Bank of the United States v. Waggoner
34 U.S. 378 (1835)

Annotate this Case

U.S. Supreme Court

Bank of the United States v. Waggoner, 34 U.S. 9 Pet. 378 378 (1835)

Bank of the United States v. Waggoner

34 U.S. (9 Pet.) 378

ERROR TO THE CIRCUIT COURT OF THE

UNITED STATES FOR THE KENTUCKY DISTRICT

Syllabus

The office of the Bank of the United States at Lexington, Kentucky, in February, 1822, held a large amount of notes of the Bank of Kentucky, which had been received in the usual course of business, at the full value expressed on the face of them, as equivalent to gold and silver, and were so considered by the bank. On the amount of these notes so held, the Bank of Kentucky had agreed to pay interest at the rate of six percentum until the same should be redeemed. All the notes of the Bank of Kentucky held by the Bank of the United States were finally paid with the interest. In February, 1822, when the notes of the Bank of Kentucky were at a depreciation of between thirty-three and forty percent, Owens applied to the office of the Bank of the United States for a loan of five thousand dollars of the said notes, saying they would answer his purpose as well as gold or silver. After repeated refusals and reapplications, with the consent of the board of directors of the Bank of the United States at Philadelphia, the sum of five thousand dollars, in the notes of the Bank of Kentucky, was loaned to him on a promissory note, signed by him and by Waggener, Miller, and Wagley, payable in three years, with interest at the rate of six percent per annum. The money so loaned was paid to the borrower in the notes of the Bank of Kentucky, and in a check on that bank, and the interest on that amount of the notes, being so much of the sum due by the Bank of Kentucky to the Bank of the United States, ceased from the date of the loan. In an action on the note given by Owens and others, the defense was set up that the transaction was usurious, contrary to the charter of the Bank of the United States, and void. Held that there was no usury in the transaction.

The statute of usury of Kentucky of 1798 declares that all bonds, notes, &c., taken for the loan of money where " is reserved or taken" a greater rate of interest than six percent shall be void. In this case, no interest at all was taken, the interest being payable at the termination of three years mentioned in the note, and if the case can be brought within the statute, it must be not as a taking, but as a reservation of more than legal interest.

The ninth article of the fundamental articles of the charter of the Bank of the United States declares, among other things,

"That the bank shall not be at liberty to purchase any public debt whatsoever, nor shall it take more than at the rate of six percentum per annum, for or on its loans or discounts."

It is clear that the present transaction does not fall within the prohibition of dealing or trading in the preceding part of the same article, according to the interpretation thereof given by this Court in the case of Fleckner v. Bank of the United States, 8 Wheat. 338, 21 U. S. 351, 5 Cond. 457, to which the Court deliberately adheres.

The words of the article are that the bank shall not take (not, shall not "reserve" or " take") more than at the rate of six percent. In the construction of statutes of usury, this distinction between the reservation and the

Page 34 U. S. 379

taking of usurious interest has been deemed very material, for the reservation of usurious interest makes the contract utterly void, but if usurious interest be not stipulated for, but only taken afterwards, then the contract is not void, and the party is only liable for the excess. In the case of Bank of the United States v. Owens, 2 Pet. 527, 27 U. S. 538, it was said that in the charter the word "reserving" must be implied in the word "taking." This expression of opinion was not called for by the certified question which arose out of the plea, for it was expressly averred in the plea that in pursuance of the corrupt and unlawful agreement therein stated, the bank advanced and loaned the whole consideration of the note, after discounting a large sum for discount, in the notes of the Bank of Kentucky at their nominal value.

The case of Bank of the United States v. Owens, 2 Pet. 527, turned upon considerations essentially different from those presented in the present record. The questions certified in that case arose upon a demurrer to a plea of usury, and the demurrer in terms admitted that the agreement was unlawfully, usuriously, and corruptly entered into. So that no question as to the intention of the parties or the nature of the transaction was put. The transaction was usurious and the agreement corrupt, and the question there was whether, if so, it was contrary to the prohibitions of the charter, and the contract void. In the present case, the questions are very different. Whether the agreement was corrupt or usurious or bona fide and without any intent to commit usury or to violate the charter are the very points which the jury were called upon and under the instructions were asked to decide. The decision in 27 U. S. 2 Pet. 527 cannot, therefore, be admitted to govern this, for the quo animo of the act as well as the act itself constitute the gist of the controversy.

