The President, Directors and Company of the Bank of the United States v. William Owens, Herbert Waggoner, George Wagley and Alexander Miller

• Decision Date: 01 January 1829
• Citation: 27 U.S. 527,2 Pet. 527,7 L.Ed. 508
• Parties: THE PRESIDENT, DIRECTORS AND COMPANY OF THE BANK OF THE UNITED STATES v. WILLIAM OWENS, HERBERT G. WAGGONER, GEORGE WAGLEY AND ALEXANDER MILLER
• Court: U.S. Supreme Court

27 U.S. 527

2 Pet. 527

7 L.Ed. 508

THE PRESIDENT, DIRECTORS AND COMPANY OF THE BANK OF

THE UNITED STATES

v. WILLIAM OWENS, HERBERT G. WAGGONER, GEORGE WAGLEY AND ALEXANDER MILLER.

January Term, 1829

THIS case came up, on a certificate of the judges of the circuit court for the district of Kentucky; they being opposed in opinion.

The action was upon a promissory note signed by the defendants, bearing date the 7th of February 1822, by which they promised to pay to the president, directors and company of the bank of the United States or order, on the 7th of February 1825, five thousand dollars with interest at the rate of six per centum per annum from the date.

The following indorsement is on the note:

'Mem. Interest is to be charged on this note from the 21st day of May 1822 only, and not from the 7th of February 1822 within mentioned, the former being the day on which the amount was actually received by the makers of this note.

(Signed) H. CLAY.

The declaration being in the usual form, the defendants, Waggoner, Wagley and Miller pleaded as follows:

'That they ought not to be charged with the said debt by virtue of the said supposed note or writing, because they say that they executed the said note at the instance and for the accommodation of the said Owens, and with the view of making him to obtain a loan of the money from the bank of the United States, upon the discounting of said note; and defendants alleged that afterwards, to wit, at, &c. the said Owens presented the said note for discount to the president and directors of the office of discount and deposit of the bank of the United States at Lexington, Kentucky, and that the president and directors of the said office, then and there failed to discount the said note or make any loan thereon; and that after the rejection of the said note as aforesaid at Lexington in Kentucky, to wit, on the 31st day of May 1822, it was unlawfully, usuriously and corruptly agreed by and between the said plaintiffs, by their agents, managers and servants employed in the management and business of said office, and the said Owens, that they the said plaintiffs would receive and discount said note, and that the said Owens should receive from them therefor notes of the bank of Kentucky or its branches at the nominal value of said notes; and for the forbearance and loan aforesaid, that said Owens would pay said note in current money of the United States when it fell due, with interest at the rate of six per cent. per annum from the 7th day of February 1822, and they aver, that in pursuance of said corrupt and unlawful agreement, the said note was delivered to the said plaintiffs at their said Lexington office upon the terms aforesaid, they advancing and loaning therefor, as the whole and sole consideration of said note (after deducting a large sum from the amount of said note for discount) to wit, the sum of $_____ in notes of said bank of Kentucky, counted and rated at their nominal value. And said defendants aver, that at the time said note was discounted as aforesaid, the notes of said bank of Kentucky and its branches were generally depreciated, so much so that one hundred dollars thereof nominally were of the value of fifty-four dollars only or less, and current only at that depreciation for greater or smaller sums, to wit, at, &c. And the said defendants aver that said transaction and dealing was contrary to law and the fundamental articles of said corporation, and the said note founded upon a corrupt and usurious consideration, the said plaintiffs reserving a greater interest than at the rate of six per cent. per annum upon the value of the notes loaned by them as aforesaid, and this they are ready to verify. Wherefore, &c.'

To this plea, the plaintiffs by their attorney demurred^(a).

(a) The demurrer entered in this case, prevented that investigation of the facts attending the transaction, which was the subject of the suit; and by which the plaintiffs would have been enabled to present the circumstances under which the loan was made to the drawer of the note, so as to fully vindicate the institution from any charge of intentional violation of the provisions of the charter of the Bank of the United States, or the general rules of law. The following authentic and explanatory statement has been furnished to the reporter.

