condition is in the power of the debtor to perform, so that the creditor may by the debtor's act be deprived of any extra payment, it follows that the transaction is not usurious.1 But the rule of hazard or contingency is to be applied with caution; for a loan upon a merely colorable or very slight contingency contrived so as to avoid the statutes against usury might not stand. The principal being placed in jeopardy, however, in case of a life annuity, the annual payments thereon are not usurious.2 Nor can usury ordinarily result from the act and intention of one of the parties to the contract alone; for both must have been cognizant of the facts which constitute the usury. Again, an error in calculation, an accidental omission of credit, or a transfer by mistake of an item from one account to another, will not alone make a security usurious; but the mistake should be rectified rather. But if a contract be clearly usurious, and more than legal interest be intentionally taken, whether the party knows that the transaction is within the usury laws or not, the legal consequences must follow; the transaction speaks for itself.5 Once more, the question of usury refers to the time of the transaction; and the use which the borrower makes afterwards of the money cannot change the result and is not a proper subject of inquiry. And of course, where there is no usurious agreement, the question whether there was an usurious intent is immaterial.7

The situation of the parties to the usurious transaction, and the character of the transaction, may sometimes affect the action of the court in such matters; as, for instance,

1 Sumner v. People, 29 N. Y. 337; Lawrence v. Cowles, 13 Ill. 577.

2 Howkins v. Bennet, 7 C. B. N. s. 507. See Spain v. Hamilton, 1 Wall. 604; Waite v. Mining Co., 37 Vt. 608.

Hayward v. Le Baron, 4 Fla. 404; Aldrich v. Reynolds, 1 Barb. Ch. 43. See Simpson v. Fullen wider, 12 Ired. 334.

Marvine v. Hymers, 12 N. Y.

223; Blyd. Usury, 32; Busby v. Finn, 1 Ohio St. 409; Marsh v. Martindale, 3 B. & P. 150.

5 Cro. Jac. 507; Bank of Salina v. Alvord, 31 N. Y. 573; Thompson v. Nesbit, 2 Rich. 73. And see Craig v. Pleiss, 26 Penn. St. 271.

6 Bondurant v. Commercial Bank, 8 S. & M. 533; Brown v. Nevitt, 27 Miss. 801.

7 Smith v. Paton, 31 N. Y. 66.

where they do not deal on equal terms, where the lender gets some undue advantage over the borrower, or uses fraud or force; for unconscionable bargains should not be sustained, though all usury laws were abolished.1

§ 267. Change or Renewal of Usurious Contract. If a contract be usurious in its inception, no renewal of it or change in the form can alter its original character. Thus, where a bond is given upon a usurious agreement, which is afterwards destroyed and another bond given upon the same terms, the substitution of the one for the other cannot avail the parties to the usury; because, as the second bond was given in consideration of the first which was invalid, it must follow that the second is invalid also.2 And the substitution of a new security for the same usurious debt renders the new security invalid, as was the original.

But parties may determine to free themselves from the vice of usury and start anew; and where they destroy the usurious security and make a settlement of the transaction, and substitute new securities in good faith for an actual loan, and then have no further intent of evading the usury laws, the new contract and new securities will stand. And although the new principal be for the same sum as the old, and though usurious interest were taken upon the loan as it formerly existed, which has not been refunded, the new transaction is not thereby vitiated. It has been said that the substance of the older decisions amounts to this: that inasmuch as an actual agreement between borrower and lender on the one part to pay, and on the other to receive, more than the legal rate of interest, is necessary to constitute usury; so, an actual agreement between the same

1 See Miller v. Cook, L. R. 10 Eq. 641; Cowp. 116; 15 Ch. D. 679.

2 Blyd. Usury, 91; Stanley v. Westrop, 16 Tex. 200; Pearson v. Bailey, 23 Ala. 537; Tuthill v. Davis, 20 Johns. 285; Nelson v. Hurford, 11 Neb. 465.

