Case Name: Gerlaugh vs. Bassett and others
Court: Wisconsin Supreme Court
Jurisdiction: Wisconsin
Decision Date: 1866-06
Citations: 20 Wis. 671
Docket Number: 
Parties: Gerlaugh vs. Bassett and others.
Judges: 
Reporter: Wisconsin Reports
Volume: 20
Pages: 671–680

Head Matter:
Gerlaugh vs. Bassett and others.
Usury — Purging usurious contract.
1. where a note which, under ch. 55, Laws of 1856, was valid to secure the principal sum loaned, was cancelled in 1859, after the payment of usurious interest thereon, and a new note substituted for such principal sum, bearing lawful interest, the second note was not tainted with tho usury, but was valid notwithstanding ch. 160, Laws of 1859.
2. Bock Co. Bank o. Wooliscroft, 16 Wis., 22, explained and distinguished.
APPEAL from the Circuit Court for Juneau County.
The plaintiff declared on a note executed by defendants, Bassett, Bnglish, John W. Powell and Nathaniel J. Powell, November 15, 1859, payable one year from date with interest at twelve per cent., it being alleged that there was due and unpaid thereon the principal sum with interest from January 5th, 1863. The defense was usury, and the answer avers that on or about the 15th of November, 1858, the plaintiff lent to Bas-sett three thousand dollars for one year, and Bassett promised him orally to pay interest thereon at the rate of fifteen per cent., and gave him a note, executed by Bassett as principal and the other defendants as sureties, for $3,000 with interest at twelve per cent, payable in one year, the plaintiff taking Bassetís oral promise for the additional interest of three per cent. ; that about the time said note became due, Bassett applied to the plaintiff for further time, and was informed by the plaintiff that if he would pay the interest named on the face of said note, and also the additional three per cent, as agreed, plaintiff would give further time of payment for one year from the maturity of said note ; that Bassett agreed to this proposition, and in pursuance of such agreement paid the plaintiff $450, and gave him the note of November 15, 1859, described in the complaint, and the old note was then “ surrendered and can-celled and absolutely dischargedthat the note so surrendered, and the oral agreement between Bassett and the plaintiff for the payment of usurious interest, were the only consideration for tbe note described in tbe complaint Tbe answer therefore demands that said note, and that of 1858, and tbe original contract of loan, be declared void; or otherwise, that tbe $90 of usurious interest, and tbe $360 of interest, paid as aforesaid, be set off against tbe principal of said loan. Tbe plaintiff replied, alleging, in substance, that tbe payment of $450 was made prior to the maturity of tbe note of November 15, 1858, prior to tbe execution of .the note of 1859, mentioned in tbe complaint, and prior to any agreement in regard thereto; and that after-wards, to wit, on or about November 15, 1859, tbe plaintiff applied to Bassett to have the note of 1858 given up, and anew note given for tbe real sum then due, to wit, tbe money originally loaned, which should bear a lawful rate of interest, and run one year; that tbe plaintiff did this “ for tbe purpose of putting an end to tbe original usurious contractand that thereupon, solely in consideration of tbe money so loaned, tbe note mentioned in tbe complaint was executed.
Tbe plaintiff afterwards filed an amended complaint, in which for a second cause of action, be declared on tbe note of November 15, 1858. Eor a third cause of action, he alleged that on tbe 15th of November, 1859, at &c., tbe defendants “were indebted to him in tbe sum of $3,000 lawful money of the United States, for so much money by tbe said plaintiff to tbe defendant Patiek A. Bassett before then lent and advanced, upon tbe special request” &c.
Tbe defendants answered alleging tbe following facts : That about tbe first of December, 1857, the plaintiff agreed to loan to Bassett $475 for six months, upon condition that Bassett should give him bis note with one or more sureties for $500, at six months, with interest at twelve per cent.; that Bassett thereupon executed to plaintiff such anote, with tbe defendants English and John W. Powell as sureties, and received said sum of $475 ; that about May 1, 1858 (when said note matured), Bas-sett paid the plaintiff on said loan $300 ; that plaintiff let tbe note run as to tbe remainder until November 15, 1858, when tbe whole amount unpaid on said note, including interest as aforesaid, was reckoned up and amounted to about $229, and this amount, together with money sufficient to make the amount of $3000, “ was loaned by the plaintiff to the defendant Bas-sett,” for which the note of November 15, 1858, above described, was executed. Then follow allegations as to said note and that of 1859, similar to those of the first answer as above stated. It is then further alleged that the defendant Nathaniel J. Powell did not sign and was not surety or in any way interested in the $500 note, or the consideration moving therefor, and had no notice of the same until long after the giving of the last $3000 note; that he had no notice, did not know and was not informed at the time of the giving of said $3,000 notes, that any of the alleged usurious agreements had been made between the plaintiff and Bassett, nor that any part of the consideration of either of the notes signed by him was for the prior indebtedness of said Bxssett or either of the other defendants ; that at the time he signed the first $3000 note, he supposed and believed that the plaintiff loaned the sum of $3000 to Bassett for the rate of interest specified in the note, and had he known the facts would not have signed the note. The answer further insists that the other sureties also were discharged from liability by reason of the usurious agreements between the plaintiff and Bassett, which are claimed to have been a fraud upon them.
