Case Name: John Baggs v. David Loudenback
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1843-12
Citations: 12 Ohio 153
Docket Number: 
Parties: *John Baggs v. David Loudenback.
Judges: 
Reporter: Cases decided in the supreme court of ohio : upon the circuit at the special sessions in Columbus
Volume: 12
Pages: 153–159

Head Matter:
*John Baggs v. David Loudenback.
In an action upon a renewed note, into which illegal interest has been incorporated, the consideration may be inquired into, and the illegal interest deducted.
In every case the consideration may be inquired into for the purpose of detecting illegal interest, and disallowing it, unless there has been a voluntary and full liquidation and payment of interest between the parties.
This is a Writ of Error to the court of Common Pleas of Champaign county.
The action below was. assumpsit on a note of hand, dated the 34th of January, 3841, for $89, made by Baggs, payable to Loudenback, or order, one day after date. The defendant below plead non assumpsit, and gave notice that he would offer in evidence the following facts :
“ That on or about the 12th day of March, 1836, this defendant gave to one David Markley his note for $104, payable nine months after date ; which note was afterwards sold by said Markley to the. plaintiff before said note became due ; and a short time after it became- due defendant paid plaintiff twenty dollars, to be credited thereon, to wit; on or about the last of January, 1837; also, in or about the month of June, (the day not recollected,) 1837, he paid the plaintiff forty dollars more, as payment of part and parcel of the amount then due of the original sum; and at that time took up the old note and gave a new one for the amount then due, payable about one year after the first mentioned note became due, and including the interest on said residue, at the rate of 75 cents per month; which interest was embodied in the said note; and when the second note became due, this defendant took it up, and gave another, or third note, for the amount of the second note, and the amount of interest on the third note, at the rate of one dollar per month; which third note was payable one year after the date thereof, and which amount of interest was embraced in said third note, from the time the third note became 154] *due until the 12th of October, 1839. This defendant allowed the plaintiff interest on the amount then due, at the rate of one dollar per month; and at the last mentioned date, the defendant gave the plaintiff a note, payable three months after date, calling for seventy-seven dollars, which was for the amount then due, and interest, at the rate aforesaid, and also interest on the said last note, at the rate of one dollar per month; and afterward, defendant gave plaintiff the note on which the present suit is brought, the consideration of which is the note calling for seventy-seven dollars, and interest thereon, at the rate of one dollar per month, until the note upon which this suit is brought became due.
“ The only just and legal amount due from the defendant to the plaintiff is the amount of $104, for which the first note was given, subject to the payments and credits aforesaid, with interest, at the -rate of six per cent, per annum, thereon, on the principal, after it became due, until the first payment was made as aforesaid, and interest on the residue until the second payment was made, and the remaining residue and interest thereon, up to the 17th of February, 1841, the date of plaintiff’s judgment — making,in all, about the sum of fifty-five dollars; which sum defendant is ready and willing to pay, together with all costs with which he ought to be taxed.”
Upon the trial the following bill of exceptions was taken;
“ The counsel for defendant asked the court to charge the jury that, as there had been frequent settlements, by taking up one note and giving another, between the parties, it was competent for the jury to go back to the original loan of money for which the first note was given, and to examine each of the settlements which had taken place between them in the case ; and if more than six per cent, interest had been computed, to disallow it, and reduce the plaintiff’s claim accordingly: except, however, so far as legal interest had been made principal by the agreement of the parties. This charge the court declined giving ; and the court charged the jury that the note, upon which the suit was brought, having been given on a settlement between the parties, was binding on them ; and that *the plaintiff had a right [155 to recover the amount of it, with six per cent, interest, from the time it fell due.”
Under this charge the ver dict and judgment were in favor of the plaintiff, for the full amount; and thereupon this writ of error is brought.
D. S. Bell, for plain tiff in error.
The transcript presents to the court but one point of law; and that is this: On loans of money for short periods, and taking up one note and giving another, as often as such loans become due, paying the interest in advance, by including the same in the note, is the giving of each note such a payment on settlement between the parties, that the court will not look behind it to ascertain whether the interest so stipulated to be paid is unlawful or not? If such renewals are settlements, and such that the court will not go behind to afford relief against usurious contracts, then the plaintiff in error in this case has no relief; and persons loaning money at unlawful rates of interest would always have it in their power te evade the law, by making short loans and frequent renewals.
John H. Young, for defendant in error.
The questions made and argued by the counsel for defendant, Baggs, are understood to have been settled by the Supreme Court of Ohio, on the circuit. It is said that that court have refused to permit a person, who gives a note or bond for a 'certain sum of money, to show that a portion of the sum mentioned in the note or bond, as principal, was in fact, usurious interest. But it is said, in these and the like cases, the defendant has his remedy in chancery, provided the usury included in the note, etc., is so large as to amount to oppression, and to shock the moral sense, but not otherwise.
In the ease at bar, there is no agreement to pay more than six per cent, interest on the amonnt of the note. If in this note was embraced any usury, or more than six- per cent, on *the original amount [156 loaned, it has become principal here by the contract of the parties. If there have been settlements between the parties, and now this note the result of the final settlement, there is nothing left for inquiry or interference, by' this court. If this note were for the payment of a specific amount, with thirty or fifty per cent., it would be clearly repugnant to the statute, and open for the action of the court. But when the contract, embracing every thing that might theretofore have been illegal, has been executed and settled between the parties, will a court of law go behind that contract to ascertain if it be not possible that the defendant has paid more than six per cent. ?

Opinion:
Read, Judge.
The record presents but the single question, whether upon suit brought upon a renewed note, into which illegal interest has been incorporated, it is competent to look behind the note to ascertain the fact, and strike the illegal interest out. The court below held that the renewed note must be treated as payment, and conclusive between the parties.
The act fixing the rate of interest provides that all creditors shall be entitled to receive interest on all money, after the same shall become due, either on bond, bill, note, etc., at the rate of six per centum, per annum, and no more. Swan's Stat. 465.
This is an act in restraint of avarice, and should be liberally construed. It is designed to prevent sharp and unconscionable men from taking advantage of misery or misfortune, to raise money out of straitened circumstances, sudden calamity or necessity. In all civilized communities it has been found necessary to enact laws to prevent extortion on the loan of money. In most countries, it works a forfeiture of the whole debt tainted with usury. In- our state, the law is more mild — not affecting the debt, but simply forbidding a recovery of the illegal interest. No forfeiture being worked by our statute, furnishes an additional reason why it should be liberally construed to effect the object intended.
*It would be an entire violation of all these principles, as well as the direct letter of the law, to permit the statute to be evaded by simply incorporating the illegal interest into the body of the renewed note, or written evidence of debt, and then determine that the consideration could not be inquired into for the purpose of detecting the illegal interest, and disallowing it. It is not to the form of the evidence of debt the law looks, but to the thing done; and the statute says the creditor shall recover interest at the rate of " six per centum, per annum, and no more." How, then, can it be said that the renewal of a note for the loan of money and the incorporation of illegal interest into such renewal will put the usury beyond inquiry or the reach of the statute ?
This statute embraces every form of indebtedness ; and the consideration, in every case, may be inquired into, and the illegal interest be disallowed; or, where it has been paid, may be treated as payment of the original debt, and be deducted therefrom, unless, in cases where there has been a complete settlement and liquidation between the parties, and voluntary payment of interest.
A majority of the court are clearly of the opinion that the court below erred.
Judgment reversed.