In construing the usury laws, the uniform construction in England has been, and it is equally applicable here, that to constitute usury within the prohibitions of the law, there must be an intention knowingly to contract for and to take usurious interest, for if neither party intend it, and act bona fide and innocently, the, law will not infer a corrupt agreement.

This principle would seem to apply to the charter of the Bank. There must be an intent to take illegal interest, or, in the language of the law, a corrupt agreement to take it, in violation of the charter. The quo animo is, therefore, an essential ingredient in all cases of this sort.

There has been no taking of usury and no reservation of usury on the face of this transaction. The case, then, resolves itself into this inquiry -- whether upon the evidence there was any such corrupt agreement or device, or shift to reserve or take usury, and none of these appears in the case.

Because an article is depreciated in the market, it does not follow that the owner is not entitled to demand or require a higher price for it before he consents to part with it. He may possess banknotes which to him are of par value in payment of his own debts or in payment of public taxes, and yet their marketable value may be far less. If he uses no disguise, if he seeks not to cover a loan of money under the pretense of a sale or exchange of them, but the transaction is bona fide what it purports to be, the law will not set aside the contract, for it is no violation of any public policy against usury.

Page 34 U. S. 380

The plaintiffs in error instituted an action against the defendants, and one William Owens, on a promissory note for $5,000 dated 7 February, 1822, and payable at the office of the Bank of the United States at Lexington, Kentucky, on 7 February, 1825, with interest at the rate of six percentum per annum. The defendants were joint and several promisors 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 27 U. S. 2 Pet. 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 7 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 $5,000 in lawful money of the United States, with interest thereon in like money after the rate of six percent 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 7 February, 1822."

"WILLIAM OWENS"

"ALEX. MILLER"

"HERBERT G. WAGGENER"

"GEORGE WAGLEY"

"Witness -- JOHN BREEN"

On which note is the following endorsement:

"Mem. -- Interest is to be charged on this note from 21 May, 1822 only, and not from 7 February,

Page 34 U. S. 381

1822, within mentioned, the former being the day on which the amount was actually received by the makers of the note."

"H. CLAY"

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 percent. 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 percent 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

Page 34 U. S. 382

to the office at Lexington for a loan of $5,000 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 $1,100 in notes of the Kentucky Bank and a check of that bank for $3,900, which was paid to him at that bank in its notes.

The defense 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 $3,900, paid in a check on the Bank of Kentucky, and $1,100 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 percent 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 no intention to avoid the prohibition of their charter by taking a greater rate of interest than six percent, 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

Page 34 U. S. 383

negotiation and contract for the check on the bank and the $1,100 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 or more, bearing an interest of six percent, 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 $3,900, paid to the defendant Owings, with interest in gold or silver or its equivalent; that the contract was not usurious unless it believed 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 finds from the evidence in the cause that the defendants applied to the plaintiffs to obtain from them $5,000 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 $5,000 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 percentum 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 percentum per annum, then the transaction was not in law usurious or unlawful and the jury should find for the plaintiffs."

"4. That unless the jury finds 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 percentum per annum for the loan, forbearance, or giving day of

Page 34 U. S. 384

payment of money, the law is for the plaintiffs, and the jury should find accordingly."

"5. That unless it believes 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 percentum per annum stipulated to be paid by defendants to plaintiffs, the law is for the plaintiffs and the jury should find for them unless it further finds 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 percent was allowed."

"6. That if the defendants applied to the plaintiffs for a loan of $5,000 of the notes of the Bank of Kentucky, and agreed to give therefor their note for $5,000, 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 it finds from the evidence that the defendants obtained from the plaintiffs $5,000 of the notes of the Bank of Kentucky, or $3,900 in a check upon said bank and $1,100 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 percent 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 it finds from the evidence that the only consideration for the obligation declared upon was a loan made by the plaintiffs to Owens of $5,000 in notes of the Bank of Kentucky, estimated at their nominal amounts, part paid in the notes themselves and the residue

Page 34 U. S. 385

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 percent 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.

Page 34 U. S. 393

MR. JUSTICE STORY delivered the opinion of the Court.

This is a writ of error to the Circuit Court of the District of Kentucky to revise a judgment of that court in a case where the plaintiffs in error were original plaintiffs in the suit.