There was a reply, which denied any usury in the $500 note, and also denied that any part of the consideration of the first $3,000 note was for usury and for interest, but alleged that $200 of the same was principal due on the $500 previously loaned, and the remainder money newly advanced at the making of said first $3000 note.
On the trial there was voluminous evidence as to the issues thus raised, which will not be stated here. The court instructed the jury as follows:
“ 1. The burden of proof of usury in the note sued upon, is witb the defendants, and to establish that fact requires a preponderance of evidence. 2. If the note of November, 1859, was given wholly for the principal sum loaned, it is not usurious on account of any usury there might have been in the note of 1858, provided such usury was paid and agreed to be paid solely and entirely for the forbearance of the loan of 1858, and was not made a condition of or an inducement to the giving of the note sued upon. 3. If said last note is not usurious, the plaintiff is entitled to recover the full amount of the sum expressed therein, together with interest thereon at twelve per cent, per annum, less such sums as may have been paid by defendants, or either of them, as usury, [with interest] on such usurious payments. 4th. In computing the amount to be set off by the defendants against the claim of the plaintiff, you can only allow so much of the interest paid as was usuri ous, and interest on such usurious excess of interest from the time it was paid down to the present time. Payments of interest up to the legal rate, paid and received by the parties as interest, cannot be recovered back or applied in payment of the principal. 5th. If the note sued upon is void, because of usury, then the plaintiff Will be entitled to recover of the defendants the principal sum loaned, expressed in the note of November 15, 1858, less such sums as have been paid thereon as interest over and above the legal rate of 12 per cent, and interest on such excess. 6th. If there was usury in the note for $500, in this, that but $475 was in fact loaned, or in the first $3000 note, and if the amount of such usury had not been deducted from the principal but entered into and formed a part of the last note, then the last note is usurious, and the plaintiff cannot recover thereon. 7th. The fact that the sureties were not aware of the usurious agreement between Bassett and plaintiff, will not discharge them from the notes they did sign; neither will the fact that an antecedent debt entered into and formed a part of the consideration of the first $3000 note without the knowledge of the sureties, discharge them from liabil ity on the note. 8th. When usury enters into the consideration of a contract in its inception, no renewal of it would have the effect to remove the taint, so long as it can be traced into the substituted security.”
Verdict for the plaintiff for $3000 ; motion for a new trial overruled; and judgment on the verdict; from which the defendants appealed.
