Farmers' Bank v. Burchard
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Opinion
Barbett, J.
This is an action of assumpsit, in which the declaration contains special counts on a note and two drafts for ten thousand dollars each, dated respectively July 6th, 1853, August 26th, 1853, and September 13th, 1853, payable presently at five per cent, per annum, to which the defendant was party merely as surety ; on which paper, at the respective dates, the plaintiff advanced to Smith, Dwight & Co., of Detroit, Michigan, said sums of .money, under an arrangement previously made that said Smith, Dwight & Co. were to have the money for a year, giving it circulation, and providing for its redemption. The declaration also contains special counts on three promissory notes dated January 6th, 1855, made payable to C. P. Austin or order with interest at the rate of ten per cent, per year, dated at Detroit, and payable at the Peninsular Bank in Detroit, to which the defendant is party merely as surety. Said last three notes were taken upon a settlement of the balance due for the money originally advanced, and the account that had accrued for charges and interest on redemptions made by the bank, which Smith, Dwight & Co. had agreed and were bound to make.
On the acceptance of said last three notes by the bank, the original note and drafts were given up 'to be cancelled. On the 20th of September, 1853, the sureties on said original drafts executed a paper to the plaintiff, certifying that it was understood by them, that said drafts were not to be presented for acceptance and payment until one year from their respective dates, unless said Smith, Dwight & Co. should fail to redeem the currency for which said drafts were given, agreeably to an understanding between said Smith, Dwight & Co. and said bank ; and on the 30th of August, 1854, they executed another similar paper, that it was understood that said drafts were not to be presented for acceptance and payment immediately, but at the option of the [367]*367said bank at any time after the date of the same. During all the time of the transactions involved in this suit, the defendant was, and ever since has been, a citizen and resident in Vermont; the principals and other sureties, excepting Orville Smith, being citizens, of Michigan. Said C; P. Austin, to whom said new notes were made payable, went to Detroit as agent for the bank to make some settlement of said transactions, and get pay or security, if possible, for the balance due the bank. Previous to his going, the defendant was called upon by Judge Rich, one of the directors of the bank, in reference to the proposed effort at a settlement, on which occasion the defendant agreed, in case the matter should be settled by taking new notes for the unpaid balance, for which he was liable, he would sign such notes as surety. Said Austin proceeded to Detroit and effected a settlement, and, failing to get pay, he took said new notes, signed by the parties residing there, upon the understanding, that if, after being signed by the defendant, the bank should ratify the settlement tand receive the new notes, the original note and drafts should be given up to be cancelled ; otherwise the new notes were to be returned. The defendant did sign the new notes, and they were accepted by the bank, and the original note and drafts were given up to be cancelled.
When said new notes came before the directors for their acceptance or rejection, according to the agreement between said Austin and the parties residing in Michigan, the question arose amongst the directors as to the rate of interest that the bank could legally take upon said notes. There was a difference oí opinion, varying between six and ten per cent.; but they all agreed that it would be lawful to take six per cent, and that the notes would be good for that; and they decided tp accept them, and take such interest as the law would allow the bank to take, and without any intention to take any other.
Owing to the failure of Smith, Dwight & Co. to provide for the redemption of the original advance of thirty thousand dollars, as they had agreed, the bank had charged interest on such redemptions that had been made by it, in pursuance of the original understanding with Smith, Dwight & Co.; so that, with the five. per cent, per annum on the principal sum, it would [368]*368receive more than six per cent, in the whole ; and in said settlement, such interest on said redemptions was reckoned and embraced in the principal sum for which said new notes were given, as were also charges for expenses in transmitting money by express, in carrying on the business between the principal parties. There were also embraced in said settlement some items of charge not connected with, or growing out of, said loan of thirty thousand dollars. At the time the defendant signed said new notes, he had no knowledge that said interest on said redemptions, or said expenses, or said other charges, were to be or were reckoned as aforesaid, and embraced in said settlement and new notes. The case of Orr v. Lacey, reported in 2 Doug. Mich. Reps., decided in 1848, was proved on the trial, to show what is the law of Michigan as to the effect of transcending its powers by a corporation in making contracts. The statutes of Michigan on the subject of interest, and on the subject of unauthorized banking, &c., were also proved.
On all the evidence in the case, after argument by counsel upon the law applicable thereto, the county court directed the jury to return a verdict for the plaintiff for the amount of the new notes at six per cent, interest; to which the defendant excepted, as also to various decisions of the court in admitting and rejecting evidence, and in not ruling the law to the jury conformably to a series of written requests.
This brief statement of the leading facts of a voluminous and complicated case, requiring attentive study in order to a full comprehension of all its details, may, with what is further stated in the course of the opinion, render intelligible the .main points raised in the argument and now decided.
The original transaction between the bank and Smith, Dwight & Co. must be regarded as a loan, and not in any part a purchase of bills of exchange, in the sense of the banking laws of this state. The evidence shows it to have been so designed by the parties. The whole sum was to be advanced in currency, and, upon the terms of the arrangement, it was to be held for a year, and its current redemption in Boston was to be provided for by Smith, Dwight & Co. The note of July 6th, 1853, the draft of August 26th, and of September 13th, 1853, for ten [369]*369thousand dollars each, given upon the advance of said respective sums in pursuance of said arrangement, were made payable presently ; but the paper of September 20th, 1853, shows that the drafts were “ not to be presented for acceptance and payment until one year from their respective dates, unless said Smith, Dwight & Co. should fail to redeem, etc.”
R. C. Smith in his deposition testifies, “ that said note and drafts were to run one year from the date of each, provided the redemption was protected by us.”
The two drafts were as much a part, and in performance of the arrangement as was the note for ten thousand dollars. These drafts, then, cannot be regarded as falling within the exception, as to the purchase of bills of exchange, to the prohibition of a bank from permitting any person, company or corporation to become indebted in a greater amount than the sum of ten per cent, on the capital stock paid in.
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Barbett, J.
This is an action of assumpsit, in which the declaration contains special counts on a note and two drafts for ten thousand dollars each, dated respectively July 6th, 1853, August 26th, 1853, and September 13th, 1853, payable presently at five per cent, per annum, to which the defendant was party merely as surety ; on which paper, at the respective dates, the plaintiff advanced to Smith, Dwight & Co., of Detroit, Michigan, said sums of .money, under an arrangement previously made that said Smith, Dwight & Co. were to have the money for a year, giving it circulation, and providing for its redemption. The declaration also contains special counts on three promissory notes dated January 6th, 1855, made payable to C. P. Austin or order with interest at the rate of ten per cent, per year, dated at Detroit, and payable at the Peninsular Bank in Detroit, to which the defendant is party merely as surety. Said last three notes were taken upon a settlement of the balance due for the money originally advanced, and the account that had accrued for charges and interest on redemptions made by the bank, which Smith, Dwight & Co. had agreed and were bound to make.
On the acceptance of said last three notes by the bank, the original note and drafts were given up 'to be cancelled. On the 20th of September, 1853, the sureties on said original drafts executed a paper to the plaintiff, certifying that it was understood by them, that said drafts were not to be presented for acceptance and payment until one year from their respective dates, unless said Smith, Dwight & Co. should fail to redeem the currency for which said drafts were given, agreeably to an understanding between said Smith, Dwight & Co. and said bank ; and on the 30th of August, 1854, they executed another similar paper, that it was understood that said drafts were not to be presented for acceptance and payment immediately, but at the option of the [367]*367said bank at any time after the date of the same. During all the time of the transactions involved in this suit, the defendant was, and ever since has been, a citizen and resident in Vermont; the principals and other sureties, excepting Orville Smith, being citizens, of Michigan. Said C; P. Austin, to whom said new notes were made payable, went to Detroit as agent for the bank to make some settlement of said transactions, and get pay or security, if possible, for the balance due the bank. Previous to his going, the defendant was called upon by Judge Rich, one of the directors of the bank, in reference to the proposed effort at a settlement, on which occasion the defendant agreed, in case the matter should be settled by taking new notes for the unpaid balance, for which he was liable, he would sign such notes as surety. Said Austin proceeded to Detroit and effected a settlement, and, failing to get pay, he took said new notes, signed by the parties residing there, upon the understanding, that if, after being signed by the defendant, the bank should ratify the settlement tand receive the new notes, the original note and drafts should be given up to be cancelled ; otherwise the new notes were to be returned. The defendant did sign the new notes, and they were accepted by the bank, and the original note and drafts were given up to be cancelled.
