Upon the rendition of a decree, a petition and motion for a
rehearing was filed. At the succeeding term of the court, an order
was entered granting a rehearing, which order was entered as of a
previous term. The record contained no order showing the
continuance of the motion and the petition for rehearing to the
succeeding term.
Held that the presumption mast be
indulged, in support of the action of a court having jurisdiction
of the parties and the subject matter -- nothing to the contrary
affirmatively appearing -- that the facts existed which justified
its action, and therefore that the court granted the application
for a rehearing at the previous term.
The question of usury, in a loan made in 1873 to a citizen of
Illinois by a Connecticut corporation, the loan being evidenced by
notes of the
Page 141 U. S. 385
borrower payable in New York and secured by mortgage upon real
estate in Illinois, is to be determined by the laws of the latter
state pursuant to its statute providing, in substance, that where
any contract or loan shall be made in Illinois or between citizens
of that state and any other state or country at a rate legal under
the laws of Illinois, it shall be lawful to make the principal and
interest payable in any other state or territory, or in London, in
which cases the contract or loan shall be governed by the laws of
Illinois, unaffected by the laws of the state or country where the
same shall be made payable.
It is settled doctrine in Illinois that the mere taking of
interest in advance does not bring a loan within the prohibition
against usury, but 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 is not decided.
A contract for the loan or forbearance of money at the highest
legal rate is not usury in Illinois merely because the broker who
obtains a loan -- but who has no legal or established connection
with the lender as agent and no arrangement with the lender in
respect to compensation for his services -- exacts and receives, in
addition to the interest to be paid to the lender, commissions from
the borrower.
If a corporation of another state, through one of its local
agents in Illinois, negotiates a loan of money to a citizen of the
latter state at the highest rate allowed by its laws, and the agent
charges the borrower, in addition, commissions for his services
pursuant to a general arrangement made with the company at the time
he became agent, that he was to get pay for his services as agent
in commissions from borrowers, such loan is usurious under the law
of Illinois, although the company was not informed, in the
particular case, that the agent exacted and received commissions
from the borrower.
In Illinois, when the contract of loan is usurious, the lender,
suing the borrower for the balance due, can only recover the
principal sum, diminished by applying as credits thereon all
payments made on account of interest. In such cases, whatever the
borrower pays on account of the loan goes as a credit on the
principal sum.
A trust deed covering real estate provided that in the case of a
sale by the trustee at public auction upon advertisement, all
costs, charges and expenses of such advertisement, sale and
conveyance, including commissions, such as were at the time of the
sale allowed by the laws of Illinois to sheriffs on sale of real
estate on execution, should be paid out of the proceeds.
Held (1) that this provision did not impose upon the
borrower the burden of paying to a lender a solicitor's fee where a
suit was brought for foreclosure; (2) that the commissions referred
to in the deed are allowed only where the property is sold, upon
advertisement, by the trustee, without suit.
The Court stated the case as follows:
Page 141 U. S. 386
By deed bearing date November 1, 1873, and acknowledged and
filed for record February 23, 1874, Edwin S. Fowler -- his wife,
Sophie Fowler, uniting with him -- conveyed to Jonathan Edwards, in
fee simple, certain real estate in the City of Springfield,
Illinois, in trust to secure the payment of the principal and
interest of nine bonds, of one thousand dollars each, executed by
Fowler to the Equitable Trust Company, a Connecticut corporation,
and payable, principal and interest at its office in the City of
New York, the principal five years after date and the interest
semiannually at the rate of seven percent per annum.
The deed recited that the bonds were given to secure a loan of
nine thousand dollars, payable five years after date thereof, with
interest at ten percent per annum, of which seven percent per annum
was secured by the deed of trust, and was to be paid as in the bond
provided, and the balance, to-wit, three percent per annum, was
"discounted," and paid at the time of the execution of the deed. In
case of default in paying the principal or interest as each
matured, or of failure to keep and perform the covenants of the
deed, or any of them, the trustee was authorized to sell at public
auction, after advertisement, to the highest bidder for cash, and
with or without previous entry upon the premises, the right and
equity of redemption of the grantors, and out of the proceeds of
sale to pay the costs, charges, and expenses of the advertisement,
sale, and conveyance, "including commissions, such as are at the
time of such sale, allowed by the laws of Illinois to sheriffs on
sale of real estate on execution," all sums paid by the trustee for
insurance and taxes, with ten percent interest thereon from time of
payment, the principal and the accrued interest remaining unpaid at
the time of sale, and to Fowler any balance remaining.
