Court Opinion

ID: 3811550
Source: CourtListenerOpinion
Date Created: 2016-07-06 07:50:00.299215+00
Date Added: 2024-06-11T07:38:16.580813
License: Public Domain

In no aspect of the loan contract in the instant case does there appear to me to be any taint of usury. And I concur in the conclusion reached in the opinion of the court that there is no usury in this contract. But, in concurring in this conclusion. I feel it my duty to dissent from the reasoning by which the contract is tested for usury and found to be within the law.
Under the statutes applicable to the instant case (Laws 1910, p. 253, the same being section 1005, Rev. Laws 1910, and section 915, Stat. 1890, the same being section 1007, Rev. Laws 1910), 10 per cent. per annum is nominally the highest rate of interest permitted by law; but, since the borrower may deduct interest in advance out of the loan for 1 year at the highest rate permitted, these statutes really permit a lender to charge interest at 10 per cent. per annum, plus interest at this rate upon the amount of interest so taken in advance. However, in this opinion, I shall, in deference to the statutes cited, at times speak of the amount actually delivered to the lender, plus the interest taken by the borrower in advance for the first year as the amount of the loan.
In this case, following the case of Metz et al. v. Winne,15 Okla. 1, 79 P. 223, a test for usury is found by computing interest at the highest rate permitted by law upon the full amount loaned for the entire time for which the loan was made; and the fact that this method of computation does not *Page 252 
give even an approximately invariable result in limiting benefits that may be taken by lenders and burdens that may be imposed upon borrowers, except where interest is not taken before it could be earned by the amount loaned at the highest rate permitted by law, does not appear from the opinion of the court to affect the applicability of the same in any case.
In the Metz Case, where a loan of $600 for 10 years bore interest to the amount of $222, payable at the expiration of the first year, and to the amount of $42 payable at the expiration of each succeeding year, making a total of $600, the fact that interest at the highest rate of 12 per cent. on $600 would amount to $720 was considered a correct test, showing that the total of $600 called for as interest by the contract was free from the taint of usury. In that case the contract required the payment of $150 over and above the interest that could have been earned under the law at the expiration of the first year of the loan; and it must be obvious that this gave the lender and deprived the borrower of the benefit of an equal amount of the principal loaned, at least so long as this amount had not been actually earned as interest, over and above all other interest payments, by the amount originally loaned. It seems obvious that the loan of $600 in that case could not have earned so much as $720. in view of the times and amounts of interest called for by the contract, unless the question of benefit to the lender and burden to the borrower should be ignored in the test for usury; and to ignore benefits and burdens would seem to me to defeat the only purpose of the limit upon the rate of interest. The reasoning in the Metz Case, which is followed in the instant case, apparently leads to the conclusion that if the contract had required the borrower of the $600 to allow the lender to retain $72 as interest in advance at 12 per cent. for the first year of the loan, and further required the borrower to pay the lender the additional sum of $648 at the end of the first year, as unearned but anticipated interest for the remaining 9 years, thus making a total of $720 required to be paid as interest at the expiration of the first year of the loan, the contract would have been free from the taint of usury, notwithstanding the fact that the borrower had paid the lender at the end of the first year an amount equal to the entire amount of the original $600 loaned, plus $120, which would be 20 per cent. on that amount, to say nothing of the $600 to be paid at the end of the loan period. Under the test for usury applied in the Metz Case, and in the instant case, it appears that the contract now before the court might have required the borrower to allow the lender to retain $5,000 as interest in advance, and to pay the latter at the end of the first year of the $50,000 loan the additional sum of $18,783.32, so that the borrower would have the benefit of a loan of only $45,000 for the first year and of only $26,116.68 for the remaining years of the loan, while the lender would get a correspondingly greater benefit than he would have received if no interest had been taken before it was actually earned by the loan.
If the reasoning of these cases is correct, and the same test is to be applied in all cases to which the same appears to be applicable from the reading of the opinions therein, it appears, for example, that the lender of $100 for 20 years might charge and collect $10 in advance, so that the borrower would only actually receive $90, and at the expiration of the first year, as unearned but anticipated interest, $190 more, making in all $200, which is more than twice as much as the amount actually loaned, and still hold the borrower's obligation to pay $100 at the expiration of the 20 years.