8 Ib.; Campbell v. McHarg, 9 Iowa, 354; Jackson v. Packard, 6

Wend. 415; Wales v. Webb, 5 Conn. 154; Cross v. Mann, 53 Vt. 501; 61 Ala. 507; 75 N. Y. 516.

4 Hoyt v. Bridgewater, &c. Co., 2 Halst. Ch. 253; Smith v. Stoddard, 10 Mich. 148; De Wolf v. Johnson, 10 Wheat. 367. And see Blyd. 91 et seq., and cases cited; Hammond v. Hopping, 13 Wend. 505.

parties or their legal representatives to cleanse the transaction is also necessary to render valid any subsequent promise for the payment of the original principal.1 But, according to the later American cases, it would appear that the rule has relaxed further, and that an actual agreement need not now be shown, if the circumstances sufficiently imply a mutual intent of the parties to get rid of the usury on a renewal or substitution of securities, or otherwise, which intent has been carried out by their own acts.2 The great difficulty lies, however, in distinguishing between a bona fide substitution of new securities for old, with a new promise, and the mere carrying along, extending, or renewing an old usurious loan with a mere pretence of substituting new securities. When parties have come to a genuine settlement after actually paying and taking usury, and then made new securities which include the actual loan and no more, the new contract is not to be regarded as usurious. But if they keep the original usurious transaction with its security outstanding, or if they make a new security which embraces a claim for unpaid usurious interest, or if they substitute securities without the intervention of some new and distinct and proper consideration, it can hardly be doubted that the whole transaction, including the securities, will be treated as infected with the original usury.3

1 See Blyd. Usury, 96.

2 A usurious contract may be purged of usury by refunding the usurious payments already made, and thereafter drawing the legal rate of interest. Phillips v. Building Association, 53 Iowa, 719. Something depends, perhaps, upon the statute consequences of usury; whether in making the contract "void," or otherwise. See § 283, post. And cf. Marks v. McGehee, 35 Ark. 217.

3 See Hazard v. Smith, 21 Vt. 123; Smith v. Stoddard, 10 Mich. 148; Miller v. Hull, 4 Denio, 104. As to the taking of several notes at a bank at usurious rates, and paying the full balance by a new note, see Ticonic

Bank v. Johnson, 31 Me. 414. And see Coulter v. Robertson, 14 S. & M. 18; Turneys v. Hunt, 8 B. Monr. 401; Hightower v. Beall, 66 Ga. 102; Hoopes v. Ferguson, 57 Iowa, 39. The payment of usurious interest for a period already elapsed on a note or other money obligation, is a good consideration for an agreement to extend the time of payment, notwithstanding the usurious interest might be recouped. Lemmon v. Whitman, 75 Ind. 318. Cf. 47 Iowa, 62. For a usurious transaction where interest was regularly paid on the note in advance, see Sanner v. Smith, 89 Ill. 123. To agree to pay more than legal interest for past forbearance.

§ 268. Taking Usury where a Contract was not originally Usurious, etc.—In order to defeat a contract on the ground of usury, it must have been usurious in its inception, or when originally made; and if the contract was not usurious then, it will not become so through the receipt of usurious interest upon it afterwards; though a statute penalty for taking usurious interest would appear to be incurred whenever one takes it.1 And when the payee of a note which is good as it originated makes a special contract for a usurious rate afterwards to forbear enforcing payment, it is the special contract of forbearance which is usurious, while the original note remains untainted.2 Where, however, money is loaned at the highest legal rate, any special contract to pay a sum additional in consideration of extension would be usurious.3 A renewed note may thus be usurious when the original note was not. These same principles apply to bonds and various other instruments.5

A transaction which is inseparable is liable to the penalties of the statute if tainted with usury; but where of separate and independent transactions one is usurious and not the other, the latter is free of the taint, even though contemporaneous and between the same parties.6

