iv. Usurious Interest.

PHILANTHROPIC BUILDING ASSOCIATION v. Mc

KNIGHT.

35 PA. ST. 470.-1860.

THIS was an action of assumpsit by William McKnight against the Philanthropic Savings, Loan and Building Association, to recover back a sum of money paid to the defendants on an usurious contract. On the 23d of June, 1854, the plaintiff, who was the holder of five shares of the stock in the Philanthropic Savings, Loan and Building Association, was the successful bidder for a loan of $1,000 at a premium of 28 per cent. He accordingly received from the defendants the sum of $720, executed to them a bond and mortgage in the sum of $1,800, and transferred his five shares of stock as collateral security. On the 9th of August, 1858, the plaintiff notified the defendants of his desire to pay off his loan and discharge the mortgage. A settlement was accordingly had between the parties, in which the mortgage was estimated at $900, and the defendants agreed to take the plaintiff's stock at the sum he had paid in on account of it; the balance, amounting to $574.07, the plaintiff paid in cash, and satisfaction was entered on his mortgage. This suit was subsequently brought to recover back the difference between the sum of $720 with legal interest, and the amount actually paid to the defendants.

STRONG, J.-That the payment of usurious interest is not a voluntary payment in any such sense as to entitle the receiver to retain the sum paid above legal interest is too well settled to admit of doubt. The money is paid under the constraint of a formal though illegal contract. That contract itself was obtained by oppression, by taking advantage of the necessities of the borrower, and, of consequence, so was the usurious interest paid under it. The early disposition of the English courts was to deny the right of a party paying such interest to recover back any portion of the money paid, for the reasons that both parties to such a transaction were deemed to be “in pari delicto," and the excess of interest was regarded as paid voluntarily, so that the maxim "volenti non fit injuria" would apply: 1 Salk. 22.1 The authority of this decision, however, was soon questioned. Lord MANSFIELD declared that the case had been denied a thousand times: Cowper 199. At a later date a distinction was taken between transactions under statutes enacted on grounds of general policy, where each party violating the law is held to be in equal fault, and transactions under the usury laws, enacted to protect weak and needy men from being defrauded and oppressed. To the latter the law does afford relief. It regards the lender on usury

1 Accord, Spalding v. Bank of Muskingum, 12 Oh. 544, 547 (1841).

as an oppressor, and the borrower as the injured and oppressed: Browning v. Morris, Cowp. 790; Briggs v. Thompson, 20 Johns. 294; Thomas v. Shoemaker, 6 Watts & Serg. 183. And in none of the cases do we discover that any other evidence of duress or oppression has been held to be necessary than such as is involved in the act itself of taking the money under an usurious contract. The principle of the statutes of usury seems to be that the lender alone is the wrongdoer, and that the borrower is his victim.1

In this case the jury was instructed that the plaintiff could recover whatever he had paid to the defendants (on account of principal, instalments, interest, fines, or otherwise) over and beyond the sum of $720 originally lent, and six per cent. interest thereon, and this even though the plaintiff, before his mortgage became due and could be demanded, proposed to the defendants to pay it and withdraw his stock, and although a settlement was had accordingly, and the mortgage was satisfied. By the term withdrawal of the stock it is to be understood not that stock was returned to the plaintiff, for none ever was, but that he should cease to be a stockholder. In effect, the transaction was an extinguishment of the stock. The parties agreed to treat with each other simply as debtor and creditor. Now, how is it possible that the fact that the settlement was made before the mortgage became due and payable can change the nature of the transaction? It still remains that the security which had been exacted was for a greater amount than the sum actually lent. The settlement and payment, therefore, were under the constraint of an usurious contract, and consequently, the "taking" the money was itself usurious, whether before or after the day of payment fixed in the mortgage. Nor can the character of the "taking" be changed by the fact that the defendants accepted a smaller amount of usurious interest than they would have received had they exacted all that the mortgage called for. Then, what is there in the withdrawal of the stock, in other words, its extinction, more than an application of the amount paid upon it toward the satisfaction of the debt? Certainly the defendants cannot say, after having taken an assignment of the stock as collateral security for the payment of the plaintiff's bond and mortgage, that its value was less than the amount of money paid to them upon it. When, therefore, he relinquished to them all his legal and equitable ownership, when he gave to them the benefit of all the payments he had made upon it, it is not easy to see why he is not to be credited with the amount of those payments toward the discharge of his debt. The stock may have been worth more than that amount. It could not have been worth less. The charge to the jury in this respect was, therefore, unexceptionable, and it was in entire harmony with what was said in Kupfert v. The Guttenberg Building Association, and Hughes's Appeal, 6 Casey 465 and 471.

