
    L. & H. Brock v. Samuel Thompson.
    Columbia,
    Dec, 1829.
    In an action by the holder against the indorser of a promissory note, negotiated after it had become due, parol evidence of a stipulation by the in-dorser, at the time of the transfer, that the maker should be indulged as to time by the holder, is admissible to shew the degree of diligence, to which the holder was,bound.
    A promissory note, duo on the 18th September, 1826, was indorsed by the defendant to the plaintiffs on the 10th October following, and at the time of the transfer, it was agreed between them, that the maker should be indulged for one half of the amount until the winter of that year, and for the other half until the spring or winter following. The plaintifFs made a demand of the maker in the month of November, a second demand in the course of the winter, and a third on the 1st of March, 1827 ; and on the 17th of the same month, gave notice to the defendant, by letter, of nonpayment by the maker. The maker resided in Pendleton, the defendant in Greenville, and the plainiifl's at Hamburg, in Edgefield district Held sufficient evidence of due diligence and reasonable notice to go to the jury; and a verdict for pi aintiffs sustained,
    A stipulation, that a sum of money, borrowed in United States’Bank bills, should be returned in hills of the same bank, or that the borrower should pay 5 per cent in addition to the principal and legal interest, does not render the note usurious; but the excess is merely a penalty to secure perform anee of the first alternative of the stipulation, or a provision for making good any loss, which the lender might sustain by reeling payment in bills of other banks. The lender, however, is not intitleih'to recover more than the principal, and legal interest, of the sum loaned.
    The sale, or tiansfer of negotiable notes, founded on a legal consideration, in payment of a debt due by the holder, at a discount on the nominal value, is pot usurious where the transaction is bona fide, although the holder render himself personally responsible for the payment by indorsement. In an action against him as indorser, however, the indorsee is not intitled to recover beyond the sum paid, or allowed, for the notes, and legal interest.
    In an action by the indorsee against the indorser of a promissory note, the consideration passing between them may be inquired into, and the indorsee cannot recover beyond the extent of the consideration actually paid, and in* terest.
    Tried before Mr. Justice O’Neall, at Greenville, Fall Term, 1829.
    This was an action of assumpsit upon a promissory note for $1750, drawn by James L. M’Kinney in favor of the defendant, or bearer, and indorsed by him to plaintiffs. The note was payable on the 18th September, 1826, and was negotiated tor plaintiffs a short time afterwards, to wit, on the 10th October, in the same year.
    The plaintiffs proposed to prove by parol, that at the time of the transfer it was agreed between them and the defendant, that the maker should have certain specific indulgence as to time.This was objected to on the ground, that it went to contradict the indorsement, by varying its legal effect. The presiding Judge was of opinion, that the evidence was admissible. The effect of the indorsement was to render the indorser liable, provided due. diligence was used to obtain payment from the maker, and reasonable notice of his neglect, or refusal, given to the indorser. But what was due diligence and reasonable notice, was always a question of extrinsic evidence ; and where a note was indorsed after due, this evidence might include a very extensive range of inquiry: because when the day of payment had already elapsed, the time within which a demand ought to be made, was, equally with that within which notice must be given, a matter of uncertainty, depending upon all the various circumstances of the case. A very long indulgence might, under some circumstances, be regarded as perfectly consistent with the condition, that due diligence should be used ; whilst, under others, the delay of a few days might justly be considered unwarrantable, and subject the holder of the note to an entire loss. On such a question no evidence could be adduced, more satisfactory in its character, than the agreement of the party himself, who was to be affected by demand and notice, and for whose protection and benefit they were required. Nor could such an agreement be said to contradict, or in any manner to vary the effect of the indorsement. It neither dispensed with, nor varied the implied condition of due diligence and reasonable notice. In the absence of such an agreement, other evidence must necessarily be resorted to, to establish what should be considered a fair compliance with that condition ; and the admission of the agreement was, therefore, merely the substitution of evidence approaching to certainty, for the less satisfactory conclusions to be deduced from other circumstances. The agreement, in fact, was collateral to, not contradictory of, the indorsement ; and its admissibility in evidence, was perfectly consistent with the decisions in Hugely v. Davidson, 2 Mill. 33. Eccles v. Ballard, 2 M’C. 388, and Houstou v. Frazier, Harp. 10.
    ley 113. Vide Sharp®, Lipsey^Bai-