In the case of Fowler v. Equitable Trust Co., 141 U.S. 384, 12 Sup. Ct. 1, 35 L.Ed. 786, where the highest rate of 10 per cent. per annum allowed by the statutes of Illinois was charged on a loan for 5 years and where 3 per cent. of the same for the full term of the loan was taken in advance, the Supreme Court of the United States, in holding that the same was not usurious under the decisions of that state, said:
"It is to be observed that out of the principal sum loaned the trust company retained, by way of discount, what was claimed to be the present value of such amount as would pay, in advance, 3 per cent. of the stipulated interest for the whole period of the loan, 5 years. In view of this feature in the case there was much discussion at the bar as to whether it was permissible, in Illinois, for the lender to exact and receive interest in advance upon a loan made at the highest rate allowed by its laws. In view of numerous decisions of the Supreme Court of that state, it is not necessary to examine this question upon principle; for it is the settled doctrine of that court that the mere taking of interest in advance does not bring a loan within the prohibition of usury. In Goodrich v. Reynolds, 31 Ill. 490, 498 (83 Am. Dec. 240), it was said: 'The remaining plea sets up usury in this, that the interest was made payable semi-annually. It has long been settled such reservation is not usurious. The whole interest may be lawfully reserved in advance.' McGill v. Ware, 5 Ill. 21, 28; Mitchell v. Lyman, 77 Ill. 525, 529, 530; Brown v. Scottish-American Mortgage Co., 110 Ill. 235, 239; Hoyt v. Pawtucket Sav. Inst.,110 Ill. 390, 394; Telford v. Garrel, *Page 253 132 Ill. 550, 554 (24 N.E. 573). Whether that doctrine would apply where the loan was for such period that the exaction by the lender of interest in advance would, at the outset, absorb so much of the principal as to leave the borrower very little of the amount agreed to be loaned to him we need not say. The present case does not require any expression of opinion upon such a point, for the interest reserved in advance on the loan to Fowler was only of 3 per cent. out of 10 per cent., and a reservation to that extent, it would seem, is protected by the decisions of the state court. The defense of usury, so far as it rests upon the fact that 3 per cent. of the stipulated interest was taken in advance by the lender, must therefore be overruled."
The Illinois rule, however, does not seem to be in accord with the rule generally followed, nor to be sound in principle; and the above intimation that a loan might not be regarded as usurious unless it was "for such period that the exaction by the lender of interest in advance would, at the outset, absorb so much of the principal as to leave the borrower very little of the amount loaned him" should be understood to be applicable only where the Illinois rule prevails, if there. In Law of Usury, by Webb, secs. 112-116, pp. 126-132, it is said:
"The question whether a contract calling for the payment of the highest legal rate of interest in advance is usurious or not is one upon which the authorities are not in harmony. The statutes upon the subjects of interest and usury do not ordinarily specify the particular time during the life of the loan or forbearance at which the interest shall be paid. Such statutes ordinarily provide that the rate of interest shall be a certain amount per 'annum'; and, while there is no additional provision that the interest shall be payable at the end of the year, or at the time of the maturity of the loan, if it be for a period less than one year, yet some of the courts have construed the statutes to so mean. In the Ohio case of Penn Mutual Ins. Co. v. Carpenter (40 Ohio St. 260), the court discussed the subject at some length, concluding that: 'A construction of the language of the statute as applicable to the rate of interest only, and not to the time of payment, which will permit the payment of interest at periods shorter than the time a note has to run, furnishes, in our view, no reasonable ground for the advancement of interest before it accrues or is earned. * * * In Ohio, express statutory authority has been given in many instances to banks and other corporations to reserve interest in advance. But the fact that such authority has been expressly granted by statute furnishes the strongest implication that it is denied to all others.' In other states of the Union, the contrary rule prevails, and it is held that the taking of interest in advance is not usurious. Thus in Illinois, it is held that if a borrower of $3,000, for 1 year, at 10 per cent. interest, receives but $2,700, for which he gives his note for $3,000, with 10 per cent. interest after maturity, the transaction is free from usury. In the early Indiana case of Cole v. Lockhart (2 Ind. 631) the court reviewed the cases which had been decided at that time, and declared that the taking of the highest rate of interest in advance was not usurious.
