Ewing v. Howard
ERROR to the Circuit Court for the Middle District of Tennessee.
A statute of Tennessee, passed in 1860,  and which by its terms was to take effect from the 1st of September of that year, allowed 10 per cent. interest (instead of 6 per cent., a former rate) to be taken for money lent, provided that such agreement were expressed 'on the face of the contract,' whether evidenced by bond, bill, note, or other written instrument. The same statute, however, provided, that if any greater amount of interest than 10 per cent. was paid, or agreed to be paid, the whole amount of the interest should be forfeited by the payee. And it made the lending of money at such greater rate a misdemeanor, subject to indictment, and punishable accordingly.
The act was repealed on the 31st of January, 1861. With the exception, therefore, of the five months from the 1st of September, 1860, to 31st January, 1861, it had always been in Tennessee a misdemeanor to lend money at a greater rate of interest than 6 per cent. per annum.
In this state of the law there, Howard sued Ewing, in 1865, in the court below, upon two notes: one (the only one which was the subject of controversy here) having been dated November 15th, 1860, and by which he, Ewing, agreed to pay him, Howard, or order, $3333 33/100, 'with interest at the rate of 10 per cent. per annum, from and after the 1st day of September last past till paid.' By a memorandum in writing, dated on the same day as the note, payment was guaranteed by the father of Ewing; the guaranty speaking of the note as being for money heretofore lent by Howard to Ewing's son.
The declaration was in the ordinary form of a declaration in assumpsit. Plea the general issue, and nothing else. On the trial the notes were put in evidence without objection, and there being no other evidence in the case, verdict was given for the plaintiff. There was no request for instructions on either side.
From an entry in the record, that 'the motions for a new trial and in arrest of judgment were by this court overruled,' it was to be inferred that motions, both for a new trial and in arrest of judgment, had been made below; but neither were set forth in the record as sent here, and, accordingly, if usury or any other defence had been made in fact, in the court below, to the notes, no evidence of it appeared here.
Judgment having been given for the plaintiff, the defendant now brought the case here.
Messrs. Waterson and Crawford, for the plaintiff in error:
The note is void, being an illegal contract for usury, apparent upon its face. It expresses that it is made for value received on the day of its date, and yet calls for interest from a period two months and a half before that day, viz., from the day when the 10 per cent. law took effect; making the rate of interest in effect more than thirteen per cent. per annum. 'Every contract which is prohibited and made unlawful by statute, is a void contract, though the statute does not mention that it shall be so, but only inflicts a penalty on the offender. The penalty implies a prohibition.' 
Moreover, the illegality being apparent on the face of the instrument which is the subject of the suit, it is radical and pervading, attaching to the case wherever it may be. The leading Tennessee case of Isler v. Brunson  is decisive.
Mr. Caruthers, contra:
The question is, whether the note of November 15th, 1860, is illegal on its face? If not, it is not obnoxious to the objection made.
It is a well-settled rule, that the courts will avoid, if practicable by any fair intendment, that construction of a transaction which will subject a party to a contract to a penalty. If this note was for money lent on or before the 1st of September, 1860, it is legal. Now, the written guaranty of Ewing, the father, shows that it was for a previous loan. But independently of that the presumption would be that the loan was made at or before the time from which the interest was to begin to run.
But even if this were not so, yet on this writ of error the court below cannot be put in the wrong, by the making of an objection here that was not made there. If the defendants desired to make such a defence as that now set up, it should have been done then, and the judgment of the court taken upon it. That would have made a question for this court of errors to sustain or correct. This is a court to correct erroneous decisions made by the court below, on points of defence presented, and not for the origination of new defences, which the inferior court was not called upon to adjudicate.
Reply: The case of Isler v. Brunson, already cited, answers the objection that the objection is first made here, and seems to be decisive of the case presented by this record:
'If a party plaintiff bring into a court, either of law or equity, an illegal contract that it may be enforced, and this illegality is shown and set forth by himself, and not disclosed by plea or allegation from the defendant, it is the duty of either court, on ground of public policy, to repel the plaintiff and refuse its action on his behalf. Thus, if in a declaration on a security for money profert be made of the security, and upon its face it appears to have stipulated for more than legal interest, no judgment can be rendered for the plaintiff notwithstanding the act of 1835 only avoids the usurious excess.'
Mr. Justice CLIFFORD delivered the opinion of the court.
^1 Sessions Act, chap. 41, § 1, p. 31.
^2 1 Smith's Leading Cases, page 622, 6th ed.
^3 6 Humphreys, 277.