Lucas v. Government National Bank

Mr. Justice Gordon

delivered the opinion of the court, October 11th 1875.

This was an action brought by the Government National Bank of Pottsville against John Lucas & Co., on two certain notes and one check, all of which were drawn by George J. Richardson to the defendants, and by them endorsed to the plaintiff. John Lucas, on the part of the defendants, filed an affidavit of defence, setting forth, “ That the said John Lucas & Co. were the payees on the notes and check upon which suit is founded, and that George J. Richardson was the maker. That said notes and check were' sold to the said plaintiff at a discount of from 18 to 24 per cent, per annum, and that the defendants received from the plaintiff the amount of said notes and check, less said rate of discount. In addition to the above, said plaintiff has received from said George J. Richardson (corrected by a supplemental affidavit to read ! defendants,’ instead of ‘ George J. Richardson ’) on his (their) notes, not less than $3000 in excess of the legal rate of interest, the same having been purchased by the plaintiff at about the rate of 21 to 24 per cent, per annum discount from the said defendants; and said defendants claim from the plaintiffs, double the amount of interest under the Act of Congress.” On the 7th day of July 1873, on motion of the plaintiff’s counsel, the court entered judgment against the defendants for the whole amount of the plaintiff’s claim, with interest from and after the maturity of the paper, striking out and disallowing, however, 18 per cent., the amount of discount. This judgment is erroneous in that it includes interest on the paper in suit from the time it fell due. The Act of Congress speaks in this wise: “And knowingly taking, receiving or charging a rate of interest greater than aforesaid, shall be held and adjudged 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:” Rev. Stat. sec. 5198.

Observe, it is the entire interest which the bill or note carries with it that is forfeited, and not merely that which the party borrowing may agree to pay. The illegal act destroys the interest bearing power of the obligation, and as there can be no point in the history of such paper at which it is freed from the taint of illegality, so it follows there can be no point of time from which it can bear interest. The plaintiff was entitled to recover the face of the note and check, and no more: Brown v. Second National Bank of Erie, 22 P. F. Smith 209.

*232 Technically, the latter part of the affidavit of defence is bad, for it claims, as a set-off, that which the Act of Congress imposes as a penalty on the usurious transaction, to wit, double the amount of the interest paid. In this, defendants had no such interest as would enable them to use it by way of defalcation, for it could be acquired only through an action of debt under the statute, and until the forfeiture was pronounced in their favor, by judgment of the court, they had nothing therein which would be the subject of set off. But, as we hold, that the defendants are entitled to defalk the amount of the usurious discounts, which they paid the plaintiffs on previous transac-. tions, we are disposed to treat the affidavit as faulty only in form, rather than substance. The money paid to the plaintiff, over and above that which the Act of Congress authorized it to receive, belonged to the defendants, and the bank could hold it only for their use. This, very point was raised and decided in Thomas v. Shoemaker, 6 W. & S. 179 . That case ruled that usurious interest paid might might be recovered back in an action for money had and received, and that it was not' questionable, but that such interest secured on previous transactions, might be defalked against the plaintiff’s claim in the suit then pending. This decision was made under the Act, 1|23, then in force, by which, where more than legal interest was received, the money or other things lent was wholly forfeited.

The reason lying at the foundation of this and all similar decisions is very obvious. The receiving of such.excessive interest, is treated by the supreme power in the state, as a public evil, and as such, prohibited; consequently, when taken against the statutory prohibition, it is acquired without right and no title thereto vests in the taker. In such case he is to be held as one wrongfully in possession of his neighbor’s property.

This reason applies a fortiori to the case in hand, for these national banks are the mere creatures of the Act of Congress. From it they derive all the powers they possess; when, therefore, they act contrary to its express provisions and mandates, they usurp powers that do not belong to them, and such act is clearly ultra vires and void. In the case now in hand, if the affidavit of John Lucas be true, this bank has taken from the defendants some $3000, which the Act of Congress has not only, in express terms, declared it should not take, but imposed a penalty upon it for taking.

By no right, then, does the plaintiff hold this money; it has no property therein, and its possession thereof is but that of a trustee or bailee of the defendants.

Another error into which the court fell, was in supposing that the case came within the provision of our Act of March 28th 1858, which provides, that where the debt and excessive interest *233 have been paid, no action to recover back such excess can be maintained but within six months after such payment. But this case does not comes under that act, but as we have seen, under the Act of Congress, which operates upon a .subject of its own creation, and over which it has supreme control; hence our act cannot be made to supplement the national statute with a limitation not found in it. As the only limitation found in the Act of Congress applies alone to the action for the'penalty, it follows that the claim of the defendants can only be barred by a failure to sue for the same within the period of six years after it accrued.

The judgment is reversed and a procedendo awarded.