Case Name: James Chadbourn versus Samuel Watts
Court: Massachusetts Supreme Judicial Court
Jurisdiction: Massachusetts
Decision Date: 1813-05
Citations: 9 Tyng 121
Docket Number: 
Parties: * James Chadbourn versus Samuel Watts
Judges: 
Reporter: Massachusetts Reports
Volume: 10
Pages: 128–132

Head Matter:
* James Chadbourn versus Samuel Watts
A, being justly indebted to B, gave his promissory note for the sum due, agreeing to pay interest thereon at the rate of twelve per cent, per annum. After sundry payments of interest at the rate agreed, and of part of the principal, a new note was given for the balance of the principal due, on which lawful interest only was reserved or taken. This note, being in part paid, was also cancelled, and a third note given for the balance. This last note being endorsed, in an action by the endorsee against the promisor, it was holden not to be tainted with the usurious interest paid on the first note, and the endorsee had judgment.
Case by the endorsee against the maker of a promissory note for 500 dollars, dated February 26, 1810, payable on demand to one Seivall Lancaster or his order, and by him endorsed to the plaintiff.
In a statement of facts, upon which the parties submitted the action to the decision of the Court, it was admitted that the note was endorsed to the plaintiff for a valuable consideration, and that he, at the time of the endorsement, was. ignorant of the circumstances under which the note w'as given. These circumstances were as follows : —On the 17th of April, 1806, the defendant, being indebted to said Lancaster and one T. Robie, then copartners in trade, in the sum of 874 dollars 15 cents, made his promissory note to them for that sum, payable on demand with interest, and agreed with them to pay them interest thereon at the rate of twelve peí cent, per annum. After having made sundry payments on said note, the defendant called on Lancaster, (the said copartnership having been previously dissolved, and the books and papers of the company being in the possession of Lancaster,) for the purpose of a settlement on the 7th of October, 1807, when the defendant and Lancaster calculated the interest on the note at the rate of twelve per cent, per annum, and added it to the principal sum. They then added 124 dollars 32 cents, due from the defendant to Lan caster on another -account, and cast the interest on this sum at the same rate, being 5 dollars 38 cents, the whole amounting to 1158 dollars 26 cents. They then added the payments endorsed on the note, and cast the interest on them at the same rate, and also added another sum of 31 dollars 98 cents then paid, amounting in the whole -to 283 dollars 24 cents, leaving a balance of 875 dollars 2 cents due on the adjustment thus made. For this sum the defendant gave his promissory note to Lancaster, and cancelled the former note. The defendant continued to make payments at various times upon the note last given ; and on the said * 26th of February, 1810, the parties thereto again met, [ * 122 J and, casting the interest thereon at the rate of six per cent., and deducting sundry payments which had been endorsed thereon, the sum then appearing due was 500 dollars, for which the defendant gave the note declared on in this action.
Upon those facts, it was agreed that, if the Court should be of opinion that the plaintiff was by law entitled to maintain his action, the defendant should be defaulted, and judgment rendered against him, fc'r the sum of 467 dollars 45 cents damage, with costs; otherwise, that the plaintiff should become nonsuit, and the defendant have judgment for his costs.
The cause was argued at the last May term in this county, by Todd for the plaintiff, and by Mellen and Adams for the defendant.
Todd cited the cases of Ellis vs. Warnes, Outhbert &f Al. vs. Haley, and Turner vs. Hulme.
For the defendant,
it was argued that this note, as being given for a usurious consideration, was void, even in the hands of an innocent endorsee; and they cited and relied on the case of Lowe 8f Al. vs. Waller.
The cause standing over for advisement, the opinion of the Court was delivered at this term by
Moor, 752.— Cro. Fliz. 38, S. C.
8 D. & E. 390.
4 Esp Rep. 11
Doug. 736. — See also Ord on Usury, 103. — 3 D. fy E. 537, Tale vs. If el lings. — 1 Campbell’s N. P. 157, 165.

Opinion:
Sewall, J.
Against a promissory note sued by an endorsee, the maker and promisor defends himself by an attempt to prove it a usurious contract; and the defence is urged by his counsel, upon the authority of the case of Lowe & Al. vs. Waller, to be sufficiently maintained by the facts admitted in the case at bar.
In the case cited, the defendant, the accepter of a bill of exchange, defended himself upon proof of a usurious contract, in which the bill originated, and the defence prevailed against the second endorsees, who had paid a valuable consideration for the bill, and received it without any notice of the usury. Other cases and decisions were cited in the argument, in which the principles of that decision have been invariably recognized.
*Let us examine the ground of the decision; for.as an
objection of an unlawful consideration, which defeats a negotiable security in the hands of an innocent party, and for the benefit of a party to the illegal contract, the defence is almost singular in its nature and operation. And it will be perceived that it is the result of a positive rule, a provision of the statute of usury, that a contract to secure the payment of usury is not voidable only, but absolutely and from the beginning void, and therefore to be treated as if it never had any existence. The policy of this rule, in its operation upon other rules, such as the principles which have been adopted to secure the currency of negotiable notes, is not to be inquired into, when a case is found to be within the rule, the construction of which has been ascertained by a series of decisions.