The suit was an action of debt brought upon a promissory note, dated 7 February, 1822, whereby the defendants, on or before 7 February, 1825, jointly and severally promised to pay the President, &c., of the Bank of the United States, at their office of discount and deposit, at Lexington, $5,000 with interest thereon, after the rate of six percent per annum, until paid, for value received. And by a memorandum on the back of the note, the interest was to be charged only from 21 May, 1822, that being the day on which the money was actually received by the makers of the note.

The plea of payment was put in, upon which issue was joined, and it was agreed between the parties that either party under the issue might give in evidence any special matter which would be specially pleaded. At the trial, a verdict was rendered for the defendants, upon which judgment passed in their favor, and the cause is now brought before us for revision upon a bill of exceptions taken at the trial and for matters of law therein stated.

Page 34 U. S. 394

From the evidence at the trial it appears that prior to the time when the note was given, viz., in 1819, the Bank of Kentucky, which had previously been in high credit, suspended specie payments, and at that time the institution was indebted to the plaintiffs, the Bank of the United States, in a large sum of money for notes of the Bank of Kentucky, taken at par in the usual course of business and for government deposits transferred to the office at Lexington, from the Bank of Kentucky and its branches. The accounts had been settled between the two 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, to pay interest at the rate of six percent per annum, and the interest, as it accrued, was carried, at stated intervals to the credit of the plaintiffs on the books of the bank. This agreement was punctually performed by the Bank of Kentucky, and the balance which remained due to the plaintiffs was finally settled and discharged in specie or its equivalent in about seven months after the negotiation, which will be immediately noticed.

In this state of things, Owens, one of the defendants, made repeated applications to the Lexington office of the Bank of the United States for an accommodation of $5,000, in Kentucky Bank notes, of which the office had a considerable sum on hand, stating that such notes would answer his purpose as well as gold or silver, and agreeing to receive them at their nominal amounts. These applications were rejected, and finally, at his urgent suggestions, an application was made to the parent bank at Philadelphia to permit the Lexington office to grant the application, and the parent bank accordingly gave the permission. The note now in suit was accordingly given, with a mortgage of real estate as collateral security; and $1,100 were received in Kentucky Bank notes, and the remaining $3,900 were paid by a check drawn on the Bank of Kentucky, which was duly honored, and the amount of the check was deducted from the balance due to the plaintiffs, and interest thereon immediately ceased.

It further appeared at the trial that the Bank of Kentucky was never insolvent, but had always sufficient effects to pay its debts; that it has been several times sued for its debts, which

Page 34 U. S. 395

had been always paid in specie or other arrangements had been made satisfactory to the creditors; it had discharged the greater part of its debts, and had distributed among its stockholders $10 in specie and $70 in notes of the Commonwealth Bank of Kentucky (which were at a great depreciation), and that all its funds had not yet been distributed.

The Bank of Kentucky never resumed specie payments, and at the time of the negotiation above stated the notes were depreciated from thirty-three to forty percent, and were current as a circulating medium at this rate of depreciation. They were, however, by law receivable for state taxes and county levies at par, and had accordingly been so received.

Upon this evidence the plaintiffs moved the court to instruct the jury as follows.

"1. That if it believes from the evidence that the consideration of the note sued on was $3,900 paid in check on the Bank of Kentucky and $1,100 in Kentucky Bank 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 percent against the notes of the Bank of Kentucky."

"2. To instruct the jury that if it believed from the evidence that the contract was made on the part of the bank fairly and with no intention to avoid the prohibition of their charter by taking a greater rate of interest than six percent, 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 $1,500 in bank notes of the Bank of Kentucky, the Bank of Kentucky was indebted to the Bank of the United States, at its office aforesaid, the sum of $10,000 or more, bearing an interest of six percent, which sum,

Page 34 U. S. 396

it was understood and believed by the parties to the contract at and before its execution the Bank of Kentucky, with interest, was well able to pay, and which sum it did pay after deducting the $3,900 paid to the defendant Owens, with interest in gold or silver or its equivalent; that the contract was not usurious unless it believed 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 finds from the evidence in the cause that the defendants applied to the plaintiffs to obtain from them $5,000 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 $5,000 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 percentum 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 percentum per annum, then the transaction was not in law usurious or unlawful and the jury should find for the plaintiffs."

