U.S. Supreme Court
Call v. Palmer, 116 U.S. 98 (1885)
Call v. Palmer
Argued November 18, 1885
Decided December 14, 1885
116 U.S. 98
When an agent who is authorized by his principal to lend money for lawful interest exacts for his own benefit more than the lawful rate without authority from or knowledge of his principal, the loan is not thereby rendered usurious.
Where the promisor in a usurious contract makes it the consideration of a new contract with a third person, not a party to the original contract or to the usury paid or reserved upon it, and the new contract is not a contrivance to evade the statutes against usury, the latter is not illegal or usurious.
This was a suit in equity brought by Henry H. Palmer, the appellee, against Asa C. Call, the appellant, to foreclose a mortgage on the land of the latter given by him to secure his note for $11,000. The record disclosed the following facts:
Albert C. Burnham, residing in Illinois, was a partner in the firm of Burnham, Ormsby & Co., bankers at Emmetsburg, Iowa. He had in his hands for investment $10,000 belonging to his relative, one Mrs. Davidson. Call applied in writing to Burnham, Ormsby & Co. for a loan of $10,000. Soon after the application was made, Call met Burnham at Emmetsburg, Iowa, and they entered upon a treaty for the loan. Burnham, thinking Call's proposition to be a favorable one, decided to accept it for Mrs. Davidson, and, after his return to Illinois, sent the money to Burnham, Ormsby & Co. at Emmetsburg, to be lent to Call on the terms proposed by him. Burnham, Ormsby & Co. took the note of Call dated in November, 1872, for $10,000, payable to A. C. Burnham, or order, on November 1, 1875, with ten percent interest, payable semiannually, which Call secured by a mortgage on certain of his real estate in Iowa. Call received from Burnham, Ormsby & Co. $8,000 for his note; they retaining $2,000 as a compensation for their services in negotiating the loan. No part of this sum was paid to Mrs. Davidson -- chanroblesvirtualawlibrary
she did not know that it had been deducted from the $10,000 lent by her to Call, and she never authorized Burnham or Burnham, Ormsby & Co. to lend her money at a greater rate of interest than ten percent or to retain any commission or bonus out of the sum lent. In short, she received no benefit from the usury and had no knowledge of it. A. C. Burnham held the note as the agent and trustee of Mrs. Davidson, but subject to her control. Afterwards, the appellee, Palmer, who lived in New Jersey, bought of Burnham the $10,000 note of Call, with five coupon notes of $500 each, not then due, given by the latter for interest thereon. The notes were endorsed by Burnham to Palmer in September, 1873, and Palmer paid therefor in cash to Burnham for Mrs. Davidson the face of the principal note, $10,000, and the accrued interest. In this purchase, Palmer acted for himself without the intervention of any agent whatever.
On November 13, 1875, the principal note being past due, Call, in order to raise money to pay it, applied in writing to Burnham, Ormsby & Co. to lend him $11,000 for five years. They, as agents of Palmer, agreed to loan Call the money. They took his note, dated November 1, 1875, for $11,000, payable to the order of Palmer on November 1, 1880, with ten percent interest, payable semiannually, secured by a mortgage executed by Call on his lands in Iowa.
The consideration for the note was as follows: Palmer delivered up to Call the $10,000 note, which he had purchased from Mrs. Davidson, and released on the record the mortgage made to secure it, and he sent to Burnham, Ormsby & Co. $1,000 in cash for Call. Five hundred dollars of this 1,000 was returned to Palmer through Burnham, Ormsby & Co., in payment of one of the coupon notes, for interest due on the Davidson note, and Call consented that Burnham, Ormsby & Co., who, through Ormsby, had procured for him the loan from Palmer, might retain the remaining $500 as a bonus for their services. Palmer had no notice or knowledge that Call had not received the full amount of the $10,000 for which he gave his note to Burnham for Mrs. Davidson, until after the bringing of this suit; nor any notice or knowledge that the said $500 had been retained chanroblesvirtualawlibrary
by Burnham, Ormsby & Co. for their services in procuring the loan for $11,000, and did not in any manner authorize its retention of Burnham, Ormsby & Co.
Call set up the plea of usury to the suit brought by Palmer to foreclose his mortgage. The circuit court overruled the defense, and entered a decree against Call for the amount due on the note, and for the foreclosure of the mortgage. The appeal of Call brings that decree under review.