    The objection having been overruled, the plaintiffs proved, that before the note became payable, the defendant had agreed with the maker to indulge him for payment beyond the period mentioned in the note, to wit, for one half of the amount until the winter of 1826-7, and for the other half until “the spring or winter followingand that he had several times admitted, that he had negotiated the note to plaintiffs on the same terms. The plaintiffs, however, in a letter to M’Kinney, denied that they had received the note on such a condition ; but subsequently agreed to allow him the same indulgence. The plaintiffs made a demand upon the maker in November, 1826, a second demand during the same winter, and a third about the 1st Maich following; and on the 17th of that month, gave notice of nonpayment, to defendant by letter. The defendant resided in Greenville, M’Kinney, the maker, in Pendleton, and the plaintiffs at Hamburg, in Edgfield District.
    The defendant moved for a nonsuit, on the ground that neither the demand nor the notice had been made in sufficient time to charge him as indorser. The presiding Judge held the evidence sufficient to go to the jury, who according to the decision in Eccles v. Ballard, 2 M’C. 388, were the proper judges of the question of diligence. And the motion for nonsuit was refused.
    The defence relied on was, that the indorsement was given for an usurious consideration; and to sustain this- defence the following facts were proved. The defendant borrowed of the plaintiffs the sum of $3000, in bills of the United States’ Bank; and, by the terms of the Ipan, was to return the amount in bills of the same bank, or to pay 5 per cent, on the sum, over and above the legal interest. The amount borrowed was re-paid in notes of individuals, including that now in suit, on all of which the 'plaintiffs were allowed a discount of 12 per cent, besides the legal interest and 5 per cent on the original loan.
    The presiding Judge instructed the jury, that if they were satisfied as to the fact, that the defendant, ,on negotiating the note to the plaintiffs, stipulated for indulgence to the maker, until the winter of 1826-7, as to one half of the debt, and until the spring or winter following, as to the other half; then the demand on the 1st March might be considered as made in due time, since that was but the commencement of spring, and the maker was intitled by the stipulation to the whole winter: and the notice given on the 17th March might also be regarded as reasonable notice, when the distance at which the several parties resided from each other was taken into view. He left it, however, to them to say, whether, under all the circumstances of the case, the defendant was justly intitled to require, that there should have been either greater diligence, or earlier notice.
    On the question of usury, his Honor charged, that there was nothing usurious in the original loan. The stipulation for payment of 5 per cent, beyond the legal interest, was not a contract for receiving a premium upon the loan, but in nature of a penalty to secure a return of money of equal value with that loaned. If one lent money in coin, he had a right'to stipulate that it should be returned in coin ; and if he should think proper to contract before hand, for the rate of depreciation, at which the payment might be made in any other medium, there could be nothing usurious in it; because it was always in the power of the borrower, to discharge the debt, by payment of the sum actually received by him, in the same coin in which it was loaned. And where a man lent a sum of money without interest, but stipulated, that if it was not returned by a given day, interest should be paid from the date of the loan, it was held by our own Court, in the Case of Satterwhite v. M’Kie, Harp. 397, that the contract was not usurious, and the lender was inti-tied to recover interest according to the stipulation : which was) a stronger case tina» the present.
    His Honor, however, was of opinion, that the. 12 per cent, discount allowed on the transfer of the note now in suit, rendered the contract usurious, and void, under the usury act. Negotiable paper was certainly a subject of legitimate traffic ; and the mere transfer of a note at a discount on its nominal value was not usury. But the act declared void, all contracts, where a higher rate of interest than 7 per cent, is demanded, had, or taken, whether the loan be made in money, goods, wares, merchandize, or any commodities whatsoever. Act of 1777. P. L. 286. And no shift or contrivance was allowed to be effectual for the protection of an usurious loan, by giving it the character of a sale. To have bought M’Kinney’s note at 12 per cent, discount was not in itself usurious; but the defendant himself indorsed the note, and his indorsement was a new contract on his part to pay the whole nominal amount, although he himself had not received so much, by 12 per cent; and the consideration of that contract was the forbearance of the debt due by himself, until demand made on the maker of the note, and notice to the indorser, which in this case, was postponed by stipulation, to more than a year after the indorsement. It seemed, therefore, to he completely within the act; and ou this ground his Honor thought the defendant intitled to a verdict.
    The jury, however, found for the plaintiffs ; and the defendant now moved to set aside the verdict, and for a new trial, on the following grounds.
    1. That, evidence of an agreement entered into by defendant, at the time of the transfer, for giving time to the maker of the note, was inadmissible, as contradicting the indorsement; and the testimony received for that purpose, at the trial of this case, ought to have been excluded.
    2. That the indulgence granted to the maker of the note in this case, was altogether unwarranted ; and the neglect of the plaintiffs to give any notice of the maker’s refusal to pay, until one month after the third demand, and more than four months after the first demand and refusal, was such gross Laches, as, under any view of (ha circumstances of the case, discharged the defendant’s liability as indorser.
    
