
    Elizabeth P. Bondurant vs. Commercial Bank of Natchez.
    Where a bank loans the notes of other banks, which circulate in payment of debts, but are in fact from twenty to twenty-five per cent, below specie par, the contract is usurious, and the bank is only entitled to recover the specie value of the notes at the time they were lent, without interest.
    In such a case the use which the borrower makes of the money, is not a proper subject of inquiry, nor can it in any manner change the result.
    The case of the Grand Gulf Bank vs. Archer, cited and affirmed.
    ErboR from the circuit court of Adams county; Hon. Charles C. Cage, judge.
    This was an action of assumpsit, brought to the May term, 1842, of the circuit court of Adams county, by the Commercial Bank of Natchez, against Elizabeth P. Bondurant, Frederick Stanton and Malachi B. Hamer, on a promissory note for $5353 90; dated 21st of March, 1838, and payable twelve months after date, upon which was entered a credit on the 24th of March, 1839, of $2779 04. The defendants pleaded •the general issue and a special plea, that the plaintiff was indebted to them in the sum of $5890 68, for one hundred bales of cotton, out of which they were ready and willing to set off and allow the full amount claimed by the plaintiff. On both pleas issue was joined. At the November term, 1843, the case was discontinued as to Stanton and Hamer, and a verdict and judgment rendered against Elizabeth P. Bondurant for $3540 44. She entered a motion for a new trial on the ground that the verdict was contrary to law and evidence, and her motion being overruled, she filed a bill of exceptions, from which the following facts appear, viz. That upon the trial the plaintiff read to the jury the note sued on, and rested her case. The defendant then proved by Thomas Henderson, the cashier of the bank, that the note sued on, was discounted by the plaintiff under a general arrangement to discount the notes of planters, who would ship cotton to Liverpool, to be sold on their account and risk, and permit the proceeds to be subject to the order of the plaintiff. The plaintiff was to draw sterling bills as soon as the bills of lading were received, and sell them in New York or Philadelphia, and place the proceeds of the bills, the foreign exchange being added, to the credit of the shipper; but the domestic exchange, or the exchange between New York or Philadelphia and Natchez, was to be retained by the bank. That the plaintiff had on hand a large amount of the notes of various' other banks of this state, which then circulated as money ; she wanted funds in New York and Philadelphia, and adopted the plan of discounting the notes of planters in the-manner above-mentioned, for the purpose of placing them there. The consideration of the note sued on, was a loan of such bank notes. The difference of exchange between Natchez and New York and Philadelphia, was the chief inducement for making this and other similar loans. Whatever amount was received by such exchange, the plaintiff knew, was over and above the legal rate of discount; but she did not adopt that mode of- loaning money for the purpose of retaining a greater amount of interest than was allowed by. law; nor as a device for evading the provisions of the statute restricting the rate of interest. The notes loaned, answered the purpose of money generally in paying debts and purchasing property, though they were of greatly less value than specie in the purchase of all the necessaries of life, yet witness did not know the amount of the difference. The notes loaned were of less value than the notes of the plaintiff, she had very few, if any, notes in circulation and did not pay out her own notes in making any loans on the pledge of cotton; they were also of less value than the funds received on the sale of the bills drawn for the proceeds of the cotton. The plaintiff, had full knowledge of the difference of value of the notes loaned and the funds received, and such difference, which he considered rather more than compensation for the trouble and expense of the plaintiff in (¡carrying on her cotton transactions, was the chief inducement for making the loan. At the time the loan was made the defendant, Elizabeth P. Bondurant, had shipped one hundred bales of cotton to Liverpool, the proceeds of which were to be placed to her credit in Natchez, by the plaintiff. The cotr ton was insured before the loan was made. The credit on the note sued on, was the net proceeds of the sterling bills sold in Neav York, with the exchange between New York and Philadelphia, added, and the exchange between the latter and Natchez, excluded. The defendants then proved by Koontz, an exchange broker, that the several kinds of bank notes, which circulated as money about the month of March, 1838, were from twenty to twenty-five per cent, below specie during that month, and continued at those rates, until the ensuing fall or winter, when some of the banks resumed specie payments, and the notes of such banks rose to par. During the same period, New York or Philadelphia funds, were on a par with specie in Natchez. Which, being all the evidence offered on either side, the defendant asked the court to instruct the jury, as follows, viz.: —
    “ 1. If the jury believe that the note sued on was given for a loan ofdepreciated paper of banks, greatly below their numerical value, to be paid in funds equivalent to specie, and that this difference in value constituted an inducement to make the loan, and amounted to more than eight per cent, per annum, the contract was usurious, and in violation of the charter of the bank, which does not permit the taking of a greater rate of interest on its loans or discounts than eight per cent, per annum.”
    “2. If the jury believe the plaintiff, her officers and agents knew that the difference in value between the funds loaned and the funds to be received in payment, was greater than sufficient to pay all expenses incurred in conducting the business of making such loans, and collecting the proceeds of the sales of cotton, and other expenses attending the business, the agreement to take such difference of value cannot be considered as a compensation to said plaintiff for such expenses, and the agreement constitutes usury, and a violation of the charter as before mentioned.”
    
