IN error to the circuit court of the United States for the Kentucky district.
The plaintiffs in error instituted an action against the defendants, and one William Owens, on a promissory note for 5000 dollars, dated the 7th of February 1822, and payable at the office of the Bank of the United States at Lexington, Kentucky, on the 7th of February 1825, with interest at the rate of six per centum per annum. The defendants were joint and several promissors with William Owens. Upon a plea and demurrer in the suit, a division of opinion was certified by the judges of the circuit court to this court, upon which the opinion of the court was given, as reported in 2 Peters 527.
Afterwards, at May term 1833, the case having been remanded, judgment was entered against William Owens for want of a plea, and the other defendants pleaded the general issue; upon which, the cause was tried by a jury, and a verdict and judgment, under the direction of the court, were given for the defendants. A bill of exceptions to the refusal of the court to give the instructions asked by the plaintiffs, and to those given by the court at the request of the defendants, was tendered on behalf of the plaintiffs, and was sealed by the judges of the circuit court.
The note declared on was in the following terms:
'On or before the 7th day of February 1825, we, William Owens, Alexander Miller, Herbert G. Waggener, George Wagley, jointly and severally, promise to pay to the President, Directors and Company of the Bank of the United States, at their office of discount and deposit at Lexington, the sum of 5000 dollars in lawful money of the United States, with interest thereon, in like money, after the rate of six per cent per annum from this day until paid, for value received, at the said office of discount and deposit at Lexington, without defalcation. Witness our hands, this 7th day of February 1822.
On which note is the following indorsement:
'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 the note.
The evidence in the case established the following facts. Before the time when the note was given, the office of the Bank of the United States at Lexington was the holder of a large amount of notes of the Bank of Kentucky, which had been received in the usual course of business, at the full value of the notes as expressed upon them, in gold and silver. These notes were considered as valuable to the full extent of their amount, although the Bank of Kentucky had suspended paying their notes in specie. No doubt was entertained by the officers of the office of the Bank of the United States, of the full ability of the Bank of Kentucky so to redeem them. At the time the loan was made to Owens on the note sued upon, the notes of the Bank of Kentucky had depreciated to the amount of between thirty-three and forty per cent. It was also in evidence, that when the Bank of Kentucky suspended specie payments in 1819, the institution was considerably indebted to the plaintiffs at the office at Lexington, for her notes taken in the usual course of business, and for government deposits transferred to that office from the Bank of Kentucky and its branches; and that the accounts had been settled between the institutions, the balance ascertained and placed to the credit of the plaintiffs on the books of the Bank of Kentucky, as a deposit upon which the Bank of Kentucky agreed, in consideration of forbearance of the plaintiffs, to pay interest at the rate of six per cent per annum; and that said interest, as it accrued, was carried at stated intervals of time to the credit of the plaintiffs on the books of the bank; and that the amount paid Owens on the said check had the effect of stopping the interest on that sum from that time. The balance which remained due from the Bank of Kentucky to the Bank of the United States was finally settled and discharged in specie or its equivalent, about seven months after the date or time of the said loan to Owens. The Bank of Kentucky did not, for many years after the date of the loan to Owens, generally resume the payment of its notes in specie, or its equivalent.
In the state of things existing in 1822, William Owens applied to the office at Lexington for a loan of 5000 dollars in the notes of the Bank of Kentucky, assuring the bank that they would answer his purpose as well as gold or silver. The offer was rejected by the directors of the bank; and on its renewal, was again refused. A third time the loan was applied for, the interference of a gentleman connected with the business of the bank, not a director, to procure it, was solicited and obtained; and the application was referred to the board at Philadelphia, by which the loan was authorized, a mortgage on real estate being given as an additional security for the loan. The mortgage and note having been executed, the amount of the same was paid to William Owens by handing him 1100 dollars in notes of the Kentucky Bank, and a check of that bank for 3900 dollars, which was paid to him at that bank in its notes.
The defence to the action was, that the transaction was usurious, and therefore contrary to the act of congress incorporating the Bank of the United States, and void. On the trial, the following instructions to the jury were asked by the counsel for the plaintiffs.
