Leavitt v. De Launay & Co.

The pending suit instituted by the complainant, for the avoidance of all the securities embraced, in what at the hearing, was called the Yates Trust, is no bar to this suit, nor does it necessarily put him to an election as to his remedy in respect of the fifteen bonds issued under that trust, which the defendants hold as a part of the security for their debt. The former suit impeached a large amount of bonds, held by numerous individuals having no joint or common interest in the same; on a single ground, their being issued by a banking association contrary to law. All the bonds were secured by one assignment, to Messrs. Yates and others, in trust; hence all the bond-holders with the trustees, were proper parties to that suit. But if the complainant, after stating the common ground of relief against all the bonds secured by the Yates Trust, had proceeded to charge that the bonds held by De Launay & Co. were usurious, or that those held by some other firm were obtained from the North American Trust and Banking Company by fraud, the charge .would have made his bill multifarious. In fact, there was no statement in that bill, under which he could prove the usury alleged in this suit. If the former bill had been filed against these defendants alone, the complainant would not be permitted by a new bill, to set up a new defence to the bonds. A newly discovered defence might be allowed by way of supplemental bill. But when a party has filed a bill for relief against an obligation, on a ground which requires him to make numerous parties, and he has a distinct

Another objection to the suit, which is in its nature preliminary, is that the complainant is not a 11 borrower” within the meaning of the “ Act of 1837, to prevent usury,” so that ¡he ma3r file a bill to be relieved from the alleged usurious contract, Without paying or offering to pay the principal sum loaned. In Livingston v. Harris, ( 11 Wend. 329 .) in the court for the correction of errors, Judge Sutherland, in his opinion for affirmance, and Senator Tracy in his • opinion, (which was the only other that was delivered, and which was for a reversal of the chancellor’s decree.) held, that a surety was a “ borrower” within the statute of usury, as enacted in the revised statutes. In Pearsall v. Kingsland, (3 Edw. Ch. R. 195,) the vice-chancellor decided, that an assignee of the mortgagor, for the benefit of creditors, stands in his place, and may impeach the mortgage for usury. The same was decided by the supreme court in favor of a judgment creditor of the mortgagor, in Dix v. Van Wyck, ( 2 Hill, 522 .)

These two cases, though not directly to the point before me, show the adherence of the court to the earlier decisions extending the privilege of avoiding usurious contracts to privies in estate, as well as to privies in law, and in representation or succession.

The act of 1837, was passed about three years after the decision in Livingston v. Harris, in the court of errors ; and that decision, which was contrary to the opinion previously entertained, that the revised statutes had dispensed with the ne

With the term “ borrower,” already in use in the existing statute of usury, and judicially construed in the leading case on the subject, and with the well settled rule, that privies of all sorts could take advantage of the usury ; it is not to be presumed that the legislature, in 1837, intended to fetter and restrict the class of persons, who might avail themselves of the more liberal provisions against usurers, which they were then enacting.

The statute of 1837, was really designed to be a remedial act; and its construction is to be no more strict, than statutes in general; although to lenders, one class of the persons affected by it, it is penal in its consequences. This view of the act has, with but a single exception, been taken by the courts. Thus it was acted upon by the chancellor, in favor of assignees and creditors of the person who obtained usurious loans, in Pratt v. Adams, (7 Paige, 615.) Again, in Cole v. Savage, (10 Paige, 583,) the chancellor decided that the word u borrower,”' as used in the revised statutes, and in the act of 1837, embraced a subsequent grantee of the premises mortgaged to secure an usurious debt, who took them adverse to the mortgagee. And he held that the sureties, heirs, devisees and personal representatives, of the person to whom the loan was made, are “ borrowers”, within the meaning of the statutes concerning usury.

Subsequently to this decision in May, 1844, the case of The Bank of Utica v. Post, came before the chancellor, in which the purchaser of mortgaged premises, under a judgment against the mortgagor, filed a bill to have the mortgage cancelled on the ground that it was usurious. The chancellor sustained the bill, for the reasons assigned by him in Cole v. Savage. The defendant, Post, appealed to the court of errors, and the decree of the chancellor was reversed by that court on the 27th of December, 1844. The case is not reported, and I have seen no

To return to the contract of the 6th of January, 1841: What was its true nature and character ? The answer, responsive to the bill, denies that any application for a loan of money or of bills, was made to the defendants. The form of the application, therefore, does not aid the complainant’s case.

The answer avers that the brokers of the N. A. Trust and Banking Company, applied to De Launay & Co. for the purchase of bills of exchange on Paris, of the tenor, and apon the terms specified in the contract, dated 6th January, and the bills were sold accordingly. The application, therefore, was for precisely such an agreement as was consummated.

Let us look to that agreement, and the circumstances connected with it, to ascertain the objects of the parties.

