
    McArthur vs. Schenck and another.
    
      Usury.
    
    1. Usury laws are designed to protect the borrower from being obliged to pay more than the amount limited thereby, for the loan or forbearance of money; and not to prevent the lender from receiving such excess from third parties, who voluntarily undertake to pay it.
    2. A. proposes to buy of B. a farm valued at §2,500 cash, if he can borrow the money, and applies to C. therefor. C. offers, through B. as his agent, to loan the amount to A. for thirly dollars in excess of the highest legal interest; and upon A. refusing to borrow on those terms, B. agrees to pay the thirty dollars, or to accept for the land $2,470; and A. thereupon receives from 0. andpays to B. the last named sum, and gives his note and mortgage to C. for $2,500, at the highest legal rate of interest. Held, in an action by O against A., that there is no contract on A.’s part to pay usurious interest, and that the note and mortgage are valid.
    APPEAL from tbe Circuit Court for Bode County.
    Action by Henry G. McArthur against Gyrus Schench and bis wife, Mary S. Schench, to foreclose a mortgage for $2,500, executed by tbe defendants to tbe plaintiff, October 1st, 1869, to secure two notes of $1,250 each, made tbe same day by Gyrus Schench, payable to plaintiff’s order on tbe 1st of October in tbe years 1874 and 1875, respectively, with interest at tbe rate of ten per cent, payable annually.
    Tbe case made by tbe answer and tbe findings of tbe court is voluminous and complicated; but tbe facts upon wbicb tbe judgment of tbis court is based are few and simple, and are sufficiently stated in tbe first two paragraphs of tbe opinion.
    Judgment was rendered in tbe circuit court for tbe plaintiff; and tbe defendants appealed.
    
      Williams & Sale, with I. G. Sloan, of counsel, for appellants,
    contended that tbe evidence clearly showed a usurious agreement between tbe defendants and tbe plaintiff, wbicb rendered tbe notes and mortgage void, and it made no difference whether Belden or Schenclc ultimately lost tbe thirty dollars. Merrills v. Law, 9 Cow., 65 ; Ciarle v. Badgley, 3 Halst., 233; Gillmore v. Woolcoch, 13 Wis., 589 ; Tay. Stats., 839, § 3.
    
      Oassoday' & Merrill, for respondent.
   Tbe following opinion was filed at tbe June term, 1872.

DtxoN, C. J.

It is a concession fairly due to tbe evidence, we think, that there was reserved and taken by tbe plaintiff upon the loan for wbicb tbe notes and mortgage in suit were given, tbe sum of thirty dollars usury. Such usury was received by tbe plaintiff, or paid to him, by being deducted from tbe sum agreed to be loaned, making the sum actually loaned $2,470, instead of $2,500 as represented by tbe notes and mortgage. Such deduction was exacted by tbe plaintiff at tbe time of the loan.

It is likewise a concession equally due to tbe evidence, as we understand it, that tbe $30 usury so exacted and taken was not in fact paid, or tbe loss thereof suffered or borne, by tbe defendant Schenclc, tbe husband* who made tbe notes and mortgage and appeared in tbe transaction as tbe borrower of tbe money. Tbe $30 was actually paid, or tbe loss from tbe usurious exaction in reality sustained, by Belden, from whom Schenclc purchased tbe farm, a portion of tbe price of wbicb constituted a part of tbe consideration for wbicb tbe notes and mortgage were executed. Belden deducted tbe $30 from tbe price which Schenclc bad agreed and was willing to pay him for tbe farm. This fact we think quite clearly established by the evidence, and especially by the testimony of Schenck himself.

The question involved, therefore, is very clearly and correctly presented by the following ease supposed by the learned counsel for the defendants: “ Suppose A. proposes to buy a farm of B., for which B. asks $2,500 cash. A. will buy it if he can borrow the money to pay for it, and applies to C. for that purpose. C. says, ‘ I will loan you the money if you will pay me thirty dollars in excess of lawful interest.’ A. informs B. that he would like to buy his farm, but is unwilling to stand the thirty dollar shave. B. says, ‘I will stand it.’ On this consideration A. borrows of 0. $2,470, and secures by his note and mortgage the payment of $2,500. C. attempts to foreclose the mortgage, and A. sets up the usury. Is it any answer on the part of C., that in fact B. and not A. lost the thirty dollars ?”

If, in addition to the facts thus supposed by counsel, we suppose the still further or different facts, that B., the seller of the farm, is acting as agent for C., the lender of the money, in negotiating the loan, and, knowing the unlawful exaction and that A. is unwilling to submit to it, submits to and incurs the loss himself by a corresponding deduction from the price of the farm, rather than not make sale of it, we shall have a case more exactly fitting the circumstances of the present one, and illustrating the true attitude and relations of the parties to the transactions.

The question to be resolved, therefore, is that above put by counsel. Will the fact that the usury was in truth paid by B., and not by A., prevent A from setting it up in defense, and avoiding the note and mortgage on account of it ?

