De Wolf v. Johnson, 23 U.S. 367 (1825)
U.S. Supreme CourtDe Wolf v. Johnson, 23 U.S. 10 Wheat. 367 367 (1825)
De Wolf v. Johnson
23 U.S. (10 Wheat.) 367
In a contract for the loan of money, the law of the place where the contract is made is to govern, and it is immaterial that the loan was to be secured by a mortgage on lands in another state.
In such a case, the statutes of usury of the state where the contract was made, and not those of the state where it is secured by mortgage, are to govern it unless there be some other circumstance to show that the parties had in view the laws of the latter state.
Although a contract be usurious in its inception, a subsequent agreement to free it from the taint of usury will render it valid.
The purchaser of an equity of redemption cannot set up usury as a defense to a bill brought by the mortgagee for a foreclosure, especially if the mortgagor has himself waived the defense.
Under a usury law which does not avoid the securities, but only forbids the taking a greater interest than six percentum per annum, a court of equity will not refuse its aid to recover the principal.
A certificated bankrupt or insolvent, against whom no relief can be had, is not a necessary party to a suit in equity, but if he be made a defendant, he cannot be examined as a witness in the cause until an order has been obtained upon motion for that purpose.
This was a bill filed by the appellant, De Wolf, in the court below, on 4 September, 1818, for a foreclosure of a mortgage given by Prentiss, one of the respondents, on 7 July, 1817, to secure the repayment of the sum of $62,000. The bill alleged that the mortgagor had conveyed his equity of redemption to W. T. Barry by a deed of trust dated 16 March, 1818, describing the lands as
"all those tracts or parcels of land described and contained in a deed of mortgage from the said J. Prentiss to the said J. De Wolf, dated 7 of July, 1817, . . . it being the intention and meaning hereof that after the satisfaction of the debts set forth in said deeds, the remainder of the property described in said deeds . . . shall be hereby conveyed."
According to the provisions of the deed, Barry exposed the premises for sale at public auction on 27 May, 1818,
"subject to the encumbrances of any previous mortgage or deed of trust, particularly a mortgage deed to J. De Wolf, from J. Prentiss, dated 7 July, 1817, . . . recorded in the clerk's office of the Fayette County Court, and to which all persons wishing to purchase are referred for more particular information."
At this sale, the property was purchased by J. Johnson and R. M. Johnson. Prentiss filed no answer to the bill, and it was taken pro confesso against him. J. Johnson answered, claiming as a bona fide purchaser for a valuable consideration and setting up the defense of
usury in the contract between Prentiss and the appellant De Wolf and also denying notice of the mortgage except by vague report, which report was accompanied with the suggestion that the mortgage was void as being affected with usury. Barry also answered, admitting the conveyance to himself by Prentiss in trust to sell, which sale he had effected publicly and in good faith before the bill filed, and in pursuance of the sale had conveyed to the defendants, J. and R. M. Johnson, and alleged that he was ignorant of the claim of the plaintiff De Wolf except so far as that claim was recognized in the deed of trust, and also set up the defense of usury between the mortgagor and mortgagee. The other defendant, R. M. Johnson, answered, recognizing and adopting the answer of J. Johnson and denying for himself all knowledge of the mortgage at the date of the conveyance to Barry. He also averred that he was a creditor of Prentiss to the amount of nearly $500,000, for which he had no other security than the assignment to Barry, through which he derived title to the mortgaged premises. The cause went to hearing on the pleadings and proofs, and Prentiss was admitted as a witness on the part of the other defendants, subject to legal exceptions, but it did not appear by the transcript of the record whether the decree of the court below was grounded upon his testimony. It appeared by the other evidence in the cause that the transaction originated in a loan made by De Wolf to Prentiss in the State of Rhode Island
in the year 1815, the repayment of which was secured by a mortgage upon the lands in Kentucky, which contract was afterwards waived by the parties and a new contract entered into by them in the State of Kentucky in the year 1817. The principal question of fact was whether either or both of those contracts was void under the usury laws of either of those states, and as this question is fully considered in the opinion of this Court, it has not been thought necessary to extract from the voluminous mass of testimony in the court below the general result of the evidence as bearing upon it.
On the part of the appellants, it was contended:
1. That the original contract of 1815, if usurious, was not void according to the laws by which it ought to be governed, the laws of Rhode Island not avoiding the contract or the securities given for it, but only forfeiting one-third of the principal and all the interest of the loan as a penalty to be recovered by information or action of debt.
2. That the contract of 1817 was free from the taint of usury.
3. That if either or both those contracts were usurious, the defendants, J. & R. M. Johnson, could not take advantage of the usury, not only because they were not parties to the contract, but because, by the very terms of the deed of trust to Barry under which they claim, they
took the estate in controversy subject to the prior conveyance to the appellant.
On the part of the respondents it was insisted:
1. That the loan of 1815 was usurious and void.
2. That the transaction of 1817 was a device to secure the repayment of money advanced on an usurious agreement.
3. That money advanced on an usurious agreement cannot be secured and the payment enforced in a court of equity at the instance of the lender by force of any after agreement of the lender to relinquish the usury and of the borrower to repay the money lent.