The banking company by that note or contract, acknowledged to have received of De Launay & Co. their bills on. Paris at sixty days sight, for francs 131,986 2-100ths, and promised to return to them, within or at the end of fifty-five days, the same amount of francs, in bills at sixty days sight on Paris, satisfactory to them, adding interest at seven per cent, per annum, and one and one-half per cent, commission; having deposited with them as collateral security, thirty-seven bonds of the state of Arkansas for one thousand dollars each ; and the banking company thereby authorized De Launay & Co. to sell the whole, or any part of the bonds, on the maturity of the contract, in case it were not fulfilled ; and the company were to pay forthwith, any deficiency there might be in the bonds paying the face of the note, with interest and commissions.

Without looking beyond the agreement itself, the first impression produced by its perusal, is that the operation was one very much out of the usual course of dealing in foreign exchange. In its proper and legitimate function, (Cambio Real,) exchange is the payment of money in one country, to be repaid the just value in specie in another country, according to a price

The price of the exchange is one of the principal, and to the parties, the most interesting of the stipulations, in a contract for its sale. Yet this note shows on its face, that there was no price fixed or negotiated. For a certain sum of money payable in Paris in bills, the company were to return the same sum of money in like bills, payable at the same place, with interest and commissions added. There was no need of any price. The whole compensation lay in the interest and commissions. So the charge of commission, although as I have already remarked, it may be charged in addition to some fixed rate, as a part of the price on a real sale ; is not a customary charge, and subjects the transaction to the suspicion that the contract does not express its true character.

If an application had been made to Mr. De Launay, on the

In short, if this had been a regular sale of bills on a credit, the company would have given their note for the price, calculated in dollars at the rate agreed upon, (for instance 5 18-100ths francs to the dollar,) with interest during the term of the credit, with a pledge of the Arkansas stock as security. On the other hand, if it had been an avowed loan, the form actually used in this contract, would have been as appropriate to its completion, as any that could have been devised.

Setting out with this unusual character of the contract itself, I will next state the circumstances which are proved. It is clear that Mr. De Launay, the partner residing here, must have been aware of the embarrassed condition of the Banking Company, His requiring full collateral security, both in September and on this occasion, from a Banking Company conducted on as large a scale as the proof shows that this one was, is of itself strong evidence of such knowledge; and it is made conclusive, by the fact that he knew the Banking Company had in September before, sold in New York the bills which they had obtained from him on a contract precisely similar. I say he knew this, because it is charged in the bill that he was aware of it when the September contract was effected, and his answer denying that charge, does not state when he first became acquainted with the fact. From this omission, from his being a dealer in bills, keeping advised of the market for them here, his correspondence with the Havre house, and the deduction of the broker’s commission for selling the bills, from the 2J commission he then required ; it is not to be doubted, that he knew before January, that the bills he issued to this company in September, were sold here. Indeed, his house is not shown to have been so very large bill drawers as to rebut the probability that the throwing of 125,000 francs of his own bills upon the market here, at one time, would have speedily come to his notice.

A still more remarkable circumstance, and one in perfect harmony with the inference derived from the written contract, is the expectation or assurance avowed in Mr. De L.’s letter of advice to the Havre house, that the Banking Company would “ cover ” them in season, with a commission of 1-J per cent. Not that the company would secure them for the price of bills sold. That was provided for by the Arkanas bonds; and the same letter advises the Havre house fully on that point. But by covering in season, was plainly meant that the Banking Company were to put the Havre house in funds, to pay the bills which Mr. De Launay had drawn. And as those funds were to be furnished in bills having sixty days to run, the language of the letter shows that Mr. De Launay expected those bills could be turned into cash in Havre or Paris as soon as they were received, so that he did not contemplate any appropriation or withdrawal of the drawer’s funds abroad. In the letter enclosing the remitted drafts furnished in March, he directs them to be credited to the Banking Company, “to cover our drafts on.you on their account and after specifying the amount of the latter, and the interest and commissions, he directs the Havre house to balance the account. Thus not only the drafts sold in New York, but the interest and commission were made matters of account with the acceptors of the drafts in Havre.

A most extraordinary sale of exchange is this, in which the buyer neither pays, nor agrees to pay, money in the country where it is sold, but does agree to replace it in kind in the place where it is payable, and in lime to meet it there—and the accounts of which are kept in the foreign country.

They are spoken of by Mr. Be Launay in his letters as credits to the Banking Company to be covered by them, and as a credit on the same stocks as before, and finally he calls one of them a loan.

The currency in which the bills were payable is not important, nor is the place where payable, so long as both sets of bills were to be paid in the same place, and the return bills were to be satisfactory ; that is, as good as the defendants. In each case, the bills represented so much money, expressed in francs, the currency of France, instead of our national currency, dollars. Now suppose that instead of these bills on Paris, the Company’s note had acknowledged the receipt of six promissory notes of Aug. Dapier, payable in Paris, at three months, for 125,000 francs, and had promised to pay the same amount in 55 days in notes payable at Paris, satisfactory to the defendants, and having three months to run. Would it not be just as much a sale of the notes of Dapier, as this is of the bills of De Launay & Co. ? The fluctuation of exchange is no argument to the contrary, because the amount is to be paid in francs in Paris, which are of a fixed standard value. So if the contract had been to receive the notes of De Rham & Moore, indorsed by De Launay & Co., payable in dollars in New York, and to be replaced in like satisfactory notes, with the interest and commission added ; it might with as much propriety be called a sale of De Rham & Moore’s notes, as to say that the transaction in question was a sale of bills of exchange.