The present suit was brought October 26, 1882, to foreclose the
defendants' right and equity of redemption, and for a sale of the
mortgaged property to raise such sum as might be due the
mortgagee.
Fowler, by his answer, put the plaintiff upon proof of the
averments of the bill, and made defense upon several grounds.
Page 141 U. S. 387
But the original answer is important only as alleging that the
loan was usurious and was consummated in the manner it was with
intent to evade the statutes of Illinois relating to interest.
The plaintiff filed a general replication and subsequently the
defendants, by leave of the court, amended their answer, stating
more fully the grounds upon which they based the defense of usury.
They also alleged that the contract of loan was and is a New York
contract, and that by the statutes of that state, it was usurious
in that the interest contracted to be received by the plaintiff,
having regard to the amount actually advanced by it, was in excess
of seven percent per annum, the rate established by the laws of New
York. Of those statutes they claimed the benefit.
[The facts proved, and which were relied upon to establish that
the contract was usurious under the laws of New York, are stated in
the opinion of the Court,
post, pages
141 U. S.
397-399.]
By a decree passed October 20, 1884, the court below found the
amount due from Fowler to be only $2,980.67 on the bonds, and
$270.94, insurance and taxes paid by the plaintiff, with interest
thereon -- in all, $3,251.61. At the foot of that decree were these
orders:
"And thereupon the complainant entered its motion for a
rehearing before a full bench."
"Whereupon, on said 20th day of October of the year last
aforesaid [1884] came the complainant by its solicitor and filed in
the clerk's office of said court its motion and petition for a
rehearing in this cause, which motion and petition are as
follows,"
etc.
Following the above in the transcript are the written motion and
petition for rehearing.
On the 8th of June, 1885 -- the succeeding term -- the cause was
set for hearing on the 29th of that month before what is called a
full bench. Then appears an order, under date of June 30, 1885,
entered as of October 31, 1884, granting the rehearing asked. To
that order the defendants excepted.
By the final decree of January 11, 1887, the sum of $8,150.79
was adjudged to be due the trust company, of which $7,809.69 was
found to be the sum actually advanced by it to Fowler,
Page 141 U. S. 388
and $341.10 was the amount of insurance and taxes on the
property paid by the company, with interest on each sum, from date
of the decree at the rate of six percent per annum. The mortgaged
property was ordered to be sold to raise the above aggregate amount
found to be due, with such interest, and the costs of the suit.
From that decree, each party has prosecuted an appeal, the
defendants insisting that no decree for any amount should have gone
against them, while the plaintiff insists that the decree should
have been for a larger amount.
MR. JUSTICE HARLAN, after stating the facts in the foregoing
language, delivered the opinion of the Court.
1. The appellant Fowler contends that, as no order was made at
the term when the first decree was entered continuing until the
succeeding term the motion and petition for rehearing, the decree
of October 20, 1884, became final, and consequently the order at
the June term, 1885 entered as of October 31, 1884, which granted a
rehearing, as well as the decree January 11, 1887, are to be
treated as improvidently made, or as
Page 141 U. S. 394
nullities. We do not concur in this view. It is not disputed
that if, in October, 1884, a rehearing was granted and the clerk
omitted to enter an order to that effect, it would have been within
the power of the court at the succeeding term, by an order
nunc
pro tunc to make the record speak the truth. But as the order
granting a rehearing was entered under date of October 31, 1884,
the presumption must be indulged, in support of the action of a
court having jurisdiction of the parties and the subject matter --
nothing to the contrary affirmatively appearing -- that the facts
existed which justified its action, and therefore that the court
granted the application for a rehearing at the term at which the
first decree was rendered.
Stockton v.
Bishop, 4 How. 155,
45 U. S. 167;
Townsend v.
