Buckingham et al. v. McLean

Gassett et al. v. Morse et al. United States District Court of Vermont, 21 Vt. R. 627, where in relation to the proviso as to conveyances made more than two months before, &c., Prentiss, J., (p. 633) says: "It cannot reasonably be taken to have any other effect than merely to give validity to a transaction bonâ fide entered into more than two months before the filing of the bill, so far as it concerns the party dealing with the bankrupt. It cannot be understood as giving any protection to the bankrupt himself, either on the question of bankruptcy, or on the question of his right to a discharge. If the transaction be fraudulent on his part, why should he not be deemed a bankrupt or denied a discharge, as the case may be, though the rights of the party under the transaction, who may be an innocent party, should remain unaffected?"

In the matter of Pearce, 6 Law Rep., 261, Judge Prentiss held "that it is not a necessary and legal inference that a conveyance was made in contemplation of bankruptcy, merely because the debtor was insolvent at the time; but it must appear that the conveyance was made by the debtor in anticipation of failing in his business, of committing an act of bankruptcy, or of being declared bankrupt at his own instance, and intending to defeat the general distribution of his effects."

In Ashby v. Steere, 2 Woodb. & Minot's Rep. 347, Judge Woodbury examined all the cases on the subject, and says (p. 357) that "if a preference is made by the debtor without contemplating a subsequent resort to the law, the sale and preference are not void at all. Nor if made with such contemplation, though culpable in the debtor, is it invalid as to the creditor, unless he took the property with notice of what was contemplated, and thus designedly coöperated against the act, and did it within the short period of two months prior to the debtor's application for the benefit of the act."

Again, (pp. 357, 358,) "The law wisely considers it better that a preference of this kind, which is good at common law, and when the creditor does not know of the design of the debtor to go into bankruptcy, and does not coöperate to defeat the policy. of that law, should not be disturbed as to the public, after two months as before named, than that such assets should go into a common fund for all creditors."

In Jones v. Howland, 8 Met. R., 377, per Hubbard, J., opinion of court, p. 387: "The instruction requested by the counsel for the defendants was substantially correct. With some slight modification, it may be stated as follows: That if, on the 8th day of March, Stowell feared or believed himself to be insolvent, but did not contemplate stoppage or failure, and intended to keep on, making his payments and transacting his business, hoping that

Buckingham et al. v. McLean.

his affairs might be afterwards retrieved; and in that state of mind made the sale or payment of that day without intend ing to give a preference to the defendants, and as a measure connected with his going on in his business, and not as a measure preparatory to, or connected with, a stoppage in business, then the sale or payment on that day was not a sale or payment made in contemplation of bankruptcy within the meaning of the act."

And see Wilkinson's Appeal, 4 Barr, Penn. Rep. 284, 288, 289, where the court say, (referring to the cases of Wakeman v. Hoyt, 5 Law Rep. 306, and Arnold et al. v. Maynard, by Story, J., 5 Law Rep. 296,) "These last two decisions do not sustain the position that the confession of a judgment by a person, even deeply indebted and insolvent, constitutes of itself a fraud on the Bankrupt act, and is an act of bankruptcy, &c.

"We apprehend that to take the cause out of the saving clause, it is incumbent upon those who attempt to defeat its operation to show by satisfactory evidence that the act or dealings were not bona fide." Ibid. p. 290.

"This view of the case appears to be in conformity with the decisions of this court on the subject. Thus, in Haldeman v. Michael, 6 Watts & Serg. 128, it was ruled that a bond with warrant of attorney to confess judgment, which was given two months and twenty days before the petition to have the debtor declared a bankrupt was presented by his creditor, and on which a fi. fa. was issued on the same day the bond and warrant were given, was good and valid, and did not constitute an act of bankruptcy. Judge Hays says that the slightest solicitation on the part of a creditor will protect the transaction. Unless it clearly appears that the act originated with the debtor, and that he took the first step to make the transfer, it will not be deemed a fraudulent preference. And it is incumbent on the party who seeks to defeat the transaction to show that it was voluntary." Ibid. p. 291.

The case of McAllister v. Richards, 6 Barr, 133, does not vary this rule, and refers to the above case in 4 Barr, as containing the correct rule on the subject.

II. The debt of $15,000, secured by mortgage to the Lafayette Bank, was not an usurious or prohibited loan of money under the charter of the bank.

1. The interest charged upon this sum of $15,000 was only at the rate of 6 per cent. per annum, with no additional charge of any kind.

The amended bill charges that this loan was "at and for a rate of interest greater than at the rate of six Fer cent. per annum

in advance."

Buckingham et al. v. McLean.

This the answer positively denies. The respondents, in their answer say, "These respondents loaned to the said J. & W. Mahard the sum of $15,000, at Cincinnati, at or about the date of said mortgage, to enable them to take up a portion of the drafts on which they were liable, as already stated. These respondents have already stated that the first and only draft of said J. & W. Mahard not paid at maturity, to the knowledge of these respondents, was protested on the 18th November, 1841, but was arranged and taken up to the satisfaction of these respondents; all other drafts of said J. & W. Mahard were taken up by them as they became due at New Orleans, whether with the proceeds of the loan made by these respondents, as aforesaid, or not, these respondents have no positive knowledge; when the said drafts were paid, these respondents regarded the debt evidenced thereby as paid, and fully discharged and extinguished."

