1 2 Kent, Comm. 460; Story, Confl. Laws, § 304, 305; Andrews v. Pond, 13 Peters, 78; De Wolf v. Johnson, 10 Wheat. 383; Robinson v. Bland, 2 Burr. 1077; Van Schaick v. Edwards, 2 Johns. Cas. 355; Thompson v. Powles, 2 Sim. 194; Boyce v. Edwards, 4 Peters, 111.
2 Ibid.; Andrews v. Pond, 13 Peters, 78; Story, Confl. Laws, § 304, 305.
3 De Wolf v. Johnson, 10 Wheat. 383.
4 Andrews v. Pond, 13 Peters, 78.
5 Ibid.; Scofield v. Day, 20 Johns. 102; 2 Kent, Comm. 460, 461; Stapleton v. Conway, 3 Atk. 727; Dewar v. Span, 3 T. R. 425; Depau v. Humphreys, 8 Martin (n. s.), 1, 30. See Jacks v. Nichols, 1 Seld. 178; Davis v. Garr, 2 Seld. 184.
§ 733. We now come to the third requisite of a usurious contract, namely, that the principal must be to be repaid at all events. In all contracts, therefore, where the lender of money assumes a risk upon the loan, by which the repayment of the sum is hazarded, the contract is not usurious.2 Thus, if money be lent on bottomry, the repayment thereof being dependent on the safe arrival of the vessel, the lender may exact more than the legal rate of interest.3 So, also, the statute does not apply to contracts of insurance,4 or of guaranty, nor to wagers,5 the very nature of which is risk, and conditional liability. Nor does it embrace post-obit contracts, by which the lender agrees, in consideration of a sum advanced on the spot, to give the latter a larger sum on the death of some particular person, from whom the borrower has expectations, if he survive such person; for although such contracts may be relieved against in equity as being unconscionable, when they are extortionate,6 yet they have never been considered as usurious, because of the hazard which attaches to them.7 So, also, the purchase of an annuity for life or lives, if made bond fide, and not as a mere cloak for usury, does not come within the regulations of the statute.8 Yet if the mere form of purchasing an annuity be assumed in order to evade the statute of usury, and the contract be virtually a loan, and not a sale, it will be treated as usurious.1 The question is solely, what is the substance of the transaction, and the true intent of the parties; for if the contract be intended as a sale, it is good; if it be intended as a loan, it is bad; and this question is for the determination of the jury upon the peculiar circumstances of the case.2 The mere fact, however, that a loan of money was talked about and meditated beforehand, although it affords ground for suspicion, will not of itself render a contract usurious.3
1 Andrews v. Pond, 13 Peters, 65, 77, 78; Chapman v. Robertson, 6 Paige, 627; Peck v. Mayo, 14 Vt. 33; Story, Confl. Laws, § 307. See also post, § 1486, note.
2 Ex parte Wilson, 2 Jur. 98.
3 Sharpley v. Hurrel, Cro. Jac. 208; Sayer v. Glean, 1 Lev. 54; Long v. Wharton, 3 Keb. 804; Thorndike v. Stone, 11 Pick. 183.
4 Joy v. Kent, Hardr. 418; Chesterfield v. Jansen, 1 Wils. 286; s. c. 1 Atk. 347.
5 Button v. Downham, Cro. Eliz. 643; Lamego v. Gould, 2 Burr. 715.
6 1 Story, Eq. Jur. § 342; Lushington v. Waller, 1 H. Bl. 94; Chesterfield v. Janssen, 1 Atk. 347; Mathews v. Lewis, 1 Anstr. 7; Wharton v. May, 5 Ves. 27; Boynton v. Hubbard, 7 Mass. 119.
7 Lushington v. Waller, 1 H. Bl. 94; Chesterfield v. Janssen, 1 Atk. 347; Batty v. Lloyd, 1 Vern. 141.
8 Scott v. Lloyd, 9 Peters, 449; Lawley v. Hooper, 3 Atk. 278; Comyn on Usury, sect. 5, and cases cited; Chesterfield v. Janssen, 1 Atk. 347; s. c. 1 Wils. 295.
§ 734. The rule, therefore, is, that no contract is usurious, unless it be a loan for more than legal interest, of the repayment of which there is no hazard taken, except that Which is necessary and incidental to a loan. The mere common risk of repayment of a loan is not sufficient hazard to take it out of the statute. If, however, the transaction be a formal evasion of the statute, and although it avoid the form of a loan, be, nevertheless, essentially a contract of borrowing and lending, it will be usurious, if more than legal interest be received thereby. And where a contract is not on the face of it usurious, it is always a question for the jury to determine, whether it is a mere device to evade the statute, or is a bond fide transaction to which the statute does not apply,4 - the intention of the parties being the test of the legality of a contract.
§ 735. In the next place, as to some general considerations. Where a contract is usurious in its origin, that is, where, by its original terms, it contemplates the taking of more than legal interest, it is utterly void. So strict is this rule, that even a bond fide holder of negotiable paper for a valuable consideration without notice cannot recover thereon, if such paper were origiually usurious.1 Nor does it matter that more than legal interest is not in fact exacted, for if the contract provide for the payment of an illegal rate of interest, and there be no mere mistakes of fact, it is void, whether such illegal interest be exacted or not.2 Every contract which is usurious in its origin is absolutely void, and no subsequent act of the parties can make it valid.
1 Ibid.; Scott v. Lloyd, 9 Peters, 449; Marsh v. Martindale, 3 Bos. & Pul. 154; Drew v. Power, 1 Sch. & Lef. 182; Richards v. Brown, 2 Cowp. 776; Lloyd v. Scott, 4 Peters, 205.
2 Ibid.; Richards v. Brown, 2 Cowp. 776.
3 Train v. Collins, 2 Pick. 145; Murray v. Harding, 3 Wils. 390; s. c. 2 W. Bl. 859; Scott v. Lloyd, 9 Peters, 449; Chesterfield v. Janssen, 1 Atk. 347.
4 Bank of U. S. v. Waggener, 9 Peters, 400; Scott v. Lloyd, 9 Peters, 445; Andrews v. Pond, 13 Peters, 65; Stevens v. Davis, 3 Met. 211; Thomas v. Catheral, 5 Gill & J. 23.
§ 736. So, also, if a new security be taken, or a new contract be made to pay a debt, or perform a contract which is usurious in its origin, as between the original parties, or as between any parties who are cognizant of the usurious nature of the original contract, such new security or contract is void.3 But where a usurious bond or note comes to the hand of a bond fide holder, without knowledge of the usury, if a new contract be made, securing to him the full payment of such bond or note, it will be valid.4 Again, if a usurious contract be originally made, and the parties thereto agree to substitute therefor a new contract which is not usurious, such new contract will be valid.5