The note in this case is joint and several, and was not offered, as the plea suggests, for a loan in the ordinary course of discount, in United States bank notes, or specie; (it being generally known that the Lexington office was at that time restrained from making such loans) but specially for notes of the bank of Kentucky. These notes had been received by the bank of the United States, at their office at Lexington, at their nominal specie value, a part of them being for government deposits; they had always preserved that value to the bank, by the balance being liquidated, and interest being paid by the bank of Kentucky periodically, and by the actual payment in specie, within a few (six) months after the loan to Owens, of the balance due. The bank therefore would have received in specie from the bank of Kentucky, the amount loaned to Owens with its interest, in addition to the sum actually paid, had the loan not been made to him. The public exhibits of the bank of Kentucky, at the time of the loan, and before and since, have shown its entire ultimate ability to pay its notes and deposits in specie; and individuals have, in a great number of instances, received from that bank by compromise on time, or by assignments of its discounted notes, or by recovery on suit, the nominal amount of their notes and deposits in specie. The great issue of commonwealth bank notes at the period referred to, and their free reception by the bank of Kentucky in payment of its debts had, however, the effect of giving to the notes of the bank of Kentucky nearly the same nominal depreciated character as those of the bank of the commonwealth.¹- This case came before the court again, in January term 1835, after a trial on the merits, and it was finally decided, that the contract was not usurious. United States Bank v. waggoner, 9 Pet. 378.

Upon the argument of the demurrer, the following questions arose, namely:

1. Whether the facts set forth, and the averments in said plea, make out a case in which the corporation has taken more than at the rate of six per cent. per annum, upon a loan or discount, contrary to, and in violation of the 9th rule of the fundamental articles of the constitution of the corporation?

2. If the plea does make out such a case, whether the notes sued on, or the contract therein expressed to pay to the plaintiffs five thousand dollars, is void in law, so that no recovery can be had thereon in this suit?

3. If not wholly void, whether the plea is sufficient to bar the plaintiffs' recovery of any, and if of any, of what part of the said sum of five thousand dollars?

Mr Sergeant, for the plaintiffs.

1. Upon the first question, after referring to the 9th rule^(a), he proceeded to say, that the case presented by the plea was not within the words of the rule. The prohibition is against taking more than six per cent. The utmost that can be made out of the allegations of the plea, supposing the construction attempted to be put upon the transaction to be correct, is, that there was an agreement to take more than at the rate prescribed. Nothing was taken but the note. There is no prohibition against an agreement to take more than six per cent. The offence is in taking more, and nothing else. Penal provisions in a statute are to be construed strictly. This is highly penal, for it is made a violation of the charter, and exposes to the danger of forfeiture.

(a) 'The said corporation shall not, directly or indirectly, deal or trade in any thing except bills of exchange, gold or silver bullion, or in the sale of goods really and truly pledged for money lent and not redeemed in due time, or goods which shall be the proceeds of its lands. It shall not be at liberty to purchase any public debt whatsoever, nor shall it take more than at the rate of six per centum per annum, for or upon its loans or discounts.'

Where a penalty is given for taking usurious interest, it is well settled, that the penalty cannot be recovered without proving an actual taking of the usurious interest. Fisher vs. Beasley, Dong. 236; Maddock vs. Hammett, 7 T. R. 180. Here no discount was deducted, as is most usual in banking operations. The interest was not payable till the maturity of the note. It is clear, therefore, that there has not been a taking of more than six per cent. in violation of the 9th rule.

2. This question does not arise, unless the first be made out affirmatively. If there has been no taking of more than six per cent. in violation of the 9th rule, (as there clearly has not,) this question, being by its statement made dependent upon the first, is also decided in the negative.

There is nothing in the act to make the contract void. The penalty is specified, and is of a different nature. An additional penalty cannot be imposed.

A mere prohibition to take more than six per cent. does not of itself avoid a contract agreeing to take more. When the agreement is avoided, it is always in consequence of an express provision by law to that effect. Such is the law in England against usurious contracts, and in many of the states. Such is the law of Kentucky, and this question could only have arisen from the application of that law to the present case.

Nor do courts incline to destroy the contract. Even under those laws, which avoid the contract for usurious agreement, if chancery get possession of the matter, by the application of the debtor, it will compel him to pay the debt and legal interest as a condition of relief.

But state legislation has no power over the bank of the United States or its contracts. This has been decided, and is obvious from the nature of the case...