Case Name: B. S. Higley et al. v. The First National Bank of Beverly
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1875-12
Citations: 26 Ohio St. 75
Docket Number: 
Parties: B. S. Higley et al. v. The First National Bank of Beverly.
Judges: Welch, White, Rex, and Gilmore, JJ., concurred.
Reporter: Ohio State Reports, New Service
Volume: 26
Pages: 75–81

Head Matter:
B. S. Higley et al. v. The First National Bank of Beverly.
1. The knowingly taking or receiving by a national bank of a rate of interest greater than is allowed by law upon a loan of money, does not en title the person paying the same to have it applied as a payment of so much of the principal, in an action brought to recover the principal debt more than two years after such payment was made.
2. The rights and liabilities of the parties in such case are prescribed in the national bank act, and can not be controlled by state legislation.
3. Before judgment, the penalty allowed for the taking or receiving of usurious interest by a national bank does not bear interest.
Motion for leave to file a petition in error to the District Court of Washington county.
This action was brought in the Washington County Common Pleas by the First National Bank of Beverly, Ohio (a corporation organized under the act of Congress, passed June 3, 1864), against B. S. Higley and others, on two promissory notes, each dated June 18, 1874 (one for $3,000, the other for $102.50), and both payable at said bank, to the order of its cashier, ninety days after date. The petition demanded judgment for $3,102.50, with interest thereon from September 19, 1874.
The answer was in two counts, both of which set out that the notes sued on were made in renewal of a series of other notes given for a loan of $3,000 from said bank, July 5, 1871. The first count also alleges the payment of ■usurious interest on said loan, which was knowingly taken and received by said bank, as follows: July 5,1871, $77.50; October .6, 1871, $77.50 ; January 6, 1872, $77.50; April 8, 1872, $77.50; July 10, 1872, $77.50; total, $887.50.
The second count also sets out the payment of usurious interest on said'loan, knowingly taken and received by said bank, in addition to the sums mentioned in the first count, as follows : October 11, 1872, $77.50 ; January 12, 1873, $77.50 ; April 12,1873, $77.50; July 14,1873, $77.50 ; October 15, 1873, $77.50; January 16, 1874, $40; April 1, 1874, $60.50 ; June 18, 1874, $102.50 ; total, $592.50.
In the Common Pleas, the bank interposed a general demurrer to the first count of the answer, which was sustained. To the second count the bank replied, alleging that the payment of $77.50, October 11, 1872, was made “more than two years” before the filing of the answer, which was October 24,1874. There was a general demurrer to this reply, which was overruled. Thereupon judgment was entered against the defendants, in favor of the bank, for the whole amount claimed in the petition (except interest), less $1,030—a penalty in twice the amount of the usurious interest paid within two years before filing the' answer; to which judgment, as well as to the action of the court upon the two demurrers, the defendants below excepted, and afterward, at the April term thereof, 1875, prosecuted their petition in error in the District Coui't, which resulted in an affirmance of the judgment below.
This action is prosecuted to reverse the judgment rendered in the District Court, and also the original judgment of the Common Pleas.
Ewart $• Sibley, and Higley, for the motion :
Upon the general question as to illegal interest paid to a national bank, and'of the application of such interest as a payment on the principal debt, we submit that it was the evident intention of Congress, and is the manifest policy of the legislation on the subject, to prevent national banks from gaining any benefit from payments of usurious interest, or of agreements to pay, in all cases wherein the debtor sues within two years to recover the illegal interest he has paid, or where the bank attempts to enforce the principal liability by an action at law, and the debtor sets up the usury as a defense, although more than two years have elapsed since the usury was taken.
The forfeiture provided by section 30 (Laws 1st Sess. 38th Cong. 114) of the bank act, extends (1) to the “ knowingly talcing, receiving, or reserving ” an unlawful rate of interest, which manifestly and necessarily covers and includes the case where the interest is actually paid; (2) to the “ charging ” of a usurious rate, which evidently refers to the case in which usury “ has been agreed to be paid ” on the note or other evidence of debt sued upon.
This construction of the intention and effect of the forfeiture results from the express words of the statute, which are that the “taking” of illegal interest “shall be held and adjudged a forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid thereon.” This language clearly covers the only possible cases which can arise—the one where the interest is named in the note; the other where it is not. The phrase “ carries with it ” can not mean interest given by law, after the debt matures, since that would not be usurious, and hence can only refer to illegal interest paid on an obligation that on its face bears no interest. This is all the more apparent in that the two clauses of the-sentence are connected by the disjunctive “ or,” thus evincing an intention to provide for two distinct classes of eases, and showing that the two expressions are not to be regarded as synonymous. Shunk v. First National Bank of G-alion, 22 Ohio St. 508.
It seems clear, then, that the effect of section 30 is to forfeit the usurious interest knowingly taken and received by a national bank, as well as that which “ has been agreed to be paid.” The bank loses its right to the illegal interest actually paid, on the one hand; and the benefit of the-agreement to pay it, on the other. The result of this is— apart from the right of action given to recover twice the sum paid—to annul the usurious contract, in the last case, and to transfer the right to the benefit of the money paid as usury, from the bank to the debtor paying, in the former. This follows as a consequence of the forfeiture which the statute creates. Burrill Law Diet., Forfeit.
