U.S. Supreme Court
Andrews v. Pond, 38 U.S. 13 Pet. 65 65 (1839)
Andrews v. Pond
38 U.S. (13 Pet.) 65
A bill of exchange, in payment of a debt due on a protested bill, was taken in New York from one of the parties to the protested bill. The exchange between Mobile, on which the bill was drawn, was stated to be ten percentum, and was added to the bill, and the damages on the protested bill, with interest, at the rate of interest in New York, from the time the first bill was protested, were added to the bill. It was sent to Mobile and was placed to the credit of the drawees by the endorsee, who received it before it came to maturity. The bill was afterwards protested for nonpayment. An action was brought in Alabama against the endorsers of the bill, one of whom was in New York when the bill was drawn, and who, being liable to suit on the protested bill, gave the second bill to prevent suit being brought against him. The defendants alleged usury in the second bill, the rate of exchange allowed on the bill, being ten percentum, was given, and it being alleged that the highest rate of exchange on Mobile did not exceed five percentum.
Although the transaction, as exhibited, appears, on the face of the account for which the bill was drawn, to be free from the taint of usury, yet if the ten percentum charged as exchange, or any part of it, was intended as a cover for usurious interest, the form in which it was done and the name under which it was taken will not protect the bill from the consequences of usury, and if the fact be established, it must be dealt with in the same manner as if the usury had been expressly mentioned in the bill itself. But whether the charge of ten percentum for exchange between New York and Mobile was intended as a cover for usury or not is a question exclusively for the jury. It is a question of intention.
In order to enable the jury to decide whether the usury was concealed under the name of exchange, evidence on both sides ought to have been admitted, which tended to show the usual rate of exchange between New York and Mobile, when the bill was negotiated.
There is no rule of law fixing the rate which may be charged for exchange. It does not depend on the cost of transporting specie from one place to another, although the price of exchange is no doubt influenced by it.
The general principle in relation to contracts made at one place to be executed at another is well settled. They are to be governed by the laws of the place of performance, and if the interest allowed by the laws of the place of performance be greater than that permitted at the place of the contract, the parties may stipulate for the higher interest without incurring the penalties of usury.
When a contract has been made without reference to the laws of the state where it was made or to the laws of the place of performance, and a rate of interest was reserved forbidden by the laws of the place where the contract was made, which was concealed under the name of exchange in order to evade the law against usury, the question is not which law is to govern in executing the contract; unquestionably it must be the law of the state where the agreement was entered into and the instrument taken to secure its performance. A contract of this kind cannot stand on the same principles with a bona fide agreement made in one place to be executed in another. In the last mentioned cases, the agreements were permitted by the lex loci contractus, and will even be enforced there if the party is found within its jurisdiction. But the same rule cannot be applied to contracts forbidden by its laws and designed to evade them. In such cases, the legal consequences of such an agreement must be decided by the law of the place where the contract was made. If void there, it is void everywhere.
A person who takes a bill which on the face of it was dishonored cannot be allowed to claim the privileges which belong to a bona fide holder without notice. If he chooses to receive it under such circumstances, he takes it with all the infirmities belonging to it, and is in no better condition than the person from whom he received it. There can be no distinction in principle between a bill transferred after it is dishonored for nonacceptance and one transferred after it has been dishonored for nonpayment. chanroblesvirtualawlibrary
If, in consideration of further forbearance, a creditor receives a new security from his debtor for an existing debt, he cannot enlarge the amount due by exacting anything, either by way of interest or exchange, for the additional risk which he may suppose he runs by this extension of credit, nor on the opinion he may entertain as to the punctuality of payment or the ultimate safety of his debt.
The plaintiff in error instituted a suit on a bill of exchange, dated at New York on 11 March, 1837, drawn by D. Carpenter on Sayre, Converse & Company, Mobile, Alabama, for $7,287.78 in favor of the defendants, Pond, Converse & Company, payable and negotiable at the Bank of Mobile sixty days after date.
The plaintiff in error was a citizen of New York, and the drawers and endorsers of the bill were citizens of Alexandria, Alabama.
The evidence in the circuit court proved that Lewis W. Pond, one of the defendants, was in New York in March, 1837, and being indebted to the plaintiff in the sum of six thousand dollars on a bill which had been returned protested from Mobile, and on which suit was about to be brought by the plaintiff, agreed to pay ten percent, the legal damages on the bill, and ten percent in addition, with the legal interest of New York on the bill for the time of its return, being eighteen days, and the charges of protest and postage, by a bill of exchange on Mobile. The bill was drawn in New York, being for the sum of $7,287.78, and was endorsed by Mr. Pond, in the name of the firm, the defendants in error. The bill was endorsed by the plaintiff in error and was remitted by the plaintiff to S. Andrews, at Mobile, and was by him set to the credit of H. A. Andrews & Company, of New York. It was received by S. Andrews, with the endorsement of the defendants, before its maturity, and it was a cash credit in the account current between H. M. Andrews & Company and S. Andrews. The defendant offered evidence under the issue the statute of New York against usury and certain depositions to prove that the bill of exchange was usurious.
