S. being seized in fee of four brick tenements and lots of
ground in Alexandria, in consideration of $5,000, granted to M. an
annuity or yearly rent charge of $500, to be issuing out of and
charged upon the houses and ground, and covenanted that the same
should be paid to M., his heirs and assigns forever thereafter,
with the right to distrain in case of nonpayment of the same. In
the deed granting the rent charge, M. the grantee, covenanted, that
at any time after five years, on the payment of $5,000 with all
arrears of rent, he, M., would release the said rent charge, and
the same should cease. S. covenanted to keep the buildings in
repair and that he would have them fully insured against fire and
assign the policy of insurance for the protection of M., the money
from the insurance to be applied to the rebuilding or repairing the
houses if destroyed or injured by fire. Afterwards, S. by deed of
bargain and sale,, conveyed to L., the plaintiff in error, the
houses and lots of ground subject to the payment of the rent to M.,
who since the same conveyance has been seized of the same. The rent
being unpaid, M. levied a distress for the same, and L. brought
replevin, and the defense to the claim for rent set up to the
avowry was that the transaction was usurious, and the deed granting
the rent charge was, by the laws of Virginia, absolutely void.
The statute of Virginia of 1793 provides that no person shall
take, directly or indirectly, more than six percent per annum on
loans of money or for forbearance for one year, and it declares
that all bonds and other instruments for a greater amount of
interest shall be utterly void.
The requisites to form an usurious transaction are 1. a loan
either express or implied; 2. an understanding that the money lent
shall or may be returned; 3. that a greater rate of interest than
is allowed by the statute shall be paid. The intent with which the
act is done is an important ingredient to constitute this
offense.
An ignorance of the law will not protect a party from the
penalties of usury where it is committed, but where there was no
intention to evade the law and the facts which amount to usury,
whether they appear upon the face of the contract or by other
proof, can be shown to have been the result of mistake or accident,
no penalty attaches.
The act of usury has long since lost that deep moral stain which
was formerly attached to it, and is now generally considered only
as an illegal or immoral act, because it is prohibited by law.
If the court was in this case limited by the pleas to the words
of the contract, and it purported to be a purchase of an annuity,
and no evidence was adduced giving a different character to the
transaction; the argument that though the annuity may produce a
higher rate of interest than six percent upon the consideration
paid for it, as it was a purchase, it was legal, would be
unanswerable. An annuity may be purchased like a tract of land or
other property, and the
Page 29 U. S. 206
inequality of price will not of itself make the contract
usurious. If the inadequacy of consideration be great in any
purchase, it may lead to suspicion, and connected with other
circumstances, may induce a court of chancery to relieve against
the contract.
In this case, $5,000 was paid for a ground rent of $500 per
annum. This circumstance, although ten percent be received on the
money paid, does not make the contract unlawful. If it were a
bona fide purchase of an annuity, there is an end of the
question, and the condition which gives the option to the vendor to
repurchase the rent by paying the $5,000 after the lapse of five
years would not invalidate the contract. The right to repurchase,
as also the inadequacy of price, would be circumstances for the
consideration of a jury.
The purchase of an annuity or any other device used to cover an
usurious transaction will be unavailing. If the contract be
infected with usury, it cannot be enforced.
If a party agree to pay a specific sum exceeding the lawful
interest provided he do not pay the principal by a day certain, it
is not usury. By a punctual payment of the principal, he may avoid
the payment of the sum stated, which is considered as a penalty.
Where a loan is made to be returned at a fixed day with more than
the legal rate of interest, depending on a casualty which hazards
both principal and interest, the contract is not usurious, but
where the interest only is hazarded, it is usury.
All the material facts to constitute usury are found in the
second plea. It states a corrupt agreement to loan the money at a
higher rate of interest than the law allows. That the money was
advanced and the contract executed in pursuance of such agreement.
That on the return of the principal with the full payment of the
rent after the lapse of five years, the annuity was to be released.
The amount agreed to be paid above the legal interest for the
forbearance is not expressly averred, but the facts are so stated
in the plea as to show the amount with certainty. $500, under cover
of the annuity, was to be paid annually for the forbearance of the
$5,000, making an annual interest of ten percent. Do not these
facts, uncontradicted as they are, amount to usury? Is it not
evident from this statement of the case that the annuity was
created as a means for paying the interest until the principal
should be returned, and as a disguise for the transaction? Such is
the legitimate inference which arises from the facts stated in the
plea.
