U.S. Supreme Court
Monclure v. Dermott, 38 U.S. 13 Pet. 345 345 (1839)
Monclure v. Dermott
38 U.S. (13 Pet.) 345
An action of covenant was instituted by the executors of M.J. upon an obligation executed by A.R.D., under seal, to M.J., by which she agreed to pay a certain note or bond, loaned by M.J. to A.R.D., which had been sold by A.R.D. at a usurious discount and on a usurious contract. The bond or note of M.J. had been given to enable A.R.D. to raise money to pay a debt due by her, and for which the note of M.J. had been previously loaned to her. It was denied by the executors of M.J. that she had any knowledge of the usurious dealing in which the bond or note of M.J. was sold. The executors of M.J. were obliged to pay a large portion of the note or bond, and the action was instituted to recover so much as they had paid. A.R.D. set up the usury between her and the person to whom she had sold the note or bond, as a defense to the suit of the executors of M.J. It was held that the action on the covenant of A.R.D. could be maintained, and that the usurious dealing between A.R.D. and the purchaser of the note or bond of M.J., did not render the covenant of A.R.D. to pay the bond or note invalid. The court said the contract between the defendant and the purchaser of the bond, if embracing no other person than themselves, could affect no contract between other parties, previously made, and whether that contract was usurious depended on the intention of the parties to it. If it was made bona fide for the sale and purchase of the bond, although at a discount which would insure to the purchaser twelve percent a year for the money advanced, it would not be usurious. If, on the other hand, the sale of the bond was a mere cover for avoiding the statutes against usury, and the real intention of the parties was to make a contract for the loan of money at a higher rate than the legal interest, then the contract was usurious. But to involve M.J. in the usury and to extend its taint to the covenant of A.R.D., it must be shown by proof that M.J. executed the bond or note sold for the purpose of aiding A.R.D. to borrow money at usurious interest, and not to enable A.R.D. to raise money by selling it in the market. When the holder of M.J.'s. note threatened proceedings on it, it was not necessary that the executors of M.J. should give notice thereof.
No subsequent confirmation of a usurious contract nor any new contract stipulating to pay the debt with the usurious interest will make it valid.
It is the settled law of Virginia that the bona fide purchaser of a bond or note may take it at any rate or discount, however great, without violating the statute.
The plaintiffs in error, executors of Mary James, instituted an action of covenant against the defendant on the following instrument of writing:
"Whereas Mary James has executed her bond or note, dated the 28th day of November, 1828, payable to me on demand, for the sum of twenty-six hundred and twenty dollars, which said bond or note was merely loaned to me for the purpose of raising money upon, and whereas, I have, since the execution of the said bond or note as aforesaid, assigned it to Philip Alexander, of Fredericksburg, for value received of him, I do therefore hereby bind myself, my heirs, executors, and administrators, to pay and discharge the said bond or note, with all interest that may accrue thereon, when the same shall become due and payable."
"Given under my hand and seal, this 12 August, 1829."
"ANN R. DERMOTT [SEAL]"
The evidence showed that the note of Mary James, which had been assigned to Philip Alexander, was not fully paid by Ann R. Dermott, and that a large portion of the same remained unpaid at the death of Mary James, who had executed a deed of trust to secure the payment of it, and that her executors, Philip Alexander having ordered the deed of trust to be enforced by the sale of the land and negroes conveyed by the deed, paid the same out of the funds of the estate in their hands.
The defendant alleged usury in the transaction for the loan of the money, and by an agreement between the counsel for the plaintiff and the defendant, usury was allowed to be given in evidence as if specially pleaded.
On the trial of the cause, certain bills of exceptions to the ruling of the court were filed by the counsel for the plaintiff, and the jury, under the charge of the court, gave a verdict for the defendant, upon which the circuit court gave judgment. The plaintiffs prosecuted this writ of error.
The case, and the whole of the plaintiffs' bills of exceptions, are fully stated in the opinion of the Court. chanroblesvirtualawlibrary