| Ill. | May 9, 1893
delivered the opinion of the Court:
The judgment of the Circuit Court was affirmed by the Appellate Court on the ground that a recovery by the plaintiff would necessarily involve the admission of evidence of a cotemporaneous parol contract to modify and add to the terms of the written contract. The loan from the plaintiff to the defendant, and its terms, were evidenced by a promissory note, and that note was an agreement in writing, by which the defendant, for the consideration therein expressed by the words “value received,” promised to pay the plaintiff, six months after date, the sum of $150,000 in gold coin. The note having been paid and satisfied, the plaintiff now seeks to recover upon a parol contract, made at the same time and upon the same consideration, by which the defendant agreed to pay the plaintiff a further sum, equal to two and one-half per cent of the money loaned. We are strongly inclined to concur with the Appellate Court in the view, that to enforce such parol contract would violate the well established rule that where parties have deliberately put their engagements into writing, in such terms as import a legal obligation, without any uncertainty as to the object or extent of such engagement, it is conclusively presumed that the whole engagement of the parties, and the extent and manner of their undertaking, was reduced to writing, and that all oral testimony of a previous colloquium between the parties, or of conversations or declarations at the time when it was completed, must be rejected.
The case does not seem to us to come within the exception frequently recognized, that where it appears that the writing was not intended by the parties as an embodiment of their contract, but of only a part, or of some incidental matter connected with it, the rule excluding evidence of a cotemporaneous parol agreement does not apply. The transaction between the parties here was a loan of money, to be repaid at a stipulated time, with a stipulated rate of interest. All of these matters are embodied in the note, and the plaintiff is now insisting that in addition to the interest reserved pn the note,' there was a cotemporaneous agreement, not embodied in the writing, that a further sum, by way of interest on the loan, was to be paid. If there had been in fact an oral agreement to repay the loan at the end of six months with eight per cent interest, and the note had been executed and delivered, as in fact it was, evidencing an agreement to repay the loan, six months after date, with six per cent interest, no one, we think, would claim that the oral agreement could be proved. The admission of such evidence would be a palpable violation of the rule that an oral cotemporaneous agreement can not be proved for the purpose of changing the terms of the agreement as reduced to writing. But the case supposed does not seem to us to, differ in principle from the one now under consideration. The oral agreement now sought to be enforced has relation merely to a portion of the interest, and as the agreement for interest was embodied in the note, the oral proof would only tend to show that the actual agreement of the parties in respect to interest was different from the one evidenced by the written agreement.
The point is made in this court, which does not seem to have been urged in the Appellate Court, that the defendant, by stipulating that there was an oral contract for the payment of the money now sought to be recovered, has waived its right to object to the introduction of evidence of such contract. But as we are disposed to place our decision on other grounds, we have not deemed it necessary to consider that contention with care, or to express any decided opinion in relation to it.
The substantial controversy in the case is, whether the agreement to pay the money now sought to be recovered, admitting that such agreement was made, was usurious and therefore void. According to the stipulation, the agreement was, in effect, that the defendant, in addition to paying the six per cent interest provided for in the note, should secure for the plaintiff as a depositor the Chicago and Western Indiana Bailroad Company, a service which it is admitted would have been of value to the plaintiff, or, in case of its failure so to do, the plaintiff should be paid, in lieu of such deposit, two and one-half per cent commission upon the money loaned. There can be no doubt that this payment, though attempted to be disguised under the name of “commission,” was in legal effect an agreement to pay a sum additional to the six per cent, as the consideration or compensation for the use of the money borrowed, and is to be regarded as, to all intents and purposes, an agreement for the payment of additional interest.
