Rosellini, C. J.
— The plaintiffs Baske had money to invest and on occasion had purchased notes from Stevens-Norton, Inc. The plaintiff William L. Baske (hereafter referred to as plaintiff) stopped in at that company’s place of business, and expressed his desire to purchase some [269]*269accounts. Stevens-Norton suggested that he purchase the “Russell account.” The plaintiff gave his check for $5,640 for that $6,000 account. He was unaware that the money which he was advancing was to be the original consideration for the note and mortgage.
The defendant Arthur M. Russell, Jr. (hereafter called the defendant) being hard pressed by creditors, had applied to Stevens-Norton, Inc., for a loan, offering as security a second mortgage on his family residence. The defendant was advised by an agent of that company that he and his wife would be required to sign a note and mortgage made payable to a “third party”; and to fill that role, the defendant’s mother-in-law was suggested. The defendant complied with the directions of Stevens-Norton, he and his wife signing the note and mortgage in blank, and having his mother-in-law, Maude K. Henderson, assign the note and mortgage in blank.
The note, payable in monthly installments of $100 or more, bore interest at 10 per cent per annum with penalty for late payments, and was to be paid in full in 3 years. The funds paid over to Stevens-Norton by the plaintiff were disbursed at the direction of the defendant, except for a “discount” of $1,250, which was deducted from the amount of the loan by Stevens-Norton. The difference between this amount and the amount of the plaintiff’s discount was pocketed by the agents of Stevens-Norton as a commission. The net amount made available to the defendant was $4,750. After the defendant had repaid $550 of this amount, he defaulted. This action was brought to foreclose the mortgage. By his answer, the defendant raised the defense of usury, which was sustained by the trial court upon its finding that the deduction of $1,250 made the interest greater than the maximum allowed by law, and its conclusion that the plaintiff was chargeable with knowledge of the true nature of the transaction.
Here the only consideration or thing of value paid for the note and mortgage was furnished by the plaintiff, although he was unaware of it.
[270]*270The mother-in-law of defendant who was the payee on the note and the named mortgagee did not receive any money. The note and mortgage were never delivered to her. She thought she was an accommodation endorser. The trial court in its memorandum opinion characterized the mother-in-law as “simply a dummy put in there in order to try and insulate them from the results of their wrongdoing.”
The problem presented where a note which has had no prior inception is sold at a usurious discount, is not a new one. The cases are annotated in 165 A.L.R. 626, under the title, “Usury as predicable upon transaction in form a sale or exchange of commercial paper or other choses in action.” At page 628, the writer quotes the following general rule from 55 Am. Jur., Usury § 12:
“The definition of usury imports the existence of certain essential elements generally enumerated as (1) a loan or forbearance, either express or implied, of money, or of something circulating as such; (2) an understanding between the parties that the principal shall be repayable absolutely; (3) the exaction of a greater profit than is allowed by law; and (4) an intention to violate the law. The presence of these elements infallibly indicates usury irrespective of the form in which the parties put the transaction; on the other hand, the absence of any one of them conclusively refutes the claim of usurious practice. In order that a transaction be considered usurious, these elements must exist at the inception of the contract, since a contract which in its inception is unaffected by usury can never be invalidated by any subsequent usurious transaction. It is the agreement to exact and pay usurious interest, and not the performance of the agreement, which renders it usurious. The test to be applied in any given case is whether the contract, if performed according to its terms, would result in producing to the lender a rate of interest greater than is allowed by law, and whether such result was intended.”
This court has held that the elements listed in this quotation are essential under our statute. Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408.
A sale of commercial paper or other chose in action can[271]*271not be construed as usurious, regardless of the profit made, unless it constitutes in reality a device for the exaction of illegal interest; and in order to establish the latter, it is necessary to produce sufficient competent evidence of the existence of all of the elements of usury. Acme Finance Co. v. Zapffe, 161 Wash. 312, 296 Pac. 1050.
As stated in the A.L.R. annotation, it is equally well settled as a complementary proposition that if it becomes apparent that the purpose or intention of a transaction, in form a sale, or involving a similar transfer, was to make a loan or effect a forbearance for a consideration constituting an oppressive exaction the transaction will be fully analyzed with a view to determining whether it is usurious in character.
