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(R. I. —, 114 Atl. 181.)

tion of the sum payable upon the mortgage. This has been followed in later Massachusetts cases. The court in that case appears to have been affected to some extent by the provision of the Massachusetts Usury Statute, providing that the borrower might recover the penalty for usury by a bill in chancery. We do not think it can be said fairly that in Hart v. Goldsmith, supra, the Massachusetts court intended to create an exception to the ordinary rule. We are of the opinion that we should conform to the generally accepted equitable principle. 1 Story, Eq. Jur. 14th ed. § 424.

The complainant further contends that, if under the allegations of his bill a court of equity cannot properly grant him the relief of cancelation of said note and mortgage, nevertheless, under said allegations, the bill should not have been dismissed, but should have been retained by the court for the purpose of restraining the threatened foreclosure of the mortgage. By "foreclosure" the complainant intends the exercise by the respondent Palmer of the power of sale contained in said mortgage. The complainant bases this contention upon his claim that it appears by the bill that the sum of usurious interest paid by the complainant before the filing of the bill amounts to 6 per cent on the principal of the loan from the time when said loan was made, up to a time about four years after the beginning of this suit, or until June, 1923. The position of the complainant in that regard is that equity should restrain the threatened sale under the power, because the complainant is not in default.

The general assembly has declared that it is against public policy to permit the taking of interest at a rate in excess of that which it has prescribed. Under the statute, on all sums loaned exceeding $50 the borrower is permitted to reserve, charge, or take by contract, interest not exceeding 30 per cent per annum. The taking of interest at a greater rate, either directly or

indirectly, is prohibited, and every contract made in violation of the statute is declared usurious and void. In equity as well as in law the superior court will not aid a lender in the enforcement of such a usurious contract, nor should it require a borrower to perform such contract as the condition of granting him equitable relief. As a court of equity it will enforce the Usury Law, established by the general assembly, against the lender, and also for the protection of the borrower, in so far as such enforcement does not lead it to disregard those equitable principles which, as a court of conscience, it must enjoin upon all suitors before it. When in equity the borrower, seeking relief from a usurious contract, is the actor before it, the superior court should insist upon the recognition by such borrower of his moral obligation to return the money loaned at the time when in good conscience it is due, with legal interest. Although in law the mortgage is of no effect as security usuriousfor the usurious enforcement in contract, in a suit by the borrower equity will treat the mortgage as a valid security for the amount that it regards as justly due from the borrower to the lender.

Mortgage

equity.

Upon the complainant's contention, which we are now considering, it is necessary to determine what, in the circumstances of this case, equity ought to regard as legal interest upon the loan from Palmer to the complainant. Is it 6 per cent, or is it 30 per cent-the highest rate allowable by law within the usurious rate taken by the respondent in the transaction? It should be borne in mind that the insistence of equity that, notwithstanding the statute, there still exists a moral obligation resting upon the borrower, does not proceed from any regard for the lender, and is not for the purpose of giving life to a contract which the general assembly has declared to be void, but arises from the equitable consideration that it is contrary to good conscience that a complainant

should be freed from liability, and still be permitted to retain the money of the lender and be required to make no proper compensation for its use. A contract for illegal interest is as void in equity as it is in law, and furnishes no standard for measuring the borrower's moral duty to pay interest. Under the allegations of the bill the superior court was warranted in holding that the lender, Palmer, had indirectly taken interest on the loan made to the complainant, at a rate exceeding 30 per cent per annum. No consideration of conscience would require that court to hold that the rate of interest which the complainant ought to pay upon that loan was more than 6 per cent, the rate fixed by law in the absence of express stipulation.

Interest-rate enforceable by equity in absence of express stipulation.

Shall

The question next arises: the complainant in an accounting, or in a proceeding to determine whether or not he is in default, be permitted to have credit at the rate of 6 per cent for the payments which he has made as interest upon the void note, which payments have been credited by the lender in accordance with the terms of the illegal contract? Some courts of law have held that one who voluntarily pays unlawful interest upon a usurious contract cannot recover it by suit, in the absence of a permissive statute; and some equity courts, in stating an account between the parties, or in a proceeding to redeem mortgaged premises, will not allow the borrower credit at the legal rate for such voluntary payments. We regard the contrary as

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an equitable suit to redeem premises mortgaged to secure a usurious loan, have permitted the borrower to have credit for the amount of the statutory penalty for usury, such penalty being three times the usurious interest reserved.