      3. That the reservation of 5 per cent, premium on the original loan, and of 12 per cent, discount on the transfer of M’Kinney’s note, over and above the legal interest, were both equally usurious; and as both entered into the consideration of the defendant’s contract as indorser, the latter was void on both grounds, and imposed no obligation on the defendant.
    4. That the verdict was against law and evidence.
    Irbst, and Preston, for motion.
    Wardlaw, and Earle, contra.
    
   Johnson, J.

delivered the opinion of the Court.

This Court concurs with the presiding Judge, in the views he has taken of the admissibility of the parol evidence, going to shew that the indulgence given to M’Kinney the maker, was with the consent, and under an agreement with the defendant; as well as to the effect of the diligence used by the plaintiffs, in making a demand on M’Kiuney, and giving notice to the defendant, of the non-payment of the note. The only question, therefore, remaining to be considered is, whether this contract is usurious.

In considering this question, we are necessarily led to inquire into the original contract between these parties, by which the plaintiffs agreed to lend to the defendant the sum of $3000, in U. S. Bank bills, upon a promise on his part, that he would repay it in the time specified, with lawful interest; and that if it was not repaid in U. S. Bank bills, he would pay the further sum of 5 per cent, as a premium. For this being the predicate, or consideration, of the contract of indorsement, on which this action is founded, it is void if that was usurious. If, as the presiding Judge supposes, this additional per eentage was stipulated for, by way of penalty, for the non-performance of the undertaking, it was not usury ; although I incline to think, that the plaintiffs could not have recovered it in an action at law. Penal bonds conditioned for the payment of money are in common use, and no one ever yet regarded them as usurious. Nor was that contract usurious, if, as ! suppose the truth of the case to be, it was a fair and bona fide stipulation, that the defendant should make good any loss, which the plaintiffs might sustain in receiving other bank bills of less value : or in other words, that it was a fair estimate of the rate of exchange between the U. S. and other bank paper.

Having arrived at this conclusion, it only remains to be eon- , . ■ , sulerea, whether there was any thing usurious m the agreement under which the defendant indorsed M’Kinney’s note to the plaintiffs : aiid to do this, we are necessarily brought to the state 1 . . ’ „ „ , b , , o( things existing at the time. The defendant, to say the least of it, was indebted to the plaintiffs at the time, in the sum borrowed, with the legal interest upon it. When called on for payment, he had neither specie, U. S., or any other bank bills to pay with ; but he says to the plaintiffs, if you will receive notes in payment, I will allow you, in addition to the 5 per cent, contracted for, by way of penalty, (or as I have supposed, for the purpose of covering the rate of exchange,) twelve per cent, on the amount of the notes. Is this usury ?

Without intending to recite all of the provisions of the act minutely, I will venture to affirm that the only cases provided for in it, are those where the lender contracts to accept more than seven per cent per annum,, for the loan of money, or other commodity; or where he contracts to receive a greater rate of interest for the forbearing and giving day of payment.

It is not pretended, that this case falls within the class first provided for. The contract for the loan which has been before shewn to be lawful, had long preceded this ; and I think it. demonstrable, that the contract on which this suit is brought, does not fall within the second class. There is no stipulation in the contract itself, to give further time for the payment: on the contrary, it was accepted in discharge of, and extinguished the pre-existing debt; nor indeed does an indorsement impose any immediate liability on the indorser. That does not arise, until the maker fails to pay on demand made ; and it would puzzle sophistry itself, to deduce from the legal effects of the indorsement, any agreement on the part of the plaintiffs, to give day, or forbear, beyond that period.

I am not prepared to say, that usury might not be committed in the sale or transfer of negotiable or other paper ; for it has been correctly said, that the wit of man has never yet devised the means of evading the Statute. But 1 will venture to assert, that no case of authority can be adduced, in which a fair and bona fide sale of negotiable, or other securities, for money ( has been held usurious, whatever may have been the rate of discount. One may buy a horse for a shilling', that is Worth $100; and that is no usury, because there is no lending or giving of day. And why not a negotiable note It is equally a matter of traffic; and all the authorities agree, that it is not usurious to buy or to sell negotiable paper, founded on a legal consideration, for less than its nominal value.

Now 1 take it, that there is not in the whole of this case, one tittle of evidence going to shew, directly, that there was any thing illegal, or corrupt, in the contract between these parties ; or that there was any secret understanding between them, intended to evade the statute: on the contrary, it is plain, that it was a perfectly fair and bona fide transaction ; and we cannot presume that it was otherwise, in opposition to the facts proved, and the finding of the jury. The defendant must, therefore, be bound by it.

The extent of the plaintiffs’ right to recover, yet remains to be considered. In the cases of Braman v. Hess, 13. Johns 52, and Munn v. Commission Company, 15 Id. 44, in the Supreme Court of New York, the rule is laid down, and I think with great reason, that in cases like the present, the defendant may go into evidence to shew the consideration actually paid for the note; and that the plaintiff is intitled to recover no more. The jury in the present case, have found the whole amount of the note, and it is conceded, that, according to this rule, the defendant is intitled to a deduction of the 12 per cent, allowed as a discount upon it; and I think, for the same reasons, that he is intitled to a deduction of the 5 per cent, stipulated for in the original note.

If that be regarded as a penalty, the-plaintiffs would not be intitled to recover it at law ; because after judgment, he would not be bound to accept, even U. S. Bank bills, or any other, in payment: and he would thus evade the condition which the agreement implies on his part. And for the same reason he would not be intitled to recover it, if the object of the contract was to provide for the difference between the exchange of U. S. and other bank bills, for it could not, then, enter into the actual consideration of the indorsement.

The nominal amount of the note, is $1750, and deducting from it, 17 per cent, the aggregate of discount and premium before noticed, the sum actually paid for it was only $1470, which, with interest from the 18th Sept. 1826, the time when the note fell due, constitutes the true measure of the plaintiffs’ recovery.

It is, therefore, ordered, that a new trial be granted, unless the plaintiffs enter a remittitur for the excess of the verdict.

Motion granted nisi.  