In the case before us, the evidence shows that the plaintiff did in fact provide the money for a loan, although he was unaware of it. The trial court found that the loan was usurious, and that finding has not been questioned on appeal. Insofar as matters appeared to the plaintiff, the note showed an interest rate of 10 per cent. He exacted a 6 per cent discount, in purchasing the note. If this 6 per cent were spread over the 3 years in which the note was to be paid, the annual interest would be 12 per cent — a rate not in excess of that provided by statute; however, when it is considered that the interest is paid on a declining balance, whereas the 6 per cent was deducted from the full amount of the loan, it becomes apparent that the statutory maximum would be exceeded.
We again quote from 165 A.L.R. at 641:
Although the term “discount” has different meanings, both in law and business practice, the kind here contemplated, particularly in the usage of banks, is a sale of an instrument evidencing a monetary obligation for an amount less than its face or nominal value, and the cases considered, for the most part, involve transactions in the form of such a sale which are claimed to simulate the form in an effort to conceal usury.
And at page 642:
If a note is offered for discount by the maker, it is plainly usurious, as between him and the party to whom [272]*272it is delivered, if the discount from its face value is greater than the rate of interest allowed upon a loan. 1 Daniel, Negotiable Instruments, § 753.
It is a general rule that where a commercial instrument or other transferable chose in action is discounted in a transaction wherein it is received from the maker, or previous to negotiation for value, it constitutes the maker’s obligation, or one without valid inception, the sale or transfer of which, at a discount in excess of lawful interest, is in legal effect a usurious loan.
And on page 645, it is said:
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Rosellini, C. J.
— The plaintiffs Baske had money to invest and on occasion had purchased notes from Stevens-Norton, Inc. The plaintiff William L. Baske (hereafter referred to as plaintiff) stopped in at that company’s place of business, and expressed his desire to purchase some [269]*269accounts. Stevens-Norton suggested that he purchase the “Russell account.” The plaintiff gave his check for $5,640 for that $6,000 account. He was unaware that the money which he was advancing was to be the original consideration for the note and mortgage.
The defendant Arthur M. Russell, Jr. (hereafter called the defendant) being hard pressed by creditors, had applied to Stevens-Norton, Inc., for a loan, offering as security a second mortgage on his family residence. The defendant was advised by an agent of that company that he and his wife would be required to sign a note and mortgage made payable to a “third party”; and to fill that role, the defendant’s mother-in-law was suggested. The defendant complied with the directions of Stevens-Norton, he and his wife signing the note and mortgage in blank, and having his mother-in-law, Maude K. Henderson, assign the note and mortgage in blank.
The note, payable in monthly installments of $100 or more, bore interest at 10 per cent per annum with penalty for late payments, and was to be paid in full in 3 years. The funds paid over to Stevens-Norton by the plaintiff were disbursed at the direction of the defendant, except for a “discount” of $1,250, which was deducted from the amount of the loan by Stevens-Norton. The difference between this amount and the amount of the plaintiff’s discount was pocketed by the agents of Stevens-Norton as a commission. The net amount made available to the defendant was $4,750. After the defendant had repaid $550 of this amount, he defaulted. This action was brought to foreclose the mortgage. By his answer, the defendant raised the defense of usury, which was sustained by the trial court upon its finding that the deduction of $1,250 made the interest greater than the maximum allowed by law, and its conclusion that the plaintiff was chargeable with knowledge of the true nature of the transaction.
Here the only consideration or thing of value paid for the note and mortgage was furnished by the plaintiff, although he was unaware of it.
[270]*270The mother-in-law of defendant who was the payee on the note and the named mortgagee did not receive any money. The note and mortgage were never delivered to her. She thought she was an accommodation endorser. The trial court in its memorandum opinion characterized the mother-in-law as “simply a dummy put in there in order to try and insulate them from the results of their wrongdoing.”
The problem presented where a note which has had no prior inception is sold at a usurious discount, is not a new one. The cases are annotated in 165 A.L.R. 626, under the title, “Usury as predicable upon transaction in form a sale or exchange of commercial paper or other choses in action.” At page 628, the writer quotes the following general rule from 55 Am. Jur., Usury § 12:
“The definition of usury imports the existence of certain essential elements generally enumerated as (1) a loan or forbearance, either express or implied, of money, or of something circulating as such; (2) an understanding between the parties that the principal shall be repayable absolutely; (3) the exaction of a greater profit than is allowed by law; and (4) an intention to violate the law. The presence of these elements infallibly indicates usury irrespective of the form in which the parties put the transaction; on the other hand, the absence of any one of them conclusively refutes the claim of usurious practice. In order that a transaction be considered usurious, these elements must exist at the inception of the contract, since a contract which in its inception is unaffected by usury can never be invalidated by any subsequent usurious transaction. It is the agreement to exact and pay usurious interest, and not the performance of the agreement, which renders it usurious. The test to be applied in any given case is whether the contract, if performed according to its terms, would result in producing to the lender a rate of interest greater than is allowed by law, and whether such result was intended.”