Suppose A., being indebted and desirous of borrowing money, applies to C. for a loan, and C. refuses, saying he is unwilling to loan his money at the rate of interest allowed by law, but that he will do so if B., a stranger to the loan, will give him, C., so much money, equalling the amount of usury which he demands; and B. thereupon voluntarily gives him the amount required, and be then makes the loan to A. at lawful interest; is such a transaction usurious and void as to A., the borrower?

Again, in the case like that put by counsel, let it be supposed that B., instead of saying to A., that he, B., will stand the loss, goes himself to C., and advances or pays the usury demanded, whereupon C. lends the money to A., at a lawful rate of interest, would such a contract be usurious as between 0. and A. ?

We regard the foregoing only as different hypotheses presenting the same question.

The theory upon which laws against usury have been enacted, and the principle which has governed in their interpretation, have always been, that the borrower was at the mercy of the lender and subject to his utmost exactions and avaricious demands, unless protected by laws. In theory the borrower has been put, by such la$s, in the same category with persons under legal disability to contract, such as infants, femes coverts, and persons non compos mentis. He has been declared legally incompetent to make a bargain about money where more than the lawful rate of interest was demanded. The prohibition of all such laws, and of our law, has been and is against the lender’s bargaining for, reserving or taking usury from the borrower, We say “from the borrower,” not because the statute uses these exact words or in terms so enacts the prohibition, but because such is the evident intent and purpose of the statute. Acts of the kind have always been so interpreted and understood. It is to shield from the grasp of the lender, and save the borrower from the injurious consequences of his own weakness and inability, that such statutes have been passed. They are designed for the protection of the borrower, and the protection so given has been extended to those persons standing in his place or representing him and succeeding to his rights, such as heirs-at-law, executors, devisees, sureties, assignees and the like. They are designed for the borrower’s protection and benefit, and the protection and benefit of those thus representing him, when he or they has or have suffered loss or injury from the unlawful exactions of the lender, or may suffer such loss or injury from the performance of the usurious contract, and luhen likewise he or they see fit not to waive the sanction or penalty of the statute in his favor. For upon this subject of waiver it has always been a well understood rule, that the borrower may afterwards waive the forfeiture or penalty and ratify the transaction, if he deliberately chooses to do so. After the loan had been made, and he is not under the necessity of borrowing or of forbearance, and when the remedy of the statute is fully in his own hands and within his control, he is considered legally competent to waive it; and upon this point the rules of the courts have been very severe and stringent, and that he must exercise his privilege with the utmost promptness and diligence, or otherwise no relief will be afforded.

A recurrence to these general principles, which are well understood and elementary, seems very clearly to indicate that the payment of usury, if it be properly so called, not 'by the borrower, but by a stranger to the contract, one not connected with the loan nor liable for it, who voluntarily or from any motive advances the sum exacted or sustains the loss where the borrower is unwilling or declines so to do, is not a circumstance of which the borrower can be permitted to take advantage for the purpose of having the contract declared inoperative and void for usury. It seems not to be á case in any manner falling within the true spirit and intent of the law against usury. That law, as we have seen, is intended for the benefit and protection of the borrower who is himself obliged to submit to and suffer by the exactions of the usurer, and not for the benefit or protection of strangers, or those not borrowers or standing in that relation to the lender. The rule is,' that the plea or objection of usury is personal to the borrower or those representing him, a privilege peculiar to him or them, because he or they have or might have sustained injury by reason of the usurious contract; but that no stranger can be permitted to take advantage of or set up the objection. The reason why the stranger can not plead it is, that he has lost nothing by it. If A. purchase a farm of B. subject to a usurious mortgage to 0., agreeing 'to pay such mortgage as part of the price of the farm, or for other valuable consideration, A. cannot plead the usury or avoid payment of the mortgage on that ground. Why? Because in that case A. has lost nothing by the usury, and is a stranger to the contract, and because B., as he lawfully might do, has waived the objection and ratified the agreement. The learned counsel might argue in that case, as he has done in this, that there was the usurious agreement, and there the usury, and that the statute declares the security void ; but, within all the adjudications upon the point, such argument could not prevail.

And it seems to us that the same or a similar reason must be valid against the objection of the defendants in the present case. So far as the usury is concerned, they were strangers to it. They did not pay it, and lost nothing, and can lose nothing by it. The contract entered into between them and the plaintiff, the notes and mortgage executed, were, so far as their pecuniary interests were and are involved, entirely lawful and free from any usurious taint or corruption.

And, upon looking into the authority of particular cases, more or less closely resembling the present, we find the views above expressed to have been very generally, and, so far as we know, universally sustained.