"Why there should have been such profligate expenditure of learning, consumption of words, and vexation of mind over a question of which there is but one just solution is difficult to understand. Interest is compensation for the use of money. If the amount of the interest is deducted in advance, it is plain that the borrower never uses the interest so paid. He does not receive the full amount of his loan. He cannot use that which he was to receive unless it is paid to him. He cannot employ money kept out of his possession. It renders the borrower no service, performs no purpose, pays no debts, buys no property, satisfies no wants, and accomplishes nothing, as far as the borrower is concerned, for which he should be compelled to pay interest. If mathematical accuracy, combined with justice, should be aimed at, it seems that the interest should be paid at maturity, together with interest upon the interest then due, for one-half the time of the loan.
"Where the interest is taken in advance for a period less than 1 year the Supreme Court of Wisconsin, in the case of Tallman v. Truesdell (3 Wis. 443), makes the following distinction: 'It is contended that the payment of interest semiannually at the rate of $12 for the loan or use of $100 for 1 year; or, in other words, $6 at the end of 6 months, virtually gets interest on the $6 so received during the remaining 6 months of the year. The statute is silent as to the time when the interest may be paid, and only prescribes the rate for a specified term. It is difficult to distinguish clearly between the case when a loan of $100 is made for 6 months at the rate of 12 per cent. per annum, and at the expiration of the time the lender receives his money back with $6 interest, and the case where a loan of $100 is made for 1 year at the rate of 12 per cent. per annum, and at the end of 6 months $6 should be paid as interest, and at the expiration of 1 year, $106 are paid. It is true that the borrower loses the interest on the $6 which he paid at the end of 6 months, for and during the remaining 6 months of the year, but it is not true that he pays interest on the $6 to the lender. The lender may or may not get interest on this sum, but if he does, he does not get it from the borrower, since it is not a contract with him for a greater rate than 12 per cent. That a distinction between the cases like the foregoing has been attempted is certainly true, but it has never been rendered sufficiently clear for practical purposes. Where interest is taken in advance the case is different. If the *Page 254 
lender reserves his 12 per cent. at the time of the loan, the borrower gets $88, for which he promises to pay $100 at the end of the year. In this case he actually pays to the lender interest on the $12 reserved; that is, the $12 which he pays at the time of the loan is equal to $10.56 interest on the $88 actually received, and $1.44 at the rate of 12 per cent. on the $12 reserved. This would clearly exceed the rate prescribed by the statute. But we do not think it was the design of the statute to make any deduction from the rate of 12 per cent. agreed upon, in cases where the term for the loan is less than a year, or where the interest is agreed to be paid oftener than once a year.
"As stated in a preceding section, if the amount of interest and commissions collected does not exceed the amount of interest allowable by the highest legal rate, there is no usury. So where the amount of interest collected in advance, together with the interest upon it, at the highest lawful rate, does not aggregate more than would be allowed by law as interest upon the principal, there can be no usury. Upon this theory it is held that there is no usury where the bond of the debtor bears no interest, but includes the amount of the debt with interest upon it to the time of the maturity of the bond."
In the editorial note, commencing at page 1156, to the case of Ellis v. Terrell, 109 Ark. 69, 158 S.W. 957, 37 Ann. Cas. 1153, it is said upon the authority of a large number of cases there cited:
"The practice, originating in the custom of banks and those dealing in commercial paper in the course of trade, of taking interest in advance on short-term loans, though admitted to be usurious in principle, has become a recognized legal right; and, in the absence of statutory prohibition, the courts are unanimous in upholding its legality where the loan or forbearance is for a period of time of one year or less."
In idem it is said:
"In Purvis v. Frink, 57 Fla. 519, 49 So. 1023, the court construing a statute providing that a debtor shall not be required to pay a greater sum than the actual principal sum received, with 10 per cent. interest per annum, held that the reservation of interest from the principal of the note in quarterly amount's made the transaction usurious. In some jurisdictions it has been held that since the right to take interest in advance originated in the custom of banks and those dealing in commercial paper, such right must be confined to commercial transactions."