      “3. If the jury believe the consideration of the note was a loan of bank notes at their nominal value, when both parties knew they were of greatly less value, such loan was usurious,- and a violation of the charter.”
    “ 4. If the jury believe from all the circumstances, that the contract was a device to procure a greater interest for the loan of money than the charter of the bank authorized, the contract is usurious, and a violation of the charter.”
    “5. If the jury believe the contract was usurious, or in violation of the plaintiff’s charter the contract is void, and they must find for the defendant.”
    
      “ 6. That if the jury believe from the evidence that the bank has not violated her charter, but has taken on the note here sued on, either directly or indirectly, more than eight per cent., she cannot recover any interest; the sum actually loaned is all she can recover, deducting credits.”
    “ 7. If the bank, by dividing the contract, has retained a greater amount than eight per cent., first, by discounting the note, and secondly, by retaining domestic exchange on the sales of cotton, for the purpose of receiving a higher rate of interest than allowed by the statute, the contract is usurious, and- the interest forfeited.”
    
      “ 8. If the jury believe the note here sued on was given for depreciated funds, the value of said funds in specie, after deducting the credits, is the true consideration of said note; and if the jury believe the contract was usurious, they must find a verdict for the true value of such funds at the time loaned, deducting the credits.”
    The court gave the fourth, sixth, and seventh instructions; and refused to give the first, second, third, fifth, and eighth. At the request of the plaintiff’s counsel, the court instructed the jury as follows, to wit:
    “ 1. That if the jury believe from the testimony that the note sued on in this case was discounted by Commercial Bank of Natchez for the defendant, Mrs. Bondurant, at her instance, and for her accommodation, and that she received from said bank the amount of the note (less the amount of the interest or discount, which the bank was authorized by her charter to receive,) in current notes of the banks of the state of Mississippi, that Commercial Bank of Natchez had then on hand, and received them.freely in payment of any dues, and that said current notes were received and paid out generally in transactions at their par value, or the numerical amount of said notes on their face, and that said advance, or loan of said bank notes, was not made as a shift or device to avoid the statute of this state against usury, or the charter of said Commercial Bank, the law is in favor of said Commercial Bank of Natchez, and the jury would find accordingly.”
    “2. That if the jury find from the evidence that the defendant, Mrs. Bondurant, obtained from the Commercial Bank of Natchez $5353 90, (except the legal discount, which the said bank was authorized to receive under its charter) in current bank notes of the state of Mississippi, and in consideration thereof executed the note sued on to said Commercial Bank, the plaintiff, the transaction was not therefore usurious, although the said bank notes were then at a discount of twenty-five per cent., in exchange for gold or silver.”
    “3. That if the jury believe from the evidence that the said Commercial Bank of Natchez undertook to have the one hundred bales of cotton of the defendant, Mrs. Bondurant, mentioned in the testimony, shipped to Liverpool, in England, on her account, and on her risk, and agreed to account for the net proceeds of the sale thereof, in New York or Philadelphia, without the addition of the domestic exchange between New York, or Philadelphia and Natchez, and if the jury further believe that the risk in the difference of said domestic exchange, or the advantage which said bank might thereby derive from said exchange, was intended by said plaintiff in good faith as a compensation for the trouble of said plaintiff in the business, aud not intended by said bank as a cover or design to commit usury, the transaction is not usurious, but is lawful.”
    “4. That to constitute usury the parties to the transaction must have it in contemplation at the time.”
    “5. That unless the jury believe from the evidence that there was a corrupt agreement, device, or shift, on the part of said Commercial Bank, to take or reserve, in some way, a greater rate of interest than the charter of said bank authorized her to reserve, receive or contract for, the contract and transaction in this case is not usurious, or unlawful.”