The principle seems to be settled that usurious securities are
not only void as between the original parties, but the illegality
of their inception affects them even in the hands of third persons
who are entire strangers to the transactions. A stranger must "take
heed to his assurance at his peril," and cannot insist on his
ignorance of the corrupt contract in support of his claim to
recover upon a security which originated in usury.
In the case of
D'Wolfe v.
Johnson, 10 Wheat. 367, the first mortgage being
executed in Rhode Island in 1815 was not usurious by the laws of
that state, and the second mortgage, executed in Kentucky in 1817,
being a new contract, was not tainted with usury. The question,
therefore, whether the purchaser of an equity of redemption can
show usury in the mortgage to defeat a foreclosure was not involved
in that case.
The law of Virginia having declared that a contract infected by
usury is void, and by the deed from S. to M. a right to enter on
the premises and distrain for the
Page 29 U. S. 207
rent is claimed under a deed which, upon the admissions in the
pleadings, is usurious, the premises upon which the distress was
made, being held by L. under a conveyance from S., L. may set up
the defense of usury in the deed against the summary remedy
asserted by M. under the deed.
This was an action of replevin brought by the plaintiff to
replevy certain goods and chattels which the defendant, as bailiff
of William S. Moore, had taken upon a distress for rent claimed by
the said Moore to be due upon certain houses and lots in Alexandria
owned and held by the plaintiff. The sum for which distress was
made is $500. The declaration is in the usual form, and the damages
claimed $1,000.
The defendant filed his cognizance, in which he acknowledges the
taking of the goods, &c., in the declaration mentioned, and
states that a certain Jonathan Scholfield was seized in fee of four
brick tenements and a lot of ground in the Town of Alexandria, and
being so seized, he by his indenture, dated 11 June, 1814, of which
deed profert is made, in consideration of $5,000, by the said
William S. Moore paid to him the said Jonathan Scholfield, he
granted, bargained and sold to him, the said William S. Moore one
certain annuity or yearly rent of $500, to be issuing out of and
charged upon the said four brick tenements and lot of ground, to be
paid to the said William S. Moore, his heirs and assigns, by equal
half-yearly payments of $250 each, on 10 December and on 10 June in
each year forever thereafter, to have and to hold the said annuity
or rent charged and payable as aforesaid to the said William S.
Moore his heirs and assigns to his and their only proper use
forever. It also states that the said Jonathan Scholfield, for
himself, his heirs and assigns, did by the said indenture, among
other things, covenant with the said William S. Moore his heirs and
assigns, that he, the said
Page 29 U. S. 208
Scholfield, his heirs and assigns, would well and truly pay and
satisfy to him, the said Moore his heirs and assigns, the said
annual rent of $500 by equal half-yearly payments forever, and if
the rent should not be paid as it became due, that on every default
it should be lawful for the said Moore, his heirs and assigns, to
make distress for it. That the said William S. Moore was seized of
the said rent on the 11 December, 1814, and has since remained
seized thereof.
The cognizance further states that on 29 October, 1816, the said
Jonathan Scholfield, by his deed of bargain and sale, conveyed to
the said John Lloyd the plaintiff, forever certain tenements and
lots of ground in the said Town of Alexandria, whereof the said
four brick tenements and lot of ground before mentioned, on which
the said distress was made, was parcel, subject, by the terms of
the said deeds, to the payment of the said annuity or rent of $500
to the said William S. Moore his heirs and assigns. That the said
John Lloyd has been ever since seized and possessed of the same,
and that on 10 June, 1824; $250, a part of the said rent was due,
and on 10 December, 1824, $250, the balance of the said annual
rent, was due and unpaid to the said William S. Moore for which
said sum of $500 the said defendant, as bailiff aforesaid, levied a
distress. It concludes by praying judgment for $1,000, being double
the rent in arrear and distrained for.
By the deed from Scholfield to Moore he, Moore for himself and
his heirs and assigns, covenants with Scholfield, his heirs and
assigns, that if he, the said Scholfield, his heirs or assigns,
"shall at any time after the expiration of five years from the
date of the deed, pay to the said Moore his heirs or assigns, the
sum of $5,000, together with all arrears of rent and a ratable
dividend of the rent for the time which shall have elapsed between
the half year day then next preceding and the day on which such
payment shall be made, he, the said Moore his heirs and assigns,
will execute and deliver any deeds or instruments which may
Page 29 U. S. 209
be necessary for releasing and extinguishing the rent or annuity
hereby created, which, on such payments being made, shall forever
after cease to be payable."
