Turner Bynum v. D.H. Rogers et al. — Supreme Court of North Carolina, June Term, 1857

Factual and Procedural Background

This is an action of debt on a bond, tried before Judge Saunders at the Spring Term, 1857, of the Chatham Superior Court. The defendants pleaded the "general issue" and "usury." The subscribing witness proved the bond's execution and testified that Murchison (the obligor) requested the witness to take the bond to Rogers (the payee) to obtain Rogers's endorsement and then to dispose of the bond on the best terms possible. The witness stated that Murchison needed to raise money at the forthcoming Chatham County Court and that the bond was made to borrow money for that purpose. After Rogers endorsed the bond, the witness sold that bond, together with other bonds, to the plaintiff at a discount exceeding six percent per annum. The witness also said he could not say for certain that the bond was made specifically for sale at an interest rate above six percent, that Murchison did not state such an intention, and that the bond was delivered to the witness to raise money and to sell for as much as he could get. The defendants were able to pay the bond at the time it was sold, and the plaintiff knew nothing of what passed between the witness and Murchison at execution. Plaintiff's counsel requested a jury instruction that the bond would be void only if it was made expressly for the purpose of being discounted contrary to law. The trial judge charged the jury that, if they believed the evidence, the plea of usury was established. The defendants excepted. The jury returned a verdict for the defendants under that instruction, and the trial court entered judgment for the defendants. The plaintiff appealed. Counsel of record: Haughton for the plaintiff; Phillips for the defendants.

Legal Issues Presented

Whether the transfer described — a negotiable instrument endorsed by the payee and sold at a discount greater than six percent per annum — constitutes a usurious loan under the statute.
Whether the question of intention (i.e., whether the instrument was made for the purpose of being discounted at an unlawful rate) is a question of fact for the jury or a question of law for the court in circumstances where endorsement-plus-discount has occurred.

Arguments of the Parties

Plaintiff's Arguments

The plaintiff's counsel requested an instruction that the bond would be void only if it were made expressly for the purpose of being discounted contrary to law — i.e., that the maker's corrupt intent to violate the usury statute must be shown and thus submitted to the jury as a question of fact.
The plaintiff relied on authority (cited in the opinion as Kerr v. Davidson) to support the view that excess interest is not usury under the statute unless there is corrupt intent, making intent a factual issue for the jury.

The opinion does not contain a detailed account of any specific arguments advanced by the defendants beyond their general reliance on the trial judge's instruction and the evidence as establishing usury.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Collier v. Neville, 4 Dev. Rep. 30.	That discounting a bill or bond and taking the general endorsement of the holder ex vi termini constitutes a loan, and if the discount exceeds the statutory rate, it is usurious.	The Court treated this case as establishing the legal principle that endorsement-plus-discount is a lending transaction within the usury statute and applied it to hold the transaction in the present case usurious.
McLure v. Collins, 4 Dev. and Bat. Rep. 210.	Affirms Collier: ordinary discounting with an endorsement is a lending within the statute; distinction between transactions with and without endorsement — without endorsement may be a purchase, with endorsement is a loan.	Used to support the conclusion that the endorsement here made the transaction a loan subject to the usury statute.
Ballinger v. Edwards, 4 Ire. Eq. 449.	Explains that a purchase of a note for less than its real value may be bona fide if the purchaser bears the risk; but if the purchaser holds the party to whom money is advanced responsible (e.g., by endorsement liability), it is in law a loan, not a purchase.	Applied to reinforce the distinction between bona fide purchase (delivery) and a loan by endorsement; supported treating the challenged transaction as a loan.
Ray v. McMillan, 2 Jones' Rep. 229.	Reiterates the rule that discounting with endorsement constitutes a loan and is usurious if the rate exceeds the statutory limit.	Relied upon alongside Collier to justify treating endorsement-plus-discount as a legal loan, not a mere sale, removing the need to submit intent to the jury in this context.
Kerr v. Davidson, 13 Ire. Rep. 454.	Was cited by plaintiff's counsel to support the proposition that excess interest is not usury unless there is a corrupt intent; thus, intent may be a jury question.	The Court distinguished Kerr, explaining (by reference to Judge Battle's comment) that Kerr's holding applies where excess interest might be due to mistake of fact (e.g., erroneous calculation), in which case intent is a factual issue; but Kerr does not displace the rule that endorsement-plus-discount is ex vi termini a loan.

