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: 50
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250 FEDERAL REPORTER
its being or effect. If the consideration is there bad, it will be bad
As stated in Akers v. Demond, 103 Mass. 318:
"Penal laws can be administered only in the state where they exist, but
when a usurious or other illegal consideration is declared by the laws of any
state to be incapable of sustaining any valid contract, and all contracts
arising therefrom are declared void, such contracts are not only void in
that state, but void in every state and everywhere."
In the excellent work on Conflicts of Law by Minor is the following
"In determining the invalidity of the usurious contract, does the invalidity
relate to the making of the contract itself, to its performance, or to the con-
sideration? Where a contract to pay excessive interest is involved, does
the usury consist in the borrower's promise to repay the principal with ex-
cessive interest, or does it consist in a loan or forbearance of money upon
condition that the borrower will repay the principal with excessive inter-
est? * * * If the first view is correct, the alleged usurious interest and
invalidity of the contract to pay relates to its performance. The payment of
the excessive interest and the validity of the payment of interest agreed upon
should be determined by the law of the place where the act or payment is to
be performed; that is, by the lex solutionis of the contract to pay. If the
second view is correct, the usury relates to the consideration, the loan of the
money, and the law of the place where the money is delivered to the borrower
governs the validity of the contract to pay. * * * This is believed to
be the better view. The policy of the usury laws is aimed against the ex-
action of usurious interest by the lender, not against the promise by the debt-
.or to pay usurious interest."
It may be that the law should be as stated. It may be doubted if the
propositions are sustained by the authorities. Certainly many of the
authorities cannot be reconciled with the theory advanced. In only
one case of the many examined is the consideration spoken of as usuri-
ous where money or other value is properly represented in the principal
of the note. It is, of course, the case that the consideration of the
promise to pay may be made up in part of a prior debt with usury
added, as in the case of Andrews v. Pond, 13 Pet. 75, 10 L. Ed. 61;
or the principal of the note may be made up entirely of usurious in-
terest, as in the case of Scott v. Fabacher, 176 Fed. 229, 100 C. C. A.
147. Ordinarily, however, that in consideration of which the maker
of the note promises to give usury is money or a thing of value, rep-
resented by the principal of the note. It is a consideration which
would support a contract other than one of the kind entered into. The
invalidity arises, not on account of this payment to the promisor, but
on account of the agreement entered into, between him and the person
furnishing the consideration, that interest in excess of that allowed
by law will be paid. Ordinarily, the parties are equally guilty from a
legal standpoint, the illegality arising from their joint action.
In passing upon the questions with reference to the consideration in
a contract involving usury, much confusion arises from the circum-
stance that invalidity of the contract does not always result from the
presence of usury. Where the statutes of the state define and crim-
inally punish usury, without specifically indicating the effect of the
usury upon the contract out of which it might arise, the contract will,
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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/m1/65/: accessed April 28, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.