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: 51
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GEORGE V. OSCAR SMITH & SONS CO.
in accordance with the general principle of law, be properly held void.
If, however, as is more usually the case, the laws of the state specifi-
cally indicate the effect upon the contract, the general rule does not
apply. In some of the states the law merely prevents the recovery by
the promisee of so much of the interest as may be usurious. In others,
where usury is provided for or paid, all interest is uncollectable, or
may be recovered if paid. In other states, if the interest is usurious,
but does not exceed a certain named per cent., the interest is forfeited;
and, exceeding another named per cent., the entire contract becomes
unenforceable. It is manifest that where a contract which, by reason
of usury, is illegal and criminal, it is to be distinguished from one
where the usurious agreement of the parties merely results in defined
Confusion also arises from the assumption that every character of
usurious contract is to have applied to it the same rules of law. Where
money is borrowed and a note is given for the amount loaned, all
parts of the contract are executed except the agreement to repay the
money with the interest provided. In such case the contract may be
illegal, but it is not on account of the consideration passing from the
promisor. The illegality results from the promise upon the part of the
maker of the note to do a thing which the law will not permit. Some
of the cases, however, which have been reported, and from which an
effort is made to deduce legal principles, are contracts which have
been substantially executed. The case of Andrews v. Pond, heretofore
referred to, is of this class. In that case, one of the parties owing
the other money, an amount was added to the debt ostensibly as ex-
change, from which usury resulted. To pay the amount, debtor drew
a bill of exchange payable in another state. In such case, ordinarily,
nothing would be left for the debtor to do. The transaction would, as
to him, be finished, except upon a failure by the drawee to pay or
accept the bill of exchange. Likewise with reference to the creditor,
the transaction is complete, except as necessity for action might arise
on account of the failure of a third person to accept or pay. The
transaction, in the ordinary course of business, would be a completed
one. In such case the consideration for the bill of exchange is usuri-
ous. It is created, passes, becomes effective where the contract is made.
The very basis of the contract is illegal, and in a jurisdiction as New
York, where a usurious contract is void, the necessary result of this
transaction would be an agreement void as a contract-all its incidents
there and everywhere void.
Typical cases representing the diversity of views with reference to
the effect of the law of the place of the consideration are Orr's Admr.
v. Orr, 157 Ky. 570, 163 S. W. 757 and Arnold v. Potter, 22 Iowa,
198. In the former case the law is thus stated:
"The law of the place of payment of the note ordinarily controls, but this
rule is subject to exceptions. For instance, the question of the validity of
the contract, as affected by the legality of the past transaction in consideration
of which it was made, and in which it took its inception as a contract, is gen-
erally held to be governed by the law of the place where the transaction was
had, and not where the contract was executed or to be performed."
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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/m1/66/: accessed July 21, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.