Kimball v. Proprietors , 69 Mass. 225 ( 1855 )

Thomas, J.

The plaintiff was indebted to the defendants in the sum of $100,000 on a note payable on demand, with interest semi-annually, and secured by mortgage of his real estate. The defendants wanted the money, and the plaintiff did not want to pay it. An agreement was made to this effect: That the plaintiff should give the defendants his negotiable promissory notes to an amount not exceeding forty thousand dollars ; that the defendants should get the notes discounted, on such terms and for such rates of interest as they saw fit, and apply the proceeds to their use. When the notes arrived at maturity, the defendants were to take them up, and call upon the plaintiff, if they saw fit, for other notes, to be disposed of in the same manner. The plaintiff was to continue to pay the legal interest upon his own note of $100,000 to the defendants, and to pay all sums of money which the defendants had to pay to others in the negotiation and disposition of the notes of the plaintiff, beyond the legal rates of interest.

Different sums were paid to the defendants under this arrangement, and this bill is brought to recover back three times such sums, on the ground that this arrangement was usurious and within the provisions of the Rev. Sts. c. 35, §§ 1-4, and St. 1846, c. 199. To this bill a general demurrer has been filed. And the question is, Was this contract made by the plaintiff with the defendants usurious, and may the plaintiff recover of them threefold the amount of the unlawful interest paid to the defendants?

It is to be observed that there is no allegation in the bill that this arrangement was not made in good faith, or that it was intended by the defendants as a cloak for usury. There is no aliegation that the defendants gained any profit or advantage oy the arrangement. In fact, they must have lost. The plaintiff was to pay lawful interest on the $100,000 note, the defendants lawful interest upon the plaintiff’s notes, and by this arrangement the defendants lost the interest on the difference between the face of the notes and the amount for which they were negotiated.

The gist of the offence of usury is the receiving of unlawful profit by the lender for his money lent. Such is the plain result of the statutes from 1641 to 1846. These statutes are the colony laws of 1641, Anc. Chart. 201 ; the provincial statutes of 5 W. & M. (1693), Anc. Chart. 257; 23 G. 2 (1750), Anc. Chart. 572; the Sts. of 1783, c. 55; 1825, c. 143; 1826, c. 27; Rev. Sts. c. 35, §§ 1-4; 1846, c. 199. In other words, the taking or retaining, by means of an unlawful bargain, of a greater rate of interest than the law allows, constitutes usury. When such greater rate of interest has been paid, the party paying the same may recover it back. And from whom ? Obviously from him to whom it has been paid—from the usurer.

The plaintiff paid no unlawful interest to the defendants. They received their six per cent, and no more. The bargain was no more than this: “ Take these notes of mine, get them discounted at the best rates you can, and account with me for the proceeds. If there is a loss, I will sustain it.” The defendants neither lent the money, nor participated in any manner, direct or indirect, in the profits of the usury. They were in effect the agents of the plaintiff for the transaction of the business, for his accommodation, and without compensation.

As such, we think the case is clearly within the rule established in Stevens v. Davis, 3 Met. 211. There the holder of a note, which the maker could not pay at maturity, proposed to borrow the money for ninety days, if the maker would engage to pay at that time; but told the maker the loan would cost a certain sum, and that the maker ought to pay such sum or a part of it. The maker assented to the proposition, and after-wards paid the holder $7, part of the sum which the holder had paid in order to procure the loan. It was held, that if the representation was fairly and truly made, and the holder in fact paid that sum or more to procure the loan, the taking of that sum was not usurious.

We have examined the cases cited by the learned counsel for the plaintiff, and do not perceive that they seriously conflict with the authority of Stevens v. Davis.

The case of Commonweath v. Frost, 5 Mass. 53, was considered by the court in Stevens v. Davis. That was an indictment under the statute of 1783, for taking unlawful interest. The money received was expressly for the use of the money lent. The defendant offered to prove that he acted as agent of a third party. But as he did not profess to act for another, but did profess to act on his own account, the court held he was liable to the forfeiture. If there is any variance between this case and that of Stevens v. Davis, the latter to this extent overrules the former. We certainly have no occasion to affirm the correctness of the decision in Commonwealth v. Frost.