From the bill it appears that the complainant has made payments largely in excess of legal interest on the loan. There has been no application of this excess which the court should recognize, but the court should direct such application to be made as appears most beneficial to the complainant. Ordinarily, it would be for the benefit of a borrower that such excess should be applied in reduction of the principal of the loan. The complainant is asking that it shall be applied to the payment of interest in advance on said loan, so that he may not be in default. In view of the terms of sale contained in the mortgage, a copy of which is annexed to the bill, it appears desirable that the complainant should be protected against a sale which may be had without actual notice to him.

Application of payments

usurious interest-legal interest in

advance.

In our opinion the bill should not have been dismissed upon demurrer, but should have been held for hearing upon the complainant's prayer for the restraint of the threatened sale under the power contained in the mortgage. If, upon hearing, the complainant sustains his allegation of usury, and it appears that payments in excess of legal interest have been made by the complainant upon said loan, then the superior court should direct the application of such payments to be made as shall be for the protection of the complainant; and the court should make such declaratory decree, and should give to the complainant such conditional relief, as equity may require in the circumstances of the case.

The complainant's appeal is sustained. The decree of the Superior Court dismissing the bill is reversed. The cause is remanded to the Superior Court for further proceedings in accordance with this opinion.

ANNOTATION.

Payment of or offer to pay principal and legal interest as condition of relief in equity against usurious contract.

I. View that both principal and legal interest must be offered:

a. As condition of equitable relief generally, 123.

b. As condition of particular kind of equitable relief, 125.

1. View that both principal and legal interest must be offered.

a. As condition of equitable relief generally.

Equitable relief against a usurious contract is granted in most jurisdictions only on the condition that the debtor shall pay, or offer to pay, the principal of his debt and legal interest thereon.

Connecticut.-Kilbourn v. Bradley (1809) 3 Day, 356, 3 Am. Dec. 273; Welch v. Wadsworth (1861) 30 Conn. 149, 79 Am. Dec. 239.

Georgia. Campbell V. Murray (1878) 62 Ga. 86; Whatley v. Barker (1887) 79 Ga. 790, 4 S. E. 387; Brantley v. Wood (1895) 97 Ga. 759, 25 S. E. 499; Moseley v. Rambo (1898) 106 Ga. 597, 32 S. E. 638; Craft v. Link (1910) 135 Ga. 521, 69 S. E. 742; Weaver v. Bank of Bowersville (1917) 146 Ga. 142, 90 S. E. 864; Patterson v. Moore (1917) 146 Ga. 364, 91 S. E. 116; Matthews v. Banks (1917) 146 Ga. 732, 92 S. E. 52; Polite v. Williams (1920) 149 Ga. 726, 101 S. E. 791; Liles v. Bank of Camden County (1921) - Ga. -, 107 S. E. 490; Lanham v. State Bank (1920) C. C. A., 268 Fed. 458 (construing Georgia law).

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V.

Illinois. Cushman Sutphen (1866) 42 Ill. 256; Tooke v. Newman (1874) 75 Ill. 215; Lehmann v. Shimeall (1915) 195 Ill. App. 511; Chase & B. Co. v. National Trust & Credit Co. (1914) 215 Fed. 633 (construing Illinois law).

Kansas.-Holden Land & Live Stock Co. v. Inter-State Trading Co. (1912) 87 Kan. 221, L.R.A.1915B, 492, 123 Pac. 733.

Maryland. - Trumbo V. Blizzard (1833) 6 Gill & J. 18; Jordan v.

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II. View that principal only need be offered, 126.

III. View that neither principal nor legal interest need be offered, 128. IV. Jurisdictions in which law is unsettled, 131.

Trumbo (1834) 6 Gill & J. 103; Gwynn v. Lee (1850) 9 Gill, 137; Baugher v. Nelson (1850) 9 Gill, 299, 52 Am. Dec. 694; Powell v. Hopkins (1873) 38 Md. 1; Walker v. Cockey (1873) 38 Md. 75; Hill v. Reifsnider (1873) 39 Md. 429; Smith v. Myers (1874) 41 Md. 425.

Michigan.-Vandervelde v. Wilson (1913) 176 Mich. 185, 142 N. W. 553; Dalton v. Weber (1918) 203 Mich. 455, 169 N. W. 946.

