this court, until otherwise decided by the Court of Appeals, that the doctrine of estoppel applies to one who represents a note which he is about to sell, to be business paper, when in fact it is not, so as to preclude him from setting up the defense of usury. * * * There is no hardship or injustice in saying to the defendant that he cannot deny now what he represented the note to have been when the plaintiff was induced to purchase it. A contrary rule would hold out to men a temptation to deceive others by falsehood, and then allow them to take advantage of such falsehood to escape the liability so incurred.”

In the case of The Mechanics’ Bank of Brooklyn v. S. P. Townsend, 17 How. Pr. R., 569, upon facts very similar to the one last cited, the Court say: “ Such a certificate, acted on in good faith, it has been repeatedly held, operates to estop the party giving it from falsifying his own statements. No man, as against an innocent person, can take advantage of his own fraud. So far from being, in such case, a defense, the fraud would itself, if any loss were sustained, be a positive cause of action, entitling the injured party to equivalent damages.”

In Watson’s Exrs. v. McLaren, 19 Wend., 557, the plaintiff, before he would advance money on the paper, called upon the defendant, showed him the note and guaranty, told him he was about to advance money upon the securities, and asked him if it was right, and received for answer, “it was good.” The Court, Cowen, J., say: “Such a declaration, nay, even standing by in silence and seeing a chose in action assigned for consideration, is an estoppel in pais against a debtor. Even a defense that a bond was given to secure'a gambling debt, was in one case held to be cut off, by the obligor’s admission of its validity to a proposed assignee.”

In Holmes et al. v. Williams, 10 Paige Ch. R., 326, it was held by the Chancellor that,-'1 where the holder and apparent owner of negotiable securities sells them at a discount to a Iona fide purchaser, who has no knowledge of the purpose for which such securities were made, representing them to belong to himself, and to be business paper, the transaction is not usurious as between the vendor and vendee; although the representation of the vendor was false, and the securities were in fact made for the sole purpose of being sold at an usurious discount in the market.”

In the case of Clark et al. v. Sisson et al., 22 N. Y. R., 312, it was held by the Court of Appeals of that State, Comstock, Ch. J., delivering the opinion of the Court, in substance, that the doctrine of estoppel was applicable to the defense of usury, but that the representations inducing the purchase must be outside of the face of the bill or security sold.

In the case of Roe v. Jerome, 18 Conn., 138, the doctrine of estoppel, as recognized by the New York cases, was fully indorsed. In this case, the defendant, who was accommodation indorser for the purpose of enabling the party selling the note to negotiate a usurious loan, gave a certificate as follows:

“ To whom this may concern. Any note or notes which may be offered by the bearer for discount or otherwise, signed by'me, and payable to the order of Franklin Merrills, and dated March 1,1844, are good true business notes. New York, March 1st, 1844, Chancey Jerome.” Upon the faith of this certificate, the plaintiff purchased the note in suit at usurious rates. The defendant relied upon the plea of usury as a defense. Williams, Oh. J., in delivering the opinion of the Court, says: “ The rule of law founded upon the soundest principles of morality is, that where one by his words'or conduct causes another to believe in the existence of a certain state of things, and thus induces him to act on that belief, so as injuriously to affect his previous position, he is concluded from averring a different state of things as existing at the time. * * * * * And whether this is a technical estoppel, or whether it is in the nature of an estoppel, is of little importance. It would be gross injustice to permit an individual thus to trifle with his own assertions, to the ruin or injury of another.”

In the case of The Middletown Bank v. Jerome, 18 Conn., 443, in a case very like the one last cited, the Court, per Ellsworth, J., in affirming the doctrine of estoppel as applicable to the defense of usury, say: “ This is in accordance with a well settled principle, that if a person, by his words' or conduct intentionally induces another to believe a fact, and upon its truth to commit his interest, he shall not after-wards deny the fact, in order to throw off responsibility. See, also, Brown v. Wheeler, 17 Conn., 346; Clark v. Sisson, 4 Duer, 408; Davison v. Franklin, 1 Barn. & Adolph., 142; Packard v. Sears, 6 Ad. & El., 477; (33 E. C. L., 155.) Bearce v. Barstow, 9 Mass., 45.

The fact that our statute directs the amount of the forfeiture, to wit, ten per cent per annum on the contract, to be paid to the School Fund, cannot, upon principle, make a different rule applicable in our State, from that in New York or Connecticut, where the forfeiture is greater, but goes to the party. The disposition or appropriation of the forfeiture is a mere'incident to the prohibition of usurious contracts, which is the purpose of the statute. The statutes of each of said States, like that of Iowa, are adopted to prevent usurious contracts, and to that end they respectively visit penalties upon those who violate them; the measure of that penalty, as well as the purpose to which it shall be appropriated, can in no manner affect the application of the doctrine of estoppel.

It will be observed, that the transaction forming the basis of this suit, was not made to evade the usury laws, nor with any knowledge of usury on the part of the plaintiff. If an intent to evade the statute against usury was manifest, it would present a case for the application of a different rule.

II. Upon the second proposition, this Court is unanimous in the opinion that the partner, Rowe, had authority, by reason of the partnership, to bind his copartner, Hyde, to the same extent that he could bind himself.

The space already occupied in the discussion of the first proposition precludes the propriety of extending this opinion for an elaborate discussion of this. We shall content ourselves with a statement of the principle upon which it rests, and the citation of a few authorities in support of it. The principle upon which the majority place the liability of defendants on the contract in suit is, that if they are permitted to deny what was stated by the partner, and upon which the plaintiffs relied and acted, a fraud would be thereby perpetrated upon plaintiffs; for such fraud the partners would be liable. Mr. Collyer says that “ one partner will be bound by the fraud of his co-partner, in contracts relating to the partnership, made with innocent third persons.” (Collyer on Partnership, § 445, et seq.; see also Story on Partnership, § 108; Hawkins v. Appleby, 2 Sandf., 421; Sweet v. Bradley, 24 Barb. S. C. R, 549; Nesbit v. Patton, 4 Rawle, 120.)’ And if a partner would be thus liable for the fraud of his copartner when completely executed, he would, a fortiori, be liable where the intended fraud was prevented from becoming effectual by the interposition of the sound doctrine of estoppel.

The j udgment of the District Court, being in accordance with these views, is

Affirmed.

Lowe and Dillon, J., concurring.