1Accord, State Bank v. Ensminger, 7 Blackf. (Ind.) 105 (1844), and Brown v. McIntosh, 39 N. J. L. 22 (1876), the latter case containing a detailed review of the English cases.

We think, also, the court was right in refusing to charge the jury that there was evidence from which they might infer that the arrangement made and consummated between the parties was a sale of the stock to the defendants for the balance of the mortgage loan, after deducting all direct payments for principal and interest. We are unable to find any evidence which would warrant such an inference. A withdrawal of the shares, not a sale, was the thing proposed and assented to. Nothing more was intended, nothing more was done. Judgment affirmed.1

GROSS v. COFFEY.

III ALA, 468.-1895.

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MCCLELLAN, J.—* * The question of chiefest importance in this case arises on the rulings of the trial court on charges requested, and is whether usury paid can be recovered back in an action of assumpsit; that is, in the absence of a promise to repay or refund it. At common law such recovery was allowed, and in many of the states the action is sustained. The ruling, however, at common law and in those states, except when their statutes expressly or impliedly authorize this action, goes upon the theory that a contract to pay usury is illegal and void, and not voidable merely; and the main difference between the statutes in the states referred to and our own lies in the fact that they either in terms declare, or have been construed an held to declare, such contracts absolutely void, while the statutes of Alabama do not so declare, but only provide that an usurious contract cannot, when the objection is properly taken to it, be enforced in respect of the usury or interest, but may be as to the principal, and have uniformly been held to render such contracts to that extent voidable at the election of the payor, but not in and of themselves illegal and void. The common-law doctrine, and the doctrine administered in those states which allow such recovery, is very ably and clearly stated by the supreme court of New Jersey through REED, J., in Brown v. McIntosh, 39 N. J. Law 22. The contrary viewthat which denies such right of recovery-is maintained by the supreme court of Massachusetts, among others, and is expressly put upon the ground that the statutes of that state do not render a contract whereby usurious interest is allowed illegal and void; and upon this consideration the court differentiates its own conclusion from the contrary one reached by the New Hampshire and other

1

Contra, Dickerson v. Raleigh Building Asso., 89 N. C. 37, 39 (1883), where the court says: "The courts of justice will not aid the defendant association, on the one hand, in the collection of its unlawful claims upon its members; nor will they, on the other, aid its corporators in their efforts to recover moneys they may have paid under engagements inoperative in law. Ex dolo malo non oritur actio. Mills v. B. & L. A., 75 N. C. 292; Latham v. B. & L. A., 77 N. C. 145; Commissioners v. Setzer, 70 N. C. 426.”

courts, and referred to in argument, saying: "The consideration that now, by law, the contract is not void, distinguishes this case from those cited, and takes away the ground upon which they rested. The ground upon which it was formerly held that an action for money had and received would lie was that it was illegal and oppressive to take more than 6 per cent. interest, and therefore it could not conscientiously be retained from the person who had paid it. This was the ground upon which the case of Willie v. Green, 2 N. H. 333, was decided; for, although the statute of New Hampshire in force at that time was like our present law, in providing that three times the interest might be forfeited and deducted when such a contract was in suit, and gave a suit to recover back, not the whole, but a part, of the usurious interest, yet, unlike ours, it expressly prohibited the taking of more than 6 per cent., and thereby made it illegal. But as, by our statute, the contract is not illegal, the party who has suffered by paying usurious interest is confined to the statute remedies." Crosby v. Bennett, 7 Metc. (Mass.) 17. And upon like reasoning the same conclusion is reached in a number of other states whose statutes do not declare or render a contract involving usury illegal and void, but only provide defenses thereto in respect of the usury and interest, or forfeitures and the like. Van Vleet v. Sledge, 45 Fed. 743; McBroom v. Investment Co., 153 U. S. 318, 14 Sup. Ct. 852; Graham v. Cooper, 17 Ohio 605; Williamson v. Cole, 26 Ohio St. 207; Quinn v. Boynton, 40 Iowa 304; Smith v. Coopers, 9 Iowa 376; Philips v. Gephart, 53 Iowa 396, 5 N. W. 683; Bank v. Sherwood, 10 Wis. 230; Ransom v. Hays, 39 Mo. 445; Hadden v. Innes, 24 Ill. 381; Tompkins v. Hill, 28 Ill. 519; Lake v. Brown, 116 Ill. 83, 4 N. E. 773; Bank v. Lutterloh, 81 N. C. 142; Woolfolk v. Bird, 22 Minn. 341; Cornell v. Smith, 27 Minn. 132, 6 N. W. 460; Security Co. v. Aughe, 12 Neb. 504, 11 N. W. 753; Blain v. Willson (Neb.), 49 N. W. 224.