By the same deed, Jonathan Scholfield covenants that he was then
in his own right seized in fee simple of the premises charged as
aforesaid, free from any condition or encumbrance other than which
is specified and provided for in a deed from him, Scholfield, to
Robert I. Taylor, dated the day before the date of the deed to
Moore.
The said Scholfield further covenants for himself, his heirs and
assigns, that he
"will forever hereafter keep the buildings which now are or
hereafter may be erected on the premises charged fully insured
against fire in some incorporated insurance office, and will assign
the policies of insurance to such trustee as the said Moore his
heirs or assigns may appoint, to the intent that if any damage or
destruction from fire shall happen, the moneys received on such
policies may be applied to rebuilding or repairing the buildings
destroyed or damaged."
There is also a covenant on the part of Scholfield for a further
conveyance to carry into effect the intention of the parties, and
also a warranty on his part to warrant and defend the said annuity
or rent to the said Moore, his heirs or assigns, against any
defalcations or deductions for or on account of him the said
Scholfield, his heirs or assigns.
To this cognizance the plaintiff, after praying oyer of the
indenture from Scholfield to Moore demurred specially and assigned
the following causes:
1. Because the deed of indenture from Jonathan Scholfield and
Eleanor his wife to William S. Moore in the said cognizance
mentioned shows upon the face of it a corrupt and usurious contract
between Jonathan Scholfield and William S. Moore altogether void in
law and entirely incompetent to justify the taking of the said
goods and chattels in the plaintiff's declaration mentioned.
2. Because the essential parts of the indenture are not set
forth in the cognizance.
3. Because the indenture is variant and different from that
alleged in the cognizance.
Page 29 U. S. 210
4. Because the whole cognizance is void and insufficient in law
to justify the taking of the goods and chattels in the declaration
mentioned.
At the same time, the plaintiff filed four pleas, in each of
which pleas he craves oyer of the deed of indenture in the
cognizance mentioned, which was granted to him.
The first plea states that before the making of the indenture --
that is to say on 11 June, 1814, it was corruptly agreed between
Scholfield and Moore that he, Moore should "advance" to Scholfield
the sum of $5,000, and in consideration thereof that Scholfield and
his wife should grant, by a deed of indenture, duly executed and
delivered to Moore his heirs and assigns forever, a certain annuity
or yearly rent of $500, to be issuing out of and charged upon a lot
of ground and four brick tenements and appurtenances thereon, which
lot is particularly described in the said plea and stated to be in
the Town of Alexandria, which annuity or rent of $500 was to be
paid to Moore his heirs and assigns by equal half-yearly payments
of $250 on 10 December and on 10 June forever thereafter. It was
further corruptly agreed that he, Scholfield, in and by the deed,
should bind himself, his heirs, executors, administrators and
assigns to Moore his heirs and assigns, that Scholfield would well
and truly pay to him, Moore his heirs and assigns, the said rent or
annuity of $500, by equal half-yearly payments, on 10 June and 10
December in each year forever thereafter as it became due. It
further states, if the same should not be paid as it became due,
the right of distress for it is reserved to Moore his heirs and
assigns. The plea also states if sufficient property could not be
found on the premises to make the said rent or annuity after the
expiration of thirty days from the time the same became due, it
should be lawful for Moore to enter on the premises and to remove
Scholfield, his heirs and assigns, and for him, Moore his heirs or
assigns, to possess and hold the same as his or their property.
The plea further states that it was corruptly agreed between
Page 29 U. S. 211
Scholfield and Moore that he, Scholfield, should further
covenant in the said indenture that he, Scholfield, was seized at
the time of making the deed in his own right in fee simple in the
premises, free from any condition or encumbrance other than such as
was specified in a deed from him to Robert I. Taylor, and that he
would thereafter keep the buildings fully insured in some
incorporated insurance office and assign the policies to such
trustee as Moore his heirs or assigns should appoint, and that he
would make any other deed for a further assurance of the title to
the premises, and that he would warrant and defend the title of
Moore to the rent or annuity. It is also stated in said plea that
Moore did further corruptly agree that he would, in the indenture,
covenant for himself, his heirs or assigns, with Scholfield, his
heirs and assigns, that if he, Scholfield, his heirs or assigns,
should at any time thereafter, at the expiration of five years from
the date of the indenture, pay to Moore his heirs or assigns, the
sum of $5,000, together with all arrears of rent and a ratable
dividend of the rent for the time which should have elapsed between
the half year's day then next preceding, and the day on which such
payment should be made, he, Moore his heirs and assigns, would
execute and deliver any deeds or instruments which might be
necessary for releasing and extinguishing the rent or annuity.