The decisions from the states holding this are cited in connection with the last above statement. In idem it is further said:
"Where the loan or forbearance is for more than 1 year, the decisions are not in accord as to whether taking interest in advance for the full period of time will constitute usury. The majority of cases support the holding of the reported case that to take the highest rate of interest in advance for the entire period of time is usury."
In support of this last proposition the editor cites in addition to the case annotated the following cases: Marsh v. Martindale, 3 B.   P. (Eng.) 154; Fowler v. Equitable Trust Co., 141 U.S. 384, 12 Sup. Ct. 1, 35 L.Ed. 786; Branch Bank v. Strother, 15 Ala. 51. In the case of Smith et al. v. Parsons et al., 55 Minn. 520, 57 N.W. 311, it was held:
"When a 'bonus' is exacted by the lender as a consideration for making a loan, it is, in computing, for the purpose of determining whether the loan is usurious, to be deducted as of the date when it is payable. If payable at the time of the loan, it is to be deducted from the principal as of the date of the loan, and the remainder, or what the borrower receives and retains, is to be taken as the basis for computation."
In that case, where the loan was of $20,000 for 5 years, with a specification that the same should bear interest at the rate of 7 per cent. per annum, and where the borrower contracted to pay and paid the lender as a bonus or commission for making the loan 5 per cent. on said $20,000 and rendered the lender services of the value of $500, the court said:
"These considerations furnished a basis for making a computation to ascertain if the interest or compensation for the use of the money actually to be received and retained by the borrower was at the rate of more than 10 per cent. per annum on that amount or those amounts. The interest on the several amounts, at that rate, from the dates of the advances to the time of paying the last installment, November 4, 1884, was about $930. By the terms of the notes there was payable on and before October 1, 1884, as interest, $1,400. It is a mode of computation which defendants cannot complain of, to deduct the bonuses from the principal $20,000 as of the date of November 4, 1884, and calculate the interest on the remainder, $18,500, at the rate of 10 per cent. from that date to the maturity of the notes, add the $930 to that, and to their sum and the principal retained by the borrower, $18,500, aggregating $26,553, and compare that with what by the terms of the notes and mortgage the borrower was to repay to the lender, $20,000 principal, and $7,000 interest. The usurious character of the transaction is apparent."
In the case of McCall v. Herring, 116 Ga. 235, 42 S.E. 468, where the borrower contracted to pay $1, 600, with interest thereon at the rate of 7 per cent. per annum, but actually received from the lender only $1,520 because of the fact that the lender's agent *Page 255 
retained $80 from the principal as his commissions, the court said:
"The contentions raised by the demurrer, and insisted on as reasons sufficient to justify the court in striking the plea necessarily lead to the determination of the question whether the averments of the plea, when taken to be true, characterize the transaction as a usurious one. If they do, the court erred in striking the plea, because the deed relied on by the plaintiff as the basis of the establishment of her lien would be void. If they do not, the court committed no error, and the validity of the security deed is unaffected. In the case of Clarke v. Havard, 111 Ga. 242, 36 S.E. 837, 51 L. R. A. 499, Presiding Justice Lumpkin, in the course of a very able opinion which he delivered in that case, and in which he considered the rulings made by this court in a number of cases preceding it, said: "A money lender cannot, in this state, lawfully contract for or reserve any greater rate of interest than 8 per cent. per annum, and the prohibition is just as strong against doing so indirectly as it is against doing so openly and without pretense. * * *' Accepting the rulings made in that case as being sound, our next inquiry, in order to fully meet the demurrer, is whether when the $80 retained by the agent of the lender is added to the interest contracted to be paid, it appears that the aggregate of these sums is greater than the highest rate of interest allowed by law to be charged. The borrower gave his note for $1600, and agreed to pay interest thereon at the rate of 7 per cent. per annum, $112. The commission retained amounted to $80. The borrower, according to his plea, received $1,520 interest, upon which sum at the rate of 8 per cent. per annum, the highest allowed by law in this state, is $121.60. This would make the amount of interest to maturity, 5 years, $608. Any greater sum than $608 received as interest for this time on this amount would be usury. But, according to the averments of the plea, the interest contracted to be paid, seven per cent. on $1,600 for five years, was $560, which, added to the $80 retained as commissions, aggregates $640 (not including in this calculation any interest on the $80) as interest on the $1,520 received by the borrower. Thus it is clear that the borrower would pay and be liable to pay $32 more than the highest legal rate during the period of the loan for the sum borrowed. And the result is the same if we treat as chargeable to the borrower the $16 which, in one part of his amended plea, he admitted the plaintiff was entitled to receive from him for preparation of abstract, etc. These figures are conclusive to our minds that, when the principles ruled in the Clarke Case, supra, are applied to the facts set out in the plea and by demurrer admitted to be true, the transaction represented by the promissory note, which is the foundation of the action in the present case, was usurious.