Lord Mansfield was governed, in the case of Lowe vs. Waller, by the authority of previous decisions upon the statute of gaming; in which the same words, employed by the legislature, had received the same construction, when the plea or defence was resorted to against a gaming contract, although negotiable in its form, and demanded by an innocent endorsee. But it will be perceived, in all the decisions cited, that the defence prevailed, where the security or contract containing the usurious interest was to be enforced; where, if the defence was not admitted, the party sued would be compelled to pay usurious interest by the form and tenor of the written promise, either as containing an amount of usury added to the sum loaned, or discounted from the note in giving it, or in some other mode of evasion, attempted against the provisions of the statute of usury. And the analogy stated between the statutes of usury and the statutes of gaming, as affording a rule of construction in this respect, expresses very definitely this restricted ground of the decisions. The law will not enforce a contract in itself unlawful, where the performance insisted on is unlawful, whoever may become the party in point of form, capable of enforcing the contract and however innocent he may be.
* Is the case at bar within this rule thus explained ? [ * 124 ] Watts gave the note in question in discharge of a balance, amounting to 500 dollars, remaining due to Lancaster, upon a note formerly given to him. That note was given for 875 dollars; but neither of these notes secured or included any payment of unlawful interest; at least, there is no pretence that the note now in suit includes any. For, if any unlawful interest was included in the former - note, that amount had been paid and received, and was wholly deducted, when this note was given.
For receiving unlawful interest the law punishes the party charge able with it by a penalty specially provided in that case; and, as a further provision against usury, no obligation, in any form containing a contract which secures the payment of usurious interest, is recoverable, or can be enforced.
But the two cases are not to be confounded. A contract which secures unlawful interest does not expose the party who considers himself entitled by it, if the usury is never received; and, on the other hand, an obligation, made to secure a lawful contract, containing no promise, agreement, discount, or subterfuge for usury, a1 though usury may have been received upon it, is not thereby defeated.
The ground of decision in the case at bar may be illustrated by supposing the note of 875 dollars to have been the note endorsed, and to have contained a remnant of usury, from the usurious additions made to the sum borrowed upon the note preceding that. If the present plaintiff had demanded payment after the endorsement to him, and the defendant had thereupon paid 375 dollars, and given his note to the plaintiff for the balance, could he, when that note was sued, object the usury lurking in the note taken up and discharged ? It is clear that he could not. The case of Cuthbert vs. Haley, cited at the bar, is like the case supposed, and the decision is in point. There the defence of usury, in bills of exchange discounted for usurious interest, against a bond given to ,
an innocent endorsee for the amount due *upon the [*125] bills, was rejected as inadmissible. Indeed, that case is stronger than the case supposed; for the bond included the usury, although innocently taken by the obligee. And the case at bar, if it differs from the case cited and supposed in any material circumstance, is still further removed from the taint of usury, considered as a demand between an innocent endorsee and the maker. The defendant is to be called,
Defendant defaulted.
ADDITIONAL NOTE.
[It is held in Maine, that when an original contract is usurious, any subsequent one, made to carry it into effect and obtain its fruits, is also usurious. — Lowell vs Johnson, 2 Shepl. 240. — (Dyer vs. Lincoln, 11 Verm. 300. — Marchant vs. Dodgin, 2 M. & S. 633.)
But see Edgell vs. Stanford, 6 Verm. 551. — Dunbar vs. Wood, 6 Verm. 653.— M' Clure vs. Williams, 7 Verm 210.— The Fulton, &c., vs. Benedict, 1 Hall, 480.
See Andrews vs. Pond, 13 Pet. 65. — Tilford vs. Sumner, 2 Yerg. 255.
If the payee or indorsee of a valid note surrender it to the maker, as in part the consideration of a new one, which is afterwards avoided for usury ; he may recovei from the maker the amount of the first note. — Ramsdell vs Soule, 12 Pick. 126
F H.]
[Vide Thomson vs. Woodbridge, 8 Mass. Rep. 256.— Sed vide Bridge vs. Hubbard, 15 Mass. Reps 95. — The principle established by the best authorities is, thzv where parties, who have contracted and acted upon a usurious engagement, state an account and agree upon the sum which would be due for principal and legal interest, after deducting all that has been paid beyond legal interest, and a fresh promise ia made to pay that sum, such promise is free from the original usury, and is perfectly valid in law. — Barnes vs. Hedley, 2 Taunt. 184. — Wright vs. Wheeler, 1 Camp. 165, n. — Gray vs. Fowler, 1 H. Bl. 462. — But a security given in lieu of a former security, which was tainted with usury, is void, unless in the second security a deduction is made of all sums paid usuriously under the former security.— Wicks vs. Goguly, 2 Car. & Paine, 397. — 1 Ry. Moo. 123. — Reston vs. Jackson, 2 Stark. 237. — Pickering vs. Banks, Forrest, 72. — Sound, on Pl. and Ev. 898. — It is not easy to reconcile the decision in the text with the principle above stated. — Ed.]