Maury v. Ingraham.

Nevitt, 27 Miss. 810, to this transaction: "that its character, in substance, is fixed by the actual value received under it; that it clearly appears that the consideration advanced was depreciated (paper) bank credits, known at the time not to be of the value at which they were loaned; and that under the repeated decisions of this court, the contract was usurious." And again: "It does not affect the character or consequences of the transaction, that the credits were used as so much cash for payment of debts. If the credits (notes) were not in market worth the value for which they were passed, the character of the contract was not changed by the use of the credits."

One and the same principle runs through all the cases of at loan of depreciated paper or credits, which may be traced to the leading case of a loan by sale of goods at more than their market value. Lowe v. Waller, Doug. 740. "The only question in cases like the present," said Lord Mansfield, "is, what is the real substance of the transaction? not, what is the color and form." And the transaction in this case was not held usurious, because the consideration was goods; nor because that which was intended as a loan of money was in color and form a sale of goods; but because the market value of the goods was less than the assumed or nominal value contracted to be paid. If the goods had been loaned or sold to the borrower at a sum of money which they would command in market, the transaction would have been without a flaw, notwithstanding the object in view was a loan of money.

So, in the case of The Commercial Bank v. Bondurant, 8 S. & M. R. 533; and Cook v. The Bank of Lexington, Ib. 543, the transactions were held usurious, not upon the ground that the paper loaned was bank-notes simply, nor because the notes were not of the issues of the lending bank, but for the reason. that the notes were depreciated below their nominal value. The substance of the transaction in each case was, that the object of the contracting parties was a loan of money, and the paper was not in market worth the assumed or nominal amount of the loan, contracted to be repaid with interest. And the reasoning and conclusions of the judges rest upon the same principle in the cases of Garther v. Farmers & Mechanics Bank

Maury v. Ingraham.

of Georgetown, 1 Peters, R. 41; Farmers Loan and Trust Company v. Carroll, 5 Barb. S. C. R. 657; Dry Dock Bank v. Am. Ins. & Trust Company, 3 Comst. R. 358, and kindred cases. And the case of Harrison v. The Bank of Kentucky, 2 J. J. Marshall, is a direct decision of the question now presented.

At the date of the loan the cotton pledged was assumed to be worth $9,000, or equivalent to a fund of that amount at the North; and it was part of the contract that the proceeds of the cotton should be applied to the payment of the money advanced or loaned. There was no stipulation for an allowance to plaintiff of the difference in actual value between specie or northern funds, and the bank-notes loaned. Every dollar of the northern funds was contracted to be applied to one nominal dollar and no more of the debt, which was, in fact; done to the extent of the proceeds of cotton actually realized; worse than this, the bank took a premium of five or more per cent. upon the northern fund besides.

2. The contract was usurious by reason of the reservation of the premium on domestic exchange. This was an additional profit to the bank, and so much interest in consideration of the loan, it was reserved and considered as a benefit. No loss to the bank was contemplated, as there was no ground upon which a loss could reasonably be apprehended. The difference of exchange was and had been in favor of the North when the contract was made; and it was an essential part of the scheme of the bank to draw upon the proceeds of the cotton immediately on its shipment. It has been contended that the bank had a right to reserve the premium of exchange on the North as a compensation for trouble. There was not, in the contract, any stipulation for compensation; on the contrary, it was expressly contracted that all expenses and charges upon the shipment transportation of the cotton and its sale at Liverpool should be paid by the plaintiff. There was no trouble or service in or about the cotton which was not charged upon the proceeds; and it is impossible to scrutinize the charges contained in the accounts rendered and annexed to the deposition of Callender, without being shocked at their enormity. The gross proceeds of the one hundred and fifty bales of cotton pledged

Maury v. Ingraham.

were, or may be stated at $7,439.53, upon which the charges were $2,112, besides some interest! The agents employed were the agents of plaintiff, and he agreed to risk the solvency of the factor. The custody and supervision of the cotton was only nominally in the bank, for the purpose of enabling the company to make use of its proceeds; it was in reality in the hands and under the care of the agents of plaintiff. Again, it is fully proved, by the testimony of Callender, that the premium of exchange reserved was with the bank an inducement for making the loan, or rather one of the inducements, the reservation of seven per cent. interest was another; and there was a third and a fourth inducement. It nowhere appears that the premium of exchange was contracted for or intended as an indemnity or compensation for any trouble or service, real or imaginary, to be incurred or performed by the bank.