Jemison, 7 How. 706,
48 U. S. 718.
Besides, the exception taken by the defendants to the proceedings
of June 30, 1885, was not in terms that the order, then formally
made, was directed to be entered as of October 31, 1884, but that
it granted a rehearing. If they intended to deny that the rehearing
had been in fact ordered at the previous term of the court, the
point should have been distinctly made upon the record.
The appellants Fowler and wife also contend that the contract of
loan was a New York contract, and void under the laws of that
state, and that neither the debt thus created nor the mortgage
given to secure the bonds can be recognized, nor any recovery
thereon had, in Illinois or elsewhere, for principal or interest.
This contention rests upon the statute of New York, in force when
the debt was created, providing that all bonds, bills, notes,
assurances, conveyances, and all other contracts or securities
whatsoever whereupon or whereby there shall be reserved or taken,
or secured, or agreed to be reserved or taken, any greater sum or
greater value, for the loan or forbearance of any money, goods, or
things in action, than at the rate of seven percent per annum,
shall be void. 1 Rev.Stats.N.Y. part 2, c. 4, title 3, § 5; vol. 2,
6th ed. (Banks & Brothers) 1164-1166. The suggestion that by
the contract of loan, a rate of interest was reserved in excess of
that allowed by the laws of New York is based upon the ground that
although the bonds in suit call only for seven percent
interest,
Page 141 U. S. 395
a much larger rate was in fact exacted and secured by the
company, taking into consideration the amount of the loan, and the
sum actually received, under the contract.
By the thirteenth section of a statute of Illinois in force on
and after February 12, 1857, entitled "An act to amend the interest
laws of this state," it was provided:
"Where any contract or loan shall be made in this state, or
between citizens of this state and any other state or country,
bearing interest at any rate which was or shall be lawful according
to any law of the State of Illinois, it shall and may be lawful to
make the amount of principal and interest of such contract or loan
payable in any other state or territory of the United States, or in
the City of London, England, and in all such cases such contract or
loan shall be deemed and considered as governed by the laws of the
State of Illinois, and shall not be affected by the laws of the
state or country where the same shall be made payable."
Gross' Stats. Illinois, 1869, 371, c. 54, § 13.
And by another act, in force on and after February 16, 1857,
entitled "An act for the encouragement and security of loans of
money," it was provided:
"§ 14. It shall be lawful for any person or corporation
borrowing money in this state to make notes, bonds, bills, drafts,
acceptances, mortgages, or other securities, for the payment of
principal or interest at the rates authorized by the laws of this
state, payable at any place where the parties may agree, although
the legal rate of interest in such place may be less than in this
state, and such notes, bonds, bills, drafts, acceptances,
mortgages, or other securities shall not be regarded or held to be
usurious; nor shall any securities taken for the same or upon such
loans be invalidated in consequence of the rate of interest of the
state, kingdom, or country where the paper is made payable being
less than in this state, nor of any usury or penal law
therein."
"SEC. 15. No plea of usury nor defense founded upon an
allegation of usury shall be sustained in any court in this state,
nor shall any security be held invalid on an allegation of usury
where the rate of interest reserved, discounted, or taken does not
exceed that allowed by the laws of this state, in consequence
Page 141 U. S. 396
of such security's being payable in a state, kingdom, or country
where such rate of interest is not allowed."
"SEC. 16. It shall be lawful for all parties loaning money in
this state to take, reserve, or discount interest upon any note,
bond, bill, draft, acceptance, or other commercial paper, mortgage,
or other security at any rate authorized by the laws of this state,
whether such paper or securities for principal or interest be
payable in this state, or in any other state, kingdom, or country,
without regard to the laws of any other state, kingdom, or country,
and all such notes, bonds, bills, drafts, acceptances, or other
commercial paper, mortgages, or other security shall be held valid
in this state, whether the parties to the same reside in this state
or elsewhere."
Gross' Stats.Illinois, 1869, 372, c. 54.
These statutory provisions were in force at the contract of loan
involved in this case, and although the above Acts of February 12,
1857, and February 16, 1857, were repealed by the Act approved
March 31, 1874, in force July 1, 1874, they remained in full force
and effect as to rights acquired or causes of action existing under
them, and before the repealing act went into operation.
Rev.Stats.Illinois 1874, pp. 1012, 1023, 1046, c. 131, § 5, pars.