When said new notes came before the directors for their acceptance or rejection, according to the agreement between said Austin and the parties residing in Michigan, the question arose amongst the directors as to the rate of interest that the bank could legally take upon said notes. There was a difference oí opinion, varying between six and ten per cent.; but they all agreed that it would be lawful to take six per cent, and that the notes would be good for that; and they decided tp accept them, and take such interest as the law would allow the bank to take, and without any intention to take any other.
Owing to the failure of Smith, Dwight & Co. to provide for the redemption of the original advance of thirty thousand dollars, as they had agreed, the bank had charged interest on such redemptions that had been made by it, in pursuance of the original understanding with Smith, Dwight & Co.; so that, with the five. per cent, per annum on the principal sum, it would [368]*368receive more than six per cent, in the whole ; and in said settlement, such interest on said redemptions was reckoned and embraced in the principal sum for which said new notes were given, as were also charges for expenses in transmitting money by express, in carrying on the business between the principal parties. There were also embraced in said settlement some items of charge not connected with, or growing out of, said loan of thirty thousand dollars. At the time the defendant signed said new notes, he had no knowledge that said interest on said redemptions, or said expenses, or said other charges, were to be or were reckoned as aforesaid, and embraced in said settlement and new notes. The case of Orr v. Lacey, reported in 2 Doug. Mich. Reps., decided in 1848, was proved on the trial, to show what is the law of Michigan as to the effect of transcending its powers by a corporation in making contracts. The statutes of Michigan on the subject of interest, and on the subject of unauthorized banking, &c., were also proved.
On all the evidence in the case, after argument by counsel upon the law applicable thereto, the county court directed the jury to return a verdict for the plaintiff for the amount of the new notes at six per cent, interest; to which the defendant excepted, as also to various decisions of the court in admitting and rejecting evidence, and in not ruling the law to the jury conformably to a series of written requests.
This brief statement of the leading facts of a voluminous and complicated case, requiring attentive study in order to a full comprehension of all its details, may, with what is further stated in the course of the opinion, render intelligible the .main points raised in the argument and now decided.
The original transaction between the bank and Smith, Dwight & Co. must be regarded as a loan, and not in any part a purchase of bills of exchange, in the sense of the banking laws of this state. The evidence shows it to have been so designed by the parties. The whole sum was to be advanced in currency, and, upon the terms of the arrangement, it was to be held for a year, and its current redemption in Boston was to be provided for by Smith, Dwight & Co. The note of July 6th, 1853, the draft of August 26th, and of September 13th, 1853, for ten [369]*369thousand dollars each, given upon the advance of said respective sums in pursuance of said arrangement, were made payable presently ; but the paper of September 20th, 1853, shows that the drafts were “ not to be presented for acceptance and payment until one year from their respective dates, unless said Smith, Dwight & Co. should fail to redeem, etc.”
R. C. Smith in his deposition testifies, “ that said note and drafts were to run one year from the date of each, provided the redemption was protected by us.”
The two drafts were as much a part, and in performance of the arrangement as was the note for ten thousand dollars. These drafts, then, cannot be regarded as falling within the exception, as to the purchase of bills of exchange, to the prohibition of a bank from permitting any person, company or corporation to become indebted in a greater amount than the sum of ten per cent, on the capital stock paid in.
Such was not the understanding of the parties when the original arrangement was made, and the claim now that such should be the view in which those drafts are to be regarded, would seem to be a kind of afterthought, in the hope thus to avoid any ground of objection that might exist in respect to them in that prohibition of the statute.
The ultimate question is, whether the plaintiff is entitled to hold its judgment rendered by the county court. The leading grounds of objection to the judgment go to the right of the plaintiff to recover at all, for any cause of action asserted in the declaration, or on the tfial in the county court. The immediate question is, whether the plaintiff was entitled to recover upon the new notes, — the court having directed the verdict upon them, in exclusion of the original note .and drafts.
It is objected against the plaintiff’s right of recovery on the new notes, that they were given upon, and embraced a consideration affected with usury; that the original transaction of loaning the money was ultra vires, and the securities taken thereupon were void as contracts, and imposed no liability on the securities, — and therefore, the new notes given upon the settlement and surrender of the said original securities, were, as to the sureties, without consideration; that the pew notes are usurious on theip [370]*370face, reserving ten per cent, interest; that if that reservation should not he held to be usurious, still it is prohibited by the banking law of this state, and so renders void the contract in which the reservation is made.
As to the subject of usury as involved in the objections thus stated, — there can be no need, at this day, of discussion as to the elements essential to constitute the fact of usury taken or reserved.
The law is explicitly and comprehensively stated as follows: “ In construing usury laws, the uniform construction in England has been, (and it is equally applicable here,) that to constitute usury within the prohibition of the law, there must be an intention, knowingly to contract for, or to take usurious interest; for if neither party intend it, but act bona fide and innocently, the law will not infer a corrupt agreement. When, 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. But when the contract on its face is for legal interest only, then 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. * *
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.” Story, J. in Bank of U. S. v. Waggoner et al., 9 Pet. 399; Andrews v. Pond, 13 Pet. 76, Whipple, Ch. J., in Orr v. Lacey, 2 Mich. 252, adopts in substance the language of Judge Story above quoted. 1 he cases and text books present the subject with the same material features.
In the light of the law as thus announced, does the evidence tend to show the original transaction of loaning the thirty thous- and dollars, to have embraced a usurious provision ? The terms of the arrangement for that loan are not questioned. They are understood alike by all parties. It has resulted from the failure of Smith, Dwight & Co. to make the redemptions as agreed, that the bank, by way of interest on the redemptions made by it, in connection with the five per cent, to be paid on the principal sum, would be receiving more than six per cent, on [371]*371the original loan. But we discover no evidence tending to show that such a result was contemplated by the parties in making the agreement under which the money was advanced by the plaintiff; while, on the other hand, the testimony is explicit, that such a result was not contemplated, and that the bank, by its officers, expected that Smith, Dwight & Co. would carry out the agreement as to redemptions ; in which event the bank would not have been able to realize more than six per cent, on the money loaned. Under this state of the evidence, we think it would hardly be warranted to hold that there was anything tending to show such a corrupt agreement as the law contemplates in order to constitute a usurious contract, such a one as would render void the securities upon which the loan was made.
But if it were to be assumed that in the original arrangement, in pursuance of which said note and drafts were given, usury was provided for, would that affect the validity of said securities, except as to the usury covered by them ? In considering this question the distinction is to be kept in mind between usury in its specific character, as affecting the validity of contracts, and the transcending of corporate authority by the bank in making contracts.
We confine our present remarks to the former of these subjects. The law on the subject of interest, as established by the statute of 1836, has received a uniform practical construction throughout the State, both in and out of court, which construction has received judicial countenance, if not direct adjudication, in the supreme court. It is, that a contract affected with usury is valid to every intent, except as to the usury reserved in or paid in pursuance of it. Such is held to be the law by other courts under similar statutes; De Wolf v. Johnson, 10 Wheat. 367; Wycoff v. Longhead, 2 Dall. 92; Turner v. Calvert, 12 Serg. and Rawle 46; Fleckner v. Bank of U. S., 8 Wheat. 354.
In Blandel v. Isaac, 13 Md. 202, the question arose under a prohibition in the constitution, similar to that in our statute. Ch. J. LeGband says: “ the thing forbidden by the constitution is the taking or demanding a higher rate of interest than six per cent.; it is not forbidden to take op demand that, or q. [372]*372lesser rate. The thing forbidden is the excess, and nothing else, and that is what is illegal and void.”
So far as the vitiating effect of usury is concerned, we do not discover any reason for distinguishing between natural and artificial persons. A bank, under the law giving it existence, is as distinct and actual an entity as a natural person, and, aside from the peculiar attributes and limitations which the law of its existence impresses upon it, it stands upon the same ground of right and liability as a natural person. When, therefore, a rate of interest, beyond what is allowed by law, is to be held operative as usury, that is, as a eorupt agreement in contravention of the provisions of the law on this subject, we do not perceive any principle or reason upon which it should be held to work consequences as to a corporation, as a bank, other and more serious than as to any natural person. The view we entertain in this respect seems to be countenanced and sustained by what we have cited above from 9 Pet. and the other cases referred to, and to be fully sustained by cases that we shall have occasion to refer to in discussing another aspect of this case, and particularly by the case of The Phila. Loan Co. v. Towner, 13 Conn. 219.
