If one should borrow stock at a valuation much above the market rate, and agree to pay interest on this value for the use of the stock to sell or pledge, this would be usurious.

One may lend his stock, and may, without usury, give the borrower the option to replace the stock, or to pay for it at even a high value, with interest. But, if he reserves this option to himself, the bargain is usurious, because it gives the lender the right to claim more than legal interest. So, the lender may reserve either the dividends or the interest, if he elects at the time of the loan; but he cannot reserve the right of electing at a future time, when he shall know what the dividends are.

A contract may seem to be two, and yet be but one, if the seeming two are but parts of a whole. Thus, if A borrows one thousand dollars, and gives a note promising to pay legal interest for it, and then gives another note for (or otherwise promises to pay) a further sum, in fact for no consideration but the loan, this is all one transaction, and it constitutes a usurious contract.

But if there be a loan on legal terms, with no promise or obligation on the part of the borrower to pay any more, this might not be invalidated by a mere understanding that the borrower should, when the money was paid by him, make a present to the lender for the accommodation. And if, after a payment has been made, which discharged all legal obligation, the payer voluntarily adds a gift, this would not be usurious. But in every such case the question for a jury is, What was this additional transfer of money, in fact; was it a voluntary gift, or was it the payment of a debt? If an honest gift, it was not usurious; if a payment, it was usurious.

A foreign contract, valid and lawful where made, may be enforced in a State in which such a contract, if made there, would be usurious. But if usurious where it was made, and by reason of that usury, wholly void in that State, if it is pu in suit in another State where the penalty for usury is less, it cannot be enforced under this mitigated penalty; but it is wholly void there also.

SECTION II.

A CHARGE FOR RISK OR FOR SERVICE

IT is undoubtedly lawful for a lender to charge an extra price for the risk he incurs, provided that risk be perfectly dis tinct and different from the merely personal risk of the debtor's being unable to pay. If anything is paid for this last risk, it is certainly usury.

So, one may charge for services rendered, for brokerage, or for rate of exchange, and may even cause a domestic loan or discount to be actually converted into a foreign one, so as to charge the exchange; and this would not be usurious. But here, as before, and indeed throughout the law of usury, it is necessary to remember that the actual intention, and not the apparent purpose or form of the transaction, must determine its character. So, if one lends money to be used in business, and lends it upon such terms that he becomes a partner in fact with those who use it, taking his share of the profits, and becoming liable for the losses, this is not usurious.

So, if one enters into a partnership, and provides money for its business, and the other party is to bear all the losses, and also to pay the capitalist more than legal interest as his share of the profits, this is not usurious, because there is no loan, if there be in fact a partnership; for then there is a very impor tant risk, as he becomes liable for all the debts of the partnership.

The banks always get more than legal interest by their way of discounting notes and deducting the whole interest from the amount they give. This is perfectly obvious if we take an extreme case; as it a bank discounted a note of a thousand dollars at fifteen years, in Massachusetts, the bank would dis count the interest of all the fifteen years; the borrower would receive one hundred dollars, and at the end of fifteen years h would pay back one thousand dollars, which is equivalent to paying nine hundred dollars for the use of one hundred for fifteen years, whereas the legal interest would be but ninety dollars. But this method is now established by usage and sanctioned by law. It should, however, be confined to dis

counts of negotiable paper, not having a very long time to run. For the rule is founded upon usage, and the usage goes no further.

SECTION III.

THE SALE OF NOTES.

THERE are, perhaps, no questions in relation to interest and usury of more importance than those which arise from the sale of notes or other securities. In the first place, there is no doubt whatever that the owner of a note has as good a right to sell it for the most he can get, as he has to sell any goods or wares which he owns. There is here no question of usury, because there is no loan of money, nor forbearance of debt. But, on the other hand, it is quite as certain that if any person makes his own note, and sells that for what he can get, this, while in appearance the sale of a note, is in fact the giving of a note for money. It is a loan and a borrowing, and nothing else. And if the apparent sale be for such a price that the seller pays more than legal interest, or, in other words, if the note bear interest and is sold for less than its face, or is not on interest, and more than interest is discounted, it is a usurious transaction. Supposing these two rules to be settled, the question in each case is, under which of them does that case come, or to which of them does it draw nearest.

