Then there is no contract which is not legal; if, when the money is due, nothing but simple interest is paid, nothing more can be demanded by any contract, and the lender trusts to the fact that a borrower, who thus executes only his contract, would not be able to borrow again. But if this understanding assumes distinctness enough to become a contract for the repayment of additional interest, we are satisfied that the penalties of the usury law would attach to it. The difficulty of distinguishing between a mere understanding and a promise might often be great. If money was actually paid for the use of the sum loaned, over and above the lawful interest, a similar question would arise, whether it was paid in pursuance of a contract to pay, so that the penalty would be incurred; or whether it was a mere gratuity. The rule of law must be, that if A lends to B a sum for a given time, on simple interest, and B, on paying this money, manifests his gratitude for the accommodation by a free gift to A, either of money or a chattel, there is no usury in this; but if the money is paid, or a chattel given, in performance of a previous promise to pay, then the penalty of usury must attach; and in each case it must be a question of fact whether the payment is in the nature of a gift, or of the execution of a promise.

It should be remarked, that if a foreign contract provides for interest which is lawful where the contract is made, it will not be declared void for usury in a State in which only a less interest is allowed by law. (n) But if a usurious contract is made in a State in which it is wholly void, because of such usury, it cannot be recognized in another State in which the penalty is a forfeiture of a part only, and enforced there for all but this part. (0)

It would seem that there must be an intent to take usury, to constitute the offence. Hence the usual discount of a bank,

(n) Harvey v. Archbold, 3 B. & C. 626; Thompson v. Powles, 2 Simons, 211; De Wolf v. Johnson, 10 Wheat. 367; Chapman v. Robertson, 6 Paige, 627; Pratt v. Adams, 7 Paige, 615. See on this subject, ante, Vol. II. p. 584, n. (h). Nichols v. Cosset, 1 Root, 294; McQueen

v. Burns, 1 Hawks, 476; M'Guire v. War der, 1 Wash. (Va.), 368; Robb v. Halsey, 11 Smedes & M. 140. See also, Gale v Eastman, 7 Met. 14; Jacks v. Nichols, 1 Seld. 178; Davis v. Garr, 2 id. 134, Turpin v. Povall, 8 Leigh, 93.

(0) Houghton v. Page, 2 N. H. 42.

although it takes in fact something more than lawful interest, is not usury. (p)

SECTION IV.

THE CONTRACT ITSELF MUST BE TAINTED WITH THE USURY.

In order that a contract or debt should be avoided as usurious, it is necessary that it should itself be tainted with this offence; for if any subsequent contract in payment of the first be usurious, this second contract will be void, and will therefore leave the original contract or debt wholly unpaid, and it may be enforced as if the second had not been made. (q)

(p) Quinsigamond Bank v. Hobbs, S. J. C. Mass. 1858, 21 Law Reporter, 564; Jarvis' appeal from Probate, 27 Conn.

432.