Prentiss & Taylor (with whom was S. U. Pinney, of counsel,) for appellants,
argued that the jury must have found that both notes were usurious, as the recovery was only for the principal sum loaned, under sec. 1, ch. 55, Laws of 1856. Had the verdict been on the second $3000 note, it would have been for over $4000. 2. The fact that usurious interest was agreed to be paid upon the first $3000 note, and the fact that it included a pre-existing debt for about $200, were both withheld from the sureties, not only by Bassett but by the plaintiff. The plaintiff's offering to receive and actually receiving the note for $3000, drawing interest at the highest rate allowed by law, must be held to be a direct assertion to the sureties that he was advancing $3000 to Bassett. By reason of the fraud thus practised upon them, the sueties never became liable on that note. It is like the case of procuring sureties to sign an obligation, and the party receiving it with the understanding that a considerable portion of the amount therein expressed shall never come to the hands of the borrower. 1 Story’s Eq. Jur., 334; King v. Baldwin, 2 Johns. CL, 524; 17 Johns, 384; Nisbet v. Smith, 2 Bro. Ch., 579 ; Pidcock v. Bishop, 3 Barn. & Cr., 605; Jackson v. Buchaire,S Term, 550; Theobald on Principal and Surety, 99 ; Chitty on Bills, § 86 ; Franklin Bank v. Gooper, 36 Maine, 179 ; Hamilton v. Watson, 12 Clark & Finn., 109; Smith v. Bank of Scotland, 1 Dow, 292. 2. The transaction in 1859, in which the second note was given, released the sureties from all obligation on the note of 1858. It is no answer to say that the note of 1859 was void for usury. It was void only as to the defendants, and valid against the plaintiff. Riley v. Gregg, 16 Wis., 666 ; La Fargev. Herler, 5 Seld., 241; Draper v. Trescott, 29 Barb., 401; Sands v. Church, 2 Seld., 347 ; Dix v. Van Wyclc, 2 Hill, 522; Wheaton v. Hibbard, 20 Jobas., 293; 1 Story’s Eq. Jur., § 302 ; Schroeppel v. Corning, 5 Denio, 236, 241. After receiving it, and before any of its signers bad repudiated it, the plaintiff could not have maintained an action on the old note against Bassett. His legal remedies were suspended, and though as to Bassett they may revive when the makers avoid the new note for usury, yet by such temporary suspension the sureties are discharged. Kenningham v. Bedford, 1 B. Mon., 325; Austin v. Dorwin, 21 Vt., 38; Tur-rillv. Boynton, 23 id., 142; Miller v. Me Can, 7 Paige, 451; Wheat v. Kendall, 6 N. H.,504; Miller v. Kerr, 1 Bailey (S. C.), 4; King v. Baldwin, supra. 3. It being clear that the jury found for the plaintiff under the law of 1856, even conceding that a recovery could be had against the sureties, the verdict should have been set aside for their failure to deduct the $90 admitted to have been paid as usury, with interest thereon to the time of trial.
C. C. Remington, for respondent:
“ Where all the usurious interest payable on a contract has been paid, a new note given for the balance, consisting only of the principal and legal interest, is valid.” 2 Parsons on B. & N., 420; Postlethwait v. Garrett, 3 Mon., 345; Fowler v. Garret, 3 J. J. Marsh., 681. In Ciarle v. Phelps, 6 Met, 296, under a statute forfeiting three times the interest taken in case of usury, it was held that a note given for the original sum loaned, in renewal of a note on which usury had been taken, was not usurious nor liable to the deduction. Se also Craig v. Butler, 9 Mich., 21; Smith v. Stoddard, 10 id., 149; Dunbar v. Wood, 6 Vt., 653. 2. If the note of 1859 was void for usury, there was an obligation existing against all the ajspellants on the note of 1858. This could not be discharged by giving a void note. Ramsdell v. Soule, 12 Pick., 126; Meshlce v. Van Dorm, 16 Wis., 319 ; Lee v. Pedcham, 17 id., 383. 3. To the point tbat tbe sureties were not discharged by the facts tbat the note of 1858 was in part for a pre-existing debt, and tbat it was usurious (tbe signatures of tbe sureties having been obtained by tbe borrower in tbe absence of tbe lender), counsel cited North British Ins. Go. v. Lloyd, 10 Excheq., 528; Pidcoch v. Bibiiop, 8 Barn. & Cress., 605 ; Niohmond v. Standdift, 14 Yt., 258; Graves v. Packer, 10 Sm. & M., 9.

Opinion:
Cole, J.
It appears to us tbat tbe jury must have found, under tbe charge of tbe court, tbat tbe note of November 15th, 1859, was not usurious. This is tbe most rational and satisfactory construction to be given to tbe verdict, and tbe only one which will sustain it to tbe full extent. Eor if tbe jury bad been satisfied from tbe evidence tbat tbe note of November 15th, 1859, was usurious, then it was admitted in tbe plaintiff's pleadings tbat there must be a deduction from tbe principal sum loaned, of at least $90. And tbe court instructed tbe jury tbat if they believed from tbe evidence tbat tbe note of November, 1859, was usurious, then tbe plaintiff could only recover tbe principal sum loaned as expressed in tbe note of November, 1858, less such sums as bad been paid thereon as interest over and above tbe rate tbe parties were permitted by law-to contract for, together with interest on such excess. Tbe recovery was for $3000 — -too large an amount unless tbe jury arrived at tbe result tbat tbe note of November, 1859, was not affected with usury. In respect to this note, tbe court told tbe jury tbat if they found tbat it was given wholly for tbe principal sum loaned, then it was not usurious on account of any usury there might have been in tbe note of November, 1858, providing such usury was paid and agreed to be paid solely and entirely for tbe forbearance of tbe loan of 1858, and was not made a condition of or an inducement to tbe giving of tbe note sued upon. Further, tbat if they found there was usury in tbe note for $500 (in this, tbat in fact only $475 was ad vanced upon it), or in tbe first $8000 note, and tbat tbe amount of sucb usury bad not been deducted from tbe-principal, -but entered into and formed a part of tbe last note, tben tbe last note was usurious, and no recovery could be bad upon it. And again tbe jury were instructed tbat when usury enters into tbe consideration of a contract in its inception, no renewal of it would bave tbe effect to remove tbe taint, so long as it could be traced into tbe substituted security.