We are not aware of any general principle so likely to be of use in determining these questions as this: if the seller of a note acquired it by purchase, or if it is his for money advanced or lent by him to its full amount, he may sell it for what he can get; but if he be the maker of the note, or the agent of the maker, and receives for the note less than would be paid him if only a lawful discount were made, it is a usurious loan. In other words, the first holder of a note (and the maker of a note is not and cannot be its first holder) must pay to the maker the face of the note, or its full amount. And after paying this, he may sell it, and any subsequent purchaser may sell it as merchandise. The same rule must apply to corporations, and all other bodies or persons who issue their notes or bonds on interest. If sold by brokers for them, for less than the full

amount, it is usurious. Nor can such notes come into the market free from the taint and the defence of usury, unless the irst party who holds them pays for them their full value.

But then comes another question. If a note be offered for sale, and be sold for less than its face, and the purchaser supposes himself to buy it from an actual holder and not from the maker, can the maker interpose the defence that it was actually usurious, on the ground that the seller was only his agent? I should say that he could not; that there can be no usury unless this is intended; and that the guilty intention of one party cannot affect another party who was innocent.

I should say, also, that one who, having no interest in a note, in lorses or guarantees it for a certain premium, will be liable for its face; he does not now add his credit to the value of his property and sell both together, as where he indorses a note which he holds himself, but sells his credit alone. This trans. action I should not think usurious. And if it was open to no other defence, as fraud, for example, and was in fact what it purported to be, and not a mere cover for a usurious loan, we know no good reason why such indorser or guarantor should not be held liable to the full amount of his promise.

SECTION IV.

COMPOUND INTEREST.

COMPOUND interest is sometimes said to be usurious; but it is not so; and even those cases which speak of it as "savoring of usury" may be thought to go too far, unless every hard bar gain for money is usurious. As the authorities now stand, however, a contract or promise to pay money with compound interest cannot, generally, be enforced. On the other hand it is neither wholly void, nor attended with any penalty, as it would be if usurious; but is valid for the principal and simple interest only.

Nevertheless, compound interest is sometimes recognized as due by courts of law, as well as of equity; and sometimes, too, by its own name. Thus, if a trustee be proved to have had the money of the party for whom he is trustee (who is

called in law his cestui que trust) for a long time, without accounting for it, he may be charged with the whole amount, reckoned at compound interest, so as to cover his unlawful profits. If compound interest has accrued under a bargain for it, and been actually paid, it cannot be recovered back, as money usuriously paid may be. And if accounts are agreed to be settled by annual rests, which is in fact compound interest, or are actually settled so in good faith, the law sanctions this. Some times, in cases of disputed accounts, the courts direct this method of settlement.

Where money due on interest has been paid by sur.dry instalments, the mode of adjusting the amount which has the best authority, and the prevailing usage in its favor, seems to be this Compute the interest due on the principal sum to the time when a payment, either alone or in conjunction with preceding payments, shall equal or exceed the interest due on the princi pal. Deduct this sum, and upon the balance cast interest as before, until a payment or payments equal the interest due: then deduct again, and so on.

ABSTRACTS OF THE USURY LAWS OF THE STATES AND TERRITORIES

These laws are stated from the latest information, but are constantly undergoing change, and are likely to be so until restrictions upon interest are abolished, as they are now in some States.

ALABAMA.- Legal interest, eight per cent. Plea of usury defeats recovery of all interest.

ALASKA.- Legal interest, eight per cent., but twelve per cent. may be expressly agreed upon. Double the amount paid can be recovered within two years on usurious contracts. Judgment must be given against the defendant for the amount due without interest, and against the plaintiff for costs when a contract is discovered to be usurious.

ARIZONA.- Legal interest, six per cent., but parties may agree in writing for any rate.

ARKANSAS.- Legal interest, six per cent., but parties may contract for any rate not exceeding ten per cent. Contracts for more than ten per cent. are void, both as to principal and interest. Usurious contracts are void.

CALIFORNIA.- Legal interest, seven per cent., but parties may agree in writing for any rate.

CANADA, DOMINION OF.- Legal interest, generally six per cent., with the right to agree on what parties will, but with exceptions in different provinces, especially as to banks and other corporations, and loans on different kinds of security.