The plea then avers that on 11 June, 1814, in pursuance and in
prosecution of this corrupt agreement, William S. Moore did advance
to Jonathan Scholfield, the sum of $5,000, and that Scholfield and
his wife and William S. Moore did make, seal, and duly deliver to
each other respectively the said deed as their act and deed, which
was duly acknowledged and recorded, that the deed was made in
consideration of money advanced upon and for usury, and that there
has been reserved and taken above the rate of six dollars in the
hundred, for the forbearance of the sum of $5,000, so advanced as
aforesaid, for the term of one year. The plea concludes with a
verification, and prays judgment for damages for the unjust taking
and detention of the goods, &c.
Page 29 U. S. 212
The second plea is in all respects like the first except it
states that the agreement was that Moore should "lend" to
Scholfield $5,000. It then states that the parties agreed a deed
should be made containing all the covenants set forth in the first
plea. It then avers that in pursuance and in prosecution of this
corrupt agreement, Moore did advance to Scholfield the sum of
$5,000 and that Scholfield and wife and Moore made and executed the
deed aforesaid in pursuance of this corrupt agreement, which was
duly acknowledged and admitted to record. And that the deed was
made in consideration of "money lent upon and for usury," and that
by it there has been reserved and taken above the rate of six
dollars in the hundred for the forbearance of the sum of $5,000 so
lent as aforesaid for the term of one year. This plea concludes as
the first does.
The third plea is more general than the first and second. It
states that before the making of the indenture -- that is to say on
11 June, 1814, it was corruptly agreed between Scholfield and Moore
that he, Moore should "advance" to him, Scholfield, the sum of
$5,000, upon the terms and conditions and in consideration of the
covenants and agreements in the indenture mentioned and contained,
and that in pursuance of this corrupt agreement and in the
prosecution and fulfillment of the same, Moore did advance to
Scholfield the sum of $5,000, and they, Scholfield and Moore, did
make, seal, and duly deliver the deed to each party respectively as
their act and deed. And that the deed was in consideration of money
advanced upon and for usury, and that by the indenture there has
been taken and reserved above the rate of six dollars in one
hundred, for the forbearance of the sum of $5,000, so advanced as
aforesaid for the term of one year. This plea concludes as the
first does.
The fourth plea is like the third except it is stated that the
agreement was to "lend" $5,000 upon the same terms stated in the
third plea. It then avers that in pursuance and in execution of the
corrupt agreement in the indenture mentioned, Moore did "lend" to
Scholfield the
Page 29 U. S. 213
sum of $5,000, that the deed was duly executed by the parties
and recorded, that it was made in consideration of money lent upon
and for usury, and that by the said deed there has been reserved
and taken above the rate of six dollars in the hundred for the
forbearance of the sum of $5,000 so lent as aforesaid for the term
of one year. This plea concludes as the others do.
To each of these pleas the defendant demurred specially and
assigned for causes:
1. That the said pleas do not set forth with any reasonable
certainty the pretended contract which is alleged to have been
usurious, and do not show an usurious contract.
2. That they do not state the time for which the said pretended
loan was made.
3. That they do not state the amount of interest reserved or
intended to be reserved on the said pretended contract.
4. That they do not set forth any loan or forbearance of any
debt.
5. That they neither admit nor deny the sale and conveyance of
the premises charged with the said annuity or rent to have been
made by Jonathan Scholfield to the plaintiff.
Upon the demurrer to the cognizance and on the demurrer to the
pleas, the circuit court rendered judgment for the defendant for
$1,000, the double rent claimed in the cognizance, and costs.
The plaintiff sued out this writ of error, and before this Court
assigned for error,
1. That the deed which forms a part of the cognizance is on its
face usurious.
2. That the pleas set forth, with sufficient certainty, a
spurious contract.