Court's Reasoning and Analysis

The Court framed the dispute as one of alleged usury and emphasized the State's settled policy to retain and enforce the usury law and to defeat attempts to evade it (noting sales or pretended sales of notes as a common evasion). The Court explained the central difficulty in prior authority has been distinguishing bona fide sales from loans when notes change hands, and then surveyed controlling North Carolina decisions establishing a practical rule:

When a negotiable instrument is discounted and the transfer is by general endorsement of the holder, the endorsement creates liability and, ex vi termini, the transaction is a loan subject to the usury statute.
When transfer is by delivery alone and the purchaser bears the risk, the transaction may be a bona fide purchase (not within the usury statute).

Applying those principles to the facts: Murchison executed the bond payable to Rogers; Rogers endorsed it to the plaintiff without restriction; the instrument was sold at a discount exceeding six percent per annum; and Murchison had executed the bond to raise money for an imminent County Court. Under the cited authorities (Collier, McLure, Ballinger, Ray), the Court concluded the transaction was a loan at a rate exceeding the statutory maximum and thus usurious.

Regarding the plaintiff's contention that intent was a jury question, the Court held there was no issue of intent for the jury. The Court reasoned that where discounting with endorsement occurs, the law treats the transaction as a loan by its nature, so excess discount constitutes usury as a matter of law. The Court distinguished Kerr v. Davidson, noting (via Judge Battle's comment) that Kerr applies only where excess interest may have resulted from a factual mistake (for example, an erroneous interest calculation), in which event the issue of mistake versus intentional usury should go to the jury. That factual-mistake exception was not present here.

The opinion also noted, without relying upon it heavily, that the note appeared to have been made to be thrown into the market; the Court did not rest its decision on that feature.

Holding and Implications

Judgment affirmed.

Holding: The Supreme Court affirmed the trial court's judgment for the defendants, concluding that the evidence, if believed, established the plea of usury because the instrument was endorsed and discounted at a rate exceeding six percent per annum, which the Court treated as a loan under existing precedent.

Implications: The direct effect is that the plaintiff's appeal fails and the trial court's judgment in favor of the defendants is maintained. The Court applied and reaffirmed existing North Carolina precedent distinguishing bona fide purchases (by delivery) from loans (by endorsement) and held that endorsement-plus-discount operates as a loan within the usury statute; the opinion clarifies that only in cases where excess interest may plausibly be explained by a factual mistake does intent become a jury question.

Opinion authored by Chief Justice Nash; judgment delivered per curiam stating no error.

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TURNER BYNUM v. D.H. ROGERS et al.

A negotiable instrument made for the purpose of being sold in the market, at the best price, endorsed by the payee in furtherance of that purpose, and sold for cash, by the agent of the maker, at a greater discount than six per cent, per annum, is usurious.

NASH, C.J.