I cannot resist the conclusion that the contract of the 6th of January, was a loan of the credit of De Launay & Co., through the medium of their bills of exchange, to the North American Trust and Banking Company. The company entered into it to raise money. Mr. De Launay, I think, was aware that such

The resort to the form of bills of exchange, when something else was intended, is an old device, although new varieties of it are frequently developed; and doubtless more novelties of the kind wall be invented, as those in use are from time to time exploded. More than three hundred years ago, acts of parliament were passed in England, to prohibit the raising of money by the necessitous, in the usurious modes then resorted to, by what was called dry exchange, and fictitious exchange.

As a loan of credit, there is no doubt, in my opinion, that the contract of the 6th of January, 1841, is usurious. There was much ingenious and plausible reasoning about the hazards encountered by De Launay & Co., and the interest and commissions to which they were entitled on their actual and possible advances, and their liabilities on the return bills. As to the latter, the form of return bills on Paris, instead of the payment in New York, at the maturity of the contract, of the francs loaned, computing their value in dollars, at the rate of exchange at the date of the loan, was probably adopted by Mr. De Launay to avoid the risk of any loss by the intermediate fluctuation in the price of exchange. If he received francs in Paris for francs paid there, it was precisely the same as if he received dollars here for dollars loaned fifty-five days before; so that this very stipulation removed one of the hazards which was urged at the hearing. As to the liability on the return bills, it was optional entirely; because the bills if satisfactory to Mr. De Launay, would be good in Paris, without the name of his house. And in each case, it seems the liability of the banking company, preceded that of De Launay & Co., on the return bills.

The defendants counsel submitted a statement, by which, computing interest on the respective loans of credit, on their advance, and their guaranty or indorsement on the return bills, it is shown that the banking company paid for both interest and commissions, much less than the defendants were entitled to. In order to make this mode a fair test, the defendants should

Stripped of all its machinery, and brought to a practical test by its operation, the contract may be thus stated: It was a contract of loan, by which De Launay & Co., on the 6th of January, agreed, and by their bills then issued, became liable, to advance F. 131,986 2-100 in Paris, at the end of sixty days after presentment of those bills in Havre ; and they were to receive payment in as good bills on Paris, to be delivered to them here on the 2d of March, payable sixty days after presentment in Paris. They were to receive interest on the whole sum for fifty-five days, and a commission of one and a half per cent. Allowing that an actual advance to take up their own bills, and not a discount of the return bills, was intended; and reckoning the usual periods for presentment of both sets of bills, De Launay & Co., would advance the sum specified in their bills, about forty-five days before they would be in the receipt of the amount of the return bills remitted. For this loan of forty-five days, they were to receive interest at seven per cent, for fifty-five days, and one and a half per cent on the whole sum besides, under the name of commission. Both items, estimated as interest for the use of the money, during the forty-five days, make the rate of interest more than twenty per cent per annum; or if it be computed on the credit for fifty-five days, instead of the cash advance, the rate of interest is about seventeen per cent.

In ascertaining the result, no interest should be cast upon either set of drafts during the time (the sixty days) they were to ran ; for in that respect, one set would balance the other. The idea that De Launay & Co. might be compelled to keep funds ready for an indefinite period, to meet their own bills, is illusory. They bore no interest, so that the holders would of course collect them as soon as possible; and the greater the delay in their transmission, the shorter would be the period between the advance made by De Launay & Co. and their reimbursement by

The charge for commission was justified on the score of a banker’s charge in Paris, and the stamps'and postages payable between Havre and Paris, and other petty expenses. All of these would not account for a third of the charge. But in truth, there is no foundation even for these. Mr. De Launay’s letters, and his entries in his books, show that he entertained no such idea of the office of this commission. And in the regular course of trade, all these charges are borne by the drawers of bills, and are covered in the price for which they sell their exchange. A merchant buying a bill on Paris, in the usual course, would be astonished, if besides the current rate of F. 5 26-100, he were required to pay for postages, French stamps, and one-eighth of one per cent, for the Paris banker’s commission.

The hazards of the transaction, do not afford a pretext for the commission ; for they are no other or greater than are incident to loans of money.

And the actual result of the operation tó the borrower, whe ther, as generally happens, it prove to be disastrous, and in time, ruinous ; or whether through chance, or an advantageous use of the money, it results in a benefit to him ; is not a criterion for determining the question of usury. If the lender is, at all events, to receive more than the lawful interest, the contract is usurious.

It was argued, that this contract differs essentially from the ordinary case of an accommodation note, which the payee procures to be discounted at usury, because there the borrower is the party who is to pay the note, and not its maker ; but here there was a real transaction, the bills of De Launay <fc Co. were to go into actual circulation, and to be paid by them in Paris at maturity.

This difference is only nominal. De Launay & Co. were to be « covered” by return bills of satisfactory character, and if