Page 29 U. S. 221
MR. JUSTICE McLEAN delivered the opinion of the Court.
This is an action of replevin brought to replevy certain goods
and chattels which the defendant, as bailiff of William S. Moore
had taken upon a distress for rent claimed to be due upon certain
houses and lots in Alexandria owned and possessed by the plaintiff.
The sum for which the distress was made is $500.
The declaration is in the usual form, and the damages are laid
at $1,000. The defendant filed his cognizance in which he
acknowledges the taking of the goods specified in the declaration
and states that a certain Jonathan Scholfield, being seized in fee
of four brick tenements and a lot of ground in the Town of
Alexandria, by his indenture, dated 11 June, 1814, in consideration
of $5,000, granted, bargained, and sold to William S. Moore one
certain annuity or yearly rent of $500, to be issuing out of and
charged upon the said houses and ground, and paid to the said Moore
his heirs and assigns, by equal half-yearly payments of $250, on 10
December and on 10 June in each year forever thereafter, to have
and to hold the said annuity or rent charged and payable as
aforesaid to the said William S. Moore, his heirs and assigns,
forever. It also states that the said Scholfield, for himself and
his heirs and assigns, did, by the said indenture, among other
things,
Page 29 U. S. 222
covenant well and truly to pay to the said Moore his heirs and
assigns, the said annual rent of $500 by equal half-yearly payments
forever. And if the rent should not be paid as it become due, it
should be lawful for the said Moore his heirs and assigns to make
distress for it. That Moore was seized of the rent on 11 December,
1814, and has since remained seized thereof.
The cognizance further states that on 29 October, 1816, the said
Jonathan Scholfield, by his deed of bargain and sale, conveyed to
Lloyd, the plaintiff, forever certain tenements and lots of ground
in the Town of Alexandria whereof the said four brick tenements and
lot of ground were parcel and subject to the rent charge stated.
That Lloyd has been seized ever since and possessed of the same,
and that on 10 June 1824, $250, a part of the rent, was due, and on
10 December following, $250, the balance of the annual rent, was
due and unpaid, for which sums the defendant, as bailiff, levied a
distress.
The cognizance is concluded by praying a judgment for $1,000,
being double the amount of the rent in arrear.
Moore covenants in the deed that if Scholfield, his heirs or
assigns,
"shall at any time after the expiration of five years from the
date of the deed pay to the said Moore his heirs or assigns the sum
of $5,000, together with all arrears of rent and a ratable dividend
of the rent for the time which shall have elapsed between the
half-year day then next preceding and the day on which such payment
shall be made, he, the said Moore his heirs and assigns, will
execute and deliver any deeds or instruments which may be necessary
for releasing and extinguishing the rent or annuity hereby created,
which, on such payment's being made, shall forever after cease to
be payable."
Scholfield covenanted for himself, his heirs and assigns, that
he would keep the buildings in repair, have them fully insured
against fire, and would assign the policies of insurance to such
trustee as Moore his heirs or assigns, might appoint, that the
money may be applied to the rebuilding of
Page 29 U. S. 223
the houses destroyed by fire or repairing any damage which they
might suffer.
To this cognizance the plaintiff filed a special demurrer, which
in the argument he abandoned, and relies upon the special pleas of
usury. To each of the four pleas the defendant demurs specially and
assigns for causes of demurrer,
1. That the said pleas do not set forth with any reasonable
certainty the pretended contract which is alleged to have been
usurious, and do not show an usurious contract.
2. That they do not state the time the said pretended loan was
made.
3. That they do not state the amount of interest reserved or
intended to be reserved, on the said pretended contract.
4. That they do not set forth any loan or forbearance of any
debt.
5. That they neither admit nor deny the sale and conveyance of
the premises charged with the annuity or rent to have been made by
Scholfield to the plaintiff below.
Upon these demurrers the circuit court rendered judgment for
$1,000, the double rent claimed in the cognizance.
The plaintiff here prays a reversal of this judgment.
1. Because the deed which forms a part of the cognizance on its
face shows an usurious contract.
2. Because the pleas set forth with sufficient certainty an
usurious contract.
The statute of Virginia against usury was passed in 1793, and
provides that no person shall take, directly or indirectly, more
than six dollars for the forbearance of one hundred dollars per
annum, and it declares that all bonds and other instruments for a
greater amount of interest shall be utterly void.
