Nichols v. Fearson - 32 U.S. 103 (1833)
U.S. Supreme Court
Nichols v. Fearson, 32 U.S. 7 Pet. 103 103 (1833)
32 U.S. (7 Pet.) 103
A promissory note payable at a future day, given for a bona fide business transaction, and which note was not made for the purpose of raising money in the market, was sold by the drawer and endorsee for a sum so much less on its face as exhibited a discount beyond the legal rate of interest, no stipulation having been made against the liability of the endorser, is not per se an usurious contract between the endorser and endorsee, and an action can be maintained upon the note against the endorser who sold the same by the purchaser.
The courts of New York have adjudicated that whenever the note or bill in its inception was a real transaction, so that the payee or promisee might at maturity maintain a suit upon it, a transfer by endorsement, though beyond the legal rate of interest, shall be regarded as a sale of the note or bill and a valid and legal transaction. But not so where the paper, in its origin, was only a nominal negotiation.
There are two cardinal rules in the doctrine of usury which we think must be regarded as the common place to which all reasoning and adjudication upon the subject should be referred: the first is that to constitute usury, there must be a loan in contemplation by the parties, and the second that a contract which in its inception is unaffected by usury can never be invalidated by any subsequent usurious transaction.
The plaintiff in error instituted a suit on a promissory note dated at Georgetown, October 22, 1821, for the sum of $101, payable to the order of S. & J. Fearson, the defendants, and by them endorsed. The evidence in the case showed that on 26 October, 1821, the defendants came into the store of the plaintiff with the note, and told the plaintiff they had obtained the note from the maker for goods they had sold him at their store, and asked the plaintiff what he would give for it; the plaintiff said he would give $97 for it, which the defendants agreed to take, and thereupon the plaintiff received the note, which was endorsed by the defendants before it was brought to the store, and $97 were paid to the defendants for it.
When the note became due, and being unpaid by the maker, the defendants promised to pay it.
Upon this evidence, the counsel for the defendants prayed the court to instruct the jury:
"That if it believes from the said evidence that the plaintiff received the note upon which this suit is brought of defendants with their endorsement upon it and without an understanding that the defendants were not to be responsible on said endorsement, and that the plaintiff paid or agreed to pay therefor only the sum of $97, the transaction is usurious, and the plaintiff is not entitled to recover,"
which the court gave as prayed. To which the plaintiff by his counsel excepted, and then prayed the court to instruct the jury:
"If it should believe from the evidence aforesaid that the defendants, having the note in question and wishing to part with it in order to avoid suing the maker, and not having occasion or desire for a loan of money, offered to sell it to the plaintiff, and that the plaintiff, having some accounts with the maker against which he expected to be able to set off the said note, and not with any other design, agreed to buy it, and did buy it, for $97, and that no loan for usurious interest, nor any loan, nor any evasion of the laws against usury was in the contemplation of either of the said parties, then plaintiff is entitled to recover,"
which the court refused.
The plaintiff's counsel prayed the court to instruct the jury:
"If it believes from the evidence aforesaid that this note was sold, and not received by plaintiff by way of discount or loan, plaintiff is entitled to recover,"
which also was refused.
The plaintiff excepted to the instructions of the court given to the jury on the prayers of the defendants, and also to the refusal of the court to give the instruction asked by them. The jury having found for the defendants, this writ of error was prosecuted to reverse the judgment of the court on the same.