De Wolf v. Johnson Johnson Barry Prentiss

• Decision Date: 18 March 1825
• Citation: 10 Wheat. 367,23 U.S. 367,6 L.Ed. 343
• Parties: DE WOLF v. J. JOHNSON, R. M. JOHNSON, W. T. BARRY, and J. PRENTISS
• Court: U.S. Supreme Court

23 U.S. 367

6 L.Ed. 343

10 Wheat. 367

DE WOLF v. J. JOHNSON, R. M. JOHNSON, W. T. BARRY, and J. PRENTISS.

March 18, 1825

APPEAL from the Circuit Court of Kentucky.

This was a bill filed by the appellant, De Wolf, in the Court below, on the 4th of September, 1818, for a foreclosure of a mortgage given by Prentiss, one of the respondents, on the 7th of July, 1817, to secure the repayment of the sum of 62,000 dollars. The bill alleged, that the mortgagor had conveyed his equity of redemption to W. T. Barry, by a deed of trust dated the 16th of March, 1818, describing the lands as 'all those tracts or parcels of land described and contained in a deed of mortgage from the said J. Prentiss to the said J. De Wolf, dated the 7th of July, 1817,' 'it being the intention and meaning hereof, that after the satisfaction of the debts set forth in said deeds, the remainder of the property described in said deeds,' 'shall be hereby conveyed.' According to the provisions of the deed, Barry exposed the premises for sale at public auction, on the 27th of May, 1818, 'subject to the encumbrances of any previous mortgage or deed of trust, particularly a mortgage deed to J. De Wolf, from J. Prentiss, dated the 7th of July, 1817,' 'recorded in the clerk's office of the Fayette County Court, and to which all persons wishing to purchase are referred for more particular information.' At this sale, the property was purchased by J. Johnson and R. M. Johnson. Prentiss filed no answer to the bill, and it was taken pro confesso against him. J. Johnson answered, claiming as a bonae fidei purchaser for a valuable consideration, and setting up the defence of usury in the contract between Prentiss and the appellant, De Wolf, and also denying notice of the mortgage except by vague report, which report was accompanied with the suggestion, that the mortgage was void, as being affected with usury. Barry also answered, admitting the conveyance to himself by Prentiss, in trust to sell, which sale he had effected publicly, and in good faith, before the bill filed; and in pursuance of the sale had conveyed to the defendants, J. and R. M. Johnson; and alleged, that he was ignorant of the claim of the plaintiff, De Wolf, except so far as that claim was recognised in the deed of trust; and also set up the defence of usury between the mortgagor and mortgagee. The other defendant, R. M. Johnson, answered, recognising and adopting the answer of J. Johnson, and denying for himself all knowledge of the mortgage at the date of the conveyance to Barry. He also averred, that he was a creditor of Prentiss to the amount of nearly 500,000 dollars, for which he had no other security than the assignment to Barry, through which he derived title to the mortgaged premises. The cause went to hearing on the pleadings and proofs, and Prentiss was admitted as a witness on the part of the other defendants, subject to legal exceptions; but it did not appear by the transcript of the record, whether the decree of the Court below was grounded upon his testimony. It appeared by the other evidence in the cause, that the transaction originated in a loan made by De Wolf to Prentiss, in the State of Rhode Island in the year 1815, the repayment of which was secured by a mortgage upon the lands in Kentucky, which contract was afterwards waived by the parties, and a new contract entered into by them in the State of Kentucky, in the year 1817. The principal question of fact was, whether either, or both of those contracts, was void, under the usury laws of either of those States, and as this question is fully considered in the opinion of this Court, it has not been thought necessary to extract from the voluminous mass of testimony in the Court below, the general result of the evidence as bearing upon it.

On the part of the appellants, it was contended:

1. That the original contract of 1815, if usurious, was not void according to the laws by which it ought to be governed; the laws of Rhode Island not avoiding the contract, or the securities given for it, but only forfeiting one third of the principal, and all the interest of the loan, as a penalty to be recovered by information or action of debt.

2. That the contract of 1817 was free from the taint of usury.

3. That if either, or both those contracts, were usurious, the defendants, J. & R. M. Johnson, could not take advantage of the usury, not only because they were not parties to the contract, but because, by the very terms of the deed of trust to Barry, under which they claim, they took the estate in controversy subject to the prior conveyance to the appellant.