This court has held that the elements listed in this quotation are essential under our statute. Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408.
A sale of commercial paper or other chose in action can[271]*271not be construed as usurious, regardless of the profit made, unless it constitutes in reality a device for the exaction of illegal interest; and in order to establish the latter, it is necessary to produce sufficient competent evidence of the existence of all of the elements of usury. Acme Finance Co. v. Zapffe, 161 Wash. 312, 296 Pac. 1050.
As stated in the A.L.R. annotation, it is equally well settled as a complementary proposition that if it becomes apparent that the purpose or intention of a transaction, in form a sale, or involving a similar transfer, was to make a loan or effect a forbearance for a consideration constituting an oppressive exaction the transaction will be fully analyzed with a view to determining whether it is usurious in character.
In the case before us, the evidence shows that the plaintiff did in fact provide the money for a loan, although he was unaware of it. The trial court found that the loan was usurious, and that finding has not been questioned on appeal. Insofar as matters appeared to the plaintiff, the note showed an interest rate of 10 per cent. He exacted a 6 per cent discount, in purchasing the note. If this 6 per cent were spread over the 3 years in which the note was to be paid, the annual interest would be 12 per cent — a rate not in excess of that provided by statute; however, when it is considered that the interest is paid on a declining balance, whereas the 6 per cent was deducted from the full amount of the loan, it becomes apparent that the statutory maximum would be exceeded.
We again quote from 165 A.L.R. at 641:
Although the term “discount” has different meanings, both in law and business practice, the kind here contemplated, particularly in the usage of banks, is a sale of an instrument evidencing a monetary obligation for an amount less than its face or nominal value, and the cases considered, for the most part, involve transactions in the form of such a sale which are claimed to simulate the form in an effort to conceal usury.
And at page 642:
If a note is offered for discount by the maker, it is plainly usurious, as between him and the party to whom [272]*272it is delivered, if the discount from its face value is greater than the rate of interest allowed upon a loan. 1 Daniel, Negotiable Instruments, § 753.
It is a general rule that where a commercial instrument or other transferable chose in action is discounted in a transaction wherein it is received from the maker, or previous to negotiation for value, it constitutes the maker’s obligation, or one without valid inception, the sale or transfer of which, at a discount in excess of lawful interest, is in legal effect a usurious loan.
And on page 645, it is said:
Where the first negotiation of commercial paper or similar choses in action is for money at a usurious rate of discount to one who knows the paper had no prior inception, it is usurious, being a loan and not a sale. But where transfer is made to one who has no actual or constructive knowledge that the paper is new, the authorities are not agreed upon the question.
As the writer of the annotation observes, the result in a given case must depend upon the specific wording and proper scope of the usury statute, although the cases construing similar statutes are not always consistent. It would serve no useful purpose to discuss these cases here. They can be found in the annotation. In general, the courts which have held the innocent transferee subject to the defense of usury have done so on the theory that the knowledge of the transferee is immaterial, since the applicable statute makes the usurious contract void. Examples are Eastman v. Shaw, 65 N.Y. 522 (1875), and Campbell v. Nichols & Tompkins, 33 N.J.L. 81 (1868).
Our statute does not make the contract void but simply imposes penalties. However, we do not think that a distinction based upon the severity of the sanctions imposed by a statute is necessarily valid.
The purpose of the statute is to discourage and penalize the exaction of usury in making a loan. If knowledge on the part of the lender is made a condition of liability, collusion is invited and the purpose of the statute is defeated.
[273]*273The defendant in this case was in need of money. He was never told what interest he was to pay; he thought he was to pay the legal rate. When the money was disbursed to him, he first found that he was being charged $1,250 for the loan. Finding himself in an economic squeeze, he did what man has done throughout history — accepted the oppressive terms of usurious interest. This is an evil that the usury statute attempts to prevent. It is designed to protect those who by adversity and necessity of economic life are driven to borrow money at any cost. The protection granted is based on the fact that many borrowers are powerless to resist the avarice of the money lenders.
We hold that a note for which value has once been given can be discounted at any rate, but that the discount of paper for which no value has been previously given must be added to the interest provided for in determining the interest rate, and if this exceeds the rate of interest allowed by the statute, the defense of usury is available.
The judgment is affirmed.
Donworth, Finley, Hamilton, and Hale, JJ., concur.