Another point is urged in behalf of the defendant in reference to the consideration of the new notes, as depending on his liability on the original paper, viz : that, when he signed the original note and drafts, he supposed they were to be used in the ordinary course of discounts, and was not informed, and did not know to the contrary thereof, nor know of the arrangement under which they were to be used; and, therefore, the fact that they were, under said arrangement, differently used, exonerated him from liability as surety on that paper ; and so, as to him, there was no existing consideration for the new notes. We think, upon the evidence before us, that the defendant cannot stand upon this point.
It is conceded that Smith, Dwight & Co. were liable to the bank for the money unpaid on the original loan, however the securities given may have been invalidated by reason of usury or otherwise. There is pp suggestion that the defendant was misled or defrauded into signing said note and drafts by any rep-[373]*373reservation, or witholding of facts on the part of the bank. There is nothing in the evidence tending to show that the bank had any agency in procuring him to become party to that original paper, or had any knowledge of the means by which he was procured to become so. For aught that appears, the Bank had a right to suppose that those who had procured the use of his name, had done it upon truthful representations ; and particularly, that the paper was designed for a longer run than an ordinary discount; the face of the paper itself, by the provision of five per cent, per annum, bore such an indication as might reasonably lead the bank to suppose, (if the matter was in any way in mind,), that the defendant had knowledge of what was contemplated in that respect.
It is beyond question that the bank advanced its money in reliance upon the' note and drafts, as the direct security therefor, and relying upon the supposed liability 'of the defendant on said paper, and the defendant well understood t!:.is to be so.
In the absence of any fraud- towards the parties, it was competent for the bank to hold and use that paper in any way it saw fit, consistently with Vs legal character, and capability of use. This has been so often decided, and so recently by this court, as to render it improper to make words in discussing it.
In this connection we can hardly forbear to remark, that, among the facts and circumstances given in evidence, characterizing the defendant’s relation to the fact of said note and drafts being designed to run beyond the ordinary course of discounts, in addition to what we have already alluded to, the paper dated Sept. 20th, 1853, and the one dated August 30th, 1854, signed by him and the other parties to said note and drafts, show that the defendant was, at those times, sufficiently aware of some arrangement different from the common course of discounts. It is incredible that he regarded himself as having been misled or. defrauded in this respect, in view of these papers, taken in connection with the fact of his having signed the new notes in the manner, and under the circumstances shown by the evidence, without making any protest or claim predicated upon his having signed said original note and drafts, under a misapprehension as to the course that was to be taken with them. In the absence [374]*374of any claim of fraud practiced upon him by the bank, whereby he was induced to sign said papers of Sept. 20th, 1853, and August 30th, 1854, he obviously stands in no posture to entitle him to countervail the legitimate import and effect of those papers, as evidence of the facts which they certify, by saying that he signed-them without reading them and did not know their contents.
If, then, the character and validity of the consideration of the new notes were made to depend upon the defendant's liability upon the original note and drafts, as affected by the circumstances under which he claimed and offered to prove that he signed the original note and drafts, and the said papers of extension, we should feel compelled to hold against him; for, under the evidence given and offered, his right to defend against that liability could not rest upon the ground of his having been in fact misled or defrauded through the instrumentality of the plaintiff, but must rest solely on the grounds (if on any ground) furnished by the transaction itself, upon which it is claimed as matter of law, that the bank could not have enforced that original paper, because it had transcended its charter rights by an excessive loan, by demanding or receiving excessive interest, and by violating the principles of banking.
The views thus far presented readily indicate their proper application to several points that were made upon the evidence, both that which was admitted and that which was rejected, bearing upon the validity of the consideration of the new notes, as depending on the defendant’s liability upon the original note and drafts.
In this connection it is proper to make a single remark upon the point taken, as to the deposition of Rogers, used in evidence to show notice of the protests of said original drafts. On the trial, the plaintiff was proceeding as well for a recovery upon the original note and drafts, as on the new notes, in view of the doubt that existed as to being able to recover on the new notes. In order to charge the defendant on those original drafts, it was necessary to prove due presentment and notice of dishonor. For this purpose that evidence was material and necessary. But the court having decided that the plaintiff was not entitled to recover [375]*375upon said original note and drafts, that evidence was thus rendered of no importance, unless it was necessary to establish the defendant’s absolute liability on that note and those drafts in order to constitute and uphold the consideration for the new notes.
This we do not consider to have been necessary on the part of the plaintiff, as the case is before us ; for, as already remarked, the existing liability of Smith, Dwight & Co., for the money advanced by the plaintiff, would constitute a valid consideration for the new notes given to cover that liability. The defendant, having signed said new notes, if he would avoid his liability upon them, must either show that the consideration, as between the principal parties is void, or has failed, or that he was induced to sign the new notes through some fraud, with which the plaintiff -was chargeable. .
What passed between Judge Rich and the defendant cannot be regarded as constituting such a fraud in any respect. The defendant, in view of what had transpired, of which a knowledge was in no way concealed or withheld by any shown fault on the part of the plaintiff, made no question as to his liability on the original note and drafts. He certainly knew whether or not he had received notice of their protest; and, as depending on that, his judgment, as to whether he was liable or not, could not rest upon matter ot fact, about which he could be mistaken, but upon mere matter of law, upon facts of which he could not be ignorant. Although he may indeed have been ignorant in this view, as to his liability, (of which we, however, see no evidence,) it would constitute a very feeble element in such fraud as would be requisite to avoid the liability assumed by signing said new notes.
It is not intimated that Judge Rich withheld or concealed any facts in his own knowledge, of which he supposed, or had reason to suppose, the defendant to be ignorant; and most certainly he could not assume to know better than the defendant whether or not he had been duly notified of the dishonor of said original bills, as matter of fact, nor how the defendant’s liability was affected thereby, as matter of law.
It is not important and yet not improper to remark that, as it [376]*376seems to us, in what passed between the defendant and Judge Rich, as to the defendant’s not becoming more liable than he already was, the parties had only in mind the amount due and unpaid on the original securities given upon the advance of the thirty thousand dollars, and not the various incidents attending the transaction and its history, by which the respective rights and liabilities of the parties might be affected.
How they would have been thus affected, in case the plaintiff had sought at that time to enforce those original securities by suit, would, to say the least, have given rise to questions of doubt, and perhaps of difficulty, if the defendant had made defence to the suit.
Upon very common principles, illustrated by a great number of cases, it was competent for the defendant to choose between contesting such questions, and yielding to his conceded liability, upon the terms proposed ; and if he did thus yield, it is not permitted to him to repudiate the security given in that behalf, without showing affirmatively that he was made the victim of fraud, in thus closing with his adversary.
In connection with the point made by the defendant, that the bank had no right to hold the original paper as against him, for any other purpose than that of the ordinary and usual course of discount, it is claimed that the identical money advanced by the bank had been more than repaid, and therefore the defendant was no longer bound on that paper, and no act of the bank, in again remitting the money to Smith, Dwight & Co., could continue on foot the liability of the defendant. As to this, we see nothing in the case to warrant the claim. The funds furnished to the bank do not appear to have been designed or regarded as payments on the original loan, but as reimbursing redemptions made by the bank that Smith, Dwight & Co., under the arrangement, were bound to make. There was no illegality in providing for means of redemption, in itself considered, and whatever was done in fulfillment of that provision, so far as mere redemption is concerned, is unexceptionable, and money furnished for that specific purpose by Smith, Dwight & Co. may .well have been, as all the evidence shows it was, applied between the parties accordingly. This stands widely distinguishable from general pay-[377]*377meats made on current transactions between the parties, without discriminating or indicating any specific application; to which the doctrine of Kirby v. Duke of Marlboro’, 2 M. & S. 18, and of Pierce, Clark & Co. v. Knight, 31 Vt. 701, would apply. As to those payments, under the arrangement providing for redemptions, so far as they have operated as receiving, by way of interest, more than the lawful rate prescribed by the charter and the banking laws of the State, we shall indicate our views in a subsequent part of the opinion., For present purposes it is sufficient to say that, in the light of the evidence, there is no ground for claiming that said payments operated to extinguish the liability of the parties on the original note and drafts.
Under the views thus expressed, regarding the defendant as not having successfully encountered the new notes, on the score of the consideration upon which they were given, as affected by the alleged usury involved in the original transaction, or as affected by the questions that have been raised touching the defendant’s liability upon the original securities, in consequence of the supposed existence of which, he signed the new notes, we are brought to consider the rights of the plaintiff upon those new notes in reference to the questions raised in respect thereto in the argument.
