Remedies in Case of Usury.

§ 1797. Where a contract is usurious, the right to recover is determined by statute, and varies in the different states. Thus, the holder may recover the principal with legal interest," or the principal alone, all the interest being forfeited,"1 or all recovery may be barred, as in New York. A court of equity will restrain the sale of land deeded in trust to secure a usurious note on the payment of the principal and legal interest."2 And in Illinois the statute allowing equitable relief has been held to take the place of common-law remedies previously existing.93 In Minnesota provision is made for proceedings in equity to declare a usurious bill or note void and have it canceled, and to have all proceedings upon it at law enjoined. But the New York statute allowing equitable relief to a "borrower," without offer on his part to pay principal or interest, has been held not to apply to the accommodation indorser of a usurious note.95 Usury in a note is no ground, however, for vacating in a collateral proceeding a judgment entered on the note by confession.96

Usury-How Pleaded and Proved.

§ 1798. The defense of usury is not favored by the courts, and the party setting it up must prove all the facts necessary to establish it. And in Maryland he is required by statute to state the particu

90 Tuxbury v. Abbott, 59 Me. 466.

91 Lanier v. Cox, 65 Ga. 265; and a verbal agreement for usurious interest may have that effect, Rozelle v. Dickerson, 63 Miss. 538.

92 Beard v. Bingham, 76 N. C. 285. The collateral remains valid security for the amount legally due. Partridge v. Williams, 72 Ga. 807.

93 Carter v. Moses, 39 Ill. 539.

94 MINNESOTA (Gen. St. § 2217).

95 Allerton v. Belden, 49 N. Y. 373, reversing 3 Lans. (N. Y.) 492; Birdseye's Rev. St. p. 1664, § 13.

96 Black v. Pattison, 61 Miss. 599.

97 Cutler v. Wright, 22 N. Y. 472. But it is sufficient to set up the facts from which it is to be inferred, Maule v. Crawford, 14 Hun (N. Y.) 193: Laird v. Hodges, 26 Ark. 356; Jordan v. Mitchell, 25 Ark. 258; Pilsbury v. McNally, 22 Ark. 409; and see, as to pleading usury under the national bank act, National Bank of Auburn v. Lewis, 75 N. Y. 516, reversing 10 Hun, 468.

lars as to time and amount, in pleading usury." 98 The burden of proof is on a defendant who alleges that a note is usurious."9 And usury will not be presumed merely because interest is agreed on from a date prior to the actual making of the note,100 or because the agent who made the loan for the maker has taken usury.101 But if a judg ment is rendered in an action for the interest, finding the note to be usurious, it will be conclusive evidence in an action between the same parties for the principal of the note.102 And, if a lender forces personal property on a borrower as part of the loan made to him on discounting the bill, the burden will be on the holder to disprove the usury implied by showing the actual value of the property transferred.1

103

If usury is set up as a defense to a note made in another state, the rate being greater than that allowed by the lex fori, it has been held that the plaintiff must prove that the note was lawful where it was made.104 A party may prove that a note was void for usury at the time of its inception.105 And it has been held that other dealings between the same parties are admissible as evidence of this.106 Parol evidence is admissible to show an agreement for usurious interest, and to prove that it was paid.1 But where any rate is valid if agreed upon, as in California, a parol agreement made there for a high rate of interest will be sufficient consideration for a note afterwards given for such accrued interest in another state on paying off the principal.108

107

98 MARYLAND (Pub. Gen. Laws, art. 49, § 5).

99 Williams v. Banks, 19 Md. 22; Gillette v. Ballard, 25 N. J. Eq. 491; Moody v. Hawkins, 25 Ark. 191.

100 Andrews v. Hart, 17 Wis. 297; Rutherford v. Smith, 28 Tex. 322,

101 Algur v. Gardner, 54 N. Y. 360.

102 Newton v. Hook, 48 N. Y. 676.

103 Davis v. Hardacre, 2 Camp. 375.

104 Camp v. Randle, 81 Ala. 240, 2 South. 287.

105 Stafford v. Rice, 5 Cow. (N. Y.) 23.

106 Seekel v. Norman, 71 Iowa, 264, 32 N. W. 334; as to the amount of evidence necessary, see Bayliss v. Cockcroft, 81 N. Y. 363.