Now, it appeal’s plain upon these principles, that usurious interest paid a national bank becomes either (1) the funds of the debtor, in custody of the bank, or (2) a payment, pro tanto, on the principal debt.
The laws of Ohio and of the United States may, and we ■ claim in fact do, enter into and become part of the contract under which the rights of parties in this case are to be determined, in respect to this matter of usury. The law of this state is not only the lex fori, but a part of the lex loci contractus. Upon this point we think there can be no ■doubt. National Bank v. Commonwealth, 9 Wall. 362; First National Bank v. Lamb, 50 N. Y. 95.
The act of June 3, 1864, section 30, determines what is usury by national banks, and also forfeits all rights and benefits accruing to them from usurious contracts for, or payments of interest. Further, this forfeiture operates to transfer to the debtor the right to the usurious interest which otherwise the banks would retain. But the bank act ■does not declare in terms or legal effect what shall be done with illegal interest paid and forfeited. At this point the law of Ohio supplements the act of Congress, by declaring in ■effect that in all contracts made and performed in this state, on which usurious interest has been paid, the usury shall become applicable in actions to recover the principal debt •as a payment thereon. S. & 0. 744; Sawyer v. Phillips, 15 Ohio St. 218.
As to the question of interest on the penalty, see Hogg v. Zanesville C. § M. Co., 5 Ohio, 424.
S. B. Robinson, contra.

Opinion:
McIuvaine, O. J.
The main question in this case is thus .stated by counsel for plaintiff in error: " Does the know •ingly taking and receiving a rate of interest greater than is lawful, by a national bank, on a loan made, or note discounted by it in this state, entitle the party paying the illegal interest to have it applied as a payment of so much of the principal debt, in an action brought more than two years after the payment loas made, to recover the principal sum ? "
This question, we think, must be answered in the negative.
By section 8 of the national bank act, there is conferred upon national banks general powers necessary to carry on the business of banking, " by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt," etc. By section 30, the rate of interest which such banks may lawfully take, receive, reserve, and charge is limited; and it is also therein declared that " the knowingly -taking, receiving, reserving, 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. And in case a greater rate of interest has been paid, the person or persons paying the same, or their legal representatives, may recover' back, in any action of debt, twice the amount of interest thus paid from the association taking or receiving the same; provided, that such action is commenced within two years from the time the usurious transaction occurred." Laws 1st Sess. 38th Cong. 114, sec. 30.
Without stopping to inquire how a bank may be affected in its relations to the government by reason of usurious transactions, it is quite certain that a customer who participates in the offense by paying or agreeing to pay a usurious rate of interest to such bank, is entitled to no relief or remedy except as provided in this section.
By the first provision in that part of the section above quoted, if the contract or promise to pay usurious interest be unexecuted, it can not be enforced; and in such case the debtor is released from the payment, not only of the interest in excess of the lawful rate, but " the entire inter est which the note, bill, or other evidence of debt carnes with it, or which has been agreed to be paid thereon," must be held and adjudged to be forfeited. By the latter provision, if usurious interest u has been paid," twice the amount of interest paid may be recovered back from the association "taking or receiving" it, provided the action therefor be commenced within two years from the time the usurious transaction occurred. And by construing the whole section together, we are inclined to believe that in ease usurious interest has been " reserved" at the time of the loan or discount, there is left to the bank a locus penitentice. In such case the bank may, upon receiving payment of the debt, discharge itself from all liability to the debtor by giving credit for the amount of interest reserved; otherwise, the debtor may insist upon a reduction of his indebtedness to the amount actually loaned or advanced, or he may pay the whole claim, aud afterward, within two years, recover back twice the amount of interest paid.
On this construction of section 80, it is clear that defendants below had no right, by virtue of the national bank act, to recoup from plaintiff's claim any sum whatever on account of usurious interest paid to the bank more than two years next preceding the time of filing their answer in the action below.
"Whether the rebatement made from the plaintiff's claim of twice the amount of usurious interest paid thereon within two years next preceding was properly allowed is a question not now before us.
It is also contended that, under the statute law of this state, if not the entire interest, at least the excess above the rate allowed by law, paid by the defendants below, should have been held as payments made on account of the principal.
Conceding that national banks are in many respects subject to the laws of the states where situate, and especially to their remedial laws, it is a good answer to the above claim to say that, in relation to usury and the lights and liabilities of the parties participating in the offense, Con gress has assumed to make provision, and the provision so made must be regarded as exclusive. In this respect, the act of Congress prescribes the only rule, and over it the legislative power of the state has no control.
The point is also made that a person entitled to recover back twice the amount of usurious interest paid is entitled to interest thereon from the date of payment until the time of recovery. On this point also we differ with counsel. The amount thus recoverable is in the nature of a penalty, and the statute must be strictly construed. Interest on such claim, before judgment, not being expressly given by the statute, can not be allowed.
Motion overruled.
Welch, White, Rex, and Gilmore, JJ., concurred.