297, 299, and § 6. And by the Act approved March 25, 1874, in force
July 1, 1874, entitled "An act to revise the law in relation to the
rate of interest," this provision of former acts was reenacted and
preserved:
"When any bond, bill, draft, acceptance, mortgage, or other
contract shall have been or shall be made in this state, or between
citizens of this state, or a citizen of this state and any other
state, territory, or country, bearing interest at a rate lawful by
the laws of this state, may be made payable in any other state,
territory, or country, such contracts shall be governed by the laws
of this state."
Rev.Stats.Illinois, 1874, p. 615, c. 74, § 8.
The contract of loan in question having been made between a
citizen of Illinois and a corporation of another state, and the
bonds having been executed in Illinois and secured by mortgage upon
real estate there situated, the defense of usury, in a court of the
United States sitting in and administering the
Page 141 U. S. 397
laws of Illinois, cannot be sustained upon the ground simply
that the rate of interest exacted or reserved was in excess of that
allowed by the law of the state in which the bonds are made
payable.
3. We come now to consider whether, according to the law of
Illinois, there was usury in this loan.
The statutes of Illinois in force when this loan was made fixed
six percent per annum as the rate of interest upon the loan or
forbearance of any money, goods, or things in action, with liberty
to parties to stipulate or agree that ten percent per annum be
taken and paid; but it was provided that if any person or
corporation in that state should contract to receive a greater rate
of interest or discount than ten percent upon any contract, verbal
or written, such person or corporation should forfeit the whole of
the interest contracted to be received, and should be entitled only
to recover the principal sum due to such person or corporation.
Gross' Stats.Illinois, 1869, 2d ed., pp. 370-371 c. 54;
Rev.Stats.Illinois 1874, p. 614, c. 74.
The contract was for a loan to Fowler of $9,000 at ten percent
interest per annum. Seven percent of the interest was evidenced by
coupons attached to the nine bonds of $1,000 each, and were secured
with the bonds by the deed of trust. The remaining three percent,
according to the testimony of Johnston, the company's local agent
at Springfield, through whom the loan was made, was "discounted" at
the time the loan was finally negotiated. The amount received by
Fowler in cash from the company was $7,809.69. It was paid by a
draft of Johnston on the company in favor of Fowler of date
February 23, 1874.
In addition to the interest exacted for the loan, Fowler paid
Johnston as his commissions the sum of $100. In reference to these
commissions and the relations held by him with the trust company,
Johnston testified:
"I had an agreement with the defendant that upon the completion
of this loan, he was to pay me a commission of one hundred dollars.
After the loan was completed, and after the draft exhibited had
been delivered to the defendant, he paid me this one hundred
dollars. The draft for $7,809.69, exhibited herein, was for the
full
Page 141 U. S. 398
value of this $9,000 loan on the day it was negotiated and
closed, as before stated and shown, and no deduction from said full
value of this loan on that day was made by me on account of my said
commission, or on any other account whatever. The agreement under
which this commission was paid me by the defendant was unknown to
the complainant, and no part of said $100 belonged to or was paid
to the complainant. The expense of the abstract of title furnished
by the defendant, and the acknowledging and recording of the trust
deed, was, of course, paid by the defendant, but no deduction on
account therefor was made from the present value of this loan on
the day named. . . . In the negotiation of this loan, from its
inception to its completion, I acted as the medium of communication
between the complainant and the defendant. I was not authorized --
neither did I attempt -- to accept or reject the defendant's
application for this loan. I did, however, recommend its acceptance
by the complainant. Nor did I pass on the question of title to the
real estate, all these matters having been submitted to and decided
by the complainant in New York; nor for what I did in connection
with this loan was I paid by the complainant anything, nor was I
authorized by the complainant to do anything in connection with
this loan more than I did, and as I have shown."
On cross-examination, Johnston said:
"This was the first loan I made for complainant. Afterwards I
made other loans, not only to these parties, but to others.
I
had an understanding with the complainant company a short time
before this loan was made. This loan and all other loans I made
were in pursuance of this understanding. The complainant
furnished me with the blank 'Exhibit F' [the application for the
loan] in this case, and blank 'Exhibit D' [the report of the loan
as negotiated with the borrower], and gave me instructions as to
how they should be filled up, which I accordingly followed in
filling up such blanks. When I procured an application in this way,
I forwarded the same to the company for their consideration,
acceptance, or rejection. In my endorsement on this application
recommending the loan, in signing my name as agent, I understood
myself
as agent of the company in this
Page 141 U. S. 399
matter. Complainant acted through me in making this
loan.