"Counsel, however, contend that if the $80 paid by the borrower as commissions is to be treated as interest reserved, then the transaction would not be usurious, for the reason that this amount which was deducted from the face of the note must be treated as the payment of interest pro tanto in advance; that $80 represents 1 per cent. on the amount contracted to be loaned for the full term, 5 years; and that as the balance of the interest contracted to be paid amounts to 7 per cent. the whole rate of interest, when so treated, aggregates 8 per cent., and is within the lawful limit, and that the payment of 1 per cent. of interest in advance under these circumstances does not render the transaction usurious. An examination discloses that the adjudicated cases are somewhat in conflict on the question whether a reservation of the highest legal rate of interest in advance renders a loan transaction usurious, but a majority of those which we have had opportunity to consult draw a distinction, in this respect, between what is termed a long and a short loan. Counsel for defendant in error argues that on principle no such distinction exists, and we agree with him. We are unable to see any reason why on principle the reservation of the highest rate of interest in advance on short-term loans does not render the contract usurious. * * * Mr. Webb, in his treatise on Usury, sec. 111, declares, on the authority of a large number of adjudicated cases, cited in note 3, page 126: 'That it is not usury to discount commercial paper in the ordinary course of business is absolutely settled. This rule of law arose out of custom, and does not depend upon statute.' Mr. Tyler, in his work on Usury, p. 298, declares that: 'The courts uniformly hold, at the present day, that the interest for ordinary paper having the usual time to run, such as is the practice by banks, may be taken in advance, by way of discount, and not subject the paper to the taint of usury. It is obvious, however, that the length of time the paper has to run must have a controlling effect upon this question. If the note has a short time to run, the interest may be taken in advance; whereas the time may be so lengthened out as to make the taking of the interest, in advance, palpably usurious.' Whether, then, there is, in principle, any difference in such transactions in taking the highest legal rate on short and long time loans is not now a question with which we are materially concerned; for undoubtedly, according to the authorities generally, the proposition that taking the highest rate of interest in advance does not render the transaction usurious may be considered settled on short loans. Indeed this court, in the case of Mackenzie v. Flannery, 90 Ga. 590, 16 S.E. 710, ruled that 'to take 8 per cent. interest in advance by way of discount on short loans, in the usual and ordinary course of business, is not usurious.' And in the case of Union Savings Bank v. Dottenheim, 107 Ga. 614, 34 S.E. 221, Mr. Justice *Page 256 
Cobb said: 'It is also well settled that a contract providing for the payment of the highest lawful rate of interest in advance is not usurious, though many of the courts which recognize this as an established rule express doubts as to whether upon principle such practice should be allowed to prevail.'