In support of the demurrer it is argued that the pleas are
defective as they do not contain any allegation of facts which
amount to usury, and that the decision must turn on the
construction of the contract between Scholfield and Moore. And it
is contended that although usury appears upon the face of a deed,
yet advantage can only be taken of it by plea. That the obligee may
explain the contract by
Page 29 U. S. 224
showing a mistake in the scrivener or a miscalculation of the
parties.
In Comyn on Usury 201 it is laid down that in an action on a
specialty, though it appear on the face of the declaration that the
bond, &c., is usurious, still no advantage can be taken of this
unless the statute be specially pleaded. 3 Salk. 291; 5 Coke 119;
Chitty on Contracts 240; 1 Sid. 285; 1 Saund. 295a. The decision of
this point is not necessarily involved in the case.
The requisites to form an usurious transaction are three:
1. A loan either express or implied.
2. An understanding that the money lent shall or may be
returned.
3. That a greater rate of interest than is allowed by the
statute shall be paid.
The intent with which the act is done is an important ingredient
to constitute this offense. An ignorance of the law will not
protect a party from the penalties of usury where it is committed,
but where there was no intention to evade the law and the facts
which amount to usury, whether they appear upon the face of the
contract or by other proof, can be shown to have been the result of
mistake or accident, no penalty attaches.
At an early period in the history of English jurisprudence,
usury, or as it was then called, the loaning of money at interest,
was deemed a very high offense. But since the days of Henry VIII,
the taking of interest has been sanctioned by statute.
In this country, some of the states have no laws against taking
any amount of interest, which may be fixed by the contract.
The act of usury has long since lost that deep moral stain which
was formerly attached to it, and is now generally considered only
as an illegal or immoral act because it is prohibited by law.
Assuming the position that the pleas contain no averments which
extend beyond the terms of the contract, the counsel in support of
the demurrers have contended that no fair construction of the deed
will authorize the inference that it was given on an usurious
consideration.
Page 29 U. S. 225
It was the purchase of an annuity, it is contended, and though
the annuity may produce a higher rate of interest than six percent
upon the consideration paid for it, yet this does not taint the
transaction with usury.
If the Court were limited by the pleas to the words of the
contract, and it purported to be a purchase of an annuity, and no
evidence were adduced giving a different character to the
transaction, this argument would be unanswerable. An annuity may be
purchased like a tract of land or other property, and the
inequality of price will not, of itself, make the contract
usurious. If the inadequacy of consideration be great in any
purchase, it may lead to suspicion, and, connected with other
circumstances, may induce a court of chancery to relieve against
the contract.
In the case under consideration, $5,000 was paid for a ground
rent of $500 per annum. This circumstance, although ten percent be
received on the money paid, does not make the contract unlawful. If
it were a
bona fide purchase of an annuity, there is an
end to the question, and the condition which gives the option to
the vendor to repurchase the rent by paying the $5,000 after the
lapse of five years would not invalidate the contract. 1 Brown's
Ch. 7, 93. The right to repurchase, as also the inadequacy of
price, would be circumstances for the consideration of a jury.
The case reported in 2 Coke 252 is strongly relied on by the
counsel for the defendant. In that case, an action of debt was
brought upon an obligation of three hundred pounds, conditioned for
the payment of twenty pounds per annum during the lives of the
plaintiff's wife and son. The defendant pleaded the statute of
usury and that he applied to the defendant to borrow of him one
hundred and twenty pounds at the lawful rate of interest, but that
he corruptly offered to deliver one hundred and twenty pounds to
him if he would be obliged to pay twenty pounds per annum.
The court considered this as an absolute contract for the
payment of twenty pounds per annum during two lives, and no
agreement being made for the return of the principal, it was not
considered usury. But, they stated, if there had
Page 29 U. S. 226
been any provision for the repayment of the principal, although
not expressed in the bond, the contract would have been
usurious.
This is a leading case, and the principle on which it rests has
not been controverted by modern decisions.
Scholfield, it appears, was under no obligation to repurchase
the annuity, but he had the option of doing so after the lapse of
five years, which is a strong circumstance to show the nature of
the transaction.
The purchase of an annuity or any other device used to cover an
usurious transaction will be unavailing. If the contract be
infected with usury, it cannot be enforced.
Where an annuity is raised with the design of covering a loan,
the lender will not be exempted by it from the penalties of usury.
