Cameron v. Merchants and Manufacturers' Bank of Detroit

• Decision Date: 02 October 1877
• Citation: 37 Mich. 240
• Parties: John C. Cameron et al. v. The Merchants and Manufacturers' Bank of Detroit
• Court: Michigan Supreme Court

37 Mich. 240

John C. Cameron et al. v. The Merchants and Manufacturers' Bank of Detroit

Supreme Court of Michigan

October 2, 1877

Argued June 20, 1877

Error to Superior Court of Detroit. (Cochrane, J.)

Assumpsit by the bank against plaintiffs in error as owners and endorsers of two notes pledged without their knowledge by the holder as collateral security for the payment of another note which the bank had discounted for him at the rate of ten per cent. and to which plaintiffs in error were not parties. It was admitted that the bank was a corporation organized under the general banking laws of Michigan, and that it was entitled to recover unless barred by How. Stat. § 3138 which makes it unlawful to take or receive more than the legal rate of interest in advance on its loans and discounts. The court below directed a verdict for the bank. Affirmed.

Judgment affirmed with costs.

Maynard & Swan for plaintiffs in error. The legal rate of interest is that prescribed by law in cases where the parties have not stipulated in writing for a higher rate (Beals v Amador County 35 Cal. 633; Mason v. Callender 2 Minn. 376; Talcott v. Marston 3 Minn. 346; Kent v. Bown 3 Minn. 347) and the stipulation must be for its payment specifically as interest. Rosenbluth v. Dunn 41 Conn. 619. For legislative construction see Comp. L. § 6546, and for indications of the State policy see Charter Laws 1849 pp. 125, 140, 151, 253-4. The agreement being unlawful by the statute cannot be the basis of a recovery. Orr v. Lacey 2 Doug. (Mich.) 254; Snyder v. Willey 33 Mich. 495; Bissell v. Michigan etc. R. R. Co. 22 N.Y. 304, 305; Gaither v. The Farmers etc. Bank 1 Peters 37; Hunt v. Knickerbacker 5 Johnson 327; Thalimer v. Brinkerhoff 20 Johnson 396; Bank of U. S. v. Owens 2 Peters 527; State Bank v. Coquillard 6 Ind. 235-6-7; Life & Fire Ins. Co. v. Mechanic Fire Ins. Co. 7 Wend. 31; Seneca County Bank v. Lamb 26 Barbour 595; Albert v. Savings Bank 2 Maryland 159; Bank of Michigan v. Niles 1 Doug. (Mich.) 412; Caswell v. Central etc. Co. 50 Georgia 70; Leavitt v. Palmer 3 Comstock 19; Talmage v. Pell 3 Selden 346; Braynard v. Hoppock 7 Bosworth 157; Schroeppel v. Corning 5 Denio 236. Corporations can make no contracts that do not come directly or incidentally within the specific purpose for which they were established. Angell & Ames on Corporations § 256; Chillicothe Bank v. Swayne 8 Ohio 257; Creed v. Commercial Bank 11 Ohio 489; Spalding v. Bank of Muskingum 12 Ohio 544; Bank of Salina v. Alvord 31 N.Y. 473, 477, 478; Bissell v. Michigan Southern Railroad Co. 22 N.Y. 304, 305.

Baker & Campau for defendants in error. The phrase "legal interest only" as used in the usury law (How. Stat. § 1595) means the highest legal rate not prohibited by statute. Smith v. Stoddard 10 Mich. 150. Even if it is held that banks can take only seven per cent, their contract for a higher rate would be good as to all but what the usury law prohibits or declares forfeited. Rock River Bank v. Sherwood 10 Wis. 230; Com. Bank v. Nolan 7 How. (Miss.) 508; McLean v. Lafayette Bank 3 McLean 587; Quinsigamond Bank v. Hobbs 11 Gray 250; Farmers' Bank v. Burchard 33 Vt. 346; Bank of Middlebury v. Bingham Id. 621; Fleckner v. U. S. Bank 8 Wheat. 355; Philadelphia Loan Co. v. Towner 13 Conn. 257; Bandel v. Isaac 13 Md. 202. The contract of a corporation is not of necessity illegal and wholly void for exceeding in some respects its corporate powers. DeGroff v. Am. Lin. Th. Co. 21 N.Y. 127, 128; Parish v. Wheeler 22 N.Y. 503; Bissell v. Mich. S. & N. I. R. R. Co. 22 N.Y. 258; Hazlehurst v. Savannah etc. R. R. Co. 43 Ga. 54; Bradley v. Ballard 55 Ill. 413; Underwood v. Newport Lyceum 5 B. Mon. 129; Monument National Bank v. Globe Works 101 Mass. 57; Swartwout v. R. R. Co. 24 Mich. 396. Plaintiffs in error, not being parties to the discounted note, could not set up its illegality as a defense. Only a party to a usurious contract can set up usury against it. Craig v. Butler 9 Mich. 21; Farmers' etc. Bank v. Kimmel 1 Mich. 84; Higginson v. Gray 6 Metc. 220.

OPINION

Campbell, J.

The only question in this case is, whether under the general banking law, a bank may take ten per cent, instead of seven, for discounts on loans. The statute, in giving discounting and other banking powers, contains a proviso "that it shall not be lawful for any such association to take or receive more than the legal rate of interest in advance on its loans and discounts." 1 How. Stat. § 3138. It is claimed by plaintiff in error that the phrase "legal rate of interest" means seven per cent., which is the rate fixed where the contract is silent on the rate, and that it cannot authorize the taking of ten per cent., although that amount may be agreed upon by all persons except banks.

It seems to be assumed that although ten per cent may be taken by those who stipulate for it in writing, yet this rate is in some way to be regarded as not favored in law, and as allowed under such restrictions as indicate that it is to be deemed a hard exaction. And attention is also called to the fact that the old bank charters only allowed seven per cent to be taken.

So far as these old charters are concerned, it will be found that of the banks chartered before the Revised Statutes of 1838, all were allowed to take the highest legal interest permitted by the general laws existing at their chartered date, the earliest being confined to six per cent, and the subsequent charters allowing seven. Private contracts at the same period involved forfeitures for any excess beyond the legal rates. The statutes rescinding these forfeitures and simply making the contract invalid to the extent of the excess of interest, are comparatively recent. We find no trace in our early legislation of any disposition to put banks on any worse footing than individuals, as lenders on interest. After the rate of interest had been so fixed as to allow contracts for ten per cent., the charters were, it is true, granted in such terms as to put the new corporations on the same footing as the old, and confine them to seven per cent. But it is evident this was only done to prevent inequality. The early State Legislatures never tampered with the older charters, and left the six per cent. restriction in force, where existing, just as they did the seven per cent. clause. Most of the banks were organized before ten per cent. could be taken by any person. And it is worthy of remark that no bank charter is to be found which does not fix the percentage to be allowed expressly. The term "legal rate of interest" is never used in those instruments.

The general banking law of 1857 was...