Williams v. Storm

Headnote

Notes, having no previous inception, if discounted at more than I per cent, per annum, are void for usury. The accommodation endorsers of such paper are not liable, although the last endorser may have endorsed it, on the understanding that the proceeds should be used to take up acceptances which he had made for the makers, and which it was the duty of the latter to pay.

The action was brought to recover against the defendant, Storm, as first endorser, the amount of five promissory notes, made by a corporation named the Empire Mills; dated December 10th, 1850, payable to the defendant or order six months after date, and amounting in the aggregate to $10,000. The second endorsers, the other .defendants, were the persons composing the mercantile firm of Austins & Spicer, and had suffered judgment to be taken against them by default.

The defence set up by Storm, in his answer, waS; that the notes were endorsed both by himself, and Austins & Spicer, at the request of and for the accommodation of the makers, the Empire Mills, and when so endorsed were owned and possessed by and had not been put in circulation by the makers ; that when the notes so endorsed were first put in circulation,- they

were negotiated and delivered by the Empire Mills to the mercantile firm, of Wright & Titus, who discounted the same at the rate of more than seven, and at the rate of 12 per cent, per annum. The answer therefore insisted that the notes and the endorsements thereon were usurious and void in their inception. The reply took issue upon the matters set forth in the defence.

The issues were brought to a trial before Mr. Justice Sand-ford and a jury, on the 24th of May, 1852, when

Edwin C. Hamilton, a witness for the defendant, Isaac T. Storm, testified as follows: In 1850 I transacted business in the city of New York, and was the Treasurer of the Empire Mills, which was a manufacturing corporation, located in the county of Oneida, in this State. The five notes in question in this action were made by the said Empire Mills. I filled up and signed them as such Treasurer. I called upon the defendant, Storm, and he endorsed the said five notes at my request, for and on account of the Empire Mills, and for their accommodation ; the notes remaining in my hands for the use of the corporation ; I knew the firm of Austins & Spicer ; that firm transacted an auction and commission business in the city of New York, in and prior to 1850, and consisted of the other defendants m this action; I called upon the said Austins & Spicer, and they also endorsed the said five notes with their said firm name, at my request, for and on account of the said Empire Mills, and for their accommodation; the notes remaining in my hands for the use of the corporation. Both of said endorsements were made in the city of New York, and the agreement both with Mr. Storm and with Austins & Spicer was, that if the said notes were used or put in circulation, the said Empire Mills should provide for and pay them at maturity.

I then negotiated with Messrs. Wright & Titus, of Wall street, that they should buy from me a lot of negotiable promissory notes, amounting in the whole to fifty or seventy-five thousand dollars ; I do not just now remember which sum —at a rate agreed upon; they agreed to take the paper, deducting from the whole amount of the said paper interest, or discount, at the rate of 12 per cent, per annum, for the time

the paper had to run before maturity, and also a quarter of one per cent, upon the whole amount, by way of a brokerage fee on the transaction, as if they had sold the paper for account of the Empire Mills ; they took the paper in- that way: I handed them the paper, amounting to fifty or seventy-five thousand dollars; they paid me about two-thirds of the money down, and within four or five days after, rendered me an account according to the agreement, deducting discount at the rate of twelve per cent, per annum on the amount for the time the paper had to run, and the quarter per cent, brokerage, and paid me the balance. The five notes in question were part of this lot of paper so disposed of to Wright & Titus; all the said paper was of the said character; it was all accommodation paper ; this transaction was for and on account of' the Empire Mills, and I applied to their use the money so received from Wright & Titus; this transaction with Wright & Titus took place early in December, 1850, soon after the date of the said five notes.

On cross-examination, this witness testified as follows:—These five notes were procured by me on behalf of the Empire Mills; my duties as treasurer of the Empire Mills were defined by the by-laws; in procuring the endorsements, I negotiated with the parties personally; I also conducted the negotiations with Wright & Titus personally; in purchasing the paper, Wright & Titus did not state that they purchased for any other person.