Alabama belongs to this latter category of states. Usurious contracts with us are not void. In any event, they are perfectly valid and binding so far as the principal is concerned, and are also good, and may even be enforced in our courts, as to the interest and usury, unless the payor elects to interpose the defense as to the latter items which the statute furnishes him. Code, §§ 1750, 1754; Masterson v. Grubbs, 70 Ala. 406; Burns v. Campbell, 71 Ala. 271; Bradford v. Daniel, 65 Ala. 133. And it is not claimed that the legislature has in any manner authorized an action for the recovery of usury paid. So that, if the question were an open one in this court, we should not hesitate to declare that usury voluntarily paid, as it was in the case at bar, if paid at all, cannot be recovered back in an action of assumpsit. The promise to pay it is not illegal and void, but voidable only, at the election of the promisor. Not availing himself of the statutory defense, it cannot be said that his act in paying or the promisee's act in receiving the usury is illegal. But the question is not an open one in Alabama. It was, in substance, decided, against the right of recovery back, in the celebrated case of Jones v.

Watkins, I Stew. 81, and expressly so ruled in the case of Noble v. Moses Bros., 74 Ala. 604, 621; and subsequent decisions in this latter case did not overrule the first opinion as to this point. The plaintiff must therefore recover, if at all, on the alleged promise of the defendant to repay and refund whatever of usury was included in the payment made by him to the defendant, and the recovery must, of course, be measured by the terms of that promise.

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SPENCER, CH. J., IN WHEATON v. HIBBARD.

20 JOHNS. (N. Y.) 290.-1822.

THE statute to prevent usury (1 N. R. L. 64), after regulating the rate of interest, authorizes the party paying usurious interest to sue for and recover the excess above 7 per cent., within one year then next, with costs of suit, in an action of debt, founded on the act; and it prescribes a succinct form of declaring. It then provides that if the person paying usury shall not, within the time aforesaid, really and bona fide commence his suit for the money so paid, or suffers it to be delayed or discontinued, then it shall be lawful for any other person, within one year after such neglect, to sue for and recover the same, in manner aforesaid, one moiety whereof is given to such person, and the other moiety to the use of the poor of the town in which the offense is committed.2

This provision is peculiar to our statute. By the 12 Anne, ch. 16, the party receiving more than the legal rate of interest, forfeited the treble value of the moneys or other things lent. It is contended that the person who pays above the legal rate of interest is confined to the statute remedy, and that he must not only sue in an action of debt, but that the suit must be within one year, or he is forever precluded. Now the principle is, that where a party has a remedy at common law for a wrong, and a statute be passed, giving a further remedy, without a negative of the common-law remedy,

'The Missouri statute provides that usurious interest cannot, if this defense is set up, be recovered from the debtor; but "the statute does not contemplate the recovery back of unlawful interest once paid on a usurious contract." See Peters v. Lowenstein, 44 Mo. App. 406, 409 (1891).

In Massachusetts the statute "provides that it shall be lawful 'to contract for payment and receipt of any rate of interest, provided, however, that no greater rate of interest than six per centum per annum shall be recovered in any action, except when the agreement to pay such greater rate of interest is in writing.' The third section repeals §§ 3-5 of the Gen. Sts. c. 53. Under this statute, so long as an oral agreement to pay a greater rate of interest than six per cent. remains executory, it cannot be enforced. But it is lawful for parties to pay and to receive a greater rate, and if a greater rate is voluntarily paid. the excess over six per cent. cannot be recovered back."-Marvin v. Mandell, 125 Mass. 562, 564 (1878).

2

For present statute, see New York General Business Law, §§ 370-382.