that property ordinarily earns a regular percentage of profit, which percentage belongs no less to the true owner on a just reckoning than the original capital; and this is a good reason why such persons, so far as their connection with funds is for management, and not a temporary custody and control, should be charged with interest on the property where the opportunity to invest has been neglected, without some good excuse; though it may be well enough said that the interest allowed in such case is because of one's default or misconduct.1 Agents, factors, and attorneys are chargeable with interest on the moneys unreasonably detained which they have been instructed to remit, though not ordinarily for moneys collected and held subject to the owner's order; executors and administrators, on account of the temporary nature of their trust, are shown much greater indulgence than guardians and trustees in this matter of liability for interest, and generally need not account for interest at all; and all parties holding property in trust will be allowed a reasonable time to invest. Of course, no one is allowed to appropriate the profits made by the use of funds committed to his keeping, but the gain accrues to principal, client, or cestui que trust, as the case may be.2 Yet one who is a mere stakeholder, and liable at the same time to answer to one or another party, is held not liable for interest upon money in his hands, though he makes a profit by its use; an exception which cannot be safely extended far.4

On the other hand, there are circumstances under which

1 See Perry Trusts, § 471; Schoul. Dom. Rel. § 354; Clemens v. Caldwell, 7 B. Monr. 171; Bryant v. Craig, 12 Ala. 354; Schoul. Ex'rs, § 538; Johnson v. Hedrick, 33 Ind.

129.

2 Ib. And see Hauxhurst V. Hovey, 26 Vt. 544; Barney v. Saunders, 16 How. 535; Hill v. Hunt, 9 Gray, 66.

8 Jones v. Mallory, 22 Conn. 386. 4 See Moors v. Washburn, 159 Mass. 172.

When a loan is negotiated, the

retention of part of the fund for an unreasonable time entitles the borrower to a rebate of interest. Dodge v. Tulleys, 144 U. S. 451. And wherever the lender, on security or otherwise, refuses to receive his money on reasonable tender, he loses the right to further interest. Loomis v. Knox, 60 Conn. 343. Where money is paid into the bank at which the note was payable, no interest is payable after the maturity of the note. Cheney v. Libby, 134 U. S. 68.

one holding a place of trust may claim the allowance of interest for advances made out of his private funds for the benefit of the trust.1

§ 261. Interest upon Legacies or Annuities. Interest is frequently payable upon legacies and annuities; but, where no time is fixed by the testator's will, the general practice is not to allow interest until the expiration of one year from the death of the testator, at which time a legacy is properly demandable; exception being made in favor of a child who is left without other provisions for maintenance in the mean time, and who should be paid sooner.2

§ 262. Immunity and Privilege of Government as to Interest. -From a liability for interest, the State usually claims exemption, save so far as concerns loans made on its express contract and with legislative authority. The usage of government is not the usage of individuals; and constitutional limitations of authority are imposed upon the State and even upon municipal corporations, which are of no application elsewhere.3

§ 263. Compound Interest.-Compound interest, or interest upon both principal and interest, may be demanded in certain cases; and the right to it sometimes arises in the case of a note with interest payable annually or at other designated periods, where the debtor runs into arrears on the payment of the instalments as well as of the principal. Ordinarily, simple interest, or interest by computation upon the principal sum for the entire period of default, can alone be allowed upon a debt; and it is thought hard and iniquitous for one to exact compound interest, even where he can legally claim it, unless the debtor was guilty of some gross and intentional

1 Schoul. Ex'rs, §§ 541, 542. 22 Redf. Wills, 572, and cases cited; Allen v. Crosland, 2 Rich. Eq. 68; Gill's Appeal, 2 Penn. St. 221; Roberts v. Malin, 5 Ind. 18; Burtis v. Dodge, 1 Barb. Ch. 77; Schoul. Ex'rs, $$ 480-482.

3 Gordon v. United States, 7 Wall. 188; Pekin v. Reynolds, 31 Ill. 529; State v. Mayes, 28 Miss. 706; Tillson

v. United States, 100 U. S. 43. So as to refunding duties. 62 Fed. 153. See § 256. The State does not relax the right to claim interest from those with whom it has business relations. See 54 Tex. 313. But interest is not allowable on taxes unless the statute gives it. Western Union Tel. Co. v. State, 55 Tex. 314.

misbehavior.1 Where there is no special agreement incorporated into the contract or established between the parties, interest on interest certainly cannot be allowed. And if interest is due upon a mortgage note with annual or semiannual instalments, some special agreement is required in many States, after the interest becomes due, to change that interest into principal and make it bear interest in futuro.3 Nor, according to some decisions, should the usage among merchants to strike annual balances be regarded as justifying of itself the annual compounding of interest.*

For gross negligence or intentional misconduct, as in the case of trustees who speculate and waste trust funds committed to their keeping, the courts sometimes make annual rests and charge the delinquent parties with compound interest by way of penalty. And upon coupon obligations in these days, which amount to promissory notes, a practical

