Reed v. Smith — 9 Cow. 647

Majority

p. 677

Reed against Smith.^[2]

Headnote

^“ed^to^y P. for a loan of money, but not having it, referred p. to his son-m-law, whose usage he receive V^per cent besides and by between“ton-self andP. received P’s note w;th an endoraer procured the money of his the'mt^meíí tioned by him on his own note, which he afterwards paid, and gave P. credit from time to time on P’s successive endorsed notes, holden by E. himself; held, that E. must be considered the lender; that he did not stand in the light of a mere surety of P., and that the notes taken by him were void.

Where the original loan is usurious, all the securities therefor, however remote or often renewed, are void.

Where one, as agent, lends money for another, at an usurious rate of interest, and after-wards pays him, and takes security from the borrower in his own name, it is void, though he derive no benefit from the loan, and the premium go to the exclusive benefit of the principal.

It would be void even in the hands of a bona fide holder.

Whether a surety knowingly becoming bound for, and paying an usurious loan, may recover over against his principal ? Qmre.

Case, upon verdict, subject to the opinion of the court, before his honor Mr. Justice Woodworth, Albany circuit, Oct. 3d, 1821,

The action was assumpsit on a promissory note by E. x - - Reed, the last endorsee, against Smith, his- immediate endorser. The note was for $800, dated May 29, 1819, made by D. Parker, and endorsed by five several persons, The formal proceedings to charge the endorser being admitted, the only question was whether this note was usu"ius. On this subject the proof was, that in April 1816, . , . - - t -i , .-i . maker, being pressed tor money, applied to the plain- / for the hire of $800. The plaintiff said he had not • . the money, but he thought he could procure it of Roswell Reed, his son-in-law, whose rule, however, he believed it

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NEW YORK,

May, 1823.

was to take a premium *of 7 per cent.; though if he had the money to lend himself, he should charge but 7 per cent.; it being contrary to his principles to take usury. The maker said he Was Willing to give th'e per cent.; and a few days after left his note for $800 with the plaintiff, endorsed by Amasa Parker, payable February 1st, 1817. The note Was to be returned, if the money could hot be procured. This was on Fridayevening or Saturday morning, of the week next ensuing the first application for the money. On the same Saturday, R. Reed delivered $744 to a messenger sent by the plaintiff to receive it, who paid it to Stoddard Smith the agent of Parker, the maker, from whom Parker received it. The money had been raised on the plaintiff’s note of $800 left with R. Reed, and which Was endorsed by him, and discounted at the bank-of Columbia, at the usual rate. It was not left With him -for discount, but he assumed this risque, and on its falling due, paid the money himself, as endorser to the bank-. The plaintiff afterwards, and within about a-year from the time, of the loan, paid R. Reed the $800; so that R. Reed, and not the plaintiff, had the premium. R. Reed told the plaintiff, on receiving his note, that if he Would send him Parkef’s note guarantied by certain persons, whom he named, he would deliver back the plaintiff’s note; This guaranty was afterwards drawn and signed, dated 28th October, 1816 ; but neither this nor Parker’s note-were ever delivered to R. Reed. Both remained with Abijah Reed, one of the guarantors; so that R. Reed’s only security for the money was the plaintiff’s note. Shortly before Parker’s first note became payable, he requested the loan of the money for another year, which "the plaintiff -granted on a substituted note for $800, With an additional endorser. This note was continued down by the like renewals, from time to time, to the note on which this action was brought.

Van Dyke & Bronk, for the plaintiff,

insisted that R. Reed must be considered the -lender of the money. Could Parker have supported a suit under the statute, against the

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plaintiff, for the premium? R. Reed received this premium. The plaintiff was the mere agent and surety of Parker. His liability *to R. Reed would have been a good consideration for Parker’s original note. And this case is still stronger. The note now in question is for money paid by the plaintiff for Parker’s use, -and at his request.^[2] That it was .paid at Parker’s request, is 'evident frota Ms renewal of the note, and may be itifetred from the beneficial nature of the -consideration.^[3]

ft may be said that the plaintiff though a surety, should have resisted the payment' on the ground of usury-. Some old cases may he cited to show this. But these were Suits .upon indemnities, executed before the payment of the money by the surety, and are confined to the original indemnity. Besides, it is by no means clear that the plaintiff knew of the ustiry.

In this case the doctrine applicable to endorsees against endorsers ought to apply/^[4]

E. Williams, contra,

insisted that this wás a plain ease of Usury, as between tire plaintiff and Parker. The excuse for demanding usury is the trite and threadbare One : “ I have not got the money but I think I -can procure it of R. Reed, my son-in-law.” “ What if I have not got 3000 ducats in storeTubal, a rich brother of our trib'e has the money.”^[5] Shakspeare had read the plaintiff i:f,he had never read Shakspeare. The agreement for the money, and the subsequent negotiation, and extension's of credit, are all with the plaintiff. He procures the money. No matter whether he puts the premium into Ms own p&cket or that of Ms son-in-law

That the plaintiff was the agent through whom R. Reed made the loan can.make no difference. Nor will an agreement, that he should pay Roswell, and become himself the principal, alter the character of the transaction. A security originally void for usury, cannot derive any operation from any future act or event,^[6]

The plaintiff never was the surety of Parker-. But if R. Reed had been the original usurious creditor -of Par

p. 680

ker, the debt being transferred to the plaintiff, with a fun knowledge of the usury, the note would be equally void irhis hands.^[7]

The note upon which this suit is brought; is most clearly a continuation of the original nóte, given in April, 1816, when the loan was obtained by Parker. If that note, therefore, was given upon a usurious consideration, the taint which it imbibed attached to each of the series of securities which were subsequently taken, and affects and destroys the one in question.