In my arrangement with complainant for making these
loans, it was the understanding that complainant was to pay me
nothing whatever for my services, and that I was to procure
whatever pay I had from the borrower."
In reference to Johnston's agency for the trust company it
further appears that before this loan was made, one Rockwell, an
officer or agent of the trust company, went to Springfield,
Illinois, to get someone to act as its agent at that place. He
asked Fowler to suggest someone to loan money for the company on
real estate. Fowler recommended Johnston, who, upon being
introduced to Rockwell by Fowler, was appointed. To the written
application for the loan the following was appended:
"I have examined the within application, believe the statements
to be correct, and recommend a loan to applicant of $10,000 on the
security offered. R. P. JOHNSTON, Agent."
The bonds having been executed by Fowler, they were transmitted
by Johnston to the company at their New York office, in a
communication headed, "Agency of Equitable Trust Company,
Springfield, Ills., Feb. 23, 1874," and signed by him as
"Agent."
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, three
percent of the stipulated interest for the whole period of the
loan, five 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, it was said:
"The remaining plea sets up usury in this: that the interest was
made payable semiannually. It has long been settled such
reservation
Page 141 U. S. 400
is not usurious. The whole interest may be lawfully reserved in
advance."
McGill v. Ware, 4 Scamming 21, 28;
Mitchell v.
Lyman, 77 Ill. 525, 529-530;
Brown v. Scottish-American
Mortgage Co., 110 Ill. 235, 239;
Hoyt v. Pawtucket Inst.
for Savings, 110 Ill. 390, 394;
Telford v Garrels,
132 Ill. 550, 554.
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 three percent out of ten percent,
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 three percent of the stipulated
interest was take in advance by the lender, must therefore be
overruled.
But in view of other decisions of the Supreme Court of Illinois,
must not that defense be sustained in respect to this loan upon the
ground that the borrower was in effect required, as a condition of
the loan and in addition to the highest legal rate of interest, to
pay $100, under the guise of commissions, to the lender's agent for
procuring the loan? It is not the case simply of a borrower
employing a broker -- who has no regular or established connection
with the lender as agent, and no arrangement with the lender in
respect to compensation for his services -- to effect a loan, and
agreeing to pay him commissions. With agreements of the latter kind
the courts have no concern, and they are not permitted to affect
the rights of the lender where he does nothing more than lend his
money at such rate of interest as the statute permits. Such is the
rule in Illinois.
Hoyt v. Pawtucket Inst. for Savings, 110
Ill. 390, 394;
Telford v. Garrels, 132 Ill. 550, 554;
Sanford v. Kane, 133 Ill. 199, 205.
These authorities, however, have no application to the case
before us. The trust company established an agency at Springfield,
Illinois, for the purpose of securing loans upon
Page 141 U. S. 401
real estate, and to that end constituted Johnston its agent. It
made him a medium of communication between it and those in that
locality who might wish to borrow money. It supplied him with the
necessary blank forms, and expected him to make a report as to the
sufficiency of the security offered. Of course, it knew that no one
would regularly perform the duties of such a position without
reasonable compensation. That the agent might receive such
compensation, the company came to an understanding with him at the
outset that he must make the borrower pay for his services. With
such an arrangement between it and its agent, the company need not
be informed in any particular case of the amount the latter would
exact from the borrower as compensation for effecting a loan, but
it must be held to have known that the agent would not devote his
energies and time to its business gratuitously, and would not
forward to it an application for a loan unless the borrower agreed
to compensate him for his services. The services performed by
Johnston, as its regular local agent, charged with the duty of
receiving and forwarding applications for loans, with his opinion
as to the sufficiency of the security offered, were of substantial
value to the company, as much so as if they had been performed
under an arrangement that the company should, out of the money
loaned, retain for him the amount which, by previous agreement with
the borrower, he was to receive as his compensation. And the
services performed by him were just what they would have been had
he accepted the agency under such a specific arrangement as that
just suggested.