107 Rohan v. Hanson, 11 Cush. (Mass.) 44; e. g. to support a recovery of usury paid by showing that other notes had been given for usurious interest only, and paid, Jackson v. Kirby, 37 Vt. 448.

108 Rose v. Phillips, 33 Conn. 570.

§ 1799. by fraud.

Fraud-False Representation.

110

Commercial paper, like other contracts, is rendered void This is true if it is induced by false representation; 109 e. g. to the effect that an accommodation note was business paper; or as to the construction of a road on which the note was conditioned,111 or a pretended request of the maker that the defendant should sign as surety.112 So, it has been held, where the defendant, holding under a blank indorsement (as security for a loan that had been paid), was fraudulently induced to believe that he could only return the note with his indorsement.113 So, where an illiterate person is induced to sign a paper, without negligence on his part, by misrepresentation as to its character.114 So, where the maker of an outlawed note was induced to renew by false representations as to the fact of its being outlawed.115

Mere ignorance that a provision is contained in a note does not amount to fraud, and is no defense.118 The fraud may consist, however, in a fraudulent exaggeration of an injury for which the note was given; 117 or in a false statement as to the amount the payee had

109 Byles, Bills, 214; Benj. Chalm. Dig. art. 94; 1 Edw. Bills & N. 458; Grew v. Bevan, 3 Starkie, 134; Lenheim v. Fay, 27 Mich. 70; Elsass v. Institute, 77 Ind. 72; Armstrong v. Cook, 30 Ind. 22; Beall v. January, 62 Mo. 434; Nat. Bank of Lancaster v. Mackey (Kan. App.) 49 Pac. 324; Millard v. Barton, 13 R. I. 610; Wilbur v. Prior, 67 Vt. 508, 32 Atl. 474; Wenzel v. Shulz, 78 Cal. 221, 20 Pac. 404.

110 Webb v. Odell, 49 N. Y. 583. But see, contra, Trask v. Wingate, 63 N. H. 474, 3 Atl. 926.

111 Taylor v. Fletcher, 15 Ind. 80.

112 Hall v. Clopton, 56 Miss. 555.

113 Shaw v. Stein, 79 Mich. 77, 44 N. W. 419.

114 Anderson v. Walter, 34 Mich. 113; Kagel v. Totten, 59 Md. 447; Briggs v. Ewart, 51 Mo. 245. So, where the maker was old and sick, and otherwise disabled by drugs and by poor eyesight, Mitchell v. Tomlinson, 91 Ind. 167; or where his attention was fraudulently diverted, Anderson v. Field, 6 Ill. App. 307. And see § 1873, infra, as to effect of negligence.

115 Brown v. Rice's Adm'r, 26 Grat. (Va.) 467.

116 Downey v. Beach, 78 Ill. 53; and the maker's negligence, without fraud on the payee's part, is no defense, Carpenter v. Bank, 119 Ill. 352, 10 N. E. 18; nor his illiteracy, Weller's Appeal, 103 Pa. St. 594.

117 Thompson v. Hinds, 67 Me. 177.

expended on the property for which the note was given,118 or as to the value of collateral on the strength of which the surety was induced to sign,119 or even as to the value of the property purchased.120 So, if the payee obtains a note by a false statement as to the amount paid by him to a third party for the maker, the note will be void to the extent of the misrepresentation.121

Misrepresentation and Concealment.