"4. That unless the jury finds 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 percentum per annum for the loan, forbearance, or giving day of payment of money, the law is for the plaintiffs, and the jury would find accordingly."

"5. That unless they believed 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 percentum per

Page 34 U. S. 397

annum, stipulated to be paid by defendants to plaintiffs, the law is for the plaintiffs and the jury should find for them. Unless it further finds that there was a shift or device resorted 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 percent was allowed."

"6. That if the defendants applied to the plaintiffs for a loan of $5,000 of the notes of the Bank of Kentucky, and agreed to give therefor their note for $5,000, 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 it finds from the evidence that the defendants obtained from the plaintiffs $5,000 of the notes of the Bank of Kentucky, or $3,900 in a check upon said bank, and $1,100 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 percent in exchange for gold and 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 any of these instructions, and upon the prayer of the defendants, instructed the jury as follows:

"That if its finds from the evidence that the only consideration for the obligation declared upon was a loan made by the plaintiffs to Owens of $5,000, 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 on said bank in payment thereof, and he accordingly did so; that

Page 34 U. S. 398

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 percent 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 statute of usury of Kentucky of 1798 declares that no person shall hereafter contract, directly or indirectly, for the loan of any money, wares, merchandise or other commodity above the value of six pounds for the forbearance of one hundred pounds for a year, and after that rate, for a greater or a lesser sum, or for a longer or shorter time, and all bonds, contracts, &c., thereafter made for payment or delivery of any money or goods so lent on which a higher interest is reserved or taken than is hereby allowed shall be utterly void. This clause of the act is substantially a transcript of the statute of 12 Ann, stat. 2, ch. 16, sec. 1, and therefore the same construction will apply to each. In the present case, no interest at all has been taken by the plaintiffs on the $5,000. There was no discount of the accruing interest from the face of the note, and the interest was payable only with the principal, at the termination of the three years mentioned in the note. If the case therefore can be brought within the statute, it must be not as a taking but as a reservation of illegal interest.

The ninth article of the fundamental articles of the charter of the Bank of the United States, Act of 1816, ch. 44, sec. 11, declares, among other things, that the bank

"shall not be at liberty to purchase any public debt whatsoever, nor shall it take more than at the rate of six percentum per annum for or upon its loans or discounts."

It is clear that the present transaction does not fall within the prohibition of dealing or trading in the preceding part of the same article, according to the interpretation thereof given by this Court in

Page 34 U. S. 399

Fleckner v. Bank of the United States, 8 Wheat. 338, 21 U. S. 351, to which we deliberately adhere.

It is observable that the words of the article are that the Bank shall not take (not shall not reserve or take) more than at the rate of six percent. In the construction of the statutes of usury, this distinction between the reservation and taking of usurious interest has been deemed very material, for the reservation of usurious interest makes the contract utterly void, but if usurious interest be not stipulated for, but only taken afterwards, there the contract is not void, but the party is only liable to the penalty for the excess. So it was held in Floyer v. Edwards, Cowp. 112. But in the case of Bank of the United States v. Owens, 2 Pet. 527, 27 U. S. 538, it was said that in the charter, "reserving" must be implied in the word "taking." This expression of opinion was not called for by the certified question which arose out of the plea, for it was expressly averred in the plea that in pursuance of the corrupt and unlawful agreement therein stated, the Bank advanced and loaned the whole consideration of the note after deducting a large sum for discount in the notes of the Bank of Kentucky at their nominal value.

It is in reference to the usury act of Kentucky and this article of the Bank charter that the various instructions asked or given are to be examined. But before proceeding to consider them severally, it may be proper to remark that in construing the usury laws, the uniform construction in England has been (and it is equally applicable here) that to constitute usury within the prohibitions of the law, there must be an intention knowingly to contract for or to take usurious interest, for if neither party intends it, but acts bona fide and innocently, the law will not infer a corrupt agreement. Where, indeed, the contract upon its very face imports usury, as by an express reservation of more than legal interest, there is no room for presumption, for the intent is apparent; res ipsa loquitur. But where the contract on its face is for legal interest only, there it must be proved that there was some corrupt agreement or device or shift to cover usury, and that it was in the full contemplation of the parties. These distinctions are laid down and recognized so early as the cases of Button v. Downham, Cro.Eliz. 642; Bedingfield v. Ashley, Cro Eliz. 741; Roberts

