This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Usurious contracts are declared to be so by positive statute, which generally makes specific provision for the extent to which the money loaned can be recovered. Such a contract, if valid where made, may be enforced in jurisdictions where such a contract would be treated as usurious.1 If no place of payment is fixed the law of the state where the notes are executed and delivered will control." If no place of payment is provided for in the note it is controlled by the law of the place where it is made, even if the by-laws of the payee loan association re-quire all payments to be made at the home office.3 If a contract is made in one state and is payable in another, the parties may, if acting in good faith, contract with reference to the interest laws of either state, and a rate of interest, valid under either system of law will not be regarded as usurious.4 Prima facie, therefore, if the rate contracted for is valid by the law of the place of performance the contract is not usurious.5 Hence a contract made in Pennsylvania between a citizen of that state and a building and loan association domiciled in New York, payable in New York, has been held to be governed by New York law.6 This is true especially if the law of the place of payment and the law of the forum are the same.7 Hence if valid where payment is to be made, a contract is not usurious, even though if controlled by the law of the place where such borrower is domiciled it would be usurious.8 On the other hand, a contract valid where made may be enforced in another state, even if usurious by the law of such state.9 If, however, the building and loan association is really domiciled in the state where the loan is given and the maker resides, and the real intention of the parties is that it shall be paid there, a formal provision making the loan payable at the chief office of the company in another state does not make the law of such latter state control.10 Establishing a local agent in a state other than the one in which the corporation has its main office is for this purpose held to give it a domicile in that state.11 If the contract is not usurious by the law of the place where the debt is payable, a mortgage given to secure it in a state by the law of which such rate of interest would be usurious, is valid and may be enforced there.12 Even if the makers are domiciled in one state, the realty mortgaged to secure the note is situated there, and the note is delivered there, the note will be valid if not usurious by the law of the place of payment.13 By statute a contract may be made valid, even if exceeding the legal rate in the state where made, if valid by the law of the state where the property mortgaged to secure such debt is situated.14 If a loan for the purpose of buying up liens is not usurious where the lender is domiciled nor where the liens are to be purchased it is valid though usurious where made.15 If the defense of usury could not be interposed under the laws of either state, the question of which law controls is, of course, immaterial.16
1 Pittsburg, etc., Co. v. Sheppard, 56 0. S. 68; 60 Am. St. Rep. 732; 46 N. E. 61. (Suit was brought in the same state.)
2 Central of Georgia R. R. v. Kav-anaugh, 92 Fed. 56; Broekway v. Express Co., 171 Mass. 158; 50 N. E. 626; 168 Mass. 257; 47 N. E. 87; Meuer v. Ry., 11 S. D. 94; 74 Am. St. Rep. 774; 75 X. W. 823. (Even if one of the parties resided in another state.) Meuer v. Ry., 5 S. D. 568; 49 Am. St. Rep. 898; 25 L. R. A. 81; 59 N. W. 945; Davis v. Ry., 93 Wis. 470; 57 Am. St. Rep. 935;. 33 L. R. A. 654; 67 N. W. 16, 1132.
3 Missouri Pacific Ry. v. Sherwood, 84 Tex. 125; 17 L. R. A. 643; 19 S. W. 455.
4 Missouri Pacific Ry. v. Sherwood, 84 Tex. 125; 17 L. R. A. 643; 19 S. W. 455.
5 The Kensington, 183 U. S. 263; Chicago, etc., R. R. v. Gardiner, 51 Neb. 70; 70 N. W. 508.
6 The Kensington, 183 U. S. 263. Contra, Fonseca v. Steamship Co.. 153 Mass. 553; 25 Am. St. Rep. 600; 12 L. R. A. 340; 27 N. E. 665-, Knowlton v. Ry., 19 O. S. 260; 'A Am. Rep. 395.
7 Hughes v. R. R., 202 Pa. St. 222; 97 Am. St. Rep. 713; 63 L. R. A. 513; 51 Atl. 990 (affirmed for want of a Federal question, Pennsylvania R. R. v. Hughes, 191 U. S. 477).