The answer further states, that when these notes for $15,000 were discounted, they "had then ninety-two days to run, and were to be received without reduction for one year, then one third to be paid, and so on, until final payment in three years; that the proceeds of said notes, reserving the sum of two hundred and thirty dollars, the interest for ninety-two days, were placed to the credit of said J. & W. Mahard."

The interest on $15,000 for ninety-two days, computing 365 days to the year, is just $230.78, so that the bank received seventy-eight cents less than the legal interest.

It is claimed that these notes were discounted in order to enable the Mahards to take up their drafts when they became due, and the transaction would be affected by any taint of usury which might be claimed to attach to the drafts.

These notes were in no sense a renewal of the drafts; they were not substituted for the drafts. The avails were passed to the credit of the Mahards. The drafts were all supposed to continue outstanding, and at their maturity were taken up at New Orleans, but whether with proceeds of these notes or not is not certain.

There was no pledge or legal appropriation of the avails of those notes to meet the drafts. Only one of the drafts was due when the notes were discounted.

2. In the discounting of the drafts there was no usury.

The charge made on the drafts, as shown in the answer to the amended bill, was interest at 6 per cent. on each. The exchange on the first was 1 per cent., and the other three 1 per cent. The drafts were all at four months, on New Orleans.

The answer expressly states, "The exchange charged in each

Buckingham et al. v. McLean.

case was the customary and regular rate at the time of the discounting of the bills; and these respondents expressly deny that any illegal interest was taken or charged on said bills, or any of them."

It is the universal settled rule of law that a charge for exchange, unless used as a cover for usury, is legal and not usurious.

The case of Andrews v. Pond et al. 13 Pet. 65, contains a full statement and illustration of the rule on this subject.

The party in this case paid 10 per cent. damages on a protested-bill, drawn on Alabama, in New York, and 10 per cent. interest and exchange on a new bill to be given, besides the expenses on the protested bill. The amount due on the first bill, 21st February, 1837, was. $6,000. The amount of the new bill, including damages, interest, exchange, and expenses of protest, due on the 13th May, 1837, less than three months, was $7,287.78.

Per case, Taney, C. J., (p. 76): "The transaction, taken altogether, was indeed a ruinous one on the part of the defendant. A debt of $6,000, payable at Mobile, on the 21st of February, was converted into a debt of $7,287.78, payable at the same place on the 25th of April, following; being an increase of $1,287.78 in the short space of eighty-one days. Yet, if the defendants brought it upon themselves by their failure to take up the first bill at maturity, and the transaction was not intended to cover usurious interest, they must meet the consequence of their own improvidence. The sum of $6,525.25 was undoubtedly due from them to H. Andrews & Co., on the day the bill in question was drawn. They were entitled to demand that sum in New York, or a bill that was equivalent to it at the market price of exchange; and, if ten per cent. discount was the usual price at which others purchased bills of this description in the market of New York, they had a right to take the bill at that rate in satisfaction of their debt,"

Again, (p. 77): "There is no rule of law fixing the rate which may be lawfully charged for exchange. It does not altogether depend upon the cost of transporting specie from one place to another, although the price of exchange is, no doubt, influenced by it. But it is also materially affected by the state of trade, by the urgency of the demand for remittances, and by the quantity brought into the market for sale; and sometimes material changes take place in a single day, although no alteration has happened in the expenses of transporting specie. The court, therefore, can lay down no rule on the subject."

The fact that bills on time are sold or discounted at a higher rate of exchange than sight bills, does not prove the transaction

to be usurious.

Buckingham et al. v. McLean.

Pilcher, Assignee, &c., v. The Banks, 7 B. Monroe, 548. See, also, 11 Ohio R. 417; 13 Pet. 65.

When there is a suspension of specie payment by the banks, the fact of a charge of a higher rate for time than for sight drafts does not even tend to show that there was any attempt to cover an usurious loan.

The rate of exchange, when the payment is to be made in specie at the place of payment, is, in the main, the expense, risk, &c., of the transportation of specie.

The rate charged on sight drafts, even if payable in specie, is not always the same as that on drafts on time. In one case, the rate has reference to the present known value of the funds at the place of payment; in the other, to the rate at the maturing of the paper.

When the banks have suspended specie payment, the ordinary certainty in such transactions ceases, and there is a marked difference between sight and time drafts.

The party buying or discounting drafts at a future time, acts in reference to the possible and uncertain state of things which may exist when his money is returned to him in a depreciated currency at a distant place. The soundness of the banks in whose paper the notes may be paid, the discount on the paper of those banks, the uncertainty attending commercial affairs, and the apprehension of future depreciation of bank paper, all form part of the consideration as to the rate of exchange,

The question is one not affecting the character of the draft or note offered for sale or discount, but the value of the funds at the place of payment where the same is paid.

When the draft is drawn at a place, where, from the suspension of banks, bank paper is the currency, upon a place where they have not suspended, and debts are paid in specie, the effect of this state of things is apparent.

A draft drawn on London at New York, when the banks of New York suspended specie payment, would be sold at a premium, which would represent, not only the real state of exchanges between the two countries, but the difference in the value between gold and silver and the maket value of the depreciated currency.

And vice versa, a draft sold at London on New York, would be in the same manner at a heavy discount, If such draft was drawn on time, however abundant money might be in London, ar I however low the rate of interest, or however unquestionable the character of the paper offered, the rate of exchange charged would be much higher than on a sight draft, on account of the uncertainty of the value of the depreciated currency in which the debt was to be paid.