The witness, in answer to an enquiry of the court, why the notes in question were said on their face to be on account of wool, testified that, about twelve months previously, a large amount of wool had been consigned by the Empire Mills to Austins & Spicer, for which they had accepted; these notes were on that account; it was stated to Wright & Titus, at the time of the negotiation, that these notes were made to reimburse Austins & Spicer.

The counsel for the defendant, Isaak T. Storms, further pursued the direct examination of this witness, and he testified as follows: The Empire Mills originally consigned to Austins & Spicer, for sale on their account, on commission, a large quantity of wool, amounting in value to $750,000; the Empire

Mills drew upon. Austins & Spicer, who accepted their drafts for their accommodation, based upon and in anticipation of the proceeds of the sale of said wool; I received those accepted drafts, and negotiated them for the Empire Mills; in the course of about six months, Austins & Spicer had sold about two-thirds of the wool; they were then ordered to sell no more; they were ordered to charge the balance in account, as if upon a sale to the Empire Mills, and three other mills connected with them; Austins & Spicer, however, to keep the wool until required by the Mills for manufacturing purposes, and we, the Empire Mills, undertook to keep them in funds, so as to prevent their being obliged to pay out cash upon their outstanding acceptances; the wool never belonged to Austins & Spicer; Austins & Spicer rendered the account of this assumed sale of the wool and agreed to give us, the Empire Mills, their name in any way we required, as endorsers-or acceptors, we to keep them in funds, so that they should not be in advance for cash paid out; in pursuance of that arrangement, the Empire Mills took the wool out of the hands of Austins & Spicer, from time to time, as needed, during a period of about six months; also, as their paper matured, we took their name upon fresh paper, negotiated it in the market, and paid over the proceeds to them, as agreed, in time to keep them from being in advance ; we paid Austins & Spicer a commission of two and a half per cent, on the amount of all paper on which they so put their name; the paper varied in the length of time it had to run— from four to six months; in this way, the balance of the original acceptances, beyond what was realized by Austins & Spicer from the actual sale of the wool, was renewed several times; all the renewals prior to the transaction with Wright & Titus, were effected by paper, on which Austins & Spicer were acceptors, and the persons primarily liable and the proper persons to have the money to take up the paper when it fell due; this was the only .instance in which notes were made; this transaction with Wright & Titus was about ten days before the acceptances of Austins & Spicer, then outstanding, became due; the object was to obtain money to take up those acceptances about to mature—it was another renewal of that transaction, and was in no way connected with any other; most of

the original set of acceptances were given by Austins'& Spicer before the wool actually came to their hands.

The testimony was here closed, and the judge directed the jury to find a verdict for the plaintiff for the whole amount claimed, subject to the opinion of the court on a case to be made and heard at a General Term in the first instance, and judgment to be entered for the plaintiff, or the defendant Storm, accordingly—with leave to either party to except and make a bill of exceptions accordingly, after the decision of the court.

The jury found for the plaintiff. Damages, $10,663.

now moved for judgment upon the verdict, and insisted that the notes in question were drawn for good consideration under a valid and existing agreement, and were not in any sense accommodation paper. (Mottram v. Mills, 2 Sandf. S. C. 189; White & Sheffield v. Springfield Bank, 3 Sandf. 222 .) And if considered accommodation paper they were used for the purpose for which they were designed, and the plaintiff paid value for them. The defendant cannot, therefore, inquire into the amount of consideration. (Montross v. Clark, 2 Sandford S. C.118; Brown v. Mott, 7 Johns. R. 361; Wardell v. Howell, 9 Wend. 170 .)

argued that the notes were first put in circulation as operative instruments, when purchased or discounted by Wright & Titus, and that as such purchase or discount was at a rate exceeding 7 per ct. per an., they were, under the statute, clearly void (1 R. S., p. 773-5). He therefore claimed that the verdict should be set aside, and a verdict and judgment thereon be entered for the defendant.