McQueen v. Burns, 8 N.C. 476, 1 Hawks 476 (1821)

Dec. 1821 · Supreme Court of North Carolina
8 N.C. 476, 1 Hawks 476

McQueen, agent of M’Gregor & Darling v. Burns.


A, residing in North-Carolina, contracted in New-York a debt with J?, who lived in that place ; afterwards, A. paid to th.e agent of B. in North-Carolina, a part of the debt, and credit having been given him for four months for the balance, interest at the New-York rate, (seven per cent.) was calculated on the balance for four months, and added thereto, and for that sum A. gave his bond. Held, that this bond was not contrary to the usury laws of North-Carolina.

flebl upon bond. The Defendant purchased in New-York, goods of M’Gregor & Darling to a large amount. M’Quecn, as the agent of M’Gregor & Darling, settled the account with the Defendant, who at that time resided in Chatham county, in North-Carolina, and received from him a large payment. M’Quecn then agreed that the.Defendant should have a credit of four months for the balance of the debt that was due; interest at the rate of seven per cent, was calculated on the balance for four months., and added to if) and for that sum the bond in suit was given by the Defendant to M’Quecn, as the agent of M’Gregor k Darling. M’Queen resided in Fayetteville, in this State. Among other matters of de-fence,-the statute against usury was pleaded. The Court below held the bond to he usurious, and the Plaintiff submitted to a nonsuit: he afterwards obtained a rule to shew cause why a new trial should not:be granted) the ru-lo was discharged, and from the judgment rendered, Plaintiff appealed.

Muffin for the Defendant.

The lex loci governs the interest. A debt contracted in New-York bears seven per cent, interest, and’perhaps a security for it executed here, but made payable there, if the creditor actually reside in New-York, may likewise carry seven per cent. But the general rule is, that the rate of interest is to be *477governed by the law of the country where the obligation and security is entered into—(Rancleigh v. Champante, 2 Vern. 395.) A bond executed in England for debt in Ireland, shall carry but six per cent, interest, which is-the rate in England at the time. Hence, in Phipps v. Earl of Anglesea, (l Pr. Wms. 696,) only English interest was decreed, though the debt was charged on the Earl’s Irish estate, because the parties lived in England, and the securities were executed there. So in Stapleton v. Conway, (3 Jltk. 727 — 1 Ves. 4.9.7,) Lord Hardwicke declares a mortgage made in England of a plantation in the West-Indies, reserving West-lndia interest, to bo usurious. It is: even doubtful whether the actual residence of the person to whom the bond is payable in New-York, would exempt the contract made here from the imputation of usuryf?/r in Detoar v. Span, (3 Term Pep. ',495) upon a contract by A. to sell to B. an estate in the West-Indies, and part of the purchase money was secured by the bond of B. carrying six per cent, interest, (under stat. 14 Geo. Ill, ch. 79,) which bond was afterwards cancelled, and a new one executed in England reserving the six peí’ cent, this latter bond was held usurious. But here the bond is executed in North-Carolina, and the obligor and obligee both live in North-Carolina; and the sole question is, whether a bond given in North-Carolina, by one person to another, both resident in North-Carolina, is valid, though it reserve a greater interest than is allowed by the laws of North-Carolina ?

Easton, for the Plaintiff,

cited 4 Day’s Pep. 96.

Tayeor, Chief-Justice.