'1. That if they believe from the evidence, that the consideration of the note sued on was 3900 dollars, paid in a check on the Bank of Kentucky, and 1100 dollars in Kentucky notes, and that the contract was fairly made, without any intention to evade the laws against usury; but that the parties making the contract intended to exchange credits for the accommodation of Owens; that the Bank of Kentucky was solvent, and so understood to be, and able to pay all its debts by coercion: that the contract is not void for usury, nor contrary to the fundamental law or charter of the bank, notwithstanding it was known to the parties, that said bank did not pay specie for its notes without coercion, and that the difference in exchange between bank notes of the Bank of Kentucky and gold and silver, was from thirty-three to forty per cent against the notes of the Bank of Kentucky.
'2. To instruct the jury, that if they believe from the evidence, that the contract was made on the part of the bank fairly, and with nointention to avoid the prohibition of their charter by taking a greater rate of interest than six per cent, or the statutes against usury, but at the instance, and for the accommodation and benefit of the defendant Owens; and that at the time of the negotiation and contract for the check on the bank, and the 1100 dollars in bank notes of the Bank of Kentucky, that bank was indebted to the Bank of the United States, at their office aforesaid, the sum of 10,000 dollars or more, bearing an interest of six per cent, which sum, it was understood and believed by the parties to the contract, at and before its execution, the Bank of Kentucky was well able to pay, with interest, and which sum it did pay, after deducting the 3900 dollars, paid to the defendant Owings, with interest in gold or silver, or its equivalent: that the contract was not usurious, unless they believe that the contract was a shift or device entered into to avoid the statute against usury, and the prohibition of the charter, notwithstanding the jury should find that the check and notes aforesaid were, in point of fact, of less value than gold and silver.
'3. If the jury find, from the evidence in the cause, that the defendants applied to the plaintiffs to obtain from them 5000 dollars of the notes of the President, Directors and Company of the Bank of Kentucky; and in consideration of their delivering, or causing to be delivered to the defendants 5000 dollars of such notes; and the said Bank of Kentucky was then solvent and able to pay the said notes, and has so continued up to this time; and that the holders thereof could, by reasonable diligence, have recovered the amount thereof, with six per centum per annum interest thereon, from the time of the delivery of them by plaintiffs to defendants, up to the time of such recovery; and that said arrangement and contract was not made under a device, or with the intent to evade the statutes against usury, or to evade the law inhibiting the plaintiffs from receiving or reserving upon loans interest at a greater rate than six per centum per annum: then the transactiom was not in law usurious or unlawful, and the jury should find for the plaintiffs.
'4. That unless the jury find from the evidence in the cause that the advance sale or loan of the notes on the Bank of Kentucky, made by plaintiffs to defendants, was so made as a shift or device to avoid the statute against usury, or in avoidance of the clause of the act of congress which inhibits the plaintiffs from taking or reserving more than at the rate of six per centum per annum for the loan, forbearance, or giving day of payment of money, the law is for the plaintiffs, and the jury should find accordingly.
'5. That unless they believe, from the evidence in this cause, that there was a lending of money, and a reservation of a greater rate of interest than at the rate of six per centum per annum stipulated to be paid by defendants to plaintiffs: the law is for the plaintiffs, and the jury should find for them; unless they further find that there was a shift or device resorted to by the parties with the intent and for the purpose of avoiding the law, by which something other than money was advanced, and by which a greater rate of interest than six per cent was allowed.
'6. That if the defendants applied to the plaintiffs for a loan of 5000 dollars of the notes of the Bank of Kentucky, and agreed to give therefor their note for 5000 dollars, payable three years thereafter, with interest, and the Bank of Kentucky was then, and continued thereafter to be solvent, and the said Bank of Kentucky did thereafter pay and discharge to the holders thereof the said notes, the said contract was not unlawful–although the notes of the Bank of Kentucky would not then command, in gold or silver, their nominal amount, when offered for sale or exchange as a commodity or money.
