Bank of Newport v. Cook
Decision Date | 23 February 1895 |
Citation | 30 S.W. 35 |
Parties | BANK OF NEWPORT v. COOK et al. |
Court | Arkansas Supreme Court |
Appeal from circuit court, Woodruff county; Grant Green, Jr., Judge.
Bill by the Bank of Newport against Allie E. Cook and others for the foreclosure of a mortgage. From a decree for defendants, plaintiff appeals. Reversed.
Rose, Hemingway & Rose and J. W. & J. M. Stayton, for appellant. J. W. House, for appellees.
The question in this case is, does the taking in advance of the highest rate of interest allowed by the constitution upon a negotiable note, payable 12 months after its date, constitute usury? The provision of the constitution upon the subject of usury is (article 19, § 13): "All contracts for a greater rate of interest than ten per centum per annum shall be void as to principal and interest, and the general assembly shall prohibit the same by law, but when no rate of interest is agreed upon, the rate shall be six per centum per annum." The act of the legislature approved February 9, 1875, only a few months after the adoption of the constitution, upon the subject of discounting commercial paper, mortgages, or other securities, is as follows: "It shall be lawful for all parties loaning money in this state to reserve or discount interest upon any commercial paper, mortgages or other securities at any rate of interest agreed upon by the parties, said rate not to exceed ten per cent. per annum," etc. The only limitation in this act is upon the kind of paper, so far as it affects the case at bar, and that is that it shall be commercial paper. In Vahlberg v. Keaton, 51 Ark. 539, 11 S. W. 878, this act is held to be constitutional where the paper discounted, or upon which interest is reserved, is three-months paper, used in commercial transactions; the question in that case having arisen upon, and, necessarily, been confined to, three-months paper. The act of the legislature passed soon after the adoption of the constitution, — in fact at the first session thereafter, — though not obligatory if it violates the constitution, is entitled to serious consideration as a legislative construction of the above provision of the constitution, and, unless it is clear beyond reasonable doubt that it is in conflict with the constitution, it is the duty of the court to sustain it. It is said in Vahlberg v. Keaton, supra, in reference to the constitutionality of the above statute, that The question came before the court of common pleas under this statute, and Sir William Blackstone conceived that "interest may as lawfully be received beforehand for forbearing as after the term is expired for having forborne." Lloyd v. Williams, 2 W. Bl. 792. And this was followed in Auriol v. Thomas, 2 Term R. 52; Marsh v. Martindale, 3 Bos. & P. 154; and Floyer v. Edwards, 1 Cowp. 112. But "no shift will enable a man to take more than legal interest upon a loan." So it is settled in our state that it is not usury, under our present constitution, to take interest in advance, and that the above act is valid "so far as it relates to transactions of a commercial kind in short-time paper." It is said in the opinion in Vahlberg v. Keaton that, "although this relaxation against the prohibition of usury was first sanctioned in the transactions of banks and other corporations authorized to make discount, a distinction could not be made against individuals, and it became universal"; citing 3 Pars. Cont. p. 131; Bank v. Butts, 9 Mass. 49: Marsh v. Martindale, supra; Insurance Co. v. Ely, 2 Cowen, 703; Cole v. Lockhart, 2 Cart. (Ind.) 631; Parker v. Cousins, 2 Grat. 373. In the case of Vahlberg v. Keaton, it is also said that: We have quoted largely from the above case, because we consider it a well-considered and sound opinion, throwing much light upon the question under consideration here, supported, as we find it to be, by the numerous cases referred to in it. It will be observed that the opinion is confined to "short-time paper" and in "transactions of a commercial kind." The opinion does not undertake to define "transactions of a commercial kind in short-time paper," because it was unnecessary, for the paper was unquestionably of that kind in that case, being three-months paper, — a negotiable promissory note.
The statute above quoted uses the term "commercial paper," and the note in the case at bar was commercial paper, — a negotiable promissory note, payable in 12 months from its date, for $2,500; and the interest, $250, was taken out in advance, and only $2,250 paid to the borrower. Now, if this transaction was not usurious, by reason of the length of time the note, out of which the interest was taken in advance, had to run, it was not usurious. This is the only possible question in the case. In the following cases taking interest at the highest legal rate in advance, on six-months paper, was held not to be usurious, viz.: Insurance Co. v. Blood-good, 4 Wend. 652; Bloomer v. McInerney, 30 Hun, 201. In the following cases the taking of the highest legal rate of interest in advance on one-year paper was held not to be usurious, viz.: Cole v. Lockhart, 2 Cart. (Ind.) 631; Mitchell v. Lyman, 77 Ill. 525; McGill v. Ware, 4 Scam. 21. In the following cases the highest legal rate of interest was reserved in advance on paper having from 23 months to 5 years to run, and this is held not to be usurious, viz.: Fleckner v. Bank, 8 Wheat. 339; English v. Smock, 34 Ind. 116 ( ); Brown v. Mortgage Co., 110 Ill. 235 ( ). See, also, Hoyt v. Institution, Id. 390; Bacchus v. Moreau, 7 Rob. (La.) 539 (semiannually in advance for 5 years). In McGill v. Ware, 4 Scam. 21, the court, after reviewing the cases in England and America upon this question, said: The note discounted in that case had one year to run, and interest at the highest legal rate was taken out in advance, and, yielding to authority, the court held that it was not usury. The proof in the case at bar tends to show that it is customary in the vicinity where this note was executed to pay debts in the fall or winter season, when the proceeds of the cotton crop can be realized; and that notes for the payment of money are made in reference to this, for convenience of trade. And it may be supposed that the business of the country is largely involved by reason of this custom, which, in our judgment, ought not to be ignored in this opinion. In Fleckner v. Bank, 8 Wheat. 339, a note to the bank, dated the 26th of March, 1818, payable the 1st of March, 1820, was discounted for the full term it had to run by taking out or reserving in advance the interest at the highest legal rate allowed by law, and it was held that this was not usury. In discussing the question, Judge Story, who delivered the opinion of the court, said: "If a transaction of this sort is to be deemed usurious, the same principle must apply with equal force to bank discounts generally, for the practice is believed to be universal." He also said, in substance, that taking interest in advance is not usury in bankers...
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