It was. claimed by tbe defendants, and evidence was introduced tending to establish tbe defense, tbat tbe several contracts or loans mentioned in tbe pleadings were usurious, and tbat tbe note of November 15tb, 1859, was void for tbat reason. Tbe plaintiff, on tbe contrary, while admitting tbat tbe note of 1858 was usurious, alleged tbat this note was surrendered up and a new note given for tbe real sum tben due, namely, tbe money originally loaned, and tbat this was done for tbe purpose of putting an end to tbe original usurious contract. Tbat it was perfectly competent for tbe parties to tbe transaction to reform tbe contract, expunging from it all usurious taint, and arrange a new contract concerning tbe sum loaned, which should be legal and binding, is a proposition well settled by tbe authorities. Barnes v. Hedly, 2 Taunt., 184; Wright v. Wheeler, 1 Campb., 165, note; De Wolf v. Johnson, 10 Wheat, 367; Hammond v. Hopping, 13 Wend., 505; Miller v. Hull, 4 Denio, 104. Tbe note of November 15th, 1858, was not wholly void, but by chap. 55, Laws of 1856, was " valid and effectual to secure tbe repayment of tbe principal sum loaned and if tbat note was given up and cancelled in order to get rid of tbe usury, and tbe note of November 15th, 1859, was given for tbe original debt, it is legal and binding. See tbe cases of Dunbar v. Wood, 6 Vt., 653; Postlethwait v. Garrett, 3 Monroe, 345; Fowler v. Garret, 3 J. J. Marsh., 681; Craig v. Butler, 9 Mich., 21; Smith v. Stoddard, 10 id., 148; Clark v. Phelps, 6 Met., 296; which abundantly sustain this doctrine. It was suggested tbat tbe case of Rock County Bank v. Wooliscroft, 16 Wis., 22, was in conflict witb tbis view of tbe law; but tbis is a misapprehension of tbe facts of that case. In Rock Co. Bank v. Wooliscroft, wbicb was tried by tbe court, a j nry being waived, tbe judge found as a matter of fact, that tbe usury wbicb bad entered into tbe previous contract of August 6tb, 1857, was carried forward and introduced into tbe note sued upon; and as tbe bill of exceptions did not purport to contain all tbe evidence offered on tbe trial, we adopted this finding as conclusive upon tbe facts. And if usury entered into tbe note of March 21st, 1860, tbe contract sued upon, there can be no question but it was void. So tbis case, when fully understood, it will be seen, does not decide that where parties to an- usurious contract exclude tbe usury, and make a new contract for tbe payment of tbe sum actually loaned, such latter agreement is not binding because not founded upon a legal consideration. There was evidence in tbe case at bar from wbicb-the jury might have found that tbe usurious contract bad been reformed by tbe parties cancelling tbe usurious note of 1858, and by giving tbe note of November 15, 1859, for tbe principal sum loaned, excluding all usury. And considering tbe various instructions of tbe court upon tbe point, and tbe amount of tbe verdict rendered, we think it must be assumed that tbe jury took tbis view of tbe evidence. Had tbe jury believed that tbe extension of tbe time of payment, or tbe giving of tbe second note, was upon tbe condition that tbe usury contracted for by tbe previous note should be paid, they must have rendered a different verdict. Tbe instructions of tbe court are clear and specific upon tbe point that such a condition would render tbe contract sued upon usurious and void.
It is said, if tbe jury really believed that tbe note of November 15th, 1859, was not usurious, they should have given a verdict for a much larger sum than $3000. It is very probable that the jury gave too small a verdict, but this is an error of which tbe defendants cannot complain.
It results from these views that tbe judgment of the circuit court must be affirmed.
By the Court. — The judgment is affirmed.