These questions are made mainly upon the fact that said notes, upon the settlement, in the consummation of which they were taken, were made to embrace more than six per cent, interest upon the money loaned by the plaintiff to Smith, Dwight & Co., and upon the fact that they, in express terms, provide for interest on the principal at the rate of ten per cent.
So far as these facts present the subject of usury, in its legitimate character and consequences, we have, in discussing the subject in its relation to the original securities, said substantially all that the occasion requires.
As preliminary to the consideration of these facts in another aspect, it is proper to remark that we discover no evidence that said excess above six per cent., which was reckoned into said settlement, and is embraced in the principal of said new notes, was provided for by any corrupt agreement in violation or evasion of the law in 'such way as to constitute the fact of usury; [378]*378nor do we see any evidence showing that it was included in said settlement and notes with any such corrupt understanding or intent, as to subject it to the charge of being usury. The charges in the account in that respect accrued upon redemptions made by the plaintiff which Smith, Dwight & Co. had agreed to make but had failed to do so, which agreement is clearly shown by the evidence, without contradiction, not to have been tainted with any usurious intent. Having thus accrued it is not to be assumed as a presumption which the law demands, in the absence of evidence to that effect, that the intent was corrupt with which those charges were brought into that settlement. It is a common and familiar principle that every fact, in virtue of which a forfeiture or penalty is claimed, is not to be presumed, but must be proved to have the vicious character that is necessary, in order to render it effective of the result claimed for it.
As to the ten per cent, reserved in the notes, that rate transcends the limit prescribed by the charter and the bauking laws of this State, but not what is lawful under the laws of the State of Michigan, where the notes were made payable, and where they were executed by some of the parties thereto, though not by the defendant.
Independently of the restrictions in the charter of the plaintiff’s bank and in the banking laws of this State, it is beyond controversy that the notes could not be regarded as stipulating for unlawful interest. In this connection we repeat in substance what we have before said, that, so far as unauthorized rates of interest are affected with the taint of usury, they have the same character and work the same consquences, when reserved or received by banks, as when reserved or received by natural persons. In neither case, do the statutes declare the contracts void, nor provide a penalty or forfeiture. They are held to be inoperative for the unlawful excess of interest. If the laws on this subject are to have a different and more stringent operation in the case of banks than in the case of natural persons, it is not by reason of express provision to that effect, but in consequence of the intervention and operation of another class of principles and considerations, predicable upon the fact that banks are creatures of the statute, existing ai.d having powers and rights only by virtue of [379]*379tlie provisions of the statute, and the fact that the statute prohibits hanks from demanding or receiving more than six per cent.
We understand it to be claimed for the defendant, that, inasmuch as these notes were made payable in Michigan, they are void by force of the law of that State, as pronounced in Orr v. Lacey, 2 Doug. 252, on account of their providing for a rate of interest that is unauthorized by the charter of the bank and the banking laws of this State, irrespective of what might be the law of the subject in that State, — in other words, that Michigan is to be regarded as the locus contractus, and the contract is to be administered according to the law of that State.
We defer the discussion of this point, until we shall have' considered the subject independently of the doctrines as to the lex loci contractus which are claimed to apply, on the score that these notes are to be regarded as falling under the operation of, and to be governed by the law as it is held in the State of Michigan.
The proposition is, that by force of the prohibition in the charter and the banking laws of this State, the fact that the notes embrace in the principal sum interest beyond the prescribed limit, and also reserve on their face interest exceeding that limit, render said notes void as contracts in toto.
Without undertaking to reconcile all the conflicting decisions, we think there is an important distinction to be made between cases in which there has been a mere transcending of the limits of a conferred right, on the one hand, and cases, on the other, in which there is an entire prohibition of right, whether accompanied or not by a provision of a penalty for violating such prohibition, or a provision that the prohibited contract or act shall be void.
It seems to me that if this distinction be kept in view, many of the cases, that at first appear to be in conflict with each other, will prove to he consistent. Where such an entire prohibition in the organic act exists, the legitimate consequences are obvious upon sound principle. But where there is a mere limitation of the extent to which a conferred right may be exercised, the reason is not very apparent why the exceeding of that limit should operate to any other intent than to render such excess void and ineffectual. With the exception of the cases cited from the [380]*380States of Ohio and Michigan, it seems to us that the general current of the decided cases is not unfavorable to this view. Assuming, as we do, what has become a trite maxim of the law, that a corporation has no rights, powers or authority except what are expressly conferred, or necessarily implied in order that the express may be available, it is clear, and so are the cases, that the corporation cannot do a valid thing by way of contract or otherwise outside of what is thus conferred or implied.
Hence it has been held that where the organic act .provides •only for taking certain kinds of securities in the business of the corporation, as bonds and mortgages, such corporation has no power to take and enforce a different kind of securities ; or where it provides that the corporation may loan money, but not discount notes, it cannot enforce notes taken upon discount. Some such cases have been cited. But in the present case, the bank was authorized to loau its money, aud take securities in the form of notes or otherwise therefor, and to demand and receive for the use of such money six per cent, banking interest, and no more. Now it is difficult to understand and appreciate the principle, either iu law or reason, upon which a note thus taken should be held inoperative, except for any excess above the limited rate of interest that may be included or reserved in it, in the absence of any provision that such, note should he void, or for a penally or forfeiture, for the taking of a note with such excess of interest included or reserved. No moral vice inheres and taints a note so taken, hut it clearly would lack the warrant of law as to such excess of interest, and of course to that extent would be inoperative and void. As to such excess, it would seem to stand upon the same principle as, and in strict analogy to, the cases in which the law had prescribed a specific kind of securities, but a different kind had been taken, — the courts holding that the corporation had no power to take such security, and putting the cases expressly on the want of power, that went to the very foundation of the right to enforce such unauthorized security.
The following cases cited by the defendant’s counsel seem to have been decided upon the ground that the corporation had engaged in a kind of business not authorized by its charter, as [381]*381banking when only insurance was provided for t, or had taken a kind of security different from that specifically prescribed ; or had undertaken to contract wholly ultra vires, in distinction from having transcended the limit of its right in reference to a transaction to which it was lawfully authorized; none of which cases involve the subject of a contract in which an excess of interest is included or reserved for money loaned, when such loan was authorized at a prescribed rate, and neither a penalty nor an avoidance of the contract was provided by the law itself in case of such excess.
Firemen’s Ins. Co. v. Ely, 5 Conn. 560; Beach et al. v. Fulton Bank, 3 Wend. 573; Bartlett v. Atheneum Life Ass. Society, 37 E. L. & E. 187; East Anglian R. Co. v. Eastern Counties R. Co., 7 Ib. 505; Springfield Bank v. Merrick et al., 14 Mass. 322; Swift v. Beers, 3 Denio 70; Leavitt v. Palmer, 3 Coms. 19; Bank Com’rs. v. St. Lawrence Bank, 3 Seld. 513; N. Y. Fire Ins. Co. v. Sturgess, 2 Cow. 664; Life Ins. Co. v. Davis, 2 Kern. 569; Talmage v. Pell et al., 3 Seld. 328. On the other hand, there are cases, such as Little v. O’Brien, 9 Mass. 422, which hold that a violation of the organic act of incorporation, by the making of an unauthorized contract, is not available as a defence to the party promising in such contract; but only to the public, by some proper proceeding for abrogating the' franchise.
The case of The Philadelphia Loan Co. v. Towner, 13 Conn. 249, illustrates, and seems to be an authority for the views we have now presented.
While it was held that the note in question was not void as a contract, under the laws of Pennsylvania, on account of the reservation of excessive interest, still it was held to be void, for the reason that it was taken by way of discount in the commercial sense, the act of incorporation providing “ that nothing in the act contained should be construed to authorize said company to discount notes.” And yet it was also held that, so far as the transaction was a loan of money, the company was entitled to recover the money loaned under the common counts, inasmuch as the company was authorized to loan money, though not to discount notes ; and inasmuch as the discounting of the note in suit was not a part of the original transaction of loaning the money, but [382]*382was subsequent to it, and by way of renewal of the security for the original loan.
In the case of Quinsigamond Bank v. Hobbs, more recently decided in the supreme court of Massachusetts, of which there is a note in the Law Reporter, for January, 1859, it was held that “ taking more than six per cent, interest by a bank in the discount of a note, does not prevent the bank from maintaining an action on the note, notwithstanding the provisions of the statutes prohibiting the taking of more than six per cent, by banks in such cases, under a penalty of five hundred dollars for each offence.”