    To which opinions of the court, refusing to give the charges asked for by the defendant, and in giving those asked for by the plaintiff, the defendant excepted; and after a verdict and judgment were rendered for the plaintiff, she removed the case to this court by a writ of error.
    Bullock, for plaintiff in error.
    Believing this case to be widely different from any one decided by this court, touching the powers of a corporation, I shall insist that the bank was not authorized, either from its charter or the general laws of the land, to make such a contract. And first, let us look to the charter. Whatever powers it may possess are derived from the second, third and fourth sections of the act creating the corporation; and I deny that any provision therein contemplates a loan of depreciated paper of the various banks of this state then at a discount. If the bank had issued her own notes, even if they had been at a discount, I would not contend for the application of this rule, for in such case the bank would have been increasing her liability to the extent of her issue, and it might have appeared a mutual exchange of credits. But the positions which the parties occupy are very different. ■One is obligating herself to pay the other specie, or its equivalent, with a legal rate of interest, and receives in consideration broken bank paper worth but seventy-five cents on the dollar. Such loans, I cannot persuade myself, are authorized by the charter.
    The circulation of depreciated currency or broken bank paper is contrary to public policy; its direct tendency is to ruin every one through whose hands it passes. A sound and stable currency will alone insure prosperity to the people. I shall not insist upon this point. I have suggested it, and shall leave it for the consideration of the court as applicable to the first, second and third instructions asked for by the defendant below, which were refused.
    The rejection of the eighth instruction, by the court below, constitutes, I conceive, the greatest error, and I think sufficient to reverse the judgment. The substance of the charge is, that if a note be given for depreciated funds, the consideration of the note and the verdict of the jury, must be for the specie value of such funds at the time the loan was made. This court has decided that question, and there is abundance of authority in support of the same doctrine in other states. 3 S. & M. 285 ; 7 Yerg. 547; Cox v. Rowley, lately decided in Louisiana; 1 Yerg. 243, 444; 12 Pick. 565; 5 Mon. 477; 7 Ibid. 263; 1 J. J. Marshall, 47; Planters Bank v. Sharp, 4 S. &. M. 75. In all these cases where the apparent object was to gain some advantage over the borrower, the courts have decided such cases usurious, and forfeit the interest or principal, according to the law governing the contract. Such is the well settled law of the land.
    In the second place, the instructions given for the plaintiff ought to have been rejected, because they contain inferences that are not warranted by the testimony, and such as were well calculated to mislead the minds of the jury. See the case of the Nashville Bank v. Hayes & Grundy, 1 Yerg. 243, and Lawrence v. Morrison, 444. The case of Weatherhead v. Boyers, 7 Yerg. 545, a loan of depreciated paper, and an agreement as in this case, to pay U. S. bank notes or specie in New Orleans, was held to be a usurious transaction, and that the value of the funds at the time of discounting the note, was the real consideration of the note. Such a transaction was held to be a shift or device. The decision of this court in Commercial Bank of Vicksburg v. Atherton, 1 S. & M. 641, plainly intimates the value of the note. So also 3 S. & M. 285. This case differs essentially from the case of Commercial Bank of Manchester v. Nolan, 7 How. 508.
    And, as authority, that a bank may be guilty of usury, see 8 OhioR. 257; 2 Peters, 527; 9 Ibid. 397; 5 Monroe, 477; 7 Ibid. 263; 1 J. J. Marsh. 47. A case in point has lately been decided in Louisiana, {Cox v. Rowley,) where the court say, the question has been settled in eight states. Taking check for note of three hundred dollars, allowing twenty-five dollars discount, was held to be usurious in 12 Pick. 565. The testimony of Mr. Henderson and Mr. Koontz, will show this case to be a usury case, if a bank can commit usury, and differs so materially from the Nolan and Manchester case, that I am persuaded a different opinion will follow.
    The reason why Judge Story (9 Peters) reversed the decision of Judge Johnson, does not exist in this case, but the rules there laid down, showing what constitutes usury such as will work a .forfeiture of interest, I think are binding in the case before the court; which is, that usurious interest was stipulated for, and in dividing the contract by which a mask was thrown over the transaction, was taken.
    
