The earlier cases on this subject held, that upon a sale of one's credit in this manner, the party indorsing or guaranteeing might receive a compensation for so doing, provided it did not exceed lawful interest upon the amount of the debt guaranteed, or the credit sold. (w) But if a transaction of this kind can be regarded as such a sale of credit as that a price may be taken therefor by the seller as his payment, we do not see, upon principle, any limit to the amount which may be taken, other than that which belongs to all sales. When a party indorses a note, or guarantees a debt, as surety for another, he actually advances no money, and is therefore at no pecuniary loss, until compelled, by reason of his suretyship, to pay the debt for which he was bound. If he pays this, the law creates at once, an obligation upon the party whose debt he pays, to reimburse to him the sum he pays with legal interest. And if the sum originally received by a party thus selling his credit, is to be considered as interest, added to the amount for which the law gives him this obligation, there is a larger amount secured for interest, than the legal interest, whatever be the amount paid for the credit; for all that is paid is excess. On this ground, therefore, the bargain is usurious, whether more or less is paid. But if the transaction is to be considered as a sale of the credit of the party indorsing; which credit is his property, to dispose of as he pleases, and property which the purchaser may profitably and lawfully buy, the price paid and received must be considered as entirely independent of the resulting right of the indorser or guarantor to get indemnity, if he can, for whatever he is obliged to pay. It is then no loan, but a sale, which, in respect to the price that may be paid, is like any other sale; and this view, we think, is sustained by the later and better authorities. (x)

In the case of cross notes, where A gives his note to B, and B gives his note to A, but A's credit is much better than B's, and it is a part of the bargain that the notes from B to A shall be greater than the notes from A to B, or that A shall have any

(w) Dey v. Dunham, 2 Johns. Ch. 182; Fanning v. Dunham, 5 id. 122; Bullock v. Boyd, 1 Hoff. Ch. 294; Moore v. Vance, 3 Dana. 361.

(x) See Ketchum v. Barber, 4 Hill, 224; More v. Howland, 4 Denio, 264; Dry Dock Bank v. American Life Ins. & Trust Co. 3 Comst. 344. See also, Cobb v. Titus, 10 N. Y. (6 Seld.), 198.

sum by way of a premium on the transaction; this has been considered usurious; but not, as we think, on sufficient grounds. Here, as before, we deem it a lawful sale of one's credit, and neither borrowing nor lending, nor forbearing money, in any way. (y) We repeat, however, the remark, to avoid misconception, that we speak only of bona fide transactions of this kind, and not of those which are used as mere pretences for actual usury. This, however, would generally be a question of fact for the jury, and not a question of law.

SECTION XIII.

OF COMPOUND INTEREST.

If A lend to B one hundred cent. legal interest, payable

Contracts for compound interest are sometimes said to be usurious, but this may not be considered quite certain. We are aware of no case, in England or in this country, in which a contract to pay compound interest has been held usurious, so as to become totally invalid, or in which the actual reception of compound interest has been held to be a commission of the crime of usury, and punishable as such. Indeed, it is difficult to see how this could be the case. dollars, for two years, at six per annually, and it is agreed, that if A does not pay the interest at the end of the first year, it shall be considered as principal, and added to the amount of the loan from that time (which is a contract for compound interest), and the interest not being paid annually, A becomes entitled, at the end of two years, to receive, and does receive, under the agreement, one hundred and twelve dollars and thirty-six cents, instead of one hundred and twelve dollars, the principal and simple interest, he does not receive more than after the rate of six dollars per year for the forbearance of one hundred, but has received exactly that sum, and six per cent. legal interest upon another sum which B was

(y) See Dunham v. Gould, 16 Johns. 367; Dry Dock Bank v. American Life Ins. & Trust Co. 3 Comst. 344.

under a legal obligation to pay him, for which B might have been sued, and for the forbearance of which he has agreed to pay its legal value. Accordingly, courts do not generally declare such contracts usurious, and the extent to which they have gone, is that of refusing to enforce a contract to pay interest thereafter to grow due; and they have done this, not upon the ground of usury, but rather as a "rule of public policy," because such agreements "savor of usury," and "lead to oppression. (z)

On the other hand, if an agreement is made to convert interest already due into principal, or if accounts between parties are settled by rests, and therefore in effect upon the principle of compound interest, which may be done by an express accounting, (a) or under a custom of forwarding accounts quarterly, half yearly, or yearly, to the debtor, who acquiesces in them by his silence; (b) these transactions are valid, and sanctioned by the law; and such a method of computation is sometimes even directed by courts. (c) If compound interest has accrued, even under a prior bargain for it, and been actually paid, it cannot be recovered back, (d) nor are the penalties affixed to the crime of usury annexed to such taking; and if a note be given for such payment, the note has a sufficient legal consideration to sustain an action upon it. (e)

We are not sure that contracts to pay interest upon interest may not derive illustration from a comparison with those, upon which the law, as we have seen, is quite well settled, where one engages to pay money at a certain time, and then binds him

(z) Ossulston v. Yarmouth, 2 Salk. 449; Waring v. Cunliffe, 1 Ves. Jr. 99; Chambers v. Goldwin, 9 Ves. 271; Dawes v. Pinner, 2 Camp. 486; Doe v. Warren, 7 Greenl. 48; Hastings v. Wiswall, 8 Mass. 455; Camp v. Bates, 11 Conn. 487; Mowry v. Bishop, 5 Paige, 98; Childers v. Deane, 4 Rand. 406; Connecticut v. Jackson, 1 Johns. Ch. 13; Wilcox v. Howland, 23 Pick. 169; Stohely v. Thompson, 34 Penn. St. 210.