In Vansands v. Middlesex Go. Bank, 26 Conn. 144, the validity of the defendant’s lien on certain shares of the stock for the indebtedness of the owner of the stock, was the subject of controversy. One ground taken by counsel was, that the discount upon which the indebtedness was created was illegal, as being made in violation of the statute prohibiting the bank from making a loan or discount on pledge of stock. The case was decided on the ground that the lien claimed was not in virtue of a pledging of the stock within the meaning of the statute. Yet Stores Ch. J., in deliving the opinion of the court, gives attention to the point taken by counsel, and holds the following language: “The directors of banks, whose exclusive business it is to make loans and discounts, and perhaps the banks of which they are the agents, might be amenable to the courts for a violation of this law, if they should disregard its prohibition, as they clearly would be to the legislature ; but there would seem to be no sufficient reason why the loan or pledge should be pronounced void. Especially is it questionable whether it can be treated as invalid in the absence of any provision in the act declaring that the loan or pledge shall be void, or imposing any punishment for its violation.” We refer to this case and cite this language, as indicating the tendency of courts, and leading jurists towards the doctrine, which we regard the true and sound doctrine of the subject.
We do not understand the decision of the court, or the reasoning of Judge Story, ip delivering the opinion in Bank of U. S. v. Waggoner et al., 9 Pet. 399, to be inconsistent with this view. That case arose under the laws of Kentucky, which declare all bonds, contracts, etc., utterly void, on which a greater rate of [383]*383interest was reserved or taken than was allowed by law ; and the whole reasoning of the court was with reference to contracts affected by such statutory laws. Judge Story refers to the case of Fleckner v. U. S. Bank, 8 Wheat. 338, in which he also delivered the opinion, and says that that decision was deliberately adhered to. In the case last named, he used the following language : “ The taking of interest by the bank beyond the sum authorized by the charter, would doubtless be a violation, of its charter, for which a remedy might be applied by the government ; but as the act of Congress does not declare that it shall avoid the contract, it is not perceived how the original defendant could avail himself of this ground to defeat, a recovery.” The ease of Blandel v. Isaac, 13 Maryland, 202, called for than elaborate discussion of this subject by Ch. J. LeGrand, in the court of appeals, in which the cases are elaborately reviewed; and particularly the case of Bill v. Ellicott, in the circuit court of the district of Maryland, in which the contrary doctrine was held by Judge Taney, is thoroughly criticised. So far as the case of Blandel v. Isaac presents points of analogy with the one before us, for the application of the law, the court of appeals takes the same view of the law, and makes a similar application of it as we do in this case. In Planters’ Bank v. Sharp, 4 Sm. & Mar. 75, as shown by the note of the case in 5 U. S. Dig. 904, sec. 22, it was held that “ when a bank, in its discounts, reserves a greater interest than is allowed by its charter, the contract in Mississippi falls within the general law of usury ; but it is not void, and the bank may recover the principal sum lent, though without any interest.”
From the best consideration we have been able to give to the subject, with the aid of the learned counsel in argument, and the light thrown by the various cases and books cited, we think the sound legal reason of the subject requires us to hold, that the transcending by the bank, of the rate of interest prescribed by the laws of this State, whether treated as a violation of its charter, and the laws governing its existence and acts, or as ultra vires, as the term is technically used, should have no other effect upon the contract than to render it void and inoperative as to such excess only ; and that in this respect, the law stands upon the [384]*384same ground of principle, and should be administered only to the same intent, in its effect upon contracts, as the general law of the State regulating the subject of interest for the use of money. And in this result we think we find so considerable a force of precedent and authority, as to preclude us, at least, from claiming the merit, as well as free us from the charge of novelty and singularity.
This view of the law of this aspect of the case applies to, aud disposes of, the point taken on the same ground in reference to the validity of the original note and drafts, as affecting the character of the consideration for the new notes ; for it is unquestioned, that, if the original note and drafts, on which the defendant was party, were void on account of the illegality of the transaction out of which they grew, or of which they constituted a part, and the new notes grew out of the illegal contract first entered into, — in other words, were not a new contract upon a new consideration, the new notes would be affected with the same legal infirmity as the original paper.
As to the point that the original loaning of thirty thousand dollars, by creating a debt of more than ten per cent, of the capital stock actually paid in, was a violation of the law on that subject, and this defendant may take advantage of such violation in defence to his liability in this case ; it is obvious that substantially the same principle is involved as in the point already considered, as to the receiving or reserving excessive interest. In the one case it is insisted that, by reason of providing for the receipt of a larger rate for the use of the money loaned than the law allows, the plaintiff is not entitled to recover. In the other it is insisted that, by reason of having loaned a larger amount than the law allows, the plaintiff is not enitlcd to recover.
Having said all that is deemed necessary on the subject of excessive interest, it seems proper to add a few words as to this other specific ground of defence. It is not questioned that no defence is open to the surety, based upon the illegality of the consideration, that is not equally open to the principal. Unless the principal could defend these notes on the ground assumed, the surety canno'- do it on the same ground. It is claimed, indeed, that said notes are void as contracts, and so could not be enforced [385]*385against any of the parties to them. But it was not questioned, indeed it was conceded, that the bank might, under the common counts, recover of Smith, Dwight & Co., the money actually advanced to them with lawful interest. It would be difficult, we imagine, to assign a reason why the bank could thus recover, and at the same time assign a reason, either cogent or plausible, why it should not recover on a special count on the notes themselves. The assumption is, that the loan being illegal, the contract or promise to repay the money is void, But would not such illegality work equally to vitiuite the right of recovery upon an implied, as upon an express promise ? It would seem to present a strange incongruity, i£ the law would refuse in a given case to recognize the validity of an express promise, and in the same case, and upon the same transaction, would imply and enforce a contract of the same force and effect. If then it is to be held, as we think it should be, that the principals, Smith, Dwight & Co. were liable for the money loaned to them, and that such liability might be enforced by an action of assumpsit counting on the implied promise to pay, in our opinion it might as well be enforced upon a security, as a note, covering that liability, and expressly promising to pay. It would follow of course that a surety upon such note would be bound to the same extent as such principal, so far as depended on the validity and sufficiency of the consideration. Upon the specific subject of the effect of such a transcending of authority or violation of the statute as occurred in this case, the more recent cases seem to be harmonious in settling the law. The result is well stated by Sedgwick in his work on constitutional and statutory law, 90, as follows : “ It must further be borne in mind, that the invalidity of contracts made in violation of statutes, is subject to the equitable exception, that although a corporation in making a contract, act in disagreement with its charter, where it is a simple question of capacity to contract, arising either on a question of regularity of organization, or of power conferred by the charter, a party who has had the benefit of the agreement cannot be permitted, in an action founded on it, to question its validity. It would be in the highest degree inequitable and unjust to permit the defendant to repudiate a contract the fruits of which he retains, And the [386]*386principle of the exception has been extended to other cases. So a person who borrowed money of a savings’ institution upon his promissory note secured by a pledge of bank stock is not entitled to an injunction to prevent the prosecution of the note, upon the ground that the savings bank was prohibited by its charter from making loans of that description.” See also the case of The Steam Navigation Co. v. Weed et al., 17 Barb. 378, in which Parker, J., brings together the leading cases in this country on the subject, and closes with noticeable zeal, saying, “ I am happy to come to the conclusion that the law will not permit this most unconscionable defence. It ill becomes the defendants to borrow from the plaintiff one thousand dollars for a single day, to relieve their immediate necessities, and then turn round and say, ‘ I will not return you this money, because you had no power, by your charter, to lend it.’ Let them first restore the money, and then it will be time enough for them to discuss with the sovereign power of the State of Connecticut the extent of the plaintiff’s chartered privileges. We shall lose our respect lor the law, when it so far loses its character for justice as to sanction the defence here attempted. ‘ Lex plus laudatur, guando ratione proíatur.’ ”
It is not claimed in the present case that the violation of the prohibition in the banking laws as to the amount of indebtedness derives any additional force in vitiating a contract, on account of the provision in sec. 79, for the punishment of the director or other officer, who shall misbehave in this respect, nor of the provision in sec. 56. for civil remedy against directors, through whose misbehavior the stockholders or creditors of the bank may have suffered loss. Nor could it well be so claimed; for these provisions seem to be based upon a distinction taken between the corporation as an existing body, and the officers who are entrusted with the management of its business transactions ; and they proceed upon the idea, that while such officers may be guilty of misbehavior and worthy of penalty, the corporation itself as an aggregation of stockholders, duly organized, may not only be innocent of any fault, but may even be the victim of the faulty conduct of the officers.
