Case ID: ad_15/html/0077-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Goodrich, P. J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Joseph McConkey, Appellant, v. Victor Petterson and Elida Petterson, Respondents.
    
      A contract, originally usurious, may be purged of usury.
    
    Although a note is usurious in its inception, yet if, in fixing the amount of a renewal note, the lender credits upon the principal of the original loan the usurious interest, and merely adds lawful interest on the balance from the date of the original loan, the contract is purged of usury and the renewal note is enforcible.
    Appeal by the plaintiff, Joseph McOonkey, from a judgment of the Supreme Court in favor of the defendants, entered in the office of the clerk of the county of New York on the 12th day of October, 1896, upon the verdict of a jury rendered by direction of the court in an action on a promissory note.
    This appeal was transferred from the first department to the second department.
    
      John J. Crawford, for the appellant.
    
      Charles Clurk, for the respondents.
   Goodrich, P. J.:

In July, 1893, the parties to this action entered into a self-styled indenture,, whereby, under their hands and seals, they solemnly covenanted and agreed that the plaintiff should loan the defendant Victor Petterson $340 for the space of sixty days, and that Victor, for the use thereof, should pay the plaintiff “ an interest bonus ” of $20. Rot satisfied with this extraordinary personal contract, they agreed that it should bind the heirs, executors, administrators and assigns of the respective parties.

The plaintiff loaned the $340, and the defendant gave his note for the amount, and subsequently paid $20 interest. The note, not being paid at maturity, was renewed from time to time until July, 1896, when the note in suit was given. '

The judicial faculty is not severely strained in discovering legal objections to the validity of this contract.

At the trial, however, it was shown that the original note was renewed from time to time until the note in suit was executed, at which time the plaintiff, by agreement with the defendant, prepared the last note, the amount of which was determined by crediting on the principal of the original loan the $20 usurious interest and adding lawful interest on the balance from the date of the original loan.

Under these circumstances, the original loan is purged of the usury with which it was tainted. The case of Sheldon v. Haxtum (91 N. Y. 124) is clear authority on this point. The court (Earl, J.) said : “ If this note for $1,000 had been given in this State, even with the lawful rate of interest mentioned therein, in renewal of or in substitution for, the prior usurious note, it would also have been tainted with usury and void. A substituted or renewal note thus given is held void for one or both of these reasons : The new note, in such a case, is given in renewal or continuance of the usurious contract, and is, therefore, void for the same reason that condemns that contract; or it is a new security for a usurious debt or contract, and void on that account. In either case the new note is void, because it comes under the condemnation of the policy and the letter of our usury laws. But a usurious contract can be purged of the taint of usury, and money loaned upon a usurious contract can furnish a valid consideration for a promise to pay the money actually loaned. If the usurious contract be mutually abandoned by the parties, and the securities be canceled or destroyed, so that they can never be made the foundation of an action, and the borrower subsequently makes a contract to pay the amount actually received by him, this last contract will not be tainted by the original usury and can be enforced.”

To the same effect is the language of the court in Hammond v. Hopping (13 Wend. 505): “If it (the usurious contract) is mutually abandoned, and the securities are canceled or destroyed .so that they can never be made the foundation of an action, and the borrower subsequently promises to pay the amount actually received by him, such promise is legal and binding. It is founded upon an equitable and moral obligation which is sufficient to support an express promise. The money actually lent, when legally separated from the usurious premium, is a debt in equity and conscience and ought to be paid.”

The judgment must be reversed and new trial granted, costs to abide event.

All concurred.

Judgment reversed and new trial granted, costs to abide the event.