Court Opinion

ID: 6576964
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:35:10.085997+00
Date Added: 2024-06-11T15:57:08.002889
License: Public Domain

Hinman, J.
By the act of 1849, in respect to the taking of usurious interest, Rev. Stat. p. 867, it is provided, that the taking of more than the sum of six dollars, for the forbearance of one hundred dollars in money, or other property of that value, for a year, and after that rate, for a greater or less sum, or for a longer or shorter time, shall work a forfeiture of the money, or other property so taken. The act is prospective in its terms, and should, therefore, have a prospective operation. In 1845, long before the enactment of this statute, the appellant loaned to the deceased the sum of three thousand dollars, taking his and John Burgis’ note therefor, payable on demand, with interest; and the regular accruing interest, at the rate of six per cent., was paid thereon, up to the 6th day of September, 1853. Thus far there was nothing illegal, or improper, in the contract, or the payments that were made under it. Mr. Kelsey had a valid note, the full amount of which was justly due, and might have been collected. But on the 30th of November, 1853, he required of the deceased, for the further forbearance of said loan, interest, at the rate of ten per cent, per awmm, which was agreed *450to by the deceased, and one half year’s interest, at this rate, was subsequently paid on the note.
It is admitted that this illegal agreement cannot be enforced. But the appellant claims that it ought not to affect his right to recover simple interest, at the lawful rate, for the whole time the loan has been forborne; and the appellees, on the other hand, claim that it operates to destroy all claim for any interest on the debt, as well for that which accrued and was paid prior to the making of the illegal contract, as for that which otherwise would have accrued, subsequently thereto,—that the illegal agreement, under the act of 1849, retro-acts upon the debt, from its commencement, to prevent any interest from being allowed upon it; and all the interest paid upon it, though legally and justly due, as interest, at the time it was paid, ought now to be deducted from the face of the note.
We think neither of these claims correct. That of the appellant is contrary to the whole spirit of the act, and to the language of the last clause of the third section, which provides, that the provisions of that section shall apply not only to cases where usurious interest is reserved, or taken, at the inception of the contract, but also to cases, where interest, beyond the rate allowed by law, is reserved, or taken for further forbearance of loans previously made. While we do not adopt the harsh construction of this clause, which is claimed on the other side, it was, obviously, put into the section to guard against an evasion of the main object of the law, which it was supposed might be effected by making oppressive contracts, in respect to the further forbearance of previous loans, at lawful rates of interest. We think, therefore, that, as this case is situated, the original loan having been made previous to the enactment of the law, and considering, that, by the terms of the law, it was obviously intended to operate prospectively, it can only apply to the interest which otherwise would accrue upon the loan, after the making of the usurious agreement. On the *451other hand, at the time the previous interest accrued, and was paid, it was justly, and legally due, and we do not think it was the intention of the legislature to make it illegal, in consequence of an illegal agreement, in respect to further forbearance of the original loan. In substance, this would be to authorize the debtor to recover, as a penalty for the illegal agreement, money previously paid under a lawful contract, and which, at the time it was paid, was justly due. To justify such a construction, the intention of the legislature should be expressed in language such as to leave no doubt of the object. But the language of the first section is clearly prospective in its terms. It speaks of those who shall take, accept, or receive, which are words only proper as applied to transactions thereafter to occur; and the third section is still more explicit. It commences by saying that “ contracts hereafter made, by which there shall be reserved, or taken, more than at the rate,” &c., words which are totally inapplicable to contracts then made, which, we think, were intended to be left unaffected by that statute.
The same reasoning may be applied to the claim of the appellees, that the last clause of the third section of the act of 1849 applies to this particular note. It can apply only to contracts made after the passage of the act,—whereas this contract was made long before its passage. The illegal contract was made after the passage of the act, and is, therefore, within its terms, but, in respect to the note, it is unaffected by it, except so far as it is affected by the subsequent illegal agreement, and this can only be, in respect to interest, not then paid, but thereafter to accrue.
It was not the intention to impose a greater penalty for contracting to take an illegal rate of interest, than the forfeiture of the whole interest after the illegal contract was made. Any other rule would be unequal, and, therefore, is not to be presumed to have been intended. The rule, claimed by the appellees, would operate unequally, just in proportion to the time a contract, originally legal, but made *452usurious by a subsequent agreement like the one under consideration, had been running, before such subsequent agreement was entered into. If it was at the expiration of only one year, then only six per cent, would be forfeited, or one year’s interest. While, if the debt had been for a longer time due, and the interest had been paid, the creditor might find his debt fully paid by the mere payment, from time to time, of the accruing interest, which, when paid, was justly due. This could not have been the meaning of this clause of the third section, especially when applied to cases, like this, where the illegal agreement is made for the further forbearance of a loan, previously made at a lawful rate of interest. We think, therefore, that the illegal agreement, in this case, operates to defeat the recovery of any interest on the loan, accruing after that agreement was made, and all payments, made subsequent to that time, whether óf interest or of principal, are to • be applied upon the principal debt. The effect of the illegal agreement is the same, in this case, as if the original debt, with the interest due upon it, had been collected, and the amount then loaned to the deceased, at an illegal rate of interest.
For these reasons there was error in the report of the commissioners, which should be corrected in conformity to the views here expressed.
In this opinion, the other Judges, Storrs and Ellsworth, concurred.
Report of commissioners to be corrected accordingly.