Buckingham et al. v. McLean.

It was argued by Mr. Read, for the Buckinghams, and by Mr. Chase and Mr. Rockwell, for the Lafayette Bank, the Franklin Bank of Cincinnati, and the Northern Bank of Kentucky. The interest of these banks was drawn in question by the third point raised by Mr. Read, who contended that the notes, bills and mortgages held by them, were void on account of usury.

Mr. Read made the following points, viz.:

1st. The forty-nine shares of stock should have been decreed to the Buckinghams, and not to the bank.

2d. That the judgment, execution, and levy of the Buckinghams were valid; the fruits of the sale should have been decreed to them, and not to the assignee as general assets.

3d. That the notes, bills, and mortgages of the said banks were void, having been discounted at higher rates of interest than were permitted by their charters, and the mortgages were given to secure such discounts or notes substituted therefor.

1. As to the forty-nine shares of bank stock.

In her answer, the Lafayette Bank contends that she held this stock of John Mahard as collateral security to pay the amount of $15,000, secured by mortgage on real estate, and also on general lien under her charter as security for general debts. The bank, before the master, claimed the right to apply the stock to pay unsecured debts under her charter lien.

On the 13th of April, 1842, on the same piece of paper on which the stock had been assigned to the bank, was an assignment to Buckingham in these words:

"The forty-nine shares of the stock are transferred to John S. Buckingham, for value received."

Point. A party having a lien or other interest in property, standing by and permitting it to be sold without notice or assenting to its sale, loses all right in said property.

2. That if general creditors have an interest in such property, and the first lien-holder parts with his lien by consenting to its transfer, and such transfer is void by operation of law, the lien of the first holder does not reattach, but the property stands as general assets for the benefit of all creditors.

2d. As to the $1,300 made on Buckingham's execution.

It may be laid out of view that the Mahards did any act in creating liens or a cognovit, in contemplation of bankruptcy, as all the parties in their answers deny it.

On the 7th of April, 1842, John Mahard executed a power of attorney to confess judgment in favor of John S. Buckingham for $14,000, which was done the next day in the Supreme Court of the State of Ohio. Execution issued 20th of April, 1842; levy made upon real estate and certain personal property; which latter sold for $1,300.

Buckingham et al. v. McLean.

John Mahard petitioned to be declared a bankrupt, 27th May, 1842.

Cognovit and judgment within two months prior to petition, held, therefore, void under the second section of the bankrupt act.

Point 1st. The second section of the Bankrupt act does not embrace in its terms, or by necessary implication, powers of attorney to bond fide creditors to confess judgment. Bankrupt act, 19th August, 1841.

2d. The power of attorney gives no lien or preference, but the judgments, by operation of law, and not the act of the bankrupt.

In the matter of Allen, 5 Law Rep. 362; Wakeman v. Hoyt, 5 Law Rep. 309; Downer et al. v. Brackett et al., 5 Law Rep. 394; 1 Bac. Ab. 628; Foster, ex parte, 5 Law Rep. 55.

3d. As to the invalidity of notes, bills, and mortgages of the banks, it is conceded that these banks could deal in exchange at fair and usual rates; but their charters did not authorize them to discount, by way of loan, at higher rates of interest than six per cent. in advance. If a bank or moneyed corporation exceeds its powers in exacting interest on discounts and loans at higher rates than permitted by their charter, all notes thus discounted and loans made are void, and all mortgages and pledges to secure payment are void also. Bank of Chillicothe v. Paddleford et al. 8 Ohio R. 257; Creed v. Commercial Bank, 11 Ohio R. 493; Miami Exporting Co. v. Clark, 13 Ohio,

R. 18.

Banks may charge fair rate of exchange. 13 Peters, 65.

Andrews v. Pond,

Difference between sale and a discount. Sale at any price, discount only at legal rates. A loan, if seller bound to pay if obligee does not. Comyn on Usury, Add. 287, 5 Law Lib.; Rex v. Ridge, 4 Price, 50; 2 Eng. Ex. Rep. 30; Byles on Bills, 72; Lee, ex parte, 1 Peere Wms. 782; Eden on Bankruptcy, 145; 7 Wend. 578; Ketchum v. Barber, 4 Hill, 244; Rapelye v. Anderson, 4 Hill, 476; Rice v. Mather, 3 Wend. 62; Yankey v. Lockheart, 4 J. J. Marshall, 276; Knights v. Putnam, 3 Pick. 184, 187;. 12 Pick. 565; 4 Mass. 156; Powell v. Waters, 17 Johns. R. 176; 15 Johns. 44; 7 Wend. 569; 4 Hill, 476; 2 Johns. Cases, 60; 3 Johns. Cases, 66; 3 McCord, 365; 2 Cowen, 675; 7 Peters, 103, 109; 3 Cranch, 180; 1 Peters, 37; 4 Peters, 205; 2 Strange, 1243; 7 Wend. 633, 642; 8 Cowen, 669.