Under all the circumstances, was not this transaction tainted
with usury? Should not the $100 paid to the company's agent be
regarded as part of the amount which Fowler was required to pay for
the use of the money borrowed? These questions are answered by the
Supreme Court of Illinois. In
Payne v. Newcomb, 100 Ill.
611, 616, the inquiry was whether the commissions paid by the
borrower to the person through whom a loan at the highest legal
rate, was effected, were to be taken into account in determining
whether the transaction was usurious. That case is so directly in
point
Page 141 U. S. 402
that we feel justified in making extracts from the opinion of
the court. It was said:
"Did Stevens [the lender] know that Newcomb [the broker] was
charging for his services, and collecting it from the borrower?
Newcomb says that it was the understanding he was to get it of the
borrower, and that establishes the fact beyond all cavil. Were
these payments of commissions of benefit or profit to Stevens? They
unquestionably were, as they paid his agent for long continued and
valuable services rendered by Newcomb for him. No one will believe
that Newcomb thus incurred liability to Stevens, and rendered
skillful and valuable services for him for more than twenty years,
as a mere gratuity. It was not so understood. Newcomb says he was
to get his pay from the borrower. Stevens then paid what he owed to
Newcomb by requiring the agent to impose it on the persons to whom
loans were made. The arrangement amounted to no more or less than
requiring the agent to loan for a percent sufficiently high to
yield Stevens the highest rate of interest allowed by the law, and
to pay the agent for his responsibility, labor, skill, and trouble.
In effect, the transaction is the same as had the loan been made at
fifteen percent, and ten had been paid to Stevens and five to
Newcomb. This was the result which was by the parties intended
before the inception of the transaction. It was in pursuance of an
arrangement of the lender and his agent. . . . It is, however,
claimed that Stevens is not liable for what Newcomb retained and
charged for what is called 'commissions;' that he had the right to
charge any sum be chose, and that would not render the loan
usurious. Had Stevens not known that Newcomb was making such
charges, it may be that he would not have been affected by them;
but here it was agreed between Stevens and Newcomb that the latter
should charge a commission of the borrower to pay him for his
services. Stevens obtained the services of Newcomb. They were of
value to him, and no one will pretend that Newcomb rendered them as
a gratuity. They were rendered for Stevens, and they were paid for
by him by indirectly charging the amount to and requiring the
borrower to pay it, and this too by the express authority of
Page 141 U. S. 403
Stevens. Had he directed Newcomb to loan at fifteen percent for
the first year, and ten percent for each succeeding year, and to
retain five percent on the loan for the first year, and two and a
half percent for renewals and extensions, and to retain the extra
percent above ten percent as compensation for his services, would
anyone say that was not usury? And in what does the transaction
differ by the form given it by the agreement of the parties? In
each case, Stevens would get Newcomb's services, and compel the
borrower to pay for them."
And the court adds:
"There is no more familiar rule in the law than that the usury
laws cannot be evaded by mere pretenses, shifts, or evasions. This
rule runs through all of the books, and requires the citation of no
authority in its support. The policy of the statute is to protect
the weak and necessitous from the oppression of the strong, and to
sanction such transactions as this would be to defeat that policy.
Courts have no right to judge of the policy, but must enforce the
law as they find it. Whenever deemed proper, the General Assembly
will change the policy by modifying or repealing the statute, but
until so modified or repealed, we have no power to alter or change
its provisions."
In the previous case of
Peddicord v. Connard, 85 Ill.
102, 103, the court said:
"It is first urged that although there may have been a greater
rate of interest retained than is permitted by the law, still, it
was not usury unless it was agreed and so understood when the
transaction occurred, and that there was no such understanding or
agreement in this case. Such seems to be the ruling of the courts
in Great Britain and the various statutes of the union, in which
the entire debt is forfeited or heavy penalties are imposed when
the transaction is tainted with usury. The law does not favor
forfeitures, and in such cases the courts hold to a rigid and
strict compliance with the law imposing the penalty. It is
therefore probable that those courts would not give so strict a
construction if the only loss were, as it is with us, the interest
on the debt for the money loaned or forborne. Reason does not
require it, as it does where the debt and interest are lost by
reason of taking or contracting for a trifle more than is
sanctioned by the law.