The defense of usury set up by the pleas, is based upon the provisions of the National Bank act, and not upon the usury laws of this State. Indeed, as is admitted, the defendant being a corporation, is prohibited by section 11 of our statute in relation to interest, to interpose the defense of usury under that statute. But the laws of the State are referred to by the National Bank act in such way, that in order to determine whether the defense of usury can be set up in any given case under the latter act, the provisions of both statutes must be considered. Sections 5197 and 5198 of the Bevised Statutes of the United States, so far as they are material to the questions now under consideration, are as follows:
“Sec. 5197. Any association may take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest at the rate allowed by the State, Territory or district where the bank is located, and no more, except that where by the laws of any State a different rate is limited for banks of issue organized under the State laws, the rate so limited shall be allowed for associations organized or existing in any such State under this title. When no rate is fixed by the laws of the State, Territory or district, the bank may take, receive, reserve, or charge a rate not to exceed seven per centum, and such interest maybe taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to run.
“Sec. 5198. The taking, receiving, reserving, or charging a rate of interest greater than is allowed by the preceding section, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover back, in an action in the nature of an action of debt, twice the amount of interest thus paid from the association taking or receiving the same; provided, such action is commenced within two years from the time the usurious transaction occurred.”
Sections 2, 4, 5, 6 and 11, of the statute of this State in relation to Interest, in force at the date of the contract in question, were as follows:
“Sec. 2. Creditors shall be allowed to receive at the rate of six per centum per annum, for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance; on money received to the use of another and retained without the owner’s knowledge; and on money withheld by an unreasonable and vexatious delay of payment.
“Sec. 4. In all written contracts it shall be lawful for the parties to stipulate or agree that eight per cent per annum, or any less sum of interest, shall be taken and paid upon every one hundred dollars of money loaned, or in any manner due and owing from any person or corporation to any other person or corporation in this State, and after that rate for a greater or less sum, or for a longer or shorter time, except as herein provided.
“Sec. 5. No person or corporation shall directly or indirectly accept or receive, in money, goods, discounts or thing in action, or in any other way, any greater sum or greater value, for the loan, forbearance or discount of any money, goods or thing in action, than as above prescribed.
“Sec. 6. If any person or corporation in this State shall contract to receive a greater rate of interest or discount than eight per cent upon any contract, verbal or written, such person or corporation shall forfeit the whole of said interest so contracted to be received, and shall be entitled only to recover the principal sum due to such person or corporation; and all contracts, executed after this act shall take effect, which shall provide for interest or compensation at a greater rate than herein specified, on account of non-payment at maturity, shall be deemed usurious, and only the principal sum due thereon shall be recoverable.
“Sec. 11. ISlo corporation shall hereafter interpose the defense of usury to any action.”
It will be observed that by section 2 of our statute, creditors are allowed to receive interest at the rate of six per cent per annum on money lent to the use of another, and by section 4, it is made lawful, in all written contracts, to agree that interest at the rate of eight per cent per annum shall be taken and paid. By section 5, all persons and corporations are prohibited from accepting or receiving, either directly or indirectly, any greater rate for the loan, forbearance or discount of money than is prescribed in the preceding sections. The rate of interest is thus expressly limited to six per cent per annum in all cases where the agreement in respect to interest is not in writing, and where the contract is in writing, eight per cent is allowed to be stipulated for and no more, and the reservation of any greater rate of interest than is thus limited, by any person or corporation, is made unlawful by express statutory prohibition.
But it is urged that the effect of section 11, which prohibits corporations from interposing the defense of usury, is to create an exception in cases where corporations are debtors, so as to take all cases of that character out of the operation of the statute. The theory seems to be, that because a corporation can not set up usury as a defense, any person or corporation dealing with a corporation, may lawfully exact such rate of interest as may be agreed upon, whether in excess of the statutory limit or not, so that,where a corporation is the debtor, no rate of interest is fixed by the laws of this State. To this view we are totally unable to yield our assent.