Lex loci, or place of performance to fix rate. Story on Bills, sect. 148.

Excessive exchange or commission on collection, or discounting depreciated paper, whereby higher rates than legal interest

Buckingham et al. v. McLean.

is obtained, will be deemed usurious. Hewson, ex parte, 1 Madd. 112; 7 Wend. 581-582; 13 Johns.-47; 1 Leigh, N. P., 482; 4 Hill, 219, 229; Comyn on Usury, 134.

Exchange charged on bill payable in a place where the money will be as valuable as at place of discount, a shift or device to exact over six per cent., charge of attorneys' fees, &c. Miami Ex. Co. v. Clark, 13 Ohio R. 1; Chitty on Bills, 89, (a), note; State v. Taylor, 10 Ohio R. 381; Shelton v. Gill, 11 Ohio R. 418; Spaulding v. Bank of Muskingum, 12 Ohio R. 544; Creed v. Com. Bank, 11 Ohio, 495.

Discounter must show the charge to be well founded; expense of collecting compensated by way of exchange; the usage of banks cannot control the law. 8 Bac. Ab. 424; Bank United States v. Davis, 2 Hill, 452; 13 Johns. 47; 16 Johns. 375; 9 Mass. 49; 3 Bos. & Pul. 154.

True differences only are to be charged. Merritt v. Benton, 10 Wend. 116; 2 Hill, 640; 2 Hill, 452; 7 Wend. 581.

No such thing as time exchange. McCullough, "Exchange;" Story on Bills, p. 481.

Discounted in depreciated paper, to be paid in silver, usurious. United States Bank v. Owens, 2 Peters, 527; United States Bank v. Waggener, 9 Peters, 378; 1 Peters, 44; 2 Harris & Gill, 13; 1 J. J. Marshall, 47; 2 Hill, 499; 1 Hall, 519.

Unreasonable charge for commission, or improbable difference of exchange. Hine v. Handy, 1 Johns. Ch. 6; Dunham v. Dey, 13 Johns. 47; 7 Wend. 581-582; 16 Johns. 375.

Risk of making place of payment only to be charged as exchange. 4 Hill, 221; 4 Hill, 250; 2 Paige, 272, 275.

Bank's charge according to length of time an artifice. 4 Hill, 480; 10 Ohio R. 381.

Mortgages in Ohio but a security. Lessee of Perkins v. Dibble, 10 Ohio R. 439; Moore v. Burnet, 11 Ohio R. 341; 4 Kent, Com. 195, 5th ed.; 21 Wend. 485; 26 Wend. 555.

Usury defeats a mortgage. 3 Pow. on Mort. 896, note. Substituted securities void, taint of usury follows. Chit. on Bills, 89; Walker v. Bank of Washington, 3 How. 72.

All the discounts of these banks were on time bills; sight bills at par; exchange from 1 to 2 per cent.

Mr. Chase and Mr. Rockwell made the following points.

I. The mortgage to the Lafayette Bank was made more than two months before the filing of the bankrupt petition, and was not made in contemplation of bankruptcy, in violation of the provisions of the Bankrupt act.

Answer of Lafayette Bank, p. 48: "And these respondents, further answering, deny that said mortgage was executed by

Buckingham et al. v. McLean.

said John in contemplation of bankruptcy, or that he was known or considered to be in a state of insolvency; but these respondents had good reason to believe, and did believe, that said John was solvent, and fully able to pay all his debts, and therefore they agreed to give, and did give him time to enable him the more readily to pay the said debts then due to these respondents. Respondents insist that said John Mahard, Jr., did not contemplate bankruptcy at the time of the execution of said mortgage, but that he executed and delivered the same in good faith, to secure a bonâ fide debt then due to these respondents as aforesaid.