In connection with the subject of exchange, there is one feature in the contract, or its necessary incidents for which it is difficult to find any appropriate category in civil jurisprudence. By the contract plaintiff was required to pay the bank interest for the use of $9,000, less the discount for a period of four months; and by the same contract, the whole or a great part of this money was returned by the plaintiff in ten or fifteen days after the loan. As soon as the cotton was shipped at New Orleans, the bank estimated its value, and converted it into money by sale of exchange on its proceeds, upon which money plaintiff, by the contract, had paid interest for three and a half months after its return to the coffers of the bank.

The assignment and renewal of the note did not, under the circumstances, relieve the contract from the consequences of the usurious consideration upon which it was founded: 1. The assignees had notice of the usury; 2. There was no new consideration to support the new security; 3. The assignees were volunteers, and not purchasers for a valuable consideration. Cuthbert v. Haley, 8 Term R. 390; Powell v. Waters, 8 Cow. R. 693; Judd v. Seaver, 8 Paige, R. 553.

The assignee is in no better position than an ordinary agent or bailee. He held the original security under a general assignment of the effects of the bank for the benefit of creditors, with

Maury v. Ingraham.

a trust as to the residuum of the property for the benefit of the assignors. The security was not, in the first place, negotiable, being part due and dishonored. The assignees had a knowledge of all the facts constituting usury in the consideration. And even had they been ignorant, they could not be prejudiced. Then there was nothing paid for the security; nor was it applied to or taken in payment or satisfaction of any debt. It remained, and still remains in the hands of the agent of the bank, whose office it is to collect whatever the bank might lawfully demand, and apply the money to the discharge of the contracts of the bank. The creditors had no title to the old, and have none to the new or substituted securities. They have a right in equity to its avails, whatever they may be, great or inconsiderable, so far as necessary to satisfaction of their demands. Whatever right or interest the bank had in the debt, the creditors may in equity demand, when reduced to money. If nothing is collected from the plaintiff, the demands of creditors of the bank are unaffected thereby in their rights upon the bank.

J. M. Murry, on the same side.

H. S. Eustis, for appellees.

In January, 1838, Maury gave his note to the Grand Gulf Bank for $9,000. In July, 1838, the bank credited this note with $4,588.84, proceeds of his cotton, leaving a balance unpaid of $4,411.16. This is the note which is attacked for usury.

In 1842, the bank, by deed of assignment, passed this note to Ingraham and Reed. They deny all notice of the usury, and for any thing to the contrary in this record, they were not yet in this State at the time of the loan, and we believe such is the fact. At all events, this denial of notice of any usury in this note, is sustained by two verdicts. There is no ground for disturbing the verdicts upon this point of notice; for, 1st. The question of reservation of the domestic exchange being usurious, was not raised in the courts of this State until after the date of this loan. 2d. The proof is not decisive on what funds the loan was made to Maury, and much less so that Ingraham

Maury v. Ingraham.

and Reed had any information on the subject. The record acquits them of notice.

On the 16th March, 1842, there was a balance due for principal and interest on this note of $5,696.91, for which balance Maury gave to Ingraham and Rees the five notes sued on in this action, and the $9,000 note was delivered up to him.

First, premising that Ingraham and Reed are not trustees, successors, nor in any shape representatives of the defunct bank, but that they represent the interest of creditors of the bank, we ask, What was the consideration of the five notes sued on in this action? Ingraham v. Regan, 1 Cushm. 227.

In Cuthbert v. Haley, 8 Term R. 390, Grose, J., says: "It is true that the consideration of the bond was the giving up the bills; but the bond was not given for the money loaned by Plank to the defendant." So here the notes sued on, were not given for the money loaned by the bank to Maury.

Lawrence, J., says: "In jure non remota sed proxima causa spectatur."

Le Blanc, J., says: "I am not aware of any case in which it has been holden, that where the original security has been cancelled, and another security given to another person ignorant of the usury that rendered the former security void, such second security is void in the hands of such third person."

The giving up the old note, constituted Ingraham and Reed bona fide holders of the new notes, the verdicts having sustained their denial of notice. But we put our trust in the decisions of this court upon this point. Fellows v. Harris, 12 S. & M. 446; Love v. Taylor, 4 Cushm. 567.

We quote the language of Judge Handy in the latter case: "It is now well settled, that if a party take a security or specific property in satisfaction and discharge of a preexisting debt which is thereby extinguished, he is a bona fide purchaser, and not affected by previous equities," citing Swift v. Tyson; Brush v. Scribner, 3 B. Monroe.

Now we ask the court to adhere to the above decisions; and then there is no room for inquiry into the question of usury or no usury in the original note. We presented the question, first, by demurrer to the bill of discovery; secondly, by replication,