3 Bos. & Pul. 159. On this point there is no contradiction in
the authorities.
If a party agree to pay a specific sum exceeding the lawful
interest, provided he do not pay the principal by a day certain, it
is not usury. By a punctual payment of the principal he may avoid
the payment of the sum stated, which is considered as a
penalty.
Where a loan is made to be returned at a fixed day with more
than the legal rate of interest, depending upon a casualty which
hazards both principal and interest, the contract is not usurious;
but where the interest only is hazarded, it is usury.
Does the decision in this case, as has been contended, depend
upon a construction of the contract? Are there no averments in the
pleas which place before the Court material facts to constitute
usury that do not appear on the face of the deed?
If the Court were limited to a mere construction of the
contract, it would have no difficulty in deciding that the case was
not strictly embraced by the statute.
In the second plea, the plaintiff below prays oyer of the deed
of indenture, and among other statements alleges
"that it was corruptly agreed between the said Scholfield and
the said Moore that the said Moore should lend to him the sum of
$5,000, and in consideration thereof that he should
Page 29 U. S. 227
execute the said deed,"
&c. And in another part of the same plea it is stated,
"that the said Moore did corruptly agree that he would in the
said indenture covenant, &c., that if the said Scholfield, his
heirs and assigns, should, at any time after the expiration of five
years from the date of said indenture, pay to the said Moore his
heirs and assigns, the sum of $5,000, together with all arrears of
rent, he, the said Moore would release to him the said
annuity."
And it is further alleged "that the said Moore, in pursuance and
in prosecution of the said corrupt agreement, did advance to the
said Scholfield the said sum of $5,000." And again
"That the said deed of indenture was made in consideration of
money lent upon and for usury, and that by the said indenture there
has been reserved and taken above the rate of six dollars per annum
in the hundred for the forbearance of the said sum of $5,000 so
lent as aforesaid."
The fourth plea contains substantially the allegations as to the
lending &c. that are found in the second plea.
The facts stated in the pleas are admitted by the demurrers, and
the question of usury arises on these facts, connected as they are
with the contract.
Although the second and fourth pleas may not contain every
proper averment with technical accuracy, yet they are substantially
good. All the material facts to constitute usury are found in the
second plea.
It states a corrupt agreement to loan the money at a higher rate
of interest than the law allows. That the money was advanced and
the contract executed in pursuance of such agreement. That on the
return of the principal with a full payment of the rent after the
lapse of five years, the annuity was to be released. The amount
agreed to be paid above the legal interest for the forbearance is
not expressly averred, but the facts are so stated in the plea as
to show the amount with certainty. $500, under cover of the
annuity, were to be paid annually for the forbearance of the
$5,000, making an annual interest of ten percent. Do not these
facts, uncontradicted
Page 29 U. S. 228
as they are, amount to usury? Is it not evident from this
statement of the case that the annuity was created as a means for
paying the interest until the principal should be returned, and as
a disguise to the transaction? Such is the legitimate inference
which arises from the facts stated in the plea.
At this point in the case, an important question is raised
whether Lloyd, the plaintiff in the replevin, being the assignee of
Scholfield, can set up this plea of usury in his defense. It is
strongly contended that he cannot. He purchased this property, it
is alleged, subject to the annuity, and paid for it a
proportionally less consideration. That, knowing of the charge
before he made the purchase, it would be unjust for him now to
evade the payment. And the inquiry is made whether Lloyd could
plead usury in this contract if the annuity had been purchased by
Scholfield. He would be estopped from doing so, it is urged, by the
obligations of his own contract, as he is now estopped from
resisting the claim of Moore.
As to the injustice of the defense, it may be remarked that the
objection would apply with still greater force against Scholfield
if he were to attempt by a similar defense to evade the payment of
the annuity. He received the money after assenting to the contract,
but he is at liberty to evade the payment of the annuity by the
plea of usury. Is the position correctly taken that no person can
avail himself of this plea but a party to the original
contract?
The principle seems to be settled that usurious securities are
not only void as between the original parties, but the illegality
of their inception affects them even in the hands of third persons
who are entire strangers to the transaction. Comyn on Usury 169. A
stranger must "take heed to his assurance, at his peril," and
cannot insist on his ignorance of the contract in support of his
claim to recover upon a security which originated in usury.