New Jersey.-Miller v. Ford (1831) 1 N. J. Eq. 358; Ware v. Thompson (1860) 13 N. J. Eq. 66; Giveans v. McMurtry (1864) 16 N. J. Eq. 468; Okin v. Broad & Market Nat. Bank (1921) - N. J. 113 Atl. 139. North Carolina.-Ballinger v. Edwards (1847) 39 N. C. (4 Ired. Eq.) 449; Beard v. Bingham (1877) 76 N. C. 285; Purnell v. Vaughan (1880) 82 N. C. 134; Burwell v. Burgwyn (1888) 100 N. C. 389, 6 S. E. 409; Carver v. Brady (1889) 104 N. C. 219, 10 S. E. 565; Churchill v. Turnage (1898) 122 N. C. 426, 30 S. E. 122; Owens v. Wright (1912) 161 N. C. 127, 76 S. E. 735, Ann. Cas. 1914D, 1021.

Ohio.-Shelton v. Gill (1842) 11 Ohio, 417.

Rhode Island.-See the reported case (MOHCRIEF V. PALMER, ante, 119.) Wisconsin.-Rietz v. Foeste (1872) 30 Wis. 695. Compare Haggerson v. Phillips (1875) 37 Wis. 364.

England.-Ex parte Skip (1752) 2 Ves. Sr. 489, 28 Eng. Reprint, 313; Scott v. Nesbit (1789) 2 Bro. Ch. 642, 29 Eng. Reprint, 355, 2 Cox, Ch. Cas. 183, 30 Eng. Reprint, 84; Mason v. Gardiner (1793) 4 Bro. Ch. 436, 29 Eng. Reprint, 976; Benfield v. Solomons (1803) 9 Ves. Jr. 77, 32 Eng. Reprint, 530; Hindle v. O'Brien (1809) 1 Taunt. 413, 127 Eng. Reprint, 894; Ex parte

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Scrivener (1814) 3 Ves. & B. 14, 35 Eng. Reprint, 384. Compare Roberts v. Goff (1820) 4 Barn. & Ald. 92, 106 Eng. Reprint, 872.

With respect to a bill to enjoin the sale of real property under a deed of trust securing certain usurious notes, the court said in Tooke v. Newman (1874) 75 Ill. 215: "When a person applies to equity for relief against usurious contracts, the court will only entertain jurisdiction on the condition that the debtor shall pay the principal, with legal, but not with conventional, interest. Six per cent being legal interest, the court would require the payment of the principal with that rate of interest, as a condition to granting relief. And in such cases the debtor must tender, or at least offer to pay, the principal and such interest to the creditor or holder of the instrument." See to the same effect, Lehmann v. Shimeall (1915) 195 Ill. App. 511.

So, with respect to a statute barring the recovery of any interest on a usurious obligation, the court said in Welch v. Wadsworth (1861) 30 Conn. 149, 79 Am. Dec. 239: "The right of the defendant to insist upon the forfeiture by the plaintiffs of the whole interest was a legal, but not to the full extent an equitable, one. Courts of equity do not view the statute as courts of law are compelled to do. If the borrower goes into equity in respect to a security given in connection with the usurious contract, or to avoid extortion or oppression, the court will compel him to pay the principal and legal interest, because there is a moral obligation resting on him to do so, and it is equitable that he should be compelled to do it. In the case of Kilbourn v. Bradley (1808) 3 Day (Conn.) 356, 3 Am. Dec. 273, this court said: "The statute against usury, on principles of public policy, renders void contracts upon usurious consideration. But the lender incurs no penalty, unless he actually takes usury; and courts of equity, on relieving against oppression or extortion, order the repayment of the sum really loaned or due, with lawful interest. The moral obligation of the borrower

to repay the principal sum actually loaned, with the lawful interest, is unimpaired.'"

In Trumbo v. Blizzard (Md.) supra, the court said, in distinguishing a case wherein a mortgagor was defending a suit in equity on the ground of usury, from one in which he brought an action in that court for relief: "Where a mortgage is given on usurious consideration, the plea of usury, either by the mortgagor or his alienee, is a full defense to a bill in chancery for a foreclosure by the mortgagee, who goes to enforce a void instrument. But there is a recognized distinction between that, and the case of a mortgagor, or his grantee, who goes into chancery seeking relief against the mortgage on the ground of usury; which will only be extended to him on his paying, or offering to pay, the principal and legal interest of the sum due, on the principle that he who seeks equity, to obtain relief, must do equity." A like distinction was made in Ballinger v. Edwards (N. C.) supra.