The defense of usury is made by setting up and seeking to enforce the forfeiture or penalty imposed by section 6 of the statute. That, doubtless, a corporation can not do. But the force and efficacy of the statute, or the binding nature of its prohibitions, does not depend upon the penalty which it imposes for disobedience to those provisions. Whatever a statute forbids becomes unlawful, whether a penalty is annexed as a consequence of disobedience or not. While corporations can not enforce the forfeitures imposed by our usury laws, it does not follow that the statutory prohibition against exacting or paying more than the lawful rates of interest has no ^application to them. The prohibition is general, and applies by its terms to every person or corporation, and no contract, whoever may be the parties to it, can be so framed as to provide for the reservation of more than the rates of interest allowed by the statute, without being in contravention of the statute, and therefore unlawful.
Nor does it follow that, because the debtor who has agreed to pay more than the legal rate of interest is a corporation, and therefore incapable of interposing the defense of usury, the law will treat the contract as valid and enforce it according to its terms. No agreement between parties to do a "thing prohibited by law, or subversive of any public interest which the law cherishes, will be judicially enforced. The general rule therefore is, that any act which, is forbidden either by the common or the statutory law, whether it is malum in se or merely malum prohibitum; whether indictable or only subject to a penalty or forfeiture, or however otherwise prohibited by statute, or the common law, can not be the foundation of a valid contract. Bishop on Contracts, secs. 470, 471, and authorities cited in notes. “If the subject matter of an agreement be such that a performance of it would either consist in doing a forbidden act, or be so connected therewith as to be in substance part of the same transaction, the law can not command the parties to perform such agreement. It will not always command them not to perform it, for there are many cases where the performance of the agreement is not in itself an offense, though the complete execution of the object of the agreement is; but, at all events, it will give no sort of assistance to such a transaction.” 3 Am. & Eng. Encyc. of Law, 869. “Where an act is expressly prohibited by statute, a contract to perform or in furtherance of the prohibited act is illegal and unenforcible.” Lawson on Contracts, sec. 279. See also cases cited in note 1.
A statute may render an agreement illegal in one of two ways, viz., by express prohibition or by the imposition of a penalty. Anson on Contracts, 172. Where the statute does no more than impose a penalty upon the carrying out of the objects of the contract, a question has sometimes arisen whether or not the imposition of the penalty of itself amounts to a prohibition, although the weight of authority would seem to be, that where a statute provides a penalty for an act, a contract for the performance of such act is void, although the statute does not pronounce it void, or prohibit it in express words. But no such question can arise where the statute expressly prohibits the act. In that case the act is necessarily unlawful, and a contract for its performance is necessarily void and incapable of enforcement. Our statute in relation to interest contains both a prohibition and a penalty. Where the party agreeing to pay illegal interest is^a corporation, the penalty can not be invoked in its favor, but the prohibition remains wholly unaffected by the provisions of section 11, which takes from corporations the right to interpose the defense of usury.
Farwell v. Meyer, 35 Ill. 40" date_filed="1864-04-15" court="Ill." case_name="Farwell v. Meyer">35 Ill. 40, was a bill in chancery to set aside a judgment by confession upon a judgment note in which more than the maximum rate of interest then allowed by law was reserved. As a court of equity will not enforce a penalty, no attempt was made to set up or take advantage of the forfeiture then imposed by the statute for exacting illegal interest. The contract therefore was treated precisely as though no penalty of forfeiture were imposed. The court, however, held that the agreement as to interest, being in contravention of the statutory prohibition, was void and incapable of enforcement, and that only the rate of interest given by law in the absence of a contract was collectible. On this point it was said: “The legal rate of interest in this State is six per cent; and although parties are allowed to stipulate for a rate of interest not exceeding ten per cent, the privilege thus given must be exercised in conformity to the statute. An agreement which can not be enforced as it was made will not be enforced at all. Where the parties stipulate for a higher rate of interest than ten per cent, the agreement can not be enforced as it was made, and we can not substitute for it an agreement which the parties did not make. In such cases the part of the agreement stipulating for a higher rate of interest than six per cent will not be enforced; and the lender or other person contracting for an illegal rate of interest will be allowed (where no forfeitures or penalties are insisted upon) only to recover six per cent, as the measure of the value which our law has established for the use of money, where no agreement has been made for a higher rate, in conformity with its provisions.”