It is a principle of justice, adopted and enforced by the general consent of nations, that contracts shall be governed as to their validity and construction, by the law of the country in which they were made; unless their consideration be immoral, or they were entered into with a view to their execution in *478some other country. This rule is confined to the contract itself, and its legal effect; for the law of the forum where redress is sought, must of necessity adhere to its own forms of proceeding in administering the remedy. This rule is admitted by the Defendant, in whose behalf it is contended, that the lex loci contractus is the law of North-Carolina, in as much as the bond was executed here; and that as seven per cent, is an illegal rate of interest by the law of this State, the bond is void. It is true that the bond was given here; but it was to secure the payment of a debt contracted in New-York, with merchants resident there, and which debt was payable there with seven per cent, until paid. It would seem strange, if the law were so, that the creditors suing in our Courts upon the simple contract, should have recovered the New-York interest, which all the authorities shew, and it is admitted, they could do ; whereas, by taking a bond for the purpose of securing and evidencing the debt, they shall lose the whole for contravening our usury law. That the law' is not so, is shewn by a case precisely in point, cited on behalf of the Plaintiff. There the debt was contracted in New-York, carrying seven per cent, interest, and afterwards a security for that debt was taken in Connecticut, including the same rate of interest, both for the time then past since the debt was contracted, and for ninety days to come, at the end of which time it was to be paid j and it was held that the transaction was not usurious. The Court decided that the mode in which the note w'as taken, and the time given for payment, did not change the nature of,the security for the same debt and the same interest to which the creditor w'as entitled by the contract—(Phelps v. Dent, 4 Day’s Rep. 96.) I have examined every case cited in behalf of the Defendant, and I cannot see any conflict between them and the case just quoted. In Phipps v. Anglesea, (1 P. Wms. 696,) all the parties lived in England j the will and settlement were made there ; it does *479not appear; that any contract was made in Ireland,- or that any otlier contract was made between the parties, except-the original will and settlement, certainly no new securities were taken in England. In Stapleton v. Conway, (reported in 3 Atk. 727, and 1 Ves. 429,) the contract was made in England, though this is rather gathered by inference from the report of the case in Atkyns; and from the same case in Vesey, it does not appear whether the settlement,'was made in England or the West-Indies. In the book last quoted, upon the West-India interest being claimed, the Chancellor makes a distinction between a contract and a voluntary disposition by will or deed, and nothing said about interest j admitting the obligation of. the Court to give West-India interest, in the first case, but leaving it discretionary in the last. The case of Raneleigh v. Champante, (as reported in & Venn. 395,) lays down the position, that a party recovered English interest upon a debt contracted in Ireland, because the bond was executed in England. But the account of the same case given in Eq. Ca. Jib. 289, pi.- 2, and Precedents in Chancery 108, is altogether different 5 and according to these books, the debt was contracted in Ireland, by Champante having accepted and paid bills there drawn by Lord Raneleigh, then being in England ; that the latter sent over a bond for the balance he owed, payable in Ireland, and it was held that this bond, on a suit in England, should carry Irish interest. This account of the case, which is probably the true one, since it is referred to by the late editor of Vernon, is an authority in favour of the. Plaintiff. In the case of Dewar v. Span, (3 Term Rep. 425,) the new bond executed by B. and D, reserved the same interest with the former one, wlrich was usurious, because the 14th Geo. III. ch. 79, extended only to mortgages and the security respecting lands in Ireland and the West-Indies, on which is allowed the foreign interest; but did not protect personal contracts. Where a contract is origi*480nally .valid, and may be enforced, and a new one is made which only covers it and provides for its execution, according to the first agreement, in. which light I dnder-s(-an(] this case, I think it is protected by law ,• and- that therefore there ought to be a new trial".

Henderson, Judge.

The question arising from this record is, for what was the additional .one per cent, reserved ? was it for forbearance, or giving day of payment? or did it grow out of an original contract?. If for the first, it may be usury ; if on the second, it cannot be. I shall not trouble myself to prove, that a debt contracted in New-Yoi'k, and .without reference to the laws of any other government, is governed in its exposition by the laws of New-York. The original debt, then, being contracted in Ncw-York, without reference to the 'laws of any other government, is governed by the laws of that government, and the rate of interest which the debtor shall pay is part of the contract, which seems to be admitted in the present case to be seven per cent. The debtor in this State executes a note, payable in four months, for the balance of the debt, in which is included the interest, at seven per cent, up to the time the note became payable. The sum secured to be paid by the note, is precisely the sum which the Defendant would have been bound to pay if no note bad been given. It became due out of no new contract; it arose solely from the operation of the original debt, and was, in fact, nothing more than giving a new evidence of that debt; and if, on the day it fell due, it was lawful for the Plaintiff to have received that sum, it certainly could not be usurious to hold or have taken a note evidencing that obligation. The additional one per cent, was therefore not ■ taken for forbearance, or giving day of payment, but arose entirely from the original contract, which very clearly was a legal one. What rate of,interest the note shall bear after it falls due, the parties have not pre*481■tended to say ; it is therefore left to the Law, and is not now a subject of consideration. The Defendant’s conn-sel has offered a very ingenious argument, but I think it entirely unsound. 1 believe it is substantially noticed in the foregoing opinion. But I think, in his argument, the opinion of Lord Kenyon, in the case of Dewar against Span, is not understood correctly'. I think that his Lordship means, that neither the original bond, or the new bond, was within the protection of the statute 14 Geo. Ill, under which act the contract was attempted to be legalised. That act declares, that all mortgages and securities executed in England, of or concerning lands being in Ireland or the colonies, shall have Irish or colonial interest, as the case may be. The bond was given for part of the purchase money of lands lying in the "West-Indies j it bore on its face Wcst-India interest: that bond was afterwards surrendered up, and a new bond taken, bearing also on its face West-India interest. Lord Kenyon says, that the act relied on, (to-wit, 14 Geo. Ill,) to support this case, does not extend to it. He then repeats a part of the act, to wit, mortgages and other securities, concerning lands in Ireland and the West-Indies, reserving the interest allowed in those countries, shall be good. Now this, says he, is a mere personal contract, and is not within the act $ evidently meaning, I think, the old as well as the new bond. He speaks of the contract as a mere personal one, not one within the act, to wit, a mortgage or other securities concerning land; for it would be strange that a new bond, given’ upon the surrender of an old bond between the same parties, in the same country, governed by' the same laws, and imposing the same obligations, and no other, with the old, should be£ void, and the old bond legal. They both must stalely I think,, or fall together. But should Lord Kenyon be mistaken its to the operation of the statute of Geo. it does not affect this case- I think *482the Judge erred in informing the Jury that the bond was usurious ; and that a new trial should be granted.

Haul, Judge, concurred.