$269. Compounding Interest, Discounting, Selling Notes, etc., not Usurious. - A contract that interest falling due from

or in consideration of extending the time of payment, is usurious. But an agreement in advance to pay a sum of money by a day certain, and more than legal interest by way of penalty if the debt be not punctually paid, is held not usurious, if the parties had not intended at the time to evade the usury laws. See Davis v. Rider, 53 Ill. 416; Wilson v. Dean, 10 Iowa, 432; Rogers v. Sample, 33 Miss. 310; Mitchell v. Doggett, 1 Fla. 356; Fisher v. Otis, 3 Chand. (Wis.) 83. The rule appears to be otherwise in some States. See Waller v. Long, 6 Munf. 71. And simple interest paid for the forbearance of usury is, of course, no usury. Briggs

v. Sholes, 15 N. H. 52. And as to miscellaneous points, see Fry v. Coleman, 1 Grant Cas. 445; Coon v. Swan, 30 Vt. 6.

1 Blyd. 97; Busby v. Finn, 1 Ohio St. 409; Swartwout v. Payne, 19 Johns. 294; Drury v. Morse, 3 Allen, 445; Ware v. Thompson, 2 Beasl. 66; Godfrey v. Leigh, 6 Ired. 390. See § 289.

2 Mallett v. Stone, 17 Iowa, 64; Cobb v. Morgan, 83 N. C. 211.

3 Rosebrough v. Ansley, 35 Ohio St. 107. 4 42 Neb. 437.

5 See Ware v. Thompson, 2 Beasl. 66; Ballinger v. Edwards, 4 Ired. Eq. 449.

6 See 28 Ill. App. 305, where such

§ 269 time to time shall be turned into principal and bear interest, if not paid when due, is not usurious; for, as we have seen, compound interest may lawfully be taken, upon a delinquency, if the parties so choose.1 And notwithstanding the rate of interest is fixed by law at so much per annum, a contract may lawfully be made for the payment of that rate before the principal comes due, in periods shorter than a year.2 Furthermore, where one who is entitled to collect interest and principal at a certain date takes instead a new note for the total amount bearing legal interest, this is not a usurious transaction. In short, compounding or anticipating interest is not usurious, even though public policy in the particular instance should disallow it.4

An advantage even superior to that of compounding interest is gained by the lender when a discount is allowed; for here he secures interest in advance, by reserving it from the amount lent, and may, by investing the sum reserved, gain interest upon interest. Money is now frequently loaned in this way upon time notes; and the practice is well established as legal, not only in bank loans, but in those of individual capitalists, so far as concerns discounts at a legal rate.5 By an English statute of the reign of William IV., the business of discounting short notes was expressly excepted from the operation of the old usury laws; and similar enactments may be found in parts of the United States. The practice of discounting was first recognized as lawful on behalf of banks, and half a century ago our courts seem to have been disposed to confine its operation to bankers and those who

separate loans were protected by the same mortgage security.

1 Supra, § 263; Hale v. Hale, 1 Cold. 233; Brown v. Vandyke, 4 Halst. Ch. 795; Stewart v. Petree, 55 N. H. 621; Hawley v. Howell (Iowa), 14 N. W. Rep. 199. But see 70 Ind. 373; 54 Vt. 573. The custom of stockbrokers to debit and credit interest monthly, computing interest on balances, is not necessarily usurious. Hatch v. Douglas, 48 Conn. 116.

2 Meyer v. Muscatine, 1 Wall. 384. And see Hoyt v. Bridgewater, &c. Co., 2 Halst. Ch. 253.

8 Holland v. Mosteller, 6 Jones Law, 582.

4 Bowman v. Neely, 151 Ill. 37.

5 Blyd. 58, 59; Parker v. Cousins, 2 Gratt. 372; Marvine v. Hymers, 12 N. Y. 223; Cowles v. McVickar, 3 Wis. 725; 49 Ill. App. 564.

6 Stat. 3 & 4 Will. IV. c. 98. See Wms. Pers. Prop. 5th Eng. ed. 89.