In the present case then, the section of the statute imposing a penalty may be left out of view as inapplicable, but still the prohibitory part of the statute remains, making it unlawful for any person or corporation to directly or indirectly accept or receive, for the loan or forbearance of money, any greater rate than six per cent by oral agreement, or greater than eight per cent where the contract is in writing.
It follows, that the rate of interest which may be taken, reserved or charged, whether the borrower or debtor is a natural person or a corporation, is fixed by the laws of this State, and the case does not come within that provision of section 5197 of the Bevised Statutes of the United States, which allows national banks to take or charge interest at a rate not exceeding seven per cent, where no rate is fixed by the laws of the State. The rate of interest which may lawfully be contracted for being limited to six per cent where the contract is oral, and to eight per cent where it is in writing, whoever the debtor or borrower may be, national banks are, by section 5197 of the Federal Statutes, limited to the same rates, and by section 5198, the reserving or charging of a greater rate than is thus fixed, subjects the bank reserving or charging the same to a forfeiture of all the interest agreed to be taken, and makes it liable, in case the interest has been paid, to having twice the amount of it recovered back by the party paying the same, in an action in the nature of an action of debt.
In the present case, six per cent interest was reserved in the note. Eight per cent might have been lawfully reserved in such written contract, but it was not. After the .reservation, however, of six per cent by the writing, the additional two per cent, or any other rate, could not be lawfully reserved or agreed to be taken or paid by parol. The written agreement having provided for the reservation of all that could be lawfully reserved or agreed to be taken by parol, an oral agreement for any further interest was manifestly in violation of the statute.
There can be no doubt that the agreement by the defendant to secure for the bank the Chicago and Western Indiana Railroad Company as a depositor, or in case of failure to do so, to pay two and one-half per cent commission upon the $150,000 borrowed, was in the nature of an -agreement to pay interest upon the loan? in addition to the six per cent per annum reserved in the note. The use of the money was the only possible consideration for such agreement. The bank, through its own officers, loaned its own money directly to the railway company. There is no room for the theory that this extra payment was or was intended to be in any legal sense a commission, although that name was attempted to be applied to it. The transaction was directly between the bank and the railway company, no agent, broker or go-between being employed who might be entitled to a commission for his services. It necessarily follows that the agreement to furnish the railroad company as a depositor or pay the bank two and one-half per cent upon the $150,000, was in consideration of the money loaned, or it had no consideration whatever.
It is. admitted' that the proposed deposit, if it had been obtained, would have been of value to the bank, as a part of its business. The precise money value to the bank of the deposit is not shown, nor is it material, so long as it is admitted to be of value. A fair inference may be drawn, however, from the fact that the bank exacted the payment of two and one-half per cent upon $150,000 in case of failure to secure the depositor, that in the opinion of the bank, and in the estimation of both parties, that was its reasonable cash value, An oral contract to pay any sum of money, or to furnish anything of value for the use of the money loaned, in addition to the interest reserved in the note, was prohibited by the statute of this State, and that being so, it was prohibited by the Federal statute in relation to national banks.
This suit is brought to recover the extra two and one-half per cent upon the sum of $150,000, or $3,750, reserved by the oral agreement, and adopting this as the measure of the extra interest thus reserved, it is manifest that the entire interest agreed to be paid was much larger than, upon any theory of the law, was permitted by either the State or Federal statute. The loan was only for six months, and two and one-half per cent upon the amount loaned was equivalent to interest at the rate of five per cent for six months. That, added to the interest reserved in the note, made eleven per cent, a rate forbidden by the statute of this State and by the act of Congress as well. We are of the opinion that the legal conclusion from the admitted facts is, that the agreement to pay the money now sought to be recovered is usurious and void. The rulings of the trial court upon the propositions submitted to be held as the law in the decision of the case were all in harmony with this conclusion. We are of the opinion that the judgment of the Circuit Court is correct, and the judgment of the Appellate Court, affirming that judgment, will be affirmed.
Judgment affirmed.