Page 34 U. S. 400

v. Tremayne, Cro.Jac. 507. The same doctrine has been acted upon in modern times, as in Murray v. Harding, 2 W.Bl. 859, where Gould, Justice, said that the ground and foundation of all usurious contracts is the corrupt agreement; in Floyer v. Edwards, Cowp. 112; in Hammett v. Yea, 1 Bos. & Pull. 144; in Doe v. Gooch, 3 Barn. & Ald. 664; and in Solarte v. Melville, 7 B. & Cres. 431.

The same principle would seem to apply to the prohibition in the charter of the bank. There must be an intent to take illegal interest or, in the language of the law, a corrupt agreement to take it, in violation of the charter, and so it was stated in the plea in the case of Bank of the United States v. Owens, 2 Pet. 527. The quo animo is therefore an essential ingredient in all cases of this sort.

Now it distinctly appears in the evidence, as has been already stated, that no interest or discount whatsoever was actually taken on the note, and on the face of the note there was no reservation of any interest but legal interest. So that there has been no taking of usury, and no reservation of usury on the face of the transaction. The case then resolves itself into this inquiry -- whether, upon the evidence, there was any corrupt agreement or device or shift to reserve or take usury, and in this aspect of the case the quo animo, as well as the acts of the parties, is most important.

With these principles in view, let us now proceed to the examination of the instructions prayed by the plaintiffs. The substance of the first instruction is that if the contract was fairly made by the parties, 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 able to pay its debts by coercion, then the contract was not void for usury nor contrary to the charter of the bank notwithstanding the parties knew that the Bank of Kentucky did not pay specie for its notes without coercion and that these notes were in exchange at a depreciation of from thirty-three to forty percent below par. We are of opinion, that this instruction ought to have been given. It excludes any intention of violating the laws against usury, and it puts the case as a bona fide exchange of credits for the accommodation of Owens. Such an exchange is not

Page 34 U. S. 401

per se illegal, though it may be so if it is a mere shift or device to cover usury. If the application be not for a loan of money, but for an exchange of credits or commodities which the parties bona fide estimate at equivalent values, it seems difficult to find any ground on which to rest a legal objection to the transaction. Because an article is depreciated in the market, it does not follow that the owner is not entitled to demand or require a higher price for it, before he consents to part with it. He may possess bank notes, which to him are of par value because he can enforce payment thereof, and for many purposes they may pass current at par in payments of his own debts or in payment of public taxes, and yet their marketable value may be far less. If he uses no disguise; if he seeks not to cover a loan of money under the pretense of a sale or exchange of them; but the transaction is, bona fide, what it purports to be, the law will not set aside the contract, for it is no violation of any public policy against usury.

We are also of opinion that the second instruction ought for similar reasons to have been given, and indeed it stands upon stronger grounds. It puts the case that there was no intention to violate the charter or the statute against usury; that the contract was for the accommodation of Owens; that the Bank of Kentucky was indebted to the plaintiffs in a sum exceeding $10,000, bearing an interest of six percent (which the check would reduce pro tanto); that the Bank of Kentucky was able to pay the amount with interest in gold or silver, and did pay it, after deducting the check of $3,900, and then asserts that under such circumstances the contract was not usurious unless the jury believe that the contract was a shift or device entered into to avoid the statute against usury, notwithstanding the check and the bank notes were in point of fact of less value than gold and silver. So that in fact it puts the instruction upon the very point upon which the law itself puts transactions of this sort -- the quo animo of the parties. Did they intend usury, and make use of any shift or device to cover a loan of money? Or did they bona fide intend a loan of bank notes, which to the lender were of the full value of their numerical amount, and were so treated bona fide by the borrower? Unless the court were prepared to say (which we certainly are not) that all negotiations for

Page 34 U. S. 402

the sale or exchange of bank notes under any circumstances must, to escape the imputation of usury or the prohibition of the charter, be merely at their marketable value at the time, though worth more to both parties, the instruction was in its terms unexceptionable.