Page 141 U. S. 404
Hence we are not prepared to adopt so rigid a construction. If
an usurious contract is made, whether express or implied at the
time of or subsequent to the entering into the agreement, to take
or reserve more than lawful interest, it is such an agreement as is
within the purview of the statute."
And in a subsequent case:
"The statute cannot be avoided by any shift or device which may
be resorted to by the parties. The form of the transaction is not
material, but whenever it clearly appears that more than the legal
rate of interest has been exacted, the contract will be held to be
usurious."
Leonard v. Patton, 106 Ill. 99, 104.
We do not find that the principles announced in
Payne v.
Newcomb have been overruled or modified by the state court. On
the contrary, that case has been frequently referred to, and its
doctrines recognized. In
Hoyt v. Pawtucket Inst. for
Savings, 110 Ill. 390, 394, it appears that Taylor, a loan
broker of Chicago, sent to the Pawtucket Institution for Savings,
in Rhode Island, an application by Hoyt for a loan, which was
accepted. The lender retained $250 out of the $5,000 loaned, to pay
a half year's interest in advance. The broker charged the borrower
$250 as his commission, and the latter received only $4,500. The
court said:
"This commission received by Taylor was not
from any
arrangement with the institution for savings, or with its
knowledge. It got no part of the commission, and received no
more than ten percent interest on the money loaned. Brokers
negotiating loans of other people's money may charge the borrower
commissions without thereby making a loan at the full rate of legal
interest usurious.
Ballinger v. Bourland, 87 Ill. 513;
Phillips v. Roberts, 90 Ill. 492;
Boylston v.
Bain, 90 Ill. 283.
Payne v. Newcomb, 100 Ill. 611,
was not intended to decide anything to the contrary, as seems to be
supposed by counsel for plaintiffs in error. In the latter case,
there was an
express understanding between Stevens, the lender,
and Newcomb, his agent, that Newcomb should get his commissions
from the borrower."
In
Cox v. Life Ins. Co., 113 Ill. 382, 385, the court,
after observing that the fact that an agent,
without the
authority, consent, or knowledge of his principal, upon
Page 141 U. S. 405
loaning the money of the latter, exacts from the borrower a sum
in excess of lawful interest, does not make the loan usurious, said
of
Payne v. Newcomb, 100 Ill. 611, that it was
"quite another case than the one before us, and does not apply
to the facts of the present case. There, services were rendered by
the loan agent for the lender of the money, and the commission paid
by the borrower to the agent was paid
under a prearrangement
made between the lender and the agent that the latter should
get his compensation for the services rendered by him to the lender
by charging commissions to the borrower."
See also Ballinger v. Bourland, 87 Ill. 513, 516;
Kihlholz v. Wolf, 103 Ill. 362, 366;
Meers v.
Stevens, 106 Ill. 549, 552;
Ammondson v. Ryan, 111
Ill. 506, 510;
Mass. Mut. Life Ins. Co. v. Boggs, 121 Ill.
119, 127.
This case cannot be distinguished from
Payne v.
Newcomb. In view of the decisions of the Supreme Court of
Illinois and the manifest policy of the law of that state relating
to usury, we cannot adjudge that a loan, under a fixed arrangement
between the lender and an individual that the latter will act as
the agent of the former at a particular place, and obtain
compensation for his services by way of commissions exacted from
the borrower, is to be governed by the same principles that apply
in the case of one holding no relations of agency with the lender,
but is a mere broker, who gets his commissions from the borrower,
without the knowledge, authority, or assent of the lender. It is
not consistent with the law of Illinois, as declared by its highest
court, that the lender, when taking the highest rate of interest,
shall impose upon borrowers the expense of maintaining agencies in
different parts of the state through which loans may be obtained.
We therefore hold that the exaction by the trust company's agent,
pursuant to his general arrangement with it, of commissions over
and above the ten percent interest stipulated to be paid by the
borrower, rendered this loan usurious.
The result is that the recovery must be limited to the principal
sum due the company. The statute declares, in respect to an
usurious contract, that the lender shall only recover the principal
sum due -- in other words, that judgment shall be rendered only for
that sum.