If the offending person was the corporation, it would not be difficult upon principles both of law and justice to leave him sub[387]*387ject to all the implied consequences of his disregard and violation of the statute. But when he is merely a representative trustee, and his misconduct is his personal fault, in violation of his duty both to the law and the corporation, it is by no means clear that the corporation, or its other individual members should be subjected to damaging consequences to be implied, and not expressly provided.
It was undoubtededly in this view that the point was put simply on the ground that the act of loaning an excessive amount was contrary to the provision of the statute limiting the amount of allowable indebtedness, irrespective of any penalty provided for so doing. This excludes the idea that the act is to be regarded in the nature of a crime on the part of the corporation, either moral or statutory, or as contributing to, or aiding an act of that kind. The law, as declared and applied in the case of Terrett et al. v. Bartlett, 21 Vt. 184, is quite familiar. It has been wisely settled and well applied through a long course of judicial administration. But this case does not fall within that category. It is obvious to us that these provisions of limitation and prohibition, so far a., the corporation as an existing body is concerned, affect only the question of capacity and authority ; and therefore, whether the transcending of the limits in the amount to which a loan is authorized to be made, shall operate to avoid the contract for repayment, either express or implied, or preclude the right of recovery, is to be determined as a question of intent upon the statute itself. If such intent be manifest the consequent result will be realized. If not manifest such result will not occur. In Harris v. Runnels, 12 How. (U. S.,) 79, it is said “ that whatever may be the structure of the statute in regard to the prohibition and penalty, or penalty alone, it is not to be taken for granted that the legislature meant that contracts in contravention of it are void in the sense that they are not to be enforced in a court of justice; that the statute must be examined as a whole, to find out whether or not the makers meant that a contract in contravention of it was to be void, so as not to be enforced in a court of justice.” If this is true in relation to a statutory prohibibion, the violation of which is followed by a penalty upon the party violating it, it would seem [388]*388not only to be allowable in a case standing simply upon a prohibtion, without penalty upon the party sought to be charged with the invalidity of the contract, but to require the intent to be clearly manifested in order to warrant the court in holding the contract void, and thus virtually working a forfeiture of the money loaned.
Not only does the statute not provide a penalty upon the bank, nor declare such a contract, either express or implied, to be void (which of itself would seem sufficient to preclude any ground for implying an avoidance) but in providing for a penalty upon the offending officers, and for a civil remedy both upon their official bond and also personally, in favor of parties, stockholders as well as creditors, who should suffer damage by their misconduct in the particular in question, it seems to carry the direct implication that such contract is not to be regarded as void. There is nothing in the statutes on the subject of banks and banking that looks in a contrary direction, either in respect to an excessive loan, or the taking or demanding interest beyond the prescribed rate.
Upon this point then, standing upon the mere fact of having violated the statute by exceeding the authorized limit of the amount of indebtedness, the authorities cited and referred to must be regarded as conclusive, being as we conceive well grounded in principle.
Smith, Dwight & Co. could not avail themselves of this ground of defence against the notes ; nor, as before said, can the defendant as their surety, so far as the money loaned constituted the consideration either of the original paper or the new notes. In this connection it may be further remarked, that the defendant was cognizant of the amount thus loaned ; and its unlawfulness was a matter depending upon a public statute. He had full knowledge of the character of the transaction in this respect from the outset. It being conceded that Smith, Dwight & Co. were liable to the plaintiffs for the money thus loaned, it is clear that when the defendant became their surety for the same by signing the new notes, with such full knowledge, he assumed a liability to the plaintiffs, so far as the consideration is concerned, co-extensive with that of Smith, Dwight & Co.; so that, as depending on [389]*389the fact that the prohibition of the law was violated by making a loan to that amount, the defendant is not in a posture to take advantage of it in his own discharge from liability.
We are now prepared to recur to, and consider the point of defence, that the law of the State of Michigan is to govern, as the lex loci contractus, and that, under that law, the new notes are wholly void.
As already announced, we hold the law in this State to be^ that the reservation or providing for a higher rate of interest than the law allows, affects the contract only in reference to the unlawful or unauthorized excess; so that, if governed by the law as held here, the notes would, at any rate, be valid as contracts for the money loaned and advanced by the plaintiff, with the lawful interest. Under the laws of Michigan the same would be true, if the plaintiff was a natural instead of an artificiál person ; and the same must be true, notwithstanding the plaintiff is an artificial person, unless the laws of Michigan are to visit consequences upon acts of the bank that are beyond its authority to do, which are not visited by the laws of the State in which the bank was created, and by whose laws it is clothed with corporate powers, and limited by restrictions and prohibitions.
The operation claimed in this case for the laws of Michigan is not based on the ground that the taking or reserving of usury by the bank is any violation of the statutes of that State, that would render the contract void. But it is on the ground, that on common law principles, as held in that State, and evidenced by the case of Ore v. Lacey, a contract by a corporation transcending in this respect its power to make, is void in toto; so that, assuming that the bank, under the laws of this State, had no authority to demand or receive interest beyond the rate of six per cent., inasmuch as in the notes in question more than that rate of interest is embraced and provided for, the notes are entirely void as contracts. In other words, by applying Michigan common law to a Vermont statute, a contract is made void that, under the law of Vermont alone, is valid to a certain extent, and under the law of Michigan alone, is valid to an equal extent at least.
We think this presents a new and extreme example of the [390]*390comity between States, in virtue of which the lex loci contractus is allowed to govern the validity, construction and operation of contracts; and none the less new and extreme, in view of the fact that both parties to the contract now in suit were, and ever have been located in this State, and are before the Constituted tribunals of this State to have their respective rights and liabilities determined.
If the bank was a Michigan institution under the same statutory provisions as exist in this State, or if the rate, of interest reserved was in violation of any statute of Michigan, either in respect to interest generally, or as to the extent to which corporations have the right to take or contract for interest, it would not be difficult to assent that such statutory provisions should have the full effect which the common law principles of that State would legitimately give to them, in their application to these notes. But when neither of these conditions exist, it is difficult for us to see upon what reason of principle, comity, or morality, we are to accomplish the result asked, by assuming as the law of Michigan what is claimed for the case of Orr v. Lacey, and engrafting it upon a statutory disability in the plaintiff in this State, and thus working a forfeiture which the laws of neither State proprio vigore would work.
We have found no case that, upon its facts, involves such an application of the doctrine of lex loci contractus. The cases, so far as we have examined them, are either those in which the contract was declared void by the laws of the State, in virtue of which the corporation had its existence; or was, as a contract, contrary to the law or the policy of the State in which the contract was made; which cases stand on a wide distinction from this case, in which the contract is unimpeachable in Michigan, so far as its provisions are related to the statutes or the policy of that State on the subject of interest, and. unimpeachable in this State, except for the excess of interest above the prescribed rate.
The true view seems to us to be, that the capacity of the party, and the validity of its acts, as affected by that capacity, are to be determined by the law which gives it existence, and confers and limits that capacity, and that, in Michigan, the acts of such •(party would be held valid to the same extent there as in this [391]*391State, unless there is some law or policy of that State that would thereby be contravened or prejudiced.
In Bard v. Poole, 2 Kernan 495, Denio, J., holds the following language : “ They (corporations) are beings existing only in contemplation of law. and have no other attributes than such as the law confers upon them ; and as the laws of a country have in general no extra-territorial operation, a corporation cannot challenge, as a matter of right, the privilege of dealing in a country not under the jurisdiction of the sovereignty which created it. Any of the States of the Union may, as this and several other States have done, interdict foreign corporations from performing certain single acts, or conducting a particular description of business within its jurisdiction. But in the absence of laws of that character, or in regard to transactions not within the purview of any prohibitory law, and not inconsistent with the policy of the State as indicated by the general scope of its laws or institutions, corporations are permitted by the comity of nations to make contracts and transact business in other States than those by virtue of whose laws they were created, and to enforce those contracts, if need be, in the courts of such other States. It is of course implied that the contract must be one which the foreign corporation is permitted by its charter to make ; and it must also be one which would be valid if made at the same place by a natural person, not a resident of that State citing several authorities, and particularly Bank of Augusta v. Earle, 13 Pet. 519, which see.