1 Crebbin v. Deloney, 70 Ark. 493; 69 S. W. 312.
2 New York, etc., Co. v. Davis, 96 Md. 81; 53 Atl. 669.
3 Spinney v. Chapman, 121 la. 38; 95 N. W. 230.
4 Hieronymua v. Loan Association, 107 Fed. 1005; 46 C. C. A. 684; affirming 101 Fed. 12; United States, etc., Co. v. Beckley, 137 Ala. 119; 97 Am. St. Rep. 19; 33 So. 934; Barrett v. Loan Association, 130 Ala. 294; 30 So. 347; Pioneer, etc., Co. v. Nonnemacher, 127 Ala. 521; 30 So. 79; Jackson v. Mortgage Co., 88 Ga. 756; 15 S. E. 812; Scott v. Perlee, 39 O. S. 63; 48 Am. Rep. 421; British, etc., Co. v. Bates, 58 S. C. 551; 36 S. E. 917; Thornton v. Dean, 19 S. C. 583; 45 Am. Rep. 796; Dugan v. Lewis, 79 Tex. 246; 12 L. R. A. 93; 14 S. W. 1024; Ware v. Investment Co., 95 Va. 680; 64 Am. St. Rep. 826; 29 S. E. 744. "The general principle in relation to contracts made in one place to be performed in another is well settled. They are to be governed by the law of the place of performance and if the interest allowed by the law of the place of performance is higher than that permitted at the place of contract, the parties may stipulate for the higher interest without incurring the penalties of usury. The converse of this proposition is also well settled. If the rate of interest be higher at the place of the contract than at the place of performance, the parties may lawfully contract in that case also for the higher rate." Andrews v. Pond, 13 Pet. (U. S.) 65, 77; quoted in Miller v. Tiffany, 1 Wall. (U. S.) 298, 310; and in Bedford v. Loan Association, 181 U. S. 227; 242.
5 Hayes v. Loan Association. 124 Ala. 663; 82 Am. St. Eep. 210: 26 So. 527; Central National Bank v. Cooper, 85 Mo. App. 383; People's, etc., Association v. Berlin. 201 Pa. St. 1; 88 Am. St. Rep. 764; 50 Atl. 308; Pioneer, etc.. Loan Co. v. Cannon. 96 Tenn. 599; 54 Am. St. Rep. 858; 33 L. R. A. 112; 36 S. W. 386.
6 People's, etc., Association v.
Berlin, 201 Pa. St. 1; 88 Am. St. Rep. 764; 50 Atl. 308. So if a building and loan association note is payable at the home office, the law of the domicile of such association controls. Pacific States, etc., Association v. Green, 123 Fed. 43; Interstate, etc., Association v. Hotel Co., 120 Fed. 422; Alexander v. Loan Association, 120 Fed. 963; Gale v. Loan Association, 117 Fed. 732.
7 Middle States, etc., Co. v. Baker, 19 App. D. C. 1.
8 Hieronymus v. Loan Association, 101 Fed. 12; affirmed 107 Fed. 1005; 46 C. C. A. 684.
9 American, etc., Association v. McClellan, - Ark. - ; 70 S. W. 463; Farmers', etc., Co. v. Bazore, 67 Ark. 252; 54 S. W. 339.
10 Vermont, etc., Co. v. Hoffman, 5 Ida. 376: 95 Am. St. Rep. 186; 37 L. R. A. 509; 49 Pac. 314; Hos-kins v. Loan Association, - Mich. -; 95 N. W. 566; Georgia, etc., Association v. Shannon, 80 Miss. 642; 31 So. 900; Shannon v. Loan Association, 78 Miss. 955; 84 Am. St. Rep. 657; 57 L. Pv. A. 800; 30 So. 51.
11 National, etc., Association v. Brahan, 80 Miss. 407; 57 L. R. A. 793; 31 So. 840.
12 Bedford v. Loan Association, 181 U. S. 227; Central National Bank v. Cooper, 85 Mo. App. 383.
13 Hamilton v. Fowler, 99 Fed. 18; 40 C. C. A. 47.