Case ID: mass_47/html/0296-01.html
Source: Caselaw Access Project
Author: {"author": "Dewey, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Samuel Clark vs. George H. Phelps and others.
    Where, upon the payment of usurious interest on a note given for money lent, tne note is cancelled, and a new one taken for the principal, without any agreement con cerning future interest, the maker, when sued upon the second note, is not entitled, under the Rev. Sts. c. 35, § 2, to any deduction on account of the usurious interest formerly paid
    Assumpsit by the payee against four makers of a joint and several promissory note. The case was submitted to the court on a statement of facts, as follows: “ In the spring of 1838, George H. Phelps and Matthew D. Field, copartners, negotiated a loan for $2500 with the plaintiff, and then gave him a note, signed by them and the two other defendants, for that sum, payable in one year, with interest. Phelps & Field, at that time, received from the plaintiff, as the consideration of said note, $ 1867-75, in cash, and the plaintiff’s note to them for $632-25. It was verbally agreed between the plaintiff and the said Phelps & Field, when said loan was made, that Phelps & Field should pay the plaintiff interest, at the rate of eight per cent, per annum, upon the said sum of $2500. At the expiration of the year, the promisors and the plaintiff met; interest on the said note of $ 2500 was computed at eight per cent.; and the amount thus ascertained, being $200, was paid by the said Phelps & Field to the plaintiff, and a new note was given for the sum of $2500, being the amount of the original loan. This payment was made in pursuance of said verbal agreement; and this last note is the subject of the present suit.
    “ The defendants have filed a specification of the grounds of their defence, one of which is usury.
    
      “Upon these facts such judgment is to be entered as the court shall direct.”
    
      Porter, for the plaintiff.
    In Butterfield v. Kidder, 8 Pick. 512, it was held, under St. 1783, c. 55, that a verbal agreement to pay usurious interest did not vitiate a note given for money lent; and this case was recognized in Dunscomb v. Bunker, 2 Met. 11. Under the same statute, it was also decided, that where usurious interest was not reserved when the loan was made, a note given for the money was not rendered void by a subsequent taking of usurious interest. Gardner v. Flagg, and Thompson v. Woodbridge, 8 Mass. 101, 256. And a new note, given for the original debt, was not tainted with usurious interest paid on the note first given, though such interest was paid in pursuance of an agreement made at the time of the loan. Chadbourn v. Watts, 10 Mass. 121. See also Little v. Rogers, 1 Met. 108. Barnes v. Hedley, 2 Taunt. 184. Pollard v. Scholy, Cro. Eliz. 20. Chit. Con. (5th Amer. ed.) 705.
    How then is the case at bar affected by the Rev. Sts. c. 35 ? By <§> 2, a contract for the payment of money with more than 6 per cent, interest is not rendered void; but “ in any action brought on such contract, the plaintiff shall forfeit threefold the amount of the whole interest reserved or taken.” The present suit is upon a contract (note) on which usurious interest has neither been reserved nor taken. No forfeiture has been incurred, and no deduction is to be made from the amount of the note
    
      Wells, for the defendants.
    Under St. 1783, c. 55, the note in suit would have been infected with usury, and void; usurious interest having béen “ taken,” if not “ reserved.” 1 Met. 399. Chit. Con. (5th Amer. ed.) 706, 709. Bridge v. Hubbard, 15 Mass. 96. Hammond v. Hopping, 13 Wend. 509, & seq. Roberts v. Trenayne, Cro. Jac. 507. Glisson v. Newton, 1 Hayw. 336. Warren v. Crabtree, 1 Greenl. 167. Tuthill v. Davis, 20 Johns. 285. Preston v. Jackson, 2 Stark. R. 237. Ord on Usury, 84 — 86. And the same construction should be given to the words “ reserved, taken or received,” in Rev. Sts. c. 35, § 2. The rule, that no guise or shift shall enable a man to take more than the legal interest on a loan, (2 Doug. 740; 3 Met. 211, 2 Pet. 537; 7 Barn. & Cres. 458;) is as applicable to'the Rev. Sts. as to St. 1783.
   Dewey, J.

The case of Butterfield v. Kidder, 8 Pick. 512, is a direct authority to the position, that under St. 1783, c. 55, if a borrower of money gave his promissory note for its repayment, with lawful interest, a verbal agreement, made at the time of giving such note, to pay usurious interest thereon, did not vitiate such note. If usurious interest was not paid under such verbal stipulation, it had no effect; if paid, it subjected the receiver to the penalty or liabilities provided in other cases of the receipt of usurious interest. I am aware that this decision is at variance with the rule adopted in some of our lister States.

Tn the earlier cases of Gardner v. Flagg, and Thompson v. Woodbridge, 8 Mass. 101, 256, it was held that the subsequent receipt of usurious interest upon a contract, where such interest was not originally stipulated for, would not render such contract void, but subjected the party receiving such usurious interest to the penalty provided by the statute. See also Chadbourn v. Watts, 10 Mass. 121, where, in the case of a new note given for the balance of a debt on which usurious interest had been paid, it was held not to be tainted with usury. These cases, however, arose on the former statute regulating interest and the taking of usury; and hence it becomes necessary to consider the question as presented under the Rev. Sts. c. 35. This latter statute has, in some points, very materially changed the law as to the effect of usurious interest being taken or reserved upon contracts. Such contracts are no longer void absolutely, but, for the protection of the borrower, it is provided that in case of an action being brought upon such contract, the debtor shall be entitled to have a deduction therefrom of threefold the amount of the whole interest, and a judgment for his costs ; or, in case of the payment of the note or contract, he may, by an action of debt or bill in equity, recover back threefold the amount of the interest paid.

The note first given by the present defendants, for the loan, did not include any usurious interest. If that note was tainted with usury, it was by the receipt of usurious interest subsequently; and the subsequent payment of eight per cent, for the annual interest, would, if that note had been sued, have presented the question raised upon the construction of Rev. Sts. c. 35, <§> 2; and whether the words, where “ a greater rate of interest has been directly or indirectly reserved, taken or received,” would not embrace the case of subsequent payments of usurious interest, where the same was not actually reserved in the contract, or originally stipulated for; although, under the former statute, such payment of usurious interest would not have vitiated the note. But if the construction of the revised statutes be as the defendants contend, the first note was cancelled. The defendants gave a new note for the original sum borrowed, and in this new note no usury was included, nor has any been paid thereon. The payment of eight per cent, for the loan of 2500, for the first year, was usurious, and the defendants might have availed themselves of the statute provision to obtain proper redress by action of debt, or bill in equity. But the case presented furnishes no ground to claim a deduction for usurious interest taken or reserved on the present note.