In Little v. White, 8 N. H., 276, it was decided that an administrator who had given his promissory note for a sum due from his intestate, and including certain unlawful interest which the intestate had agreed to pay, could not, in a suit upon the note, sustain a plea of usury on account of the unlawful interest so agreed to be paid by the intestate, and included in it. The ground of the decision was, that the administrator had in fact or presumptively long before been allowed the full sum for which his own note was given, as a payment made by him on account of the estate. “ He stands, therefore,” said the court, “in. a similar situation to that of one wbo bas given bis note for usury contracted to be paid by another, having received a full consideration for tbe note so given, and this f urnisbes no ground on wbicb to sustain a defense.” And tbe court further proceeded: “ Tbe defendant is not attempting to set up a defense for tbe benefit of tbe estate wbicb he represented, but is asking to avail himself of the payment of usury upon a coiftract made by another, for tbe purpose of obtaining a deduction upon a security madeby himself. This be cannot be permitted to do. Had tbe amount which he allowed to the creditor as usury, been disallowed on tbe settlement of his administration account, he might have shown that fact in evidence in avoidance of so much of the note he gave, on the ground of a want or failure of consideration. But if be bas received the full amount for wbicb he gave his note, in tbe settlement of his administration, be is no more entitled to avail himself of the usury which bas been received, than be would be in any other case -where the creditor had received usury of a third person. In such case it is usury paid by tbe estate of the intestate, and not by tbe defendant.” It is difficult to perceive bow that case and tbe case at bar are to be distinguished on principle.

And again, in Bearce v. Barstow, 9 Mass., 45, tbe facts were as follows : A. owing B. a sum of money for a valid considera•tion, and B. owing 0. a sum on which he bad received usurious interest, an agreement was entered into that A. should give to C. a promissory note for tbe sum due from B. to C., including tbe usurious interest, and A. was discharged of so much of his debt to B. In an action by C. against A. upon the note so given, it was held that tbe note was not void by tbe statute against usury, tbe verdict of the jury having negatived any contrivance to evade tbe statute. Tbe argument by counsel there was like that wbicb bas been very ingeniously and forcibly presented here. Counsel said: “ This was a contract made for the payment of money lent, whereby there was reserved or taken above tbe rate of interest allowed by tbe statute. And as it is witbin tbe words, so it is witbin tbe reason of tbe statute. If this action is maintained, tbe statute may always be avoided by procuring a third person to give a note instead of tbe borrower. Tbe statute was intended to operate on tbe lender, and not on tbe borrower. And it will be noticed that tbe original lender was the present plaintiff.” But tbe court overruled tbe objection, and in reply said: Tbe English statutes against usury contain a similar clause for tbe avoidance of usurious contracts, expressed in nearly tbe same terms, and entirely of tbe same import, as tbe clause in our own statute relied on j;or tbe defendant. Tbe construction there is, as appears by numerous decisions, that tbe objection of usury, to avoid a contract, must be made to tbe security or promise whereupon or whereby illegal interest has been taken or reserved, and by a party otherwise liable therein.” And tbe court, after observing that a renewal of tbe contract between tbe same parties, and every species of contrivance in tbe modification of any loan or contract for tbe purpose of evading the statute, being cases witbin tbe mischief, are also witbin tbe remedy, furthermore said, that where the party liable upon a usurious contract will not avail himself of the remedy provided by tbe statute for tbe purpose of avoiding it; where he voluntarily discharges it, or suffers a judgment to be recovered upon it, or makes it the consideration of a contract entirely new, as being with a third per-' son not a party to the original contract, or to the usury paid or reserved upon it, or as combining other parties and considerations, and not being a contrivance to evade the statute,— there tbe provision no longer applies.”

And among tbe English decisions cited by the court was that of Lord Kenyon, in Hulme v. Turner, 4 Esp. N. P. C., 11. which was very pertinent to tbe question under consideration. There, the payee of a note given for a usurious consideration had arrested tbe maker, and, to procure bis discharge from arrest, a third person joined the maker of tbe note in another note for tbe amount of the debt; and the chief justice said “ he was clearly of opinion that the consideration of the first note could not be questioned in an action on the second, unless it could be shown that it was a colorable shift to evade the statute, devised when the money was originally lent and the first note granted.” And see also Cuthbart v. Haley, 8 Durnford & East, 390; Comyn on the Law of Usury, 186; Bridge v. Hubbard, 15 Mass., 100-105.

And in a late casein the court of appeals of Virginia, Drake's Ex'r v. Chandler, 18 Grattan, 909, the point decided is correctly stated in the reporter’s note in these words: “A., B. and G. execute a bond for one thousand dollars to P. for a loan of money at usurious interest. Subsequently O., J. and W., with B. who signs himself security, execute their bond to P.’ for the amount, principal and interest, of the first bond and another small bond of A., in lieu of these bonds. The usury is purged by the change of the parties, and the last bond executed is valid.” The opinion is valuable as showing that strangers to the usury cannot take advantage of it, and it also refers to and examines several cases not above cited.

Eor these reasons, this court is of the opinion that the judgment appealed from was correct, and must be affirmed.

By the Court.— Judgment affirmed.

A motion for a rehearing was denied at the January term, 1873.  