On the part of the respondents, it was insisted:

1. That the loan of 1815 was usurious and void.

2. That the transaction of 1817 was a device to secure the repayment of money advanced on an usurious agreement.

3. That money advanced on an usurious agreement cannot be secured, and the payment enforced in a Court of equity, at the instance of the lender, by force of any after agreement of the lender to relinquish the usury, and of the borrower to repay the money lent. ^a Mr. Jones and Mr. P. Hall, for the appellant, argued, that contracts being to be governed by the laws of the country where they are made, as to their nature, construction, and effect, the original contract of 1815 was not within the statute of Kentucky as to usury.^b The rate of interest is governed by the law of the country where the debt was contracted, and not according to that where the action is brought.^c That if there be no express reference to any other place, the law will intend that the contract was to be executed where it was made, and have a reference to the law of that State. Nor would taking a security upon lands in another country, vary the application of the rule. Thus, contracts made in England, secured by mortgage on estates in the West-Indies, are construed by the English law.^d So, where the debt was contracted

March 14th. in Ireland, and the security given in England, it was held, that Irish interest should be allowed.^e If the contract be not void by the laws of the country where it was made, it can never become so by being carried into another country to be enforced; if valid in the country where it was made, it will be valid everywhere, unless some reason of policy oppose its execution.^f Usury is only malum prohibitum, and independent of statutory regulation, the parties may contract for whatever rate of interest they please.^g Unless the statute of usury which applies to the case, avoids the contract, the defendant cannot avail himself of this ground of defence. Penal laws are strictly local, and the statute of Rhode Island is merely a penal law.^h The respondents, seeking to avail themselves of usury in a contract made in that State, must show that it would be a good defence there.ⁱ If the contract of 1815 were good under the law by which it ought to be governed, it would not be invalidated by the subsequent contract, even if that were void.^j But the contract of 1817 was, in fact, free from usury, and would have the effect of purifying the previous contract from all taint.^k Where usurious securities have been destroyed by mutual consent, a promise by the borrower to repay the principal and legal interest is binding.^l As to the sale of stock, if it was fair and bona fide, and not with a view to evade the statute, it would not invalidate the contract.^m As to the amount advanced in treasury notes, they are to be put on a footing with bank notes, and if received in payment, are to be considered as cash.ⁿ A tender in bank notes, if not objected to, is good.^o The sum paid as rent is not usurious, unless paid in consequence of a previous corrupt agreement.^p A payment in the nature of a penalty is not usurious.^q If there be any usury at all in the new contract of 1817, it has crept in by mistake and miscalculation, and that will not avoid it.^r The testimony of Prentiss to prove the alleged usury is inadmissible, because he is a party upon the record, is liable for costs, is directly interested in the event of the suit, and is concluded by the decree.^s And finally, even if usury exist, and be ever so clearly proved, the defendants, J. & R. M. Johnson, cannot take advantage of it, since they purchased, subject to De Wolf's mortgage, which, if usurious, is not to be taken as absolutely void.^t

Mr. Webster and Mr. Bibb, contra, admitted the general rule as to the lex loci contractus, but contended, that the present contract was made with a view to the laws of Kentucky, where the borrower was domiciled, where the security was given, and where the money was to be repaid. It was an exception to the rule, that where the contract was made in one country with a view to the laws of another, the statutes of the latter were to govern it.^u This was founded upon the same reason with the rule itself, i. e. the intention of the parties. Another exception is, where the parties go from one country into another, nad there make a contract with a view to evade the laws of the former. So if it be against the public policy of the country where performance of the contract is sought, to enforce it, the rule does not apply.^v But, it was insisted, that by the law of Rhode-Island, where the original agreement was made, it was absolutely void; and, as such, could not be enforced in any other State or country. But the statute of Kentucky, which was the law properly applicable to the case, not only prohibited the usurious contract, but absolutely avoided the securities. It was well settled, that any device, however specious, by which illegal interest is reserved, would render the contract void.^w Even a beneficial purchase by the lender, or disadvantageous purchase by the borrower, will be considered within the statutes of usury, if connected with a loan, or treaty, or communication for a loan.^x So a sale of goods, or stock, as a contrivance to evade the usury laws, avoids the contract.^y And if the lender, in part of...