It is admitted that Parker paid a premium of sevén per cent, upon1 the $800, over and above the legal interest. But it is contended on the part of the plaintiff, that the loan was made by Roswell Reed, and that the-plaintiff acted merely as the agent of Parker in effecting the loan.

The facts are these: Parker aplied to the plaintiff for a loan of $800. He told him he had not the money, but he thought he could procure it for him from his son-in-law, Roswell Reed; but that it was Roswell’s practice to charge a premium of seven per cent, beyond the legal interest upon all his loans. Parker agreed to pay the premium, if the money could be procured. The plaintiff then sends his own note for $800 to Roswell Reed, which Roswell procures to be discounted in the Bank'of Columbia, and delivers $744 of the proceeds to a special messenger sent by the plaintiff to receive it, who pays it to Stoddard Smith, the agent of Parker, who had previously agreed to forward it to him. The plaintiff, the day before, or on the morning of the same day, had received from Smith the note of Daniel Parker for $800 endorsed by Amasa Parker, under an agreement to return it, if the money could not be procured.

Upon this statement of facts, is there the slightest room to doubt that the loan was in truth made by the plaintiff, and not by Roswell Reed 1 The money was procured upon the note of the plaintiff. Parker’s note was delivered to the plaintiff, and never was in the possession of Roswell Reed; all the negotiation for the extension of the credit and the renewal of the'notes, were conducted by the plaintiff

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solely, without any reference to Roswell. He was the person, therefore, who made the loan; and how, or where he procured the money, and what disposition he made of the premium; *whether he put it in his own pocket, or into the pocket of his son-in-law, is perfectly immaterial.

But the result will be the same if we consider the plaintiff as the agent of Roswell Reed in the transaction. The note was unquestionably given for the loan of $744. It contained a premium of $56 and was therefore usurious, to whomsoever it belonged, and would be void even in the hands of a bona fide holder : much more so in the hands of the plaintiff; who, if he purchased it from Roswell, and paid the face of it, purchased it with a fuE knowledge of the usury attached to it.

The only supposition upon which the usury can be got rid of is, that Parker’s note was not given for the loan. But was given in payment of the $800, which'the plaintiff had paid Roswell Reed. Every fact in the case is at war with such a supposition. The plaintiff did not pay Roswell Reed, until about a year after the loan was made. But Parker’s note was given either the day before or the very day that he received the money. It could not, therefore, have been given in satisfaction of an advance which had not then been made,^[1]

In every point of view, I consider this one of the clearest

(a) (a) Mr. Ord, in- his valuable treatise on usury, (p. 64 to 69,) gives the most usual expedients by which usurers have attempted to evade the statute, but he has not adverted to the one presented by this case, which is now perhaps as frequent as any, viz: the lender placing himself in the light of the agent and surety of the borrower, and taking a counter security, as an indemnity for the money which he has paid, or is liable to pay under pretence of being surety. In these cases, if the state of the proof be such as to disclose the real lender, like this one of Reed v. Smith, there is, of course, no difficulty in making out the defence." The idea of usurers is most probably founded on a class of cases, collected in Ord, 100, which decide, that such a counter security is good, notwithstanding the original security should turn out to be usurious. But Mr. Ord holds, that, even in -such a case, the counter security is void, where the surety hnovis of the usury, as he must do where he is an agent in making the loan, and he thinks that Botkin’s casi in 3 Leon. 63, was determined upon this -distinction : and is, therefore reconcilable with the other cases, which it seems to contradict.

p. 682

istration of it, would be brought into deserved dishonor. cases of usury thatwas ever presented to a court of justice an~t if the miserable contrivance which has been resorted to to screen this transaction from the operation of the statute, * sho~Jd prove effectual, either the law itself, or the admin-

Judgment for the defendant.^[2]

(b) (b) If A. lend money to B. who puts it out to usurious interest, anil agrees "to pay to A. the same rate of interest which he is receiving upon A’s money, this is Usury between A. and B. aind an ’endorser of B’s note to A. may avail himself of the plea of usury. (Levy v. Gadsby, 3 Crunch, 180.) But where A. having given a usurious security, paid the amount thereof to B. who was surety for him, and B. in consequence of such payment, gave his own note to the creditor for the same amount; líéld, that "the latter note Was not usurious. (Scott v. Lewis, 2 Con. Rep. N. S. 132.),