The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918. Page: 43
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GEORGE V. OSCAR SMITH & SONS CO.
is the court's statement of the ground relied on to support the conclu-
sion reached that the legal consequence of the usury was determined
by the law of the place where the contract was made:
"The defendants allege that the contract was not made with reference to
the laws of either state, and was not intended to conform to either; that a
rate of interest forbidden by the laws of New York, where the contract was
made, was reserved on the debt actually due; and that it was concealed un-
der the name of exchange, in order to evade the law. Now, if this defense
is true, and shall be so found by the jury, the question is not which law is
to govern in executing the contract, but which is to decide the fate of a
security taken upon an usurious agreement, which neither will execute? Un-
questionably, it must be the law of the state where the agreement was made
and the instrument taken to secure its performance. A contract of this kind
cannot stand on the same principles with a bona fide agreement made in one
place to be executed in another. In the last-mentioned cases the agree-
ments are permitted by the lex loci contractus, and will even be enforced
there if the party is found within its jurisdiction. But the same rule cannot
be applied to contracts forbidden by its laws and designed to evade them.
In such cases the legal consequences of such an agreement must be decided by
the law of the place where the contract was made. If void there it is void
everywhere, and the cases referred to in Story's Conflict of Laws, 203, fully
establish this doctrine." 13 Pet. 77, 78, 10 L. Ed. 61.
The result of applying the rule stated to the facts of that case was
the conclusion that the contract under consideration was void be-
cause under the law of New York that was the legal consequence of
the usury. But nothing in the court's statement of the rule governing
a contract forbidden by the law of the place where it was made and
also by the law of the place where it was to be performed indicates
that the rule stated is applicable only where the contract is a void one
under the law of the place where it was made. We understand the
court's ruling to be that the legal consequences of such a forbidden
contract must be decided by the law of the place where the contract
was made, whether that law makes the contract void or attaches a less
penalty to the commission of usury. A contract reserving interest at
the rate of more than 20 per cent. per annum is a forbidden one in
Pennsylvania as well as it is in Mississippi, though the penalty in the
former state is the loss of the right to collect any interest, while in
the latter state the principal and all interest are forfeited. We have
not had access to the statutes of Pennsylvania relating to interest and
usury, and have relied on summaries of such laws found in publica-
tions which are supposed to be accurate in reference to such a matter.
As above stated, we understand the consequence of making a usurious
contract in that state is to render so much of the interest to be received
uncollectable as is in excess of the legal rate of 6 per cent. per annum.
Under that law the deed of trust in question is not unenforceable.
The following is the Mississippi statute which it is contended should
govern in determining the consequences of the usury:
"The legal rate of interest on all notes, accounts, and contracts shall be
six per cent. per annum; but contracts may be made, in writing, for a pay-
ment of a rate of interest as great as eight per centum per annum. And if a
greater rate of interest than eight per centum shall be stipulated for or re-
ceived in any case, all interest shall be forfeited, and may be recovered
back, whether the contract be executed or executory. If a rate of in-
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The Federal Reporter with Key-Number Annotations, Volume 250: Cases Argued and Determined in the Circuit Courts of Appeals and District Courts of the United States, August-October, 1918., legislative document, 1918; Saint Paul, Minnesota. (digital.library.unt.edu/ark:/67531/metadc38821/m1/58/: accessed October 22, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.