Bock v. Lauman
| Decision Date | 01 May 1855 |
| Citation | 24 Pa. 435 |
| Parties | Bock versus Lauman. |
| Court | Pennsylvania Supreme Court |
Briggs and H. Alricks were for plaintiffs in error.—The law of New York is to govern in the construction of the instrument; the law of Pennsylvania in its enforcement. Accommodation paper is governed by the same rules as paper founded on a real business transaction: 3 Kent 85-6; 8 Harris 384; Byles on Bills 214; 9 Watts 141. It is not material whether the endorser receives the money or not: 7 Wend. 227; Byles on Bills 177.
Fraud or want of consideration is no defence for either the maker or accommodation endorser of a promissory note against a bona fide holder: Byles on Bills 175; 2 Greenleaf's Ev. 111-114; Id. 121-125; 9 Harris 417; Story on Pro. Notes 195; 1 Hill 287.
The sale of the bill in suit was lawful by the New York Act of 6th April, 1850, the first section of which provides that "no corporation shall hereafter interpose the defence of usury in any action." The Act of 1850 was passed to enable corporations to raise money at a greater discount than 7 per cent., if necessary. This transaction being lawful on part of the company, is binding upon it; and if lawful as to it, how can it be unlawful as to any other party thereto? LEAVITT, J., in the case of Curtis v. Davitt, decided in 1854, and reported in 17 Barbour 311-367, 8, observed that the Act of 1850 was in the nature of a repeal of the penalties and forfeitures relating to usury; and if the penalties and forfeiture are repealed, there is nothing in the way of recovery in this case. Why should an endorser, who was aware of the character of the bill, be permitted a defence which the maker could not make? If the endorsement be made at the time of making the note, the endorser is to be treated as an original promissor: 3 Kent 98, 9; 4 Pick. 385.
But was the contract in this case usurious? It is said, to constitute usury, there must be a loan or forbearance of money. 2. Taking therefor more than the legal rate of interest. 3. A corrupt agreement, or intention to take usury. Both parties must be cognisant of the facts and circumstances which constitute usury: 1 Barbour 43. In this case the plaintiffs had no knowledge of the character of the paper. It was simply a purchase by them, and the statute of usury has no application as to an endorser in relation to a note sold in the market: 3 Comstock 344-359.
The Court below considered the law settled that when paper was usurious in its formation, or an act of usury is committed in putting it into market, an endorser will be liable to a bona fide holder, as by his endorsement he contracts for the validity of the paper — but supposed that this principle was not applicable to the case of an accommodation endorser, who made no contract with the holder, nor received any money from him, but was solely applicable to securities rendered invalid by usury committed prior to the endorsement. That accommodation endorsers were not an exception, reference was made to 7 Johns. 360; 1 Barb. Ch. R. 43; and 9 Barb. 647.
We take the position that if the purchaser of an accommodation bill be a bona fide holder for value, without notice of anything which renders the bill invalid, he may recover from his immediate endorser at least the amount which he paid for the bill: 5 Randolph 333; 4 Humphries 244; 4 Whar. 222; 1 Harris 270, Vantine v. Wood; 2 Denio 621; 7 Johns. 360; 6 Hill 244; 1 Barbour 43; 8 Cowen 669. There is no reported decision in New York that an endorser can set up the defence of usury when the drawer cannot do so. The case of Ballingalls v. Gloster, 3 East 482, cited in this connexion.
The opinions expressed by the counsel in New York as to the law of that state, were expressed in view of a supposed state of facts which do not exist in the case; and the Act of 1850 was not referred to by them.
Kunkle and McCormick, were for defendants in error.—Tallmadge was not a party to the bill, and was not within the rule that a party to a bill or note actually negotiated cannot be a witness to impeach it. The paper was passed by the railroad company directly to the plaintiffs, and was therefore not received by them in the usual course of business: 4 W. & Ser. 287, Parke v. Smith. But if there was error in the admission of Tallmadge, Robbins testified that he sold the bill for Patchin, the president of the company, and paid the proceeds to him. Thus the defendants were mere accommodation endorsers. The bill being mere accommodation paper, it had no legal existence till negotiated: 20 Johns. 288; and was not before binding between the parties as a contract, none of whom could have maintained an action upon it. Therefore its negotiation with plaintiffs was in law a loan of money, and being usurious was invalid in their hands: 20 Johns. 288; 2 Denio 621; and whether the plaintiffs knew or not that it was before unavailable: 8 Cowen 669; 1 Hill 10; 3 Gill & Johns. 483.
