In jurisdictions in which usurious interest paid by the debtor is recoverable, the debtor undoubtedly has the right to have such interest applied in diminution of the principal.1 Under statutes imposing as a penalty for taking usury, the forfeiture of all interest, it has in some cases been held that the debtor is entitled to have the entire interest paid applied upon principal;2 but in other cases the right of application under such statutes has been limited to the amount paid in excess of the legal rate.3 Where the recovery the court said: "When, as in Webb v. Wilshire, 19 Me. 406, the payee of a note, tainted with usury, sells it for the full amount due on it, and the maker afterwards pays that amount to the holder, an action against the payee can be maintained, because in such a case he has indirectly received the usurious interest. But when, as in this case, the payee sells the note for less than the amount due upon it, exclusive of usurious interest, the proposition that he is the recipient of illegal interest cannot be maintained, and an action will not he against him."
1 Webb v. Wilshire, 1841, 19 Me. 406. In Atwell v. Gowell, 1867, 54 Me. 358, 360,
2 McBroom v. Scottish Investment Co., 1894, 153 U. S. 318; 14 S. Ct. 852; Kendall v. Davis, 1892, 55 Ark. 318; 18 S. W. 185; Hawkins v. Welch, 1844, 8 Mo. 490.
3 Grow v. Albee, 1847, 19 Vt. 540; Nichols v. Bellows, 1849, 22 Vt. 581; 54 Am. Dec. 85. In Davis v. Converse, 1863, 35 Vt. 503, 507, the court said: "It seems now to be settled by repeated decisions, that where usury is included in a note or other security, and when paid is indorsed upon the note, it is to be considered as a payment upon the note itself, and no action can be maintained to recover back the usury paid, so long as there remains due any part of the principal, and lawful interest, but that where the security is only for the principal and legal interest, and the unlawful interest is either put into a separate obligation, or rests in a verbal agreement, so that when paid it is not indorsed upon the note, but is paid as usury eo nomine, it is otherwise, and a right of action accrues immediately to sue and recover it back, though the lawful debt is still unpaid."
1McGee v. Long, 1889, 83 Ga. 156; 9 S. E. 1107; Thompson v. Baird, 1895, 17 Ky. Law Rep. 403; 31 S. W. 280; New York Security Co. v. Davis, 1902, 96 Md. 81; 53 Atl. 669; Adams v. Mahnken, 1886, 41 N. J. Eq. 332; 7 Atl. 435; Nunn v. Bird, 1900, 36 Or. 515; 59 Pac. 808; Nye v. Malo, 1857, L. C. R. (Queb.) 405; First Nat. Bank v. Wood, 1881, 53 Vt. 491; Meem v. Dulaney, 1890, 88 Va. 674; 14 S. E. 363; Norvell v. Hedriek, 1883, 21 W. Va. 523. But see, contra, Walsh v. Mayer, 1884, 111 U. S. 31; 4 S. Ct. 260.
In the following cases the statute expressly provided for application : Atlanta Sav. Bank v. Spencer, 1899, 107 Ga. 629; 33 S. E. 878; Bowen v. Phillips, 1876, 55 Ind. 226; Vandergrif v. Swinney, 1900, 158 Mo. 527; 59 S. W. 71; 81 Am. St. Rep. 325; Land Mortgage, etc., Co. v. Gillam, 1896, 49 S. C. 345; 26 S. E. 990; 29 S. E. 203; Libert v. Unfried, 1907, 47 Wash. 186; 91 Pac. 776.
2 Fowler v. Equitable Trust Co., 1891, 141 U. S. 384; 12 S. Ct. 1, (Illinois law); Crane v. Goodwin, 1886, 77 Ga. 362; Madsen v. Whitman, 1902, 8 Idaho 762; 71 Pac. 152; Fretz v. Murray, 1898, 118 Mich. 302 ; 76 N. W. 495 ; Male v. Wink, 1901, 61 Neb. 748; 86 N. W. 472; Wilson v. Selbie, 1895, 7 S. D. 494; 64 N. W. 537.
3 Wood v. Cuthberson, 1884, 3 Dak. 328; 21 N. W. 3. Fay v. Lovejoy, 1866, 20 Wis. 403, 405. ("The reason is," said the court, "that equity never favors a forfeiture, and will not, unless bound down by statute, lend its aid to enforce one, but will, as a condition of relief, hold the party to the performance of that which is just and equitable. The payment of the principal sum loaned and the lawful interest is always regarded as just and equitable. It is no more than the borrower ought in conscience to pay, nor than, in the absence of the prohibition of the statute, he would be required to pay. If therefore he has paid the interest, a court of equity will not aid him to get it back within the lawful rate, though the lender had no action to compel its payment. And the rule is the same in an action at law for money had and received, to recover it back; or if the borrower set off the interest money paid against the principal sum in a legal action of the lender to recover that. Money had and received, though legal in form, is in its nature an equitable remedy, and lies only where the defendant has received money which, ex aequo et bono, he ought to refund.")
In some jurisdictions where the borrower is permitted to set off all interest paid in an action by the lender to recover the principal, he will not be afforded affirmative relief in equity unless he first pays of excessive interest by the debtor is denied, it would seem that there should be no right of application in diminution of principal. Such is the rule in some jurisdictions;1 but in others the right of application is recognized.2 There is also a difference of opinion as to the right to have usurious interest applied on principal after the right to recover such interest has been barred by the statute of limitations. A proper regard for the spirit and purpose of the statute points to the conclusion that the right of application is barred with the right of recovery.3 In some cases, however, it has been held otherwise.4