The third instruction is governed by the same reasoning. It puts the case that the application was made for a loan not of money, but for notes of the Kentucky Bank to the amount of $5,000 in consideration of the note sued on; that the Bank of Kentucky was solvent and able to pay its notes; that the holders thereof could by reasonable diligence have recovered the amount thereof, with interest at the rate of six percent per annum, and that there was no device or intent to evade the statute against usury or the prohibition of the charter, and then asserts that under such circumstances the transaction was not in law usurious. And here it may be added that if the case was as stated (and the evidence manifestly conduced to establish it), it is clear that the plaintiffs could not by the regulation entitle themselves to more interest than they were already entitled to against the Bank of Kentucky. It would be a mere exchange of securities by which the plaintiffs did not reserve and could not obtain more than the legal rate of interest. If A holds the note of B for $100 and legal interest, and he exchange it with C for his note for the same sum and legal interest, and B and C are both solvent, the transaction in no manner trenches upon the statute against usury.

The fourth instruction puts the case in a more general form, but the same principles apply to it.

The fifth instruction puts the case in the most pointed manner whether there was an intended loan of money and a reservation of illegal interest and a shift or device to cover it and evade the law by advancing something other than money on the loan. If there was not, then it asserts (and in our judgment correctly) that the jury ought to find for the plaintiffs.

The sixth and seventh instructions fall under the same considerations, and are equally unexceptionable.

The eighth instruction was properly refused, and ought not to have been given. The court could not judicially say that there was no evidence conducing to prove that there was a

Page 34 U. S. 403

loan by the plaintiffs to the defendants of the notes of the Bank of Kentucky. There was evidence proper for the consideration of the jury, and the intent was to be gathered by them from the whole circumstances of the transaction.

In regard to the instruction given by the court upon the prayer of the defendants, it was probably given under the impression that the case was governed by the decision of this Court in Bank of the United States v. Owens, 2 Pet. 527. That case, however, in our opinion, turned upon considerations essentially different from those presented by the present record. The questions certified in that case arose upon a demurrer to a plea of usury, and the demurrer in terms admitted that the agreement was unlawfully, usuriously, and corruptly entered into, so that no question as to the intention of the parties or the nature of the transaction was put. The transaction was usurious and the agreement corrupt, and the question then was whether, if so, it was contrary to the prohibitions of the charter, and the contract was void. In the present case, the questions are very different. Whether the agreement was corrupt and usurious or bona fide and without any intent to commit usury or to violate the charter are the very points which the jury were called upon, under the instructions asked of the court, to decide. The decision in 27 U. S. 2 Pet. 527 cannot, therefore, be admitted to govern this, for the quo animo of the act, as well as the act itself, constitute the gist of the controversy.

In our opinion, the instruction asked by the defendants ought not to have been given. It excludes altogether any consideration of the bona fides of the transaction and the intention of the parties, whether innocent or usurious, and puts the bar to the recovery (after selecting a few facts) substantially upon the ground that the bank notes loaned were a known depreciated currency, passing in exchange and business at a discount of from thirty to forty percent, and were passed at their nominal amounts by the plaintiffs to the defendants, without any reference to the fact whether there was any design to commit usury or whether the notes were in reality of a higher intrinsic value or of their full nominal value to the parties, or whether there was in the transaction either a taking or a reservation of more than six percent

Page 34 U. S. 404

interest contemplated by the parties. From what has been already stated, these constituted the turning points of the case, and the instruction could not properly be given without making them a part of the inquiries before the jury upon which their verdict was to turn.

Upon the whole, we are of opinion that the first seven instructions prayed by the plaintiffs ought to have been given to the jury, and the instruction given by the court at the request of the defendants ought to have been refused, and therefore, for these errors, the judgment ought to be

Reversed and the cause remanded to the circuit court with directions to award a venire facias de novo.

This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Kentucky and was argued by counsel, on consideration whereof it is the opinion of this Court that there is error in the opinion of the Circuit Court of the District of Kentucky in refusing to give the instructions prayed for by the plaintiffs in their first, second, third, fourth, fifth, sixth and seventh instructions, prayed for in the bill of exceptions stated, and there is also error in the opinion of the court in giving the instruction prayed for by the defendants in the same bill of exceptions stated. It is therefore considered by the Court that, for the errors aforesaid, the judgment of the said circuit court be, and the same is hereby reversed and annulled, and that the cause be remanded to the circuit court with directions to award a venire facias de novo.

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