Page 141 U. S. 406
But what are the rules for the guidance of the court in
determining the principal sum due? In Illinois, it is settled that
a party making application to a court of equity for affirmative
relief against an usurious contract is entitled to such relief only
upon the condition that he shall pay, or offer to pay, the
principal sum, with legal interest.
Clark v. Finlon, 90
Ill. 245, 248;
Sanner v. Smith, 89 Ill. 123, 125;
Carter v. Moses, 39 Ill. 539, 542;
Henderson v.
Bellew, 45 Ill. 322, 324, and
Tooke v. Newman, 75
Ill. 215, 217. It is equally well settled there that one who has
voluntarily paid usurious interest cannot recover it back in an
action at law.
Riddle v. Rosenfeld, 103 Ill. 600, 603;
Hadden v. Innes, 24 Ill. 381, 384;
Town v. Wood,
37 Ill. 512, 516;
Carter v. Moses, 39 Ill. 539, 542;
Tompkins v. Hill, 28 Ill. 519. But it is the established
doctrine of the Supreme Court of that state that these rules have
no application where the transaction has not been settled, and the
lender sues to recover a balance due on the principal sum. In such
a case, the borrower, being sued, may have all payments made by him
on account of interest applied in diminution of such part of the
principal as remains unpaid.
Harris v. Bressler, 119 Ill.
467, 472;
Payne v. Newcomb, 100 Ill. 611, 623;
Hamill
v. Mason, 51 Ill. 489;
Heffner v. Vandolah, 62 Ill.
483, 486;
Saylor v. Daniels, 37 Ill. 331;
Mitchell v.
Lyman, 77 Ill. 525. Such is the uniform construction of the
statute, which, in the case of usury in a loan, forfeits the whole
of the interest contracted to be received, and permits a recovery
only for the principal sum due. As there is no interest really due
if the transaction be usurious, the right to recover interest being
forfeited at the moment the contract of loan is consummated,
whatever the borrower pays
on account of the loan must go
as credit on the principal sum; otherwise, the usurer would get the
benefit of his illegal contract, and the statute be rendered
inoperative.
The court below proceeded upon the ground that the trust company
was entitled to a judgment for the amount actually received by
Fowler in cash, with interest at six percent from the date of the
decree, and no credit was given on the principal
Page 141 U. S. 407
sum for numerous payments made by the borrower on account of
interest. Under the settled course of decisions in the Supreme
Court of Illinois, this decree must be held erroneous. Fowler paid
off all the interest represented by the coupons, and made payments
after the debt became due, and, as the company retained out of the
$9,000 an amount equal to the present value of three percent of the
ten percent stipulated to be paid, Fowler must be regarded as
having paid that amount on the principal debt. Within the meaning
of the statute, the amount due the company at the date of the
decree below was (1) the principal sum, $9,000, diminished by all
payments made by Fowler at any time on account of the debt; (2) the
sums paid by the company for insurance, taxes, and assessments,
with interest at ten percent on each from date of payment until the
rendition of the decree, that being the rate fixed in the deed of
trust in respect of sums paid by the mortgagee for insurance,
taxes, and assessments on the property which the mortgagors should
have paid. The decree should have been only for the aggregate
amount due on these two accounts, ascertained in the mode just
indicated, with interest from its rendition at six percent per
annum, the rate allowed on judgments by the statute of
Illinois.
The trust company insists that the decree should have made to it
an allowance for solicitor's fees. There is no foundation for this
claim. The trust deed provides that in the case of a sale by the
trustee at public auction upon advertisement, all costs, charges,
and expenses of such advertisement, sale, and conveyance, including
commissions, such as were at the time of sale allowed by the laws
of Illinois to sheriffs on sale of real estate on execution, should
be paid out of the proceeds. This provision does not impose upon
the borrower the burden of paying to the lender a solicitor's fee
where a suit is brought for foreclosure. The commissions referred
to in the deed are allowed only where the property is sold upon
advertisement, by the trustee, without suit. The trust deed made no
provision for a solicitor's fee to the company in the event suit
was brought. That a suit became necessary because of the
refusal
Page 141 U. S. 408
of the trustee to act is no reason for taxing such a fee against
the mortgagor.
The decree is reversed, and the cause remanded, with
directions to modify the decree in accordance with the principles
of this opinion.