We have thus far discussed this topic upon the ground that the new notes are to be regarded as contracts made in Michigan, and that the law of that State is as the defendant’s counsel claimed it to be, upon the evidence of the case of Orr v. Lacey. As to the place of the contract, whether Vermont or Michigan, we are not disposed to make any question as against the claim of the defendant in this respect; though, if the point were subjected to a close scrutiny upon principle and authority, applicable to the evidence in the case, it might perhaps be difficult successfully to maintain what is claimed in this respect.
But as to the case of Orr v. Lacey, as it is proved and introduced into the ease as evidence of the law of Michigan, it is [392]*392worth while to give it a moment’s notice, both in its character as evidence, and as an authority cited in usual course. In that case the real plaintiff was a bank in Indiana, and the legal rights of the plaintiff were discussed and adjudicated the same as if that bank had been the nominal as well as the real plaintiff. The question arose upon the discount of a draft by said bank at its branch in Michigan, in which it was claimed that, by reason of having advanced upon said discount depreciated bills, at the same time reserving the lawful interest, usury had intervened in the transaction.
It was proved that, by the laws of Indiana, usury thus reserved would render the contract void. By the laws of Michigan as then existing, the effect of the usury would be, not to render the contract void, but to subject the plaintiff to the deduction of three times the excessive interest. The supreme court approved the charge of the court below in holding that the contract was to be governed by the law of Michigan, notwithstanding the draft was made payable in the city of New York, saying: “ The instruction thus given to the jury was founded on the opinion that the contract was governed by the laws of this State, and not by the laws of New York or Indiana, which rendered void all contracts infected with usury. It is to be observed that the real plaintiff in this cause is a corporation created by a law of the State of Indiana. The capacity of this corporation to make a contract therefore must be tested by that law. ”
After disposing of this branch of the case, the court then proceed to consider another, in which the law is propounded, upon which the defendant relies, and which the learned judge introduces thus: ‘ ‘ Supposing however that the jury should find that the facts warrant the presumption that the payment by the hank to O. P. Lacey of depreciated bank notes was a device by which to obtain a greater rate of interest than is allowed by law; it then becomes important to determine whether the contract is absolutely void; or whether, according to our laws, the plaintiff only forfeits three times the usurious interest.” It is upon this substratum that the whole discussion proceeds, viz: that of a device by which to obtain a greater rate of interest than is allowed bylaw.— in which the judge states the legal propositions which are claime I [393]*393tobe the law of Michigan, viz: “that a corporation possesses only those powers expressly given by its charter. Among those granted to the Indiana State Bank is a power to discount bills and loan money, reserving upon such loan six per cent, per annum, and no more. There is no provision in the charter which declares that a contract reserving more than six per cent, shall be void. No principle however, is at this day better settled, than that a court will never carry into effect a contract made in violation of a positive law, any more than they would a contract founded on an immoral consideration. If therefore there was an incapacity on the part of the bank to make the contract declared upon, or if the contract was made in violation of its charter, a court of justice will not lend its aid to carry it into execution.” After discussing the application of these propositions to the subject in hand, the learned judge closes thus: “ As the courts of Indiana, if a suit had been there instituted on the bill declared upon, would have pronounced it void, as having been inseparably connected with the contract out of which it grew, so the courts of this State will examine into the capacity of the bank to make a contract, and if it discovers a want of capacity to make one on which a recovery is sought, they will not carry it into effect.” All of which results in this, as the only point presented for decision or decided : that when a plaintiff corporation, existing under the laws of Indiana, comes into the courts of Michigan, to enforce a contract, which, under the laws of Indiana, would be held void by the courts of that State, by reason of its covering a device by which to obtain a greater rate of interest than it is allowed by law to take, the courts of Michigan will also hold it void, notwithstanding it would not be void by the laws of Michigan, if made by a natural person.
The marginal note of the case is quite significant of what was understood to be the case decided, whether that note was made by Judge Whipple, who delivered the opinion of the court, or by Judge Douglass, the reporter. After the brief statement of three abstract propositions that were assumed in the opinion, (with which no one would find fault, as abstract propositions, whatever may be thought of the application they have sometimes received,) it proceeds : “ If, therefore, a bank, on discounting a [394]*394bill of exchange corruptly reserves a greater rate of interest than it is authorized by its charter to receive, the bill will be void. And so will be a new bill given in renewal of the balance due on such previous illegal one.”
Now it is well understood that a decision is authoritative in respect to principles only in virtue of the application of those principles to the particular case, and is evidence only of the state of the law in that application of it. Without criticising the application there made, or even intimating that we should not make a similar application, and arrive at the same result in a like case, it is sufficient to say that the present case is destitute of elements that were assumed as material in the decision of that. In this there is no evidence tending to show any corrupt agreement for usury, or any device by which to obtain a greater rate of interest than is allowed by law. In this case the contract is not held to be void in this State, where and by whose laws the bank derives its existence, while in that case it was assumed by the learned judge that the draft in question would be held to be void by the courts of Indiana. “
In another aspect, that case would seem to lend some countenance to other views that we have expressed, and particularly as to the law by which the capacity of a corporation is governed and fixed, and the consequences resulting therefrom, as affecting contracts made by it.
If however we err in our views of that case as now developed, we are quite confident that ease does not show a state of the law in Michigan, which would engraft an abstract common law proposition as there held, upon a statute of this State, and thereby work an avoidance of a contract that is valid by the laws of this State to the extent claimed for it, and is not in contravention of any positive or statutory law, or the policy of that State.
It was claimed in the argument that the ten per cent, being provided for on the face of the notes, was conclusive of the intent to take usury, and so not open to question. That might be so perhaps, if the bank had been the immediate-party to whom the notes were made payable and to whom delivered by the makers. But in this case the notes were made payable to C. P. Austin, or order, under circumstances that rendered it uncertain whether [395]*395the bank would receive them or not. As payable to him they import no usury. When it is sought to charge the bank with their effect as usurious, resort of course is had to the circumstances under which and the manner in which the bank became the holders thereof. In showing this, it was clearly competent and proper to show all that gave character to the transaction, and precisely the terms and understanding on which the interest and rights of the bank accrued therein. Upon the facts shown, these notes did not become effective, as notes, till received by the bank ; for it was part of the arrangement for the projected settlement, that unless they should be received by the bank, they were to be returned to the principal makers in Michigan. It is not controverted that the officers of the bank, in their action upon the subject of receiving said notes, in view of the question whether the bank would be entitled to hold them as valid for the rate of interest specified, determined to receive them to be operative as to interest only for such rate as it might be authorized to receive. As the law fixes expressly that rate to be six per cent., it would seem that, as against the forfeiture claimed, it should be held that, virtually, it was at that rate of interest that the notes were received for. We see nothing in the evidence to contravene this view, nor are we aware of any principle of law that should lead us to a different result. It can hardly be claimed that the bank should have sent the notes back, to be substituted by a new set, providing for only six per cent, interest, when, without claiming or determining to receive them for more than the law would allow, it was impossible, under the law, that they should receive more. The makers, under this condition of things, were in no more danger of an unlawful exaction than they would have been if the notes had specified the rate of interest at six per cent., or had.been silent as to the rate, and left it for the law to fix. If this view he correct, then as a matter of course, the point made in virtue of the law of Michigan as claimed to be shown by the case of Orr v. Lacey has no ground to rest upon, so far as the provision for interest on the face of the note is concerned.
While we hold that, if the notes in question had been taken and .were held by a natural person instead of the bank, the [396]*396Reservation of ten per cent, interest would not render them obnoxious to the charge of usury, still we think, as the bank is expressly restricted, by its charter and the general statutes on the subject of banking, from demanding or receiving more than six per cent, banking interest, it is bound by that restriction. These notes were taken for the unpaid balance of the money originally loaned, and in lieu of the original note and drafts. So far as that money is concerned we regard the bank as having no right under the law to take, as interest, more than six per cent., according to the usages of banking. In this respect the bank stands on different ground from a natural person. It has no power and no rights, only as they are expressly conferred or necessarily implied. The policy and purposes for which such corporations exist would seem to be contravened by permitting the bank to transcend the limit prescribed by the law in this respect. The primary object of creating such institutions and endowing them with their franchise privileges, is to serve the interests of the community in which they are located, by furnishing a currency for the convenient and safe transaction of business; and as a consideration for this service, the corporate rights and privileges are conferred.
It seems clear to us that if a bank was to be permitted to demand and receive a larger rate of interest than six per cent, in virtue of having loaned its money, or taken security therefor, in another State, where a higher rate is allowed by law, it would constitute an effective inducement to send its money■ into foreign service for the benefit of the stockholders, instead of holding it subject to the needs and for the service of home convenience, a direct temptation to disregard and thwart the very purpose and consideration for which the State has given it its existence and peculiar privileges.