"And these respondents further answering, state, that said mortgage was executed, delivered, and recorded more than sixty days before the filing of said petition by said John Mahard, Jr., for the benefit of said act, and that the transaction between said Mahard and these respondents was in good faith; and if the said John Mahard (which they deny) had it in contemplation, at the time of executing said mortgage, to take the benefit of said act, these respondents had no notice of such intention, either express or implied, and their mortgage is not affected by any subsequent proceedings in bankruptcy," &c.

The cases decided by the English courts under the statute of 1 Jac., c. 15, if applicable to the United States Bankrupt act, do not sustain the doctrine that a conveyance made by an insolvent person is to be considered as a conveyance in contemplation of bankruptcy.

The 2d section of that statute provided that every person using the trade of merchandise who should "make, or cause to be made, any fraudulent conveyance of his lands, tenements, goods, or chattels, to the intent, or whereby his creditors shall, or may be defeated or delayed, for the recovery of their just and true debts, shall be accompted and adjudged a bankrupt."

Gibbs, C. J., in Fidgeon v. Sharpe, 5 Taunt. 541, said: "With respect to this doctrine of contemplation in cases of bankruptcy, we have nothing either in the common or statute law to show what it is. The cases in which this doctrine was introduced made it depend upon the quo animo."

In Morgan v. Brundrett, 5 Barn. & Adol. 297, Patteson, J., says: "The recent cases have gone too great a length. They seem to have proceeded on the principle, that if a party be insolvent at the time he makes payment or a delivery, and afterwards he become bankrupt, he must be deemed to have contemplated bankruptcy at the time when he made such payment; but I think that is incorrect; for a man may be insolvent and yet not contemplate bankruptcy."

And Parke, J., says: "The meaning of those words," (in

Buckingham et al. v. McLean.

contemplation of bankruptcy,) "I take to be that the payment or delivery must be with intent to defeat the general distribu tion of effects which takes place under a commission of bankruptcy. It is not sufficient that it should be made (as may be inferred from some of the late cases) in contemplation of insolvency. These cases I think have gone too far."

Gibbs, C. J., in Fidgeon v. Sharpe, 5 Taunt. 545, lays down the correct rule. See it quoted, 8 Met. 385. See also, Hartshorn v. Slodden, 2 Bos. & Pul. 582; Gibbins v. Phillipps, 7 Barn. & Cres. 529; Atkinson v. Brindall, 2 Bing. N. R. 225; 2 Scott, 369; Belcher v. Prittie, 10 Bing. 408.

The statute of Jac. 1 has been modified by recent enactments.

By the 12th sect. of 2 & 3 Vict. c. 11, it is provided that "all conveyances by any bankrupt bona fide executed, before the issuing any fiat of bankruptcy, shall be valid, notwithstanding any prior act of bankruptcy by him committed, provided the person to whom such bankrupt so conveyed had not at the time of such conveyance notice of such act."

And the 1st sect. of the 2 & 3 Vict. c. 29, after reciting 6 Geo. 4, c. 16, sect. 81, and 2 & 3 Vict. c. 11, sect. 12, enacts, "That all contracts, dealings, and transactions, by and with any bankrupt, really and bona fide made and entered into before the date and issuing of the fiat against him, and all executions and attachments against the lands and tenements, or goods and chattels of such bankrupt, bona fide executed or levied before the date, &c., of the fiat, shall be deemed to be valid, notwithstanding any act of bankruptcy; provided also, that nothing herein contained shall be deemed to give validity to any payment, &c., of any bankrupt, being a fraudulent preference of any creditor." The following American cases give the construction of the United States Bankrupt act upon this point:

In the matter of Rowell, Mr. Justice Prentiss, of the United States District Court of Vermont, 21 Vt. R. 625, says: "What constitutes such a preference is a question concerning which there are conflicting authorities; but the prevailing dictum seems to be, that a payment, when it consists of a part only of the debtor's property, must be made in contemplation of bankruptcy, and must be voluntary. Both must concur. If it be in contemplation of bankruptcy, but not voluntary, or be voluntary and not in contemplation of bankruptcy, something more must appear than mere insolvency; enough to show, if not a determination to become a bankrupt, at least that bankruptcy was in view as a consequence of the insolvency; and to be voluntary, the payment must originate with the debtor, the first step being taken by him and not by the creditor."