Bank of the United States v. Owens,
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27 U.S. 527 (1829)
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U.S. Supreme Court
Bank of the United States v. Owens, 27 U.S. 2 Pet. 527 527 (1829)
Bank of the United States v. Owens
27 U.S. (2 Pet.) 527
The Branch Bank of the United States at Lexington, Kentucky, discounted a promissory note, reserving interest thereon at the rate of six percentum per annum, it being agreed that the owner of the note should receive the proceeds of the discount in notes of the Bank of Kentucky at their nominal value, although the same were at the time of no greater current value than fifty-four percent of the said nominal value. Held that the contract was usurious and void, and that the bank could not recover of any of the parties to the discounted note.
A fraud upon a statute is a violation of the statute.
A profit made or loss imposed on the necessities of the borrower, whatever form, shape, or disguise it may assume, where the treaty is for a loan, and the capital is to be returned at all events, has always been adjudged to be so much profit taken upon a loan, and to be a violation of those laws which limit the lender to a specific rate of interest. According to this principle, the lender in this case has taken forty-six percent for three years, or at the rate of about fifteen percent per annum above his prescribed interest. This is contrary to the provisions of the charter of the Bank of the United States and against law.
Reserving interest as discount is the same as taking the same, since it cannot be permitted by law to stipulate for the receipt or reservation of that which it is not permitted to receive. In those instances in which courts are called upon to inflict penalties upon the lender, whether in a civil or criminal form of action, it is necessarily otherwise, for there the actual receipt is generally necessary to consummate the offense. But where the restrictive policy of a law alone is in contemplation, we hold it to be an universal rule that it is unlawful to contract to do that which it is unlawful to do.
The charter of the Bank of the United States forbids the taking of a greater rate of interest than six percentum, but it does not declare a contract on which a greater interest has been taken or reserved to be void. Such a contract is void upon general principles. Courts of justice are instituted to carry into effect the laws of a country, and they cannot become auxiliary to the violation of those laws. There can be no civil right where there can be no legal remedy, and there can be no legal remedy for that which is itself illegal.
The action was upon a promissory note signed by the defendants bearing date 7 February, 1822, by which they promised to pay to the president, directors and company
of the Bank of the United States or order, on the 7th of February, 1825, $5,000 with interest at the rate of six percentum per annum from the date.
The following endorsement is on the note:
"Mem. Interest is to be charged on this note from 21 May, 1822 only, and not from 7 February, 1822 within mentioned, the former being the day on which the amount was actually received by the makers of this note."
"[Signed] H. CLAY"
The declaration being in the usual form, the defendants, Waggoner, Wagley and Miller pleaded as follows:
"That they ought not to be charged with the said debt by virtue of the said supposed note or writing, because they say that they executed the said note at the instance and for the accommodation of the said Owens and with the view of making him to obtain a loan of the money from the Bank of the United States, upon the discounting of said note, and defendants alleged that afterwards, to-wit, at . . . , the said Owens presented the said note for discount to the president and directors of the office of discount and deposit of the Bank of the United States at Lexington, Kentucky, and that the president and directors of the said office, then and there failed to discount the said note or make any loan thereon, and that after the rejection of the said note as aforesaid at Lexington in Kentucky, to-wit, on 31 May, 1822, it was unlawfully, usuriously, and corruptly agreed by and between the said plaintiffs by their agents, managers, and servants employed in the management and business of said office and the said Owens that they, the said plaintiffs, would receive and discount said note, and that the said Owens should receive from them therefor notes of the Bank of Kentucky or its branches at the nominal value of said notes, and for the forbearance and loan aforesaid that said Owens would pay said note in current money of the United States when it fell due, with interest at the rate of six percent per annum from 7 February, 1822, and they aver that in pursuance of said corrupt and unlawful agreement, the said note was delivered to the said plaintiffs at their said Lexington office upon the terms aforesaid, they advancing
and loaning therefor, as the whole and sole consideration of said note (after deducting a large sum from the amount of said note for discount) to-wit, the sum of $_____ in notes of said Bank of Kentucky, counted and rated at their nominal value. And said defendants aver that at the time said note was discounted as aforesaid, the notes of said Bank of Kentucky and its branches were generally depreciated so much so that one hundred dollars thereof nominally were of the value of fifty-four dollars only or less, and current only at that depreciation for greater or smaller sums, to-wit, at . . . . And the said defendants aver that said transaction and dealing was contrary to law and the fundamental articles of said corporation, and the said note founded upon a corrupt and usurious consideration, the said plaintiffs reserving a greater interest than at the rate of six percent per annum upon the value of the notes loaned by them as aforesaid, and this they are ready to verify. Wherefore,"
To this plea, the plaintiffs by their attorney demurred.
This case came before the court again in January term, 1835, after a trial on the merits, and it was finally decided that the contract was not usurious. United States Bank v. Waggoner, 9 Pet. 378.
Upon the argument of the demurrer, the following questions arose, namely:
1. Whether the facts set forth and the averments in said plea make out a case in which the corporation has taken more than at the rate of six percent per annum upon a loan or discount, contrary to, and in violation of the 9th rule of the fundamental articles of the constitution of the corporation?
2. If the plea does make out such a case, whether the notes sued on or the contract therein expressed to pay to the plaintiffs $5,000 is void in law, so that no recovery can be had thereon in this suit?
3. If not wholly void, whether the plea is sufficient to bar the plaintiffs' recovery of any, and if of any, of what part of the said sum of $5,000?