The next case cited is that of Potkin, 3 Leon. 63. It may seem to be somewhat of a retracing of our steps to go back three centuries for the law of usury; some progress we might hope had been made in this matter. But we have examined the case, for Mr. Sugden (now Lord St. Leonards) says Leonard’s Reports were always in high estimation. Sugden on Powers (1st Amer. ed.) 17. The case was debt upon an obligation by Potkin. The defendant pleaded that he himself borrowed of one Watson a certain sum of money, paying for the forbearance thereof excessive usury, and that the plaintiff was bound with the defendant to the said Watson for the payment thereof-; and that he himself by this obligation, upon which the action was brought, was bound to the plaintiff to save him harmless against the said Watson, &c. And because this was a counter bond for the payment of excessive usury, &c., it was holden by Manwood, “ that the same was a good bar; for here the plaintiff, when he was impleaded upon the principal bond, might have discharged himself upon this matter, and therefore the loches shall turn to his prejudice; and therefore the issue was joined upon the excessive usury.”

It is important to observe what was the law of usury when this case was determined. The taking of interest was an offence at common law, at least for Christians. By St. 11 H. 7, c. 8, it was made a highly penal offence; persons lending money on usury were to forfeit half the amount; brokers of such bargains were to be set in the pillory, imprisoned half a year, and fined. By St. 37 H. 8, c. 9, repealing all former statutes against usury, it was provided that no person should take more than ten pounds for forbearance of a hundred for a whole year. By St. 5 & 6 Edw. 6, c. 20, it was enacted that no person should, by any means, lend or forbear any sum of money for any manner of usury or increase to be reserved or hoped for beyond the sum lent. This statute repealed that of 37 H. 8. By St. 13 Eliz. c. 8, the repealing statute of 5 & 6 Edw. 6 was repealed, and that of 37 H. 8 revived, and all bonds, contracts and assurances for the payment of money upon usury, contrary to St. 37 H. 8, were declared void. The taking of above ten per cent, was left a penal offence. There was also a provision that this last statute should be construed most strongly for the suppression of usury. This statute of Elizabeth was passed in 1570, and was in force' when Potkin’s case was determined. All obligations for excessive usury were absolutely void. The taking or reserving it was a penal offence. Potkin was sued upon a bond given to indemnify the plaintiff for his liability upon a bond void at law, and the giving of which was an offence. The court held the plaintiff ought to have discharged himself by pleading that the bond on which he was held was illegal and void. 2 Inst. 89. Com. Dig. Usury, A. Bac. Ab. Usury, B. Crabb’s History of the Common Law, 433. 4 Burn’s Eccl. Law, (7th ed.) 39. 1 Hawk. c. 82. Swinb. Wills, Pt. 2, § 16. On another familiar ground,the defendant would not be liable on a bond to indemnify the plaintiff for damages incurred in violation of the law.

The case of Reed v. Smith, 9 Cow. 647, was upon a verdict taken subject to the opinion of the court. It was a question of fact whether the plaintiff was the real lender. “ Upon this state of facts,” says Sutherland, J. “ is there the slightest room to doubt that the loan was in fact made by the plaintiff ?

The case of Levy v. Gadsby, 3 Cranch, 180, was simply this: If A lends money to B, who puts it out at usurious interest, and agrees to pay to A the same rate of interest he is receiving, this is usury between A and B. Certainly it is ; for A receives the entire benefit of the unlawful contract, the whole usury.

In Dowell v. Vannoy, 3 Dev. 43, a sheriff had collected money apon an execution, and neglected to pay it over, thereby subjecting himself to damages at the rate of twelve per cent- by way, not of interest, but of penalty, Having loaned the money to a third person at the rate of twelve per cent, interest, he was held guilty of usury. The sheriff’s defence really was, that having violated the law in keeping the money from the execution creditor, he ought to be excused for violating the law by loaning it at usurious rates of interest. The court thought otherwise..

The alleged breach of the agreement on the part of the defendants cannot entitle the plaintiff to maintain this bill. Indeed, this was not claimed by counsel. Demurrer sustained.