One of the witnesses stated that the consideration for this bill was made up by the following account:
E. Hendrick's draft on Daniel Carpenter,
Montgomery, Alabama, protested, dated
at New York, December 20th, 1836, at
sixty days, for . . . . . . . . . . . . . . . . $6,000.00
Damages at 10 percent . . . . . . . . . 600
Interest 18 days, at 7 percent. . . . . 21
Protest and postage . . . . . . . . . . 4.25
Exchange, 10 percent, being difference
of exchange between Mobile and New
York on 11 March 1837 . . . . . . . . 662.53
John Delafield, President of the Phoenix Bank, examined on the part of the defendant, stated that the exchange between New York and Mobile on 11 March, 1837, was from three to five per chanroblesvirtualawlibrary
cent. This knowledge of exchange was acquired from having dealt an exchange during the period for the Phoenix Bank.
Robertent. This knowledge of exchange was acquired from having dealt an exchange during the period for the Phoenix Bank.
Robertent. This knowledge of exchange was acquired from having dealt an exchange during the period for the Phoenix Bank.
Robert White, cashier of the Manhattan Company, stated that by a reference to the books of the company, the exchange between New York and Mobile was, during the month of March, 1837, from five to seven percent, and Morris Robinson agent for the Bank of the United States in the City of New York, said that during the month of March, 1837, he found by a reference to the books the dealers with the bank were charged from three to five percent -- three for short, and five for long paper.
The plaintiff excepted to the reading of the statute and laws of New York against usury, and in order to disprove the allegation of usury in the transaction, as the contract was not made subject to the statute laws of New York, and the contract was subject only to the laws of Alabama as to its obligatory form and solidity, and was or was not usurious according to these laws. The plaintiff then offered to prove by Joseph Wood that the banks purchased bills at a far less exchange than others; that they never bought any other than undoubted paper; that from the facility of collecting, remitting &c., they had many advantages over the citizens at large, and that the exchange of the banks was therefore much lower than that of the community at large; that there was no fixed rate of exchange between Mobile and New York; that it varied from one to twenty percent, according to the solvency, punctuality, risk, &c., of the parties; that exchange was ever fluctuating, and was high or low as the risk was great or small. The court refused to admit this testimony, and the plaintiff excepted.
The plaintiffs asked the court to instruct the jury that if it was satisfied that the excess over legal interest retained in this bill was taken and contracted for innocently by the parties, without intending to violate the laws against usury, it might find for the plaintiff. The court refused to give this instruction, and the plaintiff excepted.
The plaintiff moved the court to instruct the jury that the contract expressed in this bill of exchange, if to be executed in Alabama, was subject alone to the laws of Alabama against usury, and that the usury laws of New York had no force or anything to do with this investigation; this was refused by the court, and plaintiff excepted.
The plaintiff next requested the court to charge the jury that if it believed S. Andrews received the bill before maturity, for a valuable consideration, without any notice of usury, and that the plaintiff received it from S. Andrews, without notice of usury, and before maturity, that the plaintiff might recover notwithstanding plaintiff offered no proof of the consideration he gave for it. The plaintiff excepted to this refusal of the court.
The plaintiff next moved the court to charge that the variance between the bill declared on and the one set up as the same bill by defendant's deposition was fatal in a plea of usury, to which the court refused, and the plaintiff excepted. chanroblesvirtualawlibrary
It appeared that before the bill was delivered by S. Andrews to plaintiff, it had been, while in the hands of S. Andrews, protested for nonacceptance, which appeared on the face of the bill. There was no evidence of any settled account between H. M. Andrews & Co. and S. Andrews or which was creditor or debtor upon the statement of accounts. It was also proved that the expense of transporting specie from New York to Mobile, including insurance and interest, would not exceed one and one-half percentum on the sum transported.
Upon the whole case and the several points stated, the court charged the jury that if it believed from the evidence that by the usages of trade between New York and Mobile, there was an established rate of exchange between those places, the drawers and drawees of the bill of exchange here sued on, had a right to contract for such rates of exchange, and that even a higher rate to a small amount, if under the circumstances it did not appear to have been intended to evade the statute against usury might be allowed by them; but if it believed that no such usage existed, the parties had no right to contract for more than the actual expense of transportation of specie from one place to the other, including interest, insurance, and such reasonable variations therefrom as above stated, and further, if it believed from the evidence that the drawers of the bill of exchange contracted with the drawers in the State of New York, at the time the bill was drawn, for a greater rate of interest than seven percentum per annum for the forbearance of the payment of the sum of money specified in the bill, although it may have been taken in the name of exchange, the contract is usurious, and unless it believed from the evidence that the plaintiff took the bill in the regular course of business and upon a fair and valuable consideration bona fide paid by him and without notice of the usury, it ought to find for the defendant; otherwise for the plaintiff, to which opinion and charge of the court the plaintiff by his counsel excepted. The jury found a verdict for the defendants, and the plaintiff prosecuted this writ of error. chanroblesvirtualawlibrary