1 See Blyd. Usury, 68, 69, and cases cited; Rayner v. Bryson, 29 Md. 473.

2 See Toll v. Hiller, 11 Paige, 228; Rose v. City of Bridgeport, 17 Conn. 243.

8 Ib.; Banks v. McClellan, 24 Md. 62; Van Huson v. Kanouse, 13 Mich. 303; Gunn v. Head, 21 Mo. 432; Stone v. Locke, 46 Me. 445; Ferry v. Ferry, 2 Cush. 92; Dyar v. Slingerland, 24 Minn. 267. Where a promissory note is given with a stipulation that interest is to be paid semi-annually (or annually, &c.), the maker is chargeable with interest at the like rate upon each deferred payment of interest as if he had given a promissory note for the amount of such interest. Bledsoe v. Nixon, 69 N. C. 89. But the English chancery rule is that, in the absence of a special agreement, simple interest alone can be charged in a mortgage account. Daniell v. Sinclair, 6 App. Cas. 181. Interest may be computed on overdue and unpaid express instalments; but no instalments of semi-annual inter

est will be considered as due after the maturity of the note; because after that, both the accruing interest and principal are due, not on any particular day, but every day until paid. Wheaton v. Pike, 9 R. I. 132. And see Cramer v. Lepper, 26 Ohio St. 59; § 256 supra. An agreement to pay interest upon interest must, in order to be valid, be made after the interest which is to bear interest has become due, and it must be supported by sufficient consideration; e.g. a forbearance to sue. Young v. Hill, 67 N. Y. 162. As to a peculiar provision in a promissory note, see 24 Minn. 43; 54 Cal. 562.

4 Von Hemert v. Porter, 11 Met. 210. See Wright v. Eaves, 10 Rich. Eq. 582; Carpenter v. Welch, 40 Vt. 251; Preston v. Walker, 26 Iowa, 205.

5 Ford v. Vandyke, 11 Ired. 227; Attorney-General v. Alford, 4 De G. M. & G. 851; Perry Trusts, § 471; Johnson v. Hedrick, 33 Ind. 129.

compounding of interest on the principal obligation is judicially sanctioned.1

§ 264. Rule of Interest in Partial Payments. Since partial payments, however, are frequently made on an interest-bearing debt, it becomes important to apply the well-known rule of Chancellor Kent, which the courts of this country have commonly recognized: namely, to apply the payment in the first place to the discharge of the interest then due; if the payment exceeds the interest, to carry the surplus towards discharging the principal, and compute the subsequent interest on the balance of the principal remaining; but if any payment be less than the interest due, not to take the surplus of interest to augment the principal, but cast the interest on the former principal until the period when the payments taken together exceed the interest due.2 This rule is fairer to the lender than the rule of compound interest, and is preferred both in the courts and among business men.

§ 265. As to Usury; Characteristics of Usury Laws. II. And now to pass from interest to usury. If proof were needed of the practical difficulties which block the enforcement of usury laws, it might readily be found by examining the current decisions of our State courts. The later American reports are full of distinctions in usurious contracts, which, though true in the main to certain leading principles, vary widely in their application with the intrinsic merits of each case, the consequences of illegality, and local public sentiment, whether for or against restraints of this nature upon mercantile traffic. In the matter of contrivances for evading the legal penalties against usury, human ingenuity exhausts itself; and many are the cunning expedients, not

1 Supra, § 256. On the principle of a demand for payment of a debt which was actually due at a certain time, and the debtor's default, why should not the payee have a right to demand and exact interest for one's unreasonable delay in paying a periodical interest instalment? See §§ 253, 254.

2 Connecticut v. Johnson, 1 Johns. Ch. 13. See Anketel v. Converse, 17 Ohio St. 11; Townsend v. Riley, 46 N. H. 300; Dean v. Williams, 17 Mass. 417; Leonard v. Wildes, 36 Me. 265; Baker v. Baker, 4 Dutch. 13; Smith v. Coopers, 9 Iowa, 376; Riney v. Hill, 14 Mo. 500.

merely of felons and social reprobates, but of bankers and business men of high standing, which are found to fail when submitted to the test of litigation; while it can hardly be doubted that, in every State where a rigid policy prevails, mercantile transactions in violation of the usury laws are constantly carried on between parties who take all legal risks and know their mutual interests too well to call upon the courts for direction.1

§ 266. What Contracts are Usurious; Questions of Intent.But, upon the whole, what contracts may and what may not be pronounced usurious? And where is the line to be drawn between them? It is a well-settled principle, to begin with, that the essence and not the form of a contract will determine whether or not the contract is usurious; and no matter what the ostensible purposes of a transaction may have been, or the language employed, the courts will explore the truth; and if they find that the object was a loan of money at more than the legal rate of interest, they will pronounce it usurious. Usury is mainly and fundamentally a question of intent; and, to constitute a usurious contract as usually found, there should be first a loan, and next an agreement to pay more

than legal interest upon it. No sham, no device, no trick of the parties to the contract, can be set up to defeat the operation of the usury laws, where these two elements concur; it being also understood that the money borrowed is to be repaid in any event.2

And yet where the thing or amount borrowed is not necessarily to be returned, but the principal is bona fide put at hazard, it is frequently held that more than the legal interest can be taken. And if a payment be conditional, and that

1 The repeal of the English usury laws (supra, § 251) does not deprive equity of its jurisdiction as to relieving expectant heirs, &c., against unconscionable bargains. L. R. 8 Ch. 484; Nevill v. Snelling, 15 Ch. D. 679.

2 See Blyd. Usury, 33; Cowp. 114; Wetter v. Hardesty, 16 Md. 11; Jarvis' Appeal, 27 Conn. 432; Scott v. Lloyd, 9 Pet. 418; Fitz

simons v. Baum, 44 Penn. St. 32. A mere renewal does not purge of usury. Eslava v. Crampton, 61 Ala. 507; National Bank v. Lewis, 75 N. Y. 516. But under some statutes usury may exist without a loan of money. See Crawford v. Johnson, 11 Ind. 258.

8 See Pomeroy v. Ainsworth, 22 Barb. 118; Blyd. Usury, 33-37.