In this connection another consideration presses strongly on our attention, and that is the peril in which our banks put themselves, and the disasters which have befallen some of them, by withholding their money from domestic use, and sending it abroad upon adventures, in pursuit of large profts ; thus not only doing injustice to our own citizens, who need warrantable accommodations in the prosecution of their customary business, but jeop* [397]*397ardizing the interests and rights of the stockholders themselves, and creating distrust, and confusion, and discredit in the common currency of the country. The present case furnishes an impressive illustration both of such peril and disaster, and presents in a clear light the importance of giving no countenance to such a course on the part of banks, by allowing them to reap advantage in respect to rates of interest upon loans exceeding the limit prescribed by our own statute laws.
While, therefore, we hold that the notes on which the judg-, ment is based are not void by reason of the reservation of ten per cent, interest on their face; still, at the same time, we hold that they cannot be enforced for a greater rate than our own law prescribes.
The views last presented properly apply to the subject of interest on the original loan, that may have been reckoned in, and become part of the principal sum for which the new notes were given.
In the first place the bank had no lawful right to contract for or to receive more than six per cent., according to the usages of banking. In the next place, the contract into which the defendant entered, by becoming party to the original note and drafts, was for interest at five per cent, per annum. It was only in settlement of his liability thus measured, that he became party to the new notes. Of the arrangement and course of business, out of which sprung the charges of interest on the redemptions, or that such charges existed or were embraced in that settlement, and entered into the principal sum of said new notes, he had no knowledge. At the time he agreed to sign, as well as at the time he did in fact sign the new notes, he supposed they covered only the amount he was liable for in consequence of being surety on the original paper. And the evidence shows that in what passed between the defendant and Judge Rich, it was understood by both that, the defendant was not, by signing the new notes, to make himself liable for more than he was already liable for by reason of his name being upon the original note and drafts. This was on the occasion of the defendant’s agreeing to sign notes that might be taken on settlement of the old paper, [398]*398and before C. P. Austin went west to make the settlement, in case he could not get the pay.
It does not appear that Judge Rich, at that time, had any knowledge or forecast as to the details of the contemplated settlement, or to what extent the indebtedness of Smith, Dwight & Co. to the bank would remain unpaid, and therefore would be embraced in new notes that might be taken, or that he made any representations to the defendant in that respect.
It stood between them, on that occasion, upon the mutual understanding that the defendant’s liability on new notes, that he agreed to sign, was not to exceed his existing liability on tfye original paper. It does not appear that anything further passed between the parties, except that the new notes, when presented, were to be signed by the defendant.
While, therefore, we find no evidence of a fraud practiced on the defendant in the means used to procure him to sign the new notes, still we are clear that he signed them under the warrantable belief that they covered only his liability on the original paper ; and we think that only to that extent should he be held liable on the new notes. That liability would be measured by determining how much there was due upon that original paper at the time the new notes were given, the same as if a judgment were to have been made up on that paper at that time, which of course would embrace interest only at the rate of five per cent, per annum. This ,of course excludes all charges on the score of said redemptions either for interest, commissions on redemptions, or expenses, and all outside charges for other matters.
That original paper, being payable in New York, we know of no reason in law why it should not subject the parties to the current rate of exchange, which is both customary and legal in that State, as we understand the law of the subject, and as proved in the case.
It appears that, in the course of the business between the bank and Smith, Dwight & Co., they paid the bank, through various drafts, mainly on New York, a large amount of money, as is shown by the accounts set forth in the case. Of course it was competent for the parties to make such an application of [399]*399that money, in reference to the transactions between them, as they saw fit, as between redemptions that Smith, Dwight & Co. were bound to provide for, and the expenses, commissions on redemptions, and interest on that account, on the one hand, and. the original loan, by way of payment, on the other.
So far as the bank received it as payment on the original loan, it is to be so applied in diminution of the amount due on said original note and drafts, computed at the rate of five per cent, per annum, down to the time the new notes were given. So far as the bank received it on account of interest on the redemptions, under the arrangement with Smith, Dwight & Co., and, in connection with the five per cent, provided in the original note and drafts, it results in an excess of six per cent, on the original loan, such excess is to be regarded as payment on said loan, and is to be applied accordingly in diminution of the amount due on said original note and drafts, at the time the new notes were given. The amount thus ascertained will be the true principal sum for which the defendant should be held liable on said new notes, which sum, with six per cent, interest from the date of said notes, will make the amount of damages which the plaintiff is entitled to recover.
As to the item of charge by the bank that went into the settlement, of commissions of one-half per cent, on the redemption of forty-five thousand dollars, it is proper to make a remark. It seems that Smith, Dwight & Co., in making said settlement, recognized and treated this charge as being proper, and, as to the funds furnished the bank on the score of redemptions, mani-, fested their intention to have them apply as well in payment of this charge, as of the charges for other expenses accruing in the making of said redemptions, in the transmission of funds, and otherwise.
This commission cannot be regarded as, or in the nature of, interest for the use of the money loaned, but as a compensation to the bank for services performed in reference to the duty assumed by Smith, Dwight & Co., to provide for the redemptions, and to give the loaned money a circulation, conformably to the original arrangement in pursuance of which said money was loaned and advanced.
[400]*400As the case furnishes the elements of a computation, by which the result in figures may be educed, we have taken the trouble to make such computation.
It appears that the bank charged interest on the redemption account, in the sum of one thousand seven hundred and sixty-seven dollars and fifty cents. The funds furnished by Smith, Dwight & Co. on accpunt of redemptions were enough, lacking-one hundred dollars, to pay the whole of the charges of the bank, including that amount of interest. Applying those funds in the first place to the other charges in full payment, there would be one hundred dollars of that amount of interest unpaid, and so it was charged over in making up the balance of indebtedness for which the new notes were taken. Of those funds, therefore, one thousand six hundred and sixty-seven dollars and fifty cents have been applied in paying interest on the redemption account. Of that sum it would take four hundred and four dollars and seven cents, in addition to the five per cent., to make the interest on the original loan up to six per cent. This sum of four hundred and four dollars and seven cents being deducted from the one thousand six hundred and sixty-seven dollars and fifty cents would leave one thousand two hundred and sixty-three dollars and forty-three cents, paid as interest in excess of six per cent, on the original loan, and it should therefore be applied upon the original loan by way of payment.
There was paid directly upon said original loan, and endorsed on the original ten thousand dollar note, the sum of four thousand and sixty-seven dollars. Applying that sum, and casting interest at five per cent., there was due, principal and interest, January 6th, 1855, twenty-seven thousand nine hundred and forty-three dollars and ninety-one cents, from which is to be deducted said sum of one thousand two hundred and sixty-three dollars and forty-three cents, leaving twenty-six thousand six hundred and eighty dollars and forty-eight cents. Add to this one-half of one per cent, exchange on New York one hundred and thirtyrthree dollars and forty cents, making twenty-six thousand eight hundred and thirteen dollars and eighty-eight cents, the true principal sum of said new notes. Interest cast on this from January 6th, 1855, to February 28th, 1861, would make the [401]*401amount thirty-six thousand six hundred and ninety-nine dollars and twenty-three cents, the sum for which judgment should be entered of that date.
As before intimated, it was competent for the principal parties to make any application of the funds furnished by Smith, Dwight & Co. on the score of redemptions, that the law would permit to the plaintiff bank.
And while the defendant should not be made chargeable for more than his contract liability, he would have no right to complain. It being competent for the bank to receive six per cent, on the original loans, and it being evident that Smith, Dwight & Co., in the settlement, were satisfied, and intended to allow the bank not only what was equivalent to that rate of interest, but even more, by way of funds furnished, we allow the matter to stand in that respect as the parties adjusted it, up to the limit to which the bank was authorized to receive interest.
The disposition we have thus made of the case covers all the substantial grounds of debate arising upon the exceptions. Many points were taken in the argument, which we have not specifically discussed, for the reason that they arose, and depended upon, the leading grounds, to which we have given particular attention, and which are disposed of in the disposition we make of those leading grounds.
The result is,, that, as the judgment embraces more than the bank was entitled to recover, it is reversed, and, as the case enables us to ascertain the true sum, judgment is rendered in this court for that sum, without remanding the case.
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33 Vt. 346, Counsel Stack Legal Research, https://law.counselstack.com/opinion/farmers-bank-v-burchard-vt-1860.