The distinction between the purchase of a note and a loan is settled. A note which has been negotiated by the maker, and which may be enforced against him by the holder at maturity, may be sold at a greater discount than seven per cent. without involving the penalties of usury. But the note must be perfect and available to the holder to make it saleable by him. The test is the right to maintain an action upon it if due: 15 Johns. 55. If a party takes more than legal interest, he must be presumed to have intended to do it.
To the allegation that the plaintiffs believed the bill to be business paper, it may be replied that no questions appear to have been asked by them, and no communication made. A bonâ fide holder is one who takes paper at the legal rate, and without notice of its being tainted with usury. If ignorance be a protection, the statute may be evaded by silence. But notice is not necessary by the laws of New York, in order that the statute may operate, even in the case of a bona fide holder. By the Act of 1837 all notes or bills upon which more than the prescribed rate is taken are void, whether the holder had notice or not: 3 Johns. Cases 66; 8 Cowen 670; 15 Johns. 354-5; 7 Wend. 569; 10 Paige 326.
The only effect of the Act of 1850 is to prohibit a corporation from interposing the defence of usury. The bill, as between the other parties to it, remains as before — void. The case in 17th Barbour merely decided, with respect to the Act of 1850, that it operated on existing as well as subsequent suits.
It appeared from the depositions that the bill was accommodation paper, not negotiated before discounted by the plaintiffs, and that it was discounted at the instance of the agent of the company at more than seven per cent. per annum, and the proceeds paid to the president of the company for its use. According to the authorities the legal inception of the bill was its negotiation to the plaintiffs. Before that no action could be maintained upon it. Its being discounted at more than the prescribed rates was a loan, and not a purchase, and usurious and void as to the defendants, whether the plaintiffs knew the character of the paper or not; and the defence in this case is not impaired by the Act of 1850. The defendants put their names to the bill which was liable to be affected by usury, if improperly negotiated, and did nothing to induce its usurious negotiation to the plaintiffs; and, as sureties, they are entitled to avail themselves of the defence.
By the law of New York, where a note is business paper, it may be sold for more than seven per cent. — where it is not business paper it cannot. The plaintiffs were bound to inquire into its character. In the case of Vantine v. Wood, 1 Harris, there was a false representation. The case would be the same if the defendants had got the money. The defendants here signed in blank — and they had no agency in the negotiation of the bill. Other cases exist where the note was negotiated out of the state of New York. The proviso in the Act of 1828 in favor of bona fide holders was repealed by the Act of 1837. The Act of 1850 was not designed to be a repeal of the usury laws, but was rather intended to be penal in its character as to corporations. It is not limited where a corporation is drawer, but may apply where it is an endorser.
H. Alricks, in reply.—The note in suit was not usurious in its origin, and was bought in the market as business paper. Where a party, who sells a note, does not put his name upon it, it is treated as a purchase and not as a loan. The Act of 1850 is applicable only to the case of a loan, and not to a purchase.
Though this cause was argued in the Common Pleas, as it was here, as if it was to be governed by the usury laws of New York; yet it nowhere appears upon the record that those laws were given in evidence, or, in any formal way, made the rule or the subject of the decision. In strictness, therefore, it would be presumed here that the parties regarded the laws of New York as of no importance in the cause. And since it cannot be unlawful, by our laws, for a man to make a usurious contract in New York, we should have no difficulty in allowing the plaintiff to recover on his contract, at least the amount actually advanced with interest.
But we cannot so treat this case, for the parties have not intended that we should. They understood each other that the usury laws of New York were to be taken as part of the case, though not put into the special verdict, or in any way referred to in the record as an element or rule of the decision; and, if we can, we shall look at them to see if they make out any defence.
Are we excluded from looking at the laws of another state where they have not been found by the jury as matter of fact? We think not.
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