In several English cases, a distinction has been made between bankruptcy jurisdiction and equity jurisdiction generally. It has been held that the debtor is not bound to tender either principal or legal interest, where an application for relief from a usurious obligation is made to the bankruptcy jurisdiction of the court, but that he is bound to tender both, as a condition of relief, where his application is to the general equity jurisdiction of the court. Ex parte Skip (Eng.) supra; Benfield v. Solomons (1803) 9 Ves. Jr. 77, 32 Eng. Reprint, 530; Ex parte Scrivener (1814) 3 Ves. & B. 14, 35 Eng. Reprint, 384. Compare, however, Roberts v. Goff (Eng.) supra, wherein a rule nisi was obtained to show cause why a judgment entered on a warrant of attorney should not be set aside on the ground of usury. Although the application was made to the equity jurisdiction of the court, the rule was made absolute, the court refusing to impose, as a condition of relief against the judgment, a requirement that the principal of the usurious contract be paid with legal interest.

b. As condition of particular kind of equitable relief.

In a number of decisions it has been held that a mortgagor who brings a bill to enjoin a sale of property under a mortgage, on the ground that the mortgage secures a usurious obligation, is not entitled to the relief prayed unless he shall pay, or offer to pay, the actual principal of his debt with legal interest. Whatley v. Barker (1887) 79 Ga. 790, 4 S. E. 387; Brantley v. Wood (1895) 97 Ga. 759, 25 S. E. 499; Moseley v. Rambo (1899) 106 Ga. 597, 32 S. E. 638; Craft v. Link (1910) 135 Ga. 521, 69 S. E. 742; Liles v. Bank of Camden County (1921) — Ga. -, 107 S. E. 490; Powell v. Hopkins (1872) 38 Md. 1; Walker v. Cockey (1873) 38 Md. 75; Vandervelde v. Wilson (1913) 176 Mich. 185, 142 N. W. 553.

The right to the redemption of property from a mortgage securing a usurious obligation has likewise been held to be available only on the condition that the mortgagor shall pay the actual principal of the obligation, with legal interest. Cushman v. Sutphen (1866) 42 Ill. 256; Holden Land & Live Stock Co. v. Inter-State Trading Co. (1912) 87 Kan. 221, L.R.A.1915B, 492, 123 Pac. 733; Dalton v. Weber (1918) 203 Mich. 455, 169 N. W. 946. In the case last cited, it was held that certain mortgagors were entitled to redeem property mortgaged to secure a usurious obligation, on the payment of the principal of such obligation and legal interest. In their bill the mortgagors had offered to pay the sums, principal and interest, which the court should determine to be due, but contended that no interest should be paid. this point the court said: "In making this contention, they are asking a court of equity to enforce a penalty, a forfeiture. It is clear, however, that the usurious lender is not in this case, nor in any other judicial proceeding, seeking to enforce usury. Upon the authority of Vandervelde v. Wilson (Mich.) supra, plaintiffs, having had the use of a certain sum of money for a certain period of time, ought to pay the legal rate of interest therefor for the time." And in Cushman v. Sutphen

On

(Ill.) supra, it was held that in a suit for the redemption of real estate from a mortgage the master properly computed interest at 6 per cent, where the interest agreed on was usurious. The decision was based on a statute providing that if a greater rate of interest than 6 per cent was not for money loaned, the rate, on the establishment of that state of facts, should be 6 per cent.

Similarly, the payment of, or offer to pay, the actual principal of a usurious obligation, and legal interest thereon, has been held to be a condition of the right of the debtor to have canceled a mortgage deed or other instrument securing the obligation. Campbell v. Murray (1878) 62 Ga. 86; Patterson v. Moore (1917) 146 Ga. 364, 91 S. E. 116; Matthews v. Banks (1917) 146 Ga. 732, 92 S. E. 52; Weaver v. Bank of Bowersville (1917) 146 Ga. 142, 90 S. E. 864; Polite v. Williams (1920) 149 Ga. 726, 101 S. E. 791; Lanham v. State Bank (1920) — C. C. A. 268 Fed. 458 (construing Georgia law); Miller v. Ford (1831) 1 N. J. Eq. 358; Rietz v. Foeste (1872) 30 Wis. 695. See also the reported case (MONCRIEF V. PALMER, ante, 119).

In Miller v. Ford (1831) 1 N. J. Eq. 358, supra, an action to enjoin certain proceedings on mortgages and to have the mortgages canceled on the ground of usury, it was held that the plaintiff's bill was demurrable, since it contained no offer to pay the principal and legal interest to the mortgagee.

So, in Patterson v. Moore (1917) 146 Ga. 364, 91 S. E. 116, it was held that, although a usurious salary assignment was void and worthless, the debtor could not demand the surrender and cancelation of the security, without tendering the amount which he had actually received, and legal interest thereon.

The right of the maker of a usurious note to have it canceled has also been held to be conditional on the payment or tender of the actual principal of the note, with legal interest. Rietz v.

Foeste (Wis.) supra. See also the reported case (MONCRIEF V. PALMER, ante, 119).

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