"Just where the line is to be drawn, so as to determine what is a short and what a long term loan, does not seem to have been settled. The period of 1 year seems to have been fixed in the case of Tallman v. Truesdell, 3 Wis. 443. But the rule that interest at the highest legal rate may be taken in advance on long loans without rendering the contract usurious is not established by the authorities generally. There are a number of cases so ruling, in many of which the rulings are made on statutes. Certainly there are no decisions of this court which so declare, and we are not aware of any authority which binds us so to rule. While we accept the doctrine almost universally applied to short loans, in the absence of controlling authority we decline to extend that rule in the case of long loans. On principle it cannot be done, nor ought it to be, for reasons which are tersely stated by Mr. Webb in his work cited supra, 113, in the following language: 'Interest is compensation for the use of money. If the amount of the interest is deducted in advance, it is plain that the borrower never uses the interest so paid. He does not receive the full amount of his loan. He cannot use that which he was to receive, unless it is paid to him. He cannot employ money kept out of his possession. It renders the borrower no service, performs no purpose, pays no debts, buys no property, satisfies no wants, and accomplishes nothing, as far as the borrower is concerned, for which he should be compelled to pay interest.' While the language of Mr. Justice Cobb in the Dottenheim Case cited above is very broad, it was not, as we understand it, meant to include interest on long-time loans, but evidently referred to the rule, which seems so generally to prevail, that the highest rate of interest may lawfully be taken in advance on short loans. If it be contended that this language referred to long as well as short loans, it may be replied that that question was not one which was passed on by the court in that case. If the contention of the defendant in error is sound, then it would lead to this result: If a loan of $500 were made for a term of 5 years at the rate of 8 per cent. per annum, then at the time of making the loan the lender could reserve the interest for the whole period, and give to the borrower only $300 in satisfaction of his contract; if such a loan were made for 10 years, the law would be fully met by the lender handing to the borrower $100 and accepting his obligation to pay him $500 at the end of the period; if it were made for 15 years, instead of the borrower receiving anything from the lender, the former would not only get nothing, but would pay the lender $100 for the privilege of executing to him his promissory note."
Interest is not the compensation allowed by law or fixed by the parties for an obligation to permit the borrower to use or detain money or for the future forbearance on the part of the lender to demand the same; but, as stated in Black's Law Dictionary, it is defined as follows:
"Interest is the compensation allowed by law or fixed by the parties for the use or forbearance or detention of money. Civ. Code Cal. sec. 1915; Williams v. Scott, 83 Ind. 408; Kelsey v. Murphy, 30 Pa. 341; Williams v. American Bank, 4 Mete. (Mass.) 317; Beach v. Peabody, 188 Ill. 75, 58 N.E. 680."
The right to the compensation allowed by law or fixed by the parties "for the use or forbearance or detention of money" logically arises out of and follows, and does not precede, such "use or forbearance or detention of money"; and, accordingly, loan contracts for more than 1 year usually call for the payment of interest after and not before it is earned.
If a contract does not require the payment of interest before it was earned by a loan, and this definition was kept in mind, a voluntary payment of money, in advance to meet and cover unearned interest as it accrues in the future would easily be seen to be more in the nature of a return of that much of the principal debt than a payment of interest in the first instance, though taking on the character of a payment of interest as the latter accrues.
In the absence of a contract to the contrary, and as a general rule under the provisions in contracts, interest is not due and payable until it has been earned by the loan, except when taken in advance, as authorized by section 915, Stat. 1890 (section 1007, Rev. L. 1910) for not to exceed 1 year; and, as aptly stated in a note to Story v. Livingston, 13 Pet. 359, 10 L.Ed. 200, the rule for casting interest in this country when partial payments are made is as follows:
"The rule for casting interest, when partial payments have been made, is to apply the payment, in the first place, to the discharge of the interest then due. If the payment exceeds the interest, the surplus goes towards discharging the principal, and the subsequent interest is to be computed on the balance of principal remaining due. If the payment is less than the interest, the surplus of interest must not be taken to augment the principal; but interest continues on the former principal until the period when the payments, taken together, exceed the interest due, and then the surplus is to be applied towards discharging the principal, and interest is to be computed on the balance. *Page 257 
State of Connecticut v. Jackson, 1 Johns Ch. (N.Y.) 13 [7 Am. Dec. 471]; Van-Benschooten v. Lawson, 6 Johns Ch. (N.Y.) 313 [10 Am. Dec. 333]; Williams v. Houghtaling, 3 Cow. 86, and note; Hicks v. Atkins, 4 Mass. 103; Dean v. Williams,17 Mass. 417; Fay v. Bradley, 1 Pick. 194; French v. Kennedy, 7 Barb. (N.Y.) 452; Hosack v. Rogers, 9 Paige's (N.Y.) 461; Smith v. Shaw, 2 Wn. C. C. 167 [Fed. Cas. No. 13-107]; Dunlop v. Alexander, 1 Cranch C. C. 498 [Fed. Cas. No. 4,166]; Russell v. Lucas, Hempst. 91 [Fed. Cas. No. 12,156A]."
