Gaither v. Farmers & Mechanics Bank of Georgetown,
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26 U.S. 37 (1828)
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U.S. Supreme Court
Gaither v. Farmers & Mechanics Bank of Georgetown, 26 U.S. 1 Pet. 37 37 (1828)
Gaither v. Farmers & Mechanics Bank of Georgetown
26 U.S. (1 Pet.) 37
C. & Co. discounted their notes with the F. & M. Bank of Georgetown at thirty days, and, in lieu of money they stipulated to take the post notes of the bank, payable at a future day without interest, while post notes were at a discount of one and one-half percent in the market at the time of the transaction. Such a contract is usurious. The endorsement of a promissory note of a stranger to the transaction which was passed to the hank as a collateral security for the usurious loan, although the note itself is not tainted with the usury, yet the endorsement is void and passes no property to the bank in the note, and the subsequent payment of the original note for which the security was given and the repayment of the sum received as usury will not give legality to the transaction.
When an action is in its origin instituted in the name of A for the use of B, the cestui que use is, by the law of Maryland, regarded as the real party to the suit.
If a note be free from usury in its origin, no subsequent usurious transactions respecting it can affect it with the taint of usury, although an endorser of the note, whose property in it was acquired through a usurious transaction, may not be able to maintain a suit upon it.
The act of assembly of Maryland declares "all bonds, contracts, and assurances whatever, taken on an usurious contract to be utterly void." And the endorsement of a promissory note for a usurious consideration is a contract within the statute, and was void.
This suit was instituted by the defendants in error against George R. Gaither as the drawer of a promissory note, dated Georgetown, 24 July, 1822, for $1,513.96, payable six months after date to the order of W. W. Corcorran & Co. Endorsers, W. W. Corcorran & Co., and Thomas Corcorran. Before the swearing of the jury in the case it was stated by the counsel of both plaintiff and defendant to one of the judges of the court, who, being a stockholder in the bank, objected to sitting in the case, and the same was also stated to the court before the jury was sworn; that the bank was not interested in the event of the cause; and, on the trial, it was also shown to the court by the clerk that this suit, standing on the docket in the name of the bank, was, by direction of the plaintiff, on the morning of and just before the cause was called for trial, entered for the use of Thomas Corcorran, and the jury were sworn to try the cause standing on the docket to the use of Thomas Corcorran.
W. W. Corcorran & Co., merchants of Alexandria, were in the frequent receipt of large discounts from the bank upon their own notes, endorsed by Thomas Corcorran, for which
other notes payable to them were from time to time deposited in bank as collateral securities for the notes discounted, which collateral notes were kept in deposit by the bank and, as collected, were passed to the credit of the borrowers, and the collateral notes, a short time before they became due, were so entered in the deposit book of the bank as that the bank became the collectors upon its own account of their respective amounts, to be appropriated as stated.
The note of the plaintiff in error was treated in this manner, and before it became due and was protested, it had been entered on the deposit book of the bank, and had remained in possession of the bank until the day of the trial of the cause. The discounts of the bank for W. W. Corcorran & Co. were not generally to a large extent in cash, but when large discounts were made, it was with an understanding that the proceeds of the same should be received in post notes having some time to run, without any rebate, for the time being allowed by the bank, but the bank retaining the usual discount of six percent per annum on the amount of the discounts, and the post notes were made payable at various periods from twenty to ninety days, but most generally payable when the note discounted or the note received as a collateral security became due. The amount of discounts received by W. W. Corcorran & Co., from 24 July, 1822, to 22 February, 1823, was $77,732, and during that time the post notes issued for their use by the bank exceeded $59,000.
The post notes, at the time they were received, were at a discount of one percent per month in the market, and some of those received by W. W. Corcorran & Co. were sold at that rate. The bank always held the note of the defendant below as a collateral security for the notes discounted for W. W. Corcorran & Co., and the defendant paid to the bank on 1 February, 1823, $500 on account of the note. Within two days of the trial, when the bank having collected as much money as reduced the debt due by W. W. Corcorran & Co. to a small sum; they ordered the suit to be marked for the use of Thomas Corcorran, under authority of an order, dated February 17, 1823, signed by W. W. Corcorran & Co.,
"to deliver to him what notes of theirs might remain in possession of the bank, after the debt due by them, for which they were left as collateral security, should be paid."
The defendant below also proved that the name of Thomas Corcorran was not upon the note when it was passed to the bank, nor until after the note became due, and he produced and offered in evidence to set off the promissory notes of W. W. Corcorran & Co., which had been transferred to him,
by the payee thereof after the note upon which this suit was brought had been transferred to the bank, but before this suit was brought and before they fell due, which was after 17 February, 1823.
The plaintiff below offered W. S. Nicholls, admitted to be one of the stockholders of the bank, as a witness, who was objected to as being interested in the event of the suit, but the court overruled the objection and he was sworn and examined. The defendants prayed the court to instruct the jury that if it believed the evidence of the transaction between the bank and W. W. Corcorran & Co. were usurious, the plaintiff could not recover, which instruction the court refused to give. The court refused to suffer the defendants to give the evidence of setoff which they proposed to exhibit. To these decisions of the court a bill of exceptions was tendered, and the case was brought up to this Court by writ of error.