(a) Ossulston v. Yarmouth, 2 Salk. 449; Tarleton v. Backhouse, G. Cooper, Ch. 231; Mowry v. Bishop, 5 Paige, 98; Fobes v. Cantfield, 3 Ham. 18; Childers v. Deane, 4 Rand. 406.

(b) Caliot v. Walker, 2 Anst. 496; Eaton v. Bell, 5 B. & Ald. 34; Morgan v. Mather, 2 Ves. 15; Bruce v. Hunter, 3 Camp. 466; Moore v. Voughton, 1 Stark. 487; Bainbridge v. Wilcox, 1 Bald. 536. See also, Pinhorn v. Tuckington, 3 Camp. 467.

(c) See ante, vol. 1, p. 122, n. (ƒ). (d) Dow v. Drew, 3 N. H. 40; Mowr v. Bishop, 5 Paige, 98.

(e) Otis v. Lindsey, 1 Fairf. 316; Wilcox v. Howland, 23 Pick. 169; Kellogg v. Hickok, 1 Wend. 521; Hill v. Mecker, 23 Conn. 592. But compound interest paid in error, may be recovered back. Major v. Tardos, 14 La. An. 10.

self to pay a further sum, exceeding interest, if the principal sum be not duly paid; this is certainly not usurious. One of the reasons for this rule is, that the penalty will be reduced, in equity, to the amount of the debt; but another, and as we think, the principal reason is, that the debtor may pay his debt when it is due, and thus avoid the contract which obliges him to pay a penalty; so that there is, in such case, no absolute contract for the payment of more than legal interest. Now, one who promises to pay a debt at a certain time, and interest to be compounded as it falls due, can, by payment of the debt or of the interest when it falls due, always avoid the compounding.

These differences between contracts for compound interest and usurious agreements, clearly establish that the former are not in their nature the same with the latter. If they were so, a contract to pay compound interest might render the whole agreement into which it was introduced invalid, so that not even the principal nor simple interest could be recovered, and upon the actual payment of compound interest it could be recovered by the payer, and no subsequent agreement could give such a contract any validity or effect; all of which we have seen is not the case.

Upon the whole, although it seems to be well settled, that compound interest cannot be recovered, as such, even if it be expressly promised, (ƒ) we are inclined to think, that the only rule of law against the allowance of compound interest is this; that courts will not lend their aid to enforce its payment, unless upon a promise of the debtor made after the interest, upon which interest is demanded, has accrued; and this rule is adopted,

(f) Ossulston v. Yarmouth, 2 Salk. 449; Waring v. Cunliffe, 1 Ves. Jr. 99; Connecticut v. Jackson, 1 Johns. Ch. 13; Mowry v. Bishop, 5 Paige, 98; Hastings v. Wiswall, 8 Mass. 455; Ferry v. Ferry, 2 Cush. 92; Rodes v. Blythe, 2 B. Mon. 336; Childers v. Deane, 4 Rand. 406; Doe v. Warren, 7 Greenl. 48. But see Pawling v. Pawling, 4 Yeates, 220. But annual rests in merchants' accounts, are allowed. Stoughton v. Lynch, 2 Johns. Ch. 210, 214; Barclay v. Kennedy, 3 Wash. C. C. 350; Backus v. Minor, 3 Calif. 231; but not after mutual dealings have ceased. Denniston v. Imbrie, 3

Wash. C. C. 396, 402; Von Hemert v. Porter, 11 Met. 210. In cases where it is expressly stipulated that interest shall be payable at certain fixed times, it has been held that interest may be charged upon the interest, from the time it is payable. Kennon v. Dickens, 1 Taylor, 231, Cam. & N. 357; Gibbs v. Chisolm, 2 Nott & McC. 38; Singleton v. Lewis, 2 Hill (S. C.), 408; Doig v. Barkley, 3 Rich. 125; Peirce v. Rowe, 1 N. H. 179. But it is held otherwise in Ferry v. Ferry, 2 Cush. 92; Doe v. Warren, 7 Greenl. 48. See 1 American Leading Cases, 341, 37.

not because such contracts are usurious, or savor of usury, unless very remotely, but upon grounds of public policy, in order to avoid harsh and oppressive accumulations of interest. And for the reason, that this aversion of our law to allow money to beget money, has of late years very much diminished, we do not think it absolutely certain, that a bargain in advance for the payment of compound interest, in all its facts reasonable and free from suspicion of oppression, would not be enforced at this day in some of our courts. (g)