Also see: Woodward Baldwin   Co. v. Jewell et al.,140 U.S. 247, 11 Sup. Ct. 784, 35 L.Ed. 478. The act of June 17, 1910, (Laws 1910, p. 253; section 1005, Rev. Laws 1910) reads as follows:
"The taking, receiving, reserving or charging a rate of interest greater than is allowed by the preceding section shall be deemed a forfeiture of twice the amount of interest which the note, bill or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case a greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover from the person, firm or corporation taking or receiving same, in an action in the nature of an action of debt, twice the amount of interest so paid: Provided, such action shall be brought within two years after the maturity of such usurious contract; Provided, further, that before any suit can be brought to recover such usurious interest, the party bringing such suit must make written demand for return of such usury."
Section 915, Stat. 1890 (section 1007, Rev. Laws 1910), reads as follows:
"The interest which would become due at the end of a term for which a loan is made, not exceeding one year's interest in all, may be deducted from the loan in advance if the parties thus agree."
If, as seems indisputable, the purpose of the statutory inhibition against the taking of more than a specified amount of interest is to limit the burden that may be imposed upon the borrower, and the corresponding benefits that may be taken by the lender, we should look to the essence of the transaction and to the net result in benefit to the lender and burdens to the borrower, with due regard to the terms of the contract in respect to times and amounts of interest payments and to the rights of the parties to contract for the payment of actually earned interest at such times as they desire without affecting the question, for a standard test.
I think the statutory limitation upon the burden the lender may impose and the corresponding benefit he may take contemplates the casting of interest according to the partial payment rule hereinbefore stated, treating interest paid in advance of accrual above the product of a computation at the highest legal rate to the date of payment as sterilizing or destroying the interest-producing power of an equal amount of the principal until such advance interest could be actually earned by the loan at the highest rate of interest permitted by law.
Taking the contract in the Metz Case for use in making an illustration, it appears to me that a correct test for usury might be found in the fact that the $600 loaned could have earned, at the rate of 12 per cent. per annum, $72 at the end of the first year, when $222 that must be treated as interest was paid; that this payment, being $150 over and above the interest that could have been lawfully earned up to that time, sterilizes and destroys the interest-producing power of an equal amount of the $600 loaned, so that only $450 of the same could bear interest until the next interest-paying time, at the end of the second year of the loan, when, at the highest rate permitted, it could produce $54; that, as $54 is $12 more than the $42 called for by the contract at that time, this deficiency should be covered by applying $12 of the $150 excess already in the hands of the lender to the same, with the result that this excess would be reduced to $138 and a corresponding amount of barren principal would become interest producing, so that, for the third year $462 of the $600 would bear interest; that at the end of the third year, when another installment of $42 as interest was due under the contract, this $462 could produce at the highest rate of interest permitted by law $55.44, which would be $13.44 more than the contract required to be paid at that time, so that the unearned interest in the hands of the lender would be reduced to $124.56 for the next year and $475.56 of the $600 loaned would bear inter est during the fourth year, and so on until, at the end of the ninth year, nearly all of the excess in the hands of the lender would be earned and absorbed, and nearly all of the loan of $600 would begin to bear interest again. As a result of this method of computation, the $600 loaned could have earned at 12 per cent. per annum, $72 the first year, $54 the second year, $55.44 the third year, $57.05 the fourth year, $58.85 the fifth year, $60.82 the sixth year, $63.08 the seventh year, $65.60 the eighth year, $68.44 the ninth year, and $71.61 the tenth year, making a total of $626.89. It appears to me that this method of computation gives due consideration to the proportions of the contract, that is, to the times of payment and the amounts required to be paid by the same, in testing for usury. It takes into account the fact that *Page 258 
the borrower was required to pay $150 at the end of the first year of the loan as interest that had not been earned; and it also takes into account the fact that each subsequent installment of interest called for by the contract was less than could have been earned at that time within the law.
Although I think the above method of computation gives a correct test, I am not quite as certain of this as I am of the fact that the standard adopted in the instant case and in the Metz Case is fundamentally wrong.