The question presented is one of alleged usury. Repeated attempts have been made, in this State, to induce the Legislature to repeal, or modify the law concerning usury, and which have as often failed. It is, therefore, the established policy of the State, to retain the law forbiding the taking of usury, and though the act is a penal one, it is the duty of the judiciary to enforce it, in all cases, where the law applies, and as far as they can, to defeat every effort to evade it. The practice most frequently resorted to, to evade it, is that of sales, or pretended sales, of notes and other paper securities. Much difference of opinion exists, not only in decided cases, but among elementary writers upon the subject. 1 Parsons on Contracts, 421-'7. The difficulty has been to lay down some definite and practicable rule which shall distinguish between a sale, or a loan, in such transfers. The Supreme Court of this State, has, in several cases, laid down this principle clearly. In Collier v. Neville, 4 Dev. Rep. 30. The Court say: "The discounting of a bill or bond and taking the general endorsement of the holder, does ex vi termini constitute a loan, and if the rate of discount exceed that fixed by the statute, it is an usurious loan." This case is followed by that of McLure v. Collins, 4 Dev. and Bat. Rep. 210, in which, Collier's case is approved. The Court say: "But the ordinary transaction of discounting a note or bill with an endorsement or guarantee of the transferer, is a lending within the statute. The party discounting does, in fact, lend money, on interest, to be repaid, either by the person receiving, or by some other party to the bill. There is a distinction between taking a bill, and advancing money on it, with an endorsement, or guarantee, and one without. The last is a purchase, and may be for less than the real value; the former is a loan, and within the statute of usury; the policy of the law is to enable the defendant, to make void, both assurances, in toto." This case is followed by that of Ballinger v. Edwards, 4 Ire. Eq. 449. In speaking of a purchase of a note or bill for less than its real value, the Court say: "But that is subject to this qualification, that it must be merely a purchase of the security, and at the risk of the purchaser, and therefore, if the person who claims to be such purchaser, holds the party to whom the money is advanced, responsible for the payment of the debt, it is not in law, or in fact, a purchase, but a loan of money upon the security, c." The only other case to which I shall refer, is that of Ray v. McMillan, 2 Jones' Rep. 229. These cases establish a clear rule by which to distinguish between a sale of a bill or note and a loan, to wit, when the instrument is transferred by the endorsement of the person receiving the money, it is a loan, because the endorser is liable for the debt; but when the transfer is simply by delivery, it is a sale, if the transaction is bona fide.

What are the facts in this case? Murchison was obliged to raise a considerable sum of money to meet his liabilities at the succeeding County Court. He executed the note, in question, made payable to the defendant, who endorsed it over to the plaintiff, without any restriction, at a discount of more than six per cent. per annum. According to the cases referred to, the money was a loan to the defendant, and at a rate of discount, reserving more than six per cent. per annum. This was usurious.

It is contended by the counsel for the plaintiff, that his Honor below erred in charging the jury, that if they believed the evidence, it established the plea of usury; that the intention with which the note was made was a matter of fact to be ascertained by them. There was no question of intention involved in the case to be submitted to the jury. In Collier v. Neville, it was held to be clear, that the discounting a bill or bond, and taking the general endorsement of the holder, does ex vi termini constitute a loan, and if the rate of discount exceed that fixed by the statute, it is usurious. This is reiterated in Ray v. McMillan, 2 Jones 227. In that case as in this, that of Kerr v. Davidson, 13 Ire. Rep. 454, was relied on to support the objection, that though a loan be made at a greater rate of interest than six per cent., it is not usurious within the statute, unless there be a corrupt intent to violate the law, which is a question of fact for the jury, and it is, therefore, error in the Judge to treat it as a question of law.

Judge Battle, in commenting on Kerr and Davidson, observes: It is true, when the excess of interest may have been taken, because of a mistake in a matter of fact, as for instance, upon an erroneous calculation of interest, there the testimony must be submitted to a jury, to ascertain whether there was a mistake or an usurious taking by design. This, says the opinion, and nothing more, was the decision in Kerr and Davidson.

There is another feature in this case upon which no stress is laid, because it is desirable to clearly point out the distinction, between a sale of a bill or note, and an usurious contract growing out of the transfer of such instrument.

The feature to which I allude is, that the note, in this case, was obviously made to be thrown into market — no stress, however, is laid upon this fact, for the reason above stated.

PER CURIAM. There is no error, and judgment affirmed.

BYNUM v. ROGERS