      Quitman and McMurran, for defendant in error.
    We conceive that this court has decided the questions which arise in this case. Whether usurious and excessive interest has been taken by the bank, by paying out to Mrs. Bondurant depreciated bank notes, though used freely in circulation, and in this way getting the advantage of the domestic exchange. And if the bank has been guilty of usury, what is the effect of it on the contract.
    On the first point we rely on the following authorities : Bank United States v. Wagner, 9 Pet. R. 381-400; Young v. Adams, 6 Mass R. 182 ; Commercial Bank of Manchester v. Nolan, 7 How. 50S; and 4 How. R. 621.
    The verdict of the jury in this case negatives the corrupt intent.
    The other point has been repeatedly decided by this court, and, according to our recollection, the court has at this time a case or two under consideration of a similar nature. That nothing but the excess or illegal interest could be deducted, the following authorities will show: Planters Bank v. Snodgrass, 4 How. 621; Commercial Bank of Manchester v. Nolan, 7 How. 508 ; Planters Bank v. Sharp, 4 S. & M. 75-82.
    In this last decision, the court reiterates its former decisions. And indeed the opposite counsel virtually concede this point, that the contract is valid, and that the illegal interest only is forfeited and to be deducted.
   Mr. Justice Clayton

delivered the opinion of the court.

This case is, in most respects, like that of the Grand Gulf Bankv. Archer, ante, 151. The most important point of difference is, that the bank, in discounting this note, did not pay out its own notes, but the notes of other banks, which circulated in payment of debts at par, but which were in reality twenty to twenty-five per cent, below specie par. The judgment below was for the plaintiff, for the amount due upon the note, with interest.

The question presented is, whether this transaction was usurious. On the authority of numerous cases, we think it was. Bank v. Hays and Grundy, 1 Yerg. 243; Harrison v. Bank of Kentucky, 2 J. J. Marshall, 140; Bank of the State v. Ford, 5 Iredell, 698.

In the case last cited, the supreme court of North Carolina held, “ that every attempt by a bank, to put upon a borrower bank bills, not its own, and below par at that time and place, is usurious, unless the bank by its contract and loan, engages to make the notes as good as cash.”

The contract must stand or fall by itself. The use which the defendant makes of the money, is not a matter of inquiry with us; or one which can influence the decision. On this point, the same court said, “ the borrower may not have lost by the transaction ; for perhaps he bought property with the notes at half its value, or lent them to some one else at par, and a still higher rate of interest. But such advantageous dispositions of them are his own acts, and at his own risk, altogether distinct from the original contract of lending and borrowing. By that contract, the lender got clear of the notes, knowingly reserving for the loan of them more than the lawful rate of interest; and thereby is its validity to be determined.”

If the defendants below satisfy the jury of the truth of their defence, then no more can be recovered than the specie value of the notes at the time they were lent, without interest.

Judgment reversed, and new trial granted.

Thachee J. concurred in the judgment here, but dissented from the order made to govern in a future trial, and referred to his dissenting opinion in the case of Grand Gulf Bank v. Richard T. Archer el als.  