Thus, if

gation, or to give a forfeiture of the money within the statute, because that this contract was not usurious at the beginning; which was agreed by the whole court, and (9) Radley v. Manning, 3 Keble, 142, judgment given for the plaintiff." In pl. 13. "In debt upon an obligation, Pollard v. Scholy, Cro. Eliz. 20, Pollard upon oyer, the condition was to pay by a sold defendant two oxen, for six pounds certain day. The defendant pleaded the six shillings and eight pence, to be paid statute, 12 Car. 2, and said that the con- at All-Saints next, and on the same day tract was usurious, but per curiam, being the defendant required longer day of paymade after the bond forfeited to receive ment, upon which Pollard gave him till interest, according to the penalty, which the first of May next, receiving therefor was double the principal, it doth not void three quarters of wheat, which was above the obligation that was good at first, but the value of ten pounds per cent. upon only subjects the taker to other penal- the debt. In debt for the price of the ties, and judgment for the plaintiff." In oxen, usury was set up as a defence. Anonymous, 1 Bulst. 17, T. N. executed The opinion of the justices was, that the to J. P. a bond for £66, 6d. principal, last contract was void, but the first good, and £6 legal interest, payable in one being made bona fide. Ferrall v. Shaen, year. Within the year the obligor paid 1 Saund. 294, was debt upon a bond, for the £6 interest, and afterwards, an action payment of £300, to which the defendant being brought for the non-payment of the pleaded that the plaintiff had received principal, the obligor pleaded the statute £30 for delaying the day of payment of of usury, because the obligee took the use the bond one year, which was usurious. money within the year. "It was re- The court adjudged the plea not good, solved by the whole court, that his taking for here the bond was good when it was of the use money within the year shall not made, and then a usurious contract afteravoid the obligation, and that this taking wards cannot make it void, although the is no usury within the statute." Williams, penalty for usury was incurred. In Justice: "Where the first contract is not Nichols v. Lee, 3 Anstr. 940, where to usurious, this shall never be made usury, debt upon a bond, the plea was, that after within the statute, by matter ex post facto; the execution of the bond the plaintiff as if one contract with another to borrow received from the defendant more than £100 for a year, and to give him £10 for lawful interest, Macdonald, C. B., said: interest, at the end of the year, if he pays "There is nothing more settled than this the interest within the year, this is not point; to avoid a security as usurious, asury within the statute to avoid the obli- you must show that the agreement was

one who, as joint surety, has paid the whole of a debt, and so acquired a claim for contribution for one half, settles this claim by receiving a note with usurious interest, this note cannot be collected, but the original claim for contribution revives and may be enforced. (r) So an agreement to pay more than interest, by way of penalty for not paying the debt, is not usurious, because the debtor may relieve himself by paying the debt with lawful interest, and even if he incurs the penalty this may be reduced to the actual debt. (s) And if money be

due, and the creditor, at the request of the debtor, agrees to give him time, on condition that the debtor shall continue to pay legal interest, and also such further interest as the creditor may be obliged to pay for money to be raised by him to take the place of the money due from the debtor, such agreement is not usurious; and if the debtor pay such extra interest, he cannot recover it back as a usurious payment. (t) Nor will the taking of usurious interest imply conclusively a prior agreement to take; as if a bond be given for principal and lawful interest, if usurious interest be taken afterwards, this does not prove conclusively that such was the secret original agreement; (u) although it is prima facie evidence. (v) But by some authorities the presumption is only of an intentional new usurious contract at the time of payment. (w)

SECTION V.

SUBSTITUTED SECURITIES ARE VOID.

If the statute of usury provides that a usurious contract is void, then no subsequent circumstance can make the original contract good; and consequently, a promissory negotiable note, void at its inception for usury, is equally void in the hands of innocent indorsees. (x)

way v. Clark, 6 Ham. 45; Wight v. Shuck, 1 Morris, 425; Shuck v. Wight, 1 Greene (Iowa), 128; Gambril v. Rose, 8 Blackf. 140; Lawrence v. Cowles, 13 Ill. 577; Thompson v. Jones, 1 Stewart, 564; Long v. Storie, 9 Hare, 142, 10 Eng. L. & Eq. 182; Floyer v. Edwards, Cowp. 112.

(t) Kimball v. Proprietors of Boston Athenæum, 3 Gray, 225. The main ground of the decision was, that the gist of all the usury laws, from 1641 to 1846, is the taking of unlawful profits; whereas here there is no taking of any profit, by the creditor, who is, in fact, the agent of the debtor for raising the money.

(u) Fussil v. Brookes, 2 Car. & P. 318; Hammond v. Smith, 17 Vt. 231.

(v) Ferrall v. Shaen, 1 Saund. 295, note; New York Firemen Ins. Co. v. Ely, 2 Cowen, 705; Cummins v. Wise, 2 Halstead's Ch. 73; Varick v. Crane, 3 Green, Ch. 128; Quarles v. Brannon, 5 Strobh. 151.