In the case of
Lowe v. Waller, Douglass 735, the
plaintiff was the endorser of a bill originally made upon an
usurious contract; though he had received it for a valuable
Page 29 U. S. 229
consideration and was entirely ignorant of its vice, the Court
of King's Bench, after great consideration, determined that the
words of the statute were too strong and that, after what had been
held in a case on the statute against gaming, the plaintiff could
not recover.
If a bill of exchange be drawn in consequence of an usurious
agreement for discounting it, although the drawer to whose order it
was payable was not privy to this agreement, still it is void in
the hands of a
bona fide endorser. 2 Camp. 599. In Holt's
N.P. 256, Lord Ellenborough lays down the law that a
bona
fide holder cannot recover upon a bill founded in usury; so
neither can he recover upon a note where the payee's endorsement
through which he must claim has been made by an usurious agreement.
But if the first endorsement be valid, a subsequent usurious
endorsement will not affect him, because such intermediate
endorsement is not necessary to his title to sue the original
parties to the note.
If a note be usurious in its inception, and it pass into the
hands of a
bona fide holder who has no notice of the
usury, and the drawer give to the holder a bond for the amount of
the note, the bond would not be affected by the usury. 8 Term
390.
In the case of
Jackson v. Henry, reported in 10 Johnson
185, a plea of usury was set up to invalidate the title of a
purchaser at a sale of mortgaged premises. This sale, under the
statute of New York, is equivalent to a foreclosure by a decree in
chancery, and the court decided that the title of the purchaser was
not affected by usury in the debt for which the mortgage was given.
The statute of New York declares all bonds, bills, contracts and
assurances, infected with usury "utterly void." And so says the
court on the adjudged cases when the suit at law is between the
original parties or upon the very instrument infected.
The case of
D'Wolf v. Johnson, reported in
23 U. S. 10 Wheat.
367, is relied on by the counsel for the defendant, as a decision
in point.
In that case, it will be observed that the first mortgage,
Page 29 U. S. 230
being executed in Rhode Island in 1815, was not usurious by the
laws of that state, and the second one, executed in Kentucky, in
1817, being a new contract, was not tainted with usury. The
question, therefore, whether the purchaser of an equity of
redemption can show usury in the mortgage to defeat a foreclosure
was not involved in that case.
The Virginia statute makes void every usurious contract, and the
second plea contains allegations which, uncontradicted, show that
the contract between Moore and Scholfield was usurious in its
origin.
This contract, thus declared to be void, is sought to be
enforced against Lloyd, the purchaser of the property charged with
the annuity. Between Scholfield and Lloyd there is a privity, and
if the contract for the annuity be infected with usury, is it not
void as against Lloyd?
In this contract, a summary remedy is given to enter on the
premises and levy, by distress and sale of the goods and chattels
there found, for the rent in arrear, and if the distress should be
insufficient to satisfy the rent, and it should remain unpaid for
thirty days, Moore is authorized to enter upon the premises and to
expel Scholfield, his heirs and assigns, and hold the estate.
Lloyd, as the assignee of Scholfield, comes within the terms of the
contract, and is liable, being in possession of the premises, to
have his property distrained for the rent, and if it be not paid,
himself expelled from the possession. Under such circumstances, may
he not avail himself of the plea of usury and show that the
contract which so materially affects his rights is invalid? Moore
seeks his remedy under this contract, and if it be usurious and
consequently void, can it be enforced?
If usury may be shown in the inception of a bill to defeat a
recovery by an endorsee who paid for it a valuable consideration
without notice of the usury, may not the same defense be set up
where, in a case like the present, the party to the usurious
contract claims, by virtue of its provisions, a summary mode of
redress?
The Court entertains no doubt on this subject. It thinks a case
of usury is made out by the facts stated in the second plea, and
that Lloyd may avail himself of such a defense.
Page 29 U. S. 231
The judgment of the circuit court must be reversed, and the
cause remanded with instructions to overrule the demurrers to the
second and fourth pleas and permit the defendant to plead.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Columbia holden in and for the County of Alexandria and was argued
by counsel, on consideration whereof it is ordered and adjudged by
this Court that the judgment of the said circuit court in this
cause be and the same is hereby reversed, and that this cause be
and the same is hereby remanded to the said circuit court with
instructions to overrule the demurrers to the second and forth
pleas and to permit the defendant to plead and for such further
proceedings as to law and justice may appertain.