§ 1800. To render a bill void, the false representation must be material, and must have induced the party to execute or deliver the paper.122 A note will not be rendered void by misrepresentation as to its legal effect,123 or in another matter,124 or, by a third party, to the effect that the principal debtor's wife, for whose benefit the note was made, was entitled to a large share in her father's estate, and the surety would never be called on to pay.12 So, where a purchaser sees the land before giving his note for it, he will not be discharged by a fraudulent representation as to its value.126

Fraudulent concealment of a material fact has the same effect as a false statement. This is so where the maker refuses to sign a note with a certain surety, and the surety is afterwards induced to sign it, without knowledge of such refusal; 127 or where a maker gives his note for a check, and the seller fails to inform him that the drawer's paper had been protested, although the seller's informant had told him he believed the drawer's paper to be good.128 So, the acceptor

118 Keller v. Vowell, 17 Ark. 445.

119 Bank of Metropolis v. Jones, 8 Pet. 12.

120 Archer v. Bamford, 3 Starkie, 175; but not a mere representation as to the value of the merchandise for which the note was given, without other material facts, McComas v. Haas, 93 Ind. 276.

121 Griffiths v. Parry, 16 Wis. 218.

122 Hodges v. Torrey, 28 Mo. 99; but even a fraudulent representation by a bona fide holder as to the amount paid by him, made to induce the maker to execute a renewal to him, will not constitute a material defense, Murphy V. Lucas, 58 Ind. 360.

123 Jaggar v. Winslow, 30 Minn. 263, 15 N. W. 242.

124 Ingram v. Jordan, 55 Ga. 356.

125 Shropshire v. Kennedy, 84 Ind. 111.

126 Sprowls v. McCloud (Pa. Sup.) 6 Atl. 920.

127 Conger v. Bean, 58 Iowa, 321, 12 N. W. 284.

128 Brown v. Montgomery, 20 N. Y. 287.

may have an action for deceit, where his acceptance has been obtained by the production of a bill of lading as security, without information (possessed by the holder) that steps were being taken to reclaim the goods.129 So, where an indorser is induced to sign composition notes without being informed that the holder did not concur in the composition.130 But the failure to inform him that the payee had taken the maker's note for the balance due him has been held not to amount to fraud.131 So, an agreement between the maker and holder of a note not to inform the surety of its nonpayment is not such a fraud as will discharge the surety.132 But a transfer in good faith of a draft on a bank after it had become insolvent is not void.13 133

135

Fraud on Creditors.

136

§ 1801. A note made in fraud of creditors is void between the parties,134 as against an indorsee after maturity and for collection only.1 But an indorsement made to defraud the indorser's creditor cannot be set up by the indorser for his own benefit; nor by the maker against the indorsee,137 and it is valid in the hands of a bona fide holder, to the extent of the value paid.1 A note made to B., instead of his partner, A., in order to defraud A.'s creditors, will not be enforced in the hands of the payee.139 But, where the maker

129 March v. Bank, 4 Hun (N. Y.) 466.

130 Doughty v. Savage, 28 Conn. 146.

138

131 Booth v. Storrs, 75 Ill. 438. But, if the maker falsely represents the composition as equal, the creditor may recover the balance due on his original debt, without rescinding the composition. Broadway Sav. Bank v. Schmucker, 7 Mo. App. 171.

132 Grover v. Hoppuck, 26 N. J. Law, 191. 133 In re Oriental Bank, 28 Ch. Div. 634. 134 Sternburg v. Bowman, 103 Mass. 325; Stevens v. Parker, 7 Allen (Mass.) 361; Church v. Muir, 33 N. J. Law, 318. And see 508, supra. But the payee's administrator may enforce a note made to him for goods fraudulently transferred to the maker to evade an attachment against the payee. Martin v. Root, 17 Mass. 222.

135 Powell v. Inman, 52 N. C. 28.

136 Church v. Muir, 33 N. J. Law, 318.

137 Miller v. McNair, 65 Wis. 452, 27 N. W. 333.

138 Armstrong v. Bank, 41 Fed. 234.

139 Ager v. Duncan, 50 Cal. 325. So, if the note is for goods sold by the payee to defraud his creditors. Harwood v. Knapper, 50 Mo. 456.