(w) Hammond v. Smith, 16 Vt. 231.

(x) Lowe v. Waller, Doug. 736, supra, 108, n. (a); Ackland v. Pearce, 2 Camp. 599; Young v. Wright, 1 Camp. 139; Wilkie v. Roosevelt, 3 Johns. Cas. 66; Hackley v. Sprague, 10 Wend. 113; Lloyd v. Scott, 4 Pet. 228; Chadbourn v. Watts, 10 Mass. 121; Bridge v. Hubbard, 15 Mass. 96; Sauerwein v. Bunner, 1 Harris & G. 477; Faris v. King, 1 Stewart, 255; Sewall, J., Chadbourn v. Watts, 10 Mass. 121; Payne v. Trezc

Whether a note, valid in its inception, but usuriously transferred by the payee or indorsee, is valid against the maker, has been variously decided. (y) And the authorities differ on the question whether such a note is valid as against the maker in the hands of the usurious indorsee himself; the objection being, that no rights can grow out of an illegal, and therefore invalid transaction. (z) There are, however, cases of high authority, which hold that the maker is liable to the indorsee, even if the indorser be not so liable, on the ground that the indorsement operates as an executed transfer of the property in the note, and does not remain executory, like the indorser's general liability to pay the note, on the maker's default. (a) In the section on the sale of notes, we shall consider this question, and give our reasons for holding, that where such a transaction is a bona fide sale of the note, both maker and indorser are held for the whole face of the paper.

To remedy the hardship imposed upon innocent holders of negotiable paper, under the English construction of the rule that usurious instruments are absolutely void, the statute of 58 Geo. III. c. 93, was passed, declaring, that no bill or note should be invalidated in the hands of a holder for value without notice. And exceptions to the same effect may be found in some of the statutes of usury in this country. (b) But

vant, 2 Bay, 23; Gaillard v. Le Seigneur, 1 McMullan, 225; Solomons v. Jones, 3 Brev. 54; Townsend v. Bush, 1 Conn. 260. See also, Shober v. Hauser, 4 Dev. & B. 97. It is otherwise where the statute of usury does not declare the contract void. Story, J., Fleckner v. U. S. Bank, 8 Wheat. 354; Young v. Berkley, 2 N. H. 410; Creed v. Stevens, 4 Whart. 223; Conkling v. Underhill, 3 Scam. 388; Wells v. Porter, 5 B. Mon. 424; McGill v. Ware, 4 Scam. 21; Tucker v. Wilamouicz, 3 Eng. 157. See also, Turner v. Calvert, 12 S. & R. 46; Fenno v. Sayre, 3 Ala. 458.

(y) Lord Kenyon originally held that such holder would be entitled to recover. Daniel v. Cartony, 1 Esp. 274; Parr v. Eliason, 1 East, 92. In Lowes v. Mazzaredo, 1 Stark. 385, however, the court decided, that usury on the part of the payee of a note was a bar to an action by

a bona fide holder, because he could not bring himself in connection with the maker, except through the medium of usurious indorsement; and this case was approved in Chapman v. Black, 2 B. & Ald. 589. But Bush v. Livingston, 2 Caines, Cas. 66; Foltz v. Mey, 1 Bay, 486; Campbell v. Read, Martin & Y. 392, decided, that a note thus usuriously indorsed is valid against the maker, in the hands of a holder in good faith.

(z) See Lloyd v. Keach, 2 Conn. 175; Gaither v. Farmers & Mechanics Bank. 1 Pet. 44; Nichols v. Fearson, 7 Pet. 107, and Freeman v. Brittin, 2 Harrison, 191.

(a) Munn v. Commission Co. 15 Johns. 44; Collier v. Nevill, 3 Dev. 30; Knights v. Putnam, 3 Pick. 184. See also, Littell v. Hord, Hardin, 81.

(b) See Chapman v. Black, 2 B. & Ald. 589, and Hackley v. Sprague, 10 Wend. 113.