'7. That, if they find from the evidence, that the defendants obtained from the plaintiffs 5000 dollars of the notes of the Bank of Kentucky, or 3900 dollars in a check upon said bank and 1100 dollars of its notes, and in consideration thereof, made the note sued upon, the said transaction was not therefore unlawful or usurious–although the notes of the Bank of Kentucky were then at a depreciation in value of thirty-three per cent, in exchange for gold or silver.
'8. That there is no evidence in this cause conducing to prove that there was a loan by the plaintiffs to the defendants of notes on the President, Directors and Company of the Bank of Kentucky.'
The court refused to give these instructions, and on motion of the defendants instructed the jury: 'that if they find from the evidence that the only consideration for the obligation declared upon was a loan made by the plaintiffs to Owens of 5000 dollars in notes of the Bank of Kentucky, estimated at their nominal amounts, part paid in the notes themselves, and the residue in a check drawn by the plaintiffs on the Bank of Kentucky, on the understanding and agreement that the said Owens was to receive the notes of said bank in payment thereof, and he accordingly did so; that the Bank of Kentucky had, before that time, suspended specie payments, and did not then pay its notes in lawful money; that the said notes then constituted a general currency in the state of Kentucky, commonly passing in business and in exchange at a discount of between thirty and forty per cent below their nominal amounts, and could not have been sold or passed at a higher price; that the said facts were known to the plaintiffs and said Owens, yet the plaintiffs passed the said notes to the said Owens, the borrower, at their nominal amounts: then the transaction was in violation of the act of congress incorporating the plaintiffs, the obligation declared on is void, and the verdict ought to be for the defendants.'
The plaintiffs prosecuted this writ of error.
Mr Sergeant, for the plaintiffs in error, submitted the following printed argument.
1. That the court erred in giving the instructions prayed by the defendants.
2. That they erred in not giving the instructions prayed by the plaintiffs.
The case presented and adjudicated by this court, in The Bank v. Owens, 2 Peters 527, was essentially different from the case now submitted. There, unfortunately, the plaintiffs, by demurring to the defendant's plea, admitted all the allegations it contained, in their strongest sense, including the allegation of corrupt and usurious intention. In short, they confessed that the contract was properly characterized as corrupt, usurious, and in violation of the charter. The court were thus compelled to declare the law as applied to a contract thus alleged on one side, and confessed on the other, with all its offensive description, without the power of looking into the true merits of the case, and ascertaining whether the transaction was really such as it was represented to be. To this their decision was limited.
The real state of the case is now brought before the court upon the evidence: from which it will be perceived at once, that the injurious charges of the plea, so incautiously admitted by the demurrer, have no support whatever from the facts; and that the judicial prejudice the bank has suffered, as well as the extensive prejudice in public opinion, are wholly unmerited. The transaction was innocent and just, entered into with the fairest intentions, upon a full and adequate consideration, and with no view to any gain by the bank, or any loss to Owens. The bank, literally, did not gain one cent by the negotiation; it did not even gain the interest, for interest, at the same rate, was payable by the Bank of Kentucky. Neither did it, by the negotiation, convert capital that was dead into active capital; a long credit being allowed. On the other hand, Owens did not lose. He declared that what he received was, to him, equal to gold or silver; and it must be taken for granted that it proved to be so, for there is no evidence, nor even an allegation, to the contrary.
It further appears that this negotiation was at the earnest instance of Owens, and for his accommodation. When he thought his own instances insufficient, he sought the aid of others, and especially applied to Mr Clay, who was counsel of the bank, and to the late colonel Morrison, who had been president of the office, to use their influence, as his friends, to aid him in obtaining what he asked. And finally, it appears that the application, from the beginning, was for the notes of the Bank of Kentucky, which, to him, were equal to gold or silver.
These facts are conclusively proved by the depositions of the witnesses, and especially by the minutes of the office, and Mr Cheves's letter of the 27th March 1822, in the record.
The instruction given by the court was, that the 'transaction was in violation of the act of congress incorporating the plaintiffs, the obligation declared on is void, ...