Wiley v. Starbuck.

rate of interest, signed by the party to be charged, but such rate of interest can in no case exceed the rate of ten per cent per annum.

The National banks organized and doing business in the State of Indiana may charge and receive interest at the rate of ten per cent, to which may be added the current rate of exchange for sight drafts, where there is a purchase, discount or sale of a bona file bill of exchange payable at another place than the place of purchase, discount or sale.

We proceed to inquire, whether the appellants had the right, in this action, to deduct from the principal of the notes sued upon the interest which had been paid in advance, the bank having charged and received illegal interest.

It is provided in the above quoted section of the National Banking Law, 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 it is further provided in such section, that "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."

It is very plain that where an action is brought by a National bank upon a note, bill, or other evidence of debt payable to or for the use of such bank, and it is shown that such bank had knowingly taken, received, reserved, or charged a greater rate of interest than is allowed by law, the entire interest which such note, bill, or other evidence of debt carries with it, or which has been agreed to be paid, is forfeited, and no recovery can be had for interest which remains unpaid.

And it is equally plain that where any person or persons have paid to any such bank a greater rate of interest than is allowed by law, such person or persons paying the same, or their legal representatives, may, in an action of debt against such bank, recover twice the amount of interest thus paid from the association taking or receiving the same.

But suppose a loan has been made of a National bank, and a note has been taken payable ninety days after date, upon which usurious interest has been charged and received in advance, and an action is brought upon such note, will the interest thus paid be regarded

Wiley v. Starbuck.

and treated as a payment upon the principal of the note, or will the person paying the same be driven to his action of debt against the bank, to recover twice the amount of interest thus paid?

The solution of this question depends upon whether we are to be governed exclusively by the National Banking Law, or whether the usury laws of this State have any application to an action brought by a National bank. In other words, are the defendants confined to the remedy conferred by the act of Congress, are the penalties prescribed by the act of Congress merely cumulative to those of the States, and may the penalties prescribed by the statutes of this State be set up as a defense?

The precise question involved here came before the Supreme Court of New York, in the case of The First National Bank of Whitehall v. Lamb, 57 Barb. 429, where the court say: "The act of Congress in question is the only statute in existence, on that subject, enacted by the Federal Legislature; it cannot therefore be said to be in pari materia with any other statute. The statutes passed by Legislatures under other governments have no influence or control over this; and its construction is not controlled by them. It is to be construed by itself. It is repugnant to the provisions of no statute enacted by the same government; and if repugnant to statutes under another government, it in nowise affects this. Other governments have no power to enact statutes which can limit or control the absolute, supreme and sovereign power of this government. Congress has not in this attempted to repeal or interfere with the statutes of the State of New York on the subject of usury, and have not the direct power to do so, should they attempt it. Nor has Congress, either in terms or by implication, adopted the statute law of New York, or its penalties, on this subject. With its own unrestrained power to legislate on this subject, it has matured its own independent project of governmental agencies, which stands alone as a single, separate and distinct system of banking and agency, unaided by, and disconnected with, other systems. It has conferred benefits upon the corporators themselves and perhaps upon the public; and in consideration thereof has demanded and received in return, from these agencies, therefor, various and onerous duties, aids, securities and credits to the government, and from the institutions so authorized. These are to be regarded as fair and equal equivalents, with mutual considerations passing from the one to the other. The government was authorized to employ

Wiley v. Starbuck.

them as depositories of the public moneys, and as financial agents of the government, and their supervision was committed to an agent of the Federal government. The institutions were bound to deposit securities for the government's protection, and also to keep deposits and accumulate a surplus fund for that purpose. It has, in this system, permitted the institutions to receive a fixed and fair equivalent, to be received for loans and discounts to individuals, of money upon notes and bills of exchange, and at the same time has thrown its protecting influences over such individuals to prevent abuse and oppression (as it must be supposed) by adequate penalties to be inflicted for violations of the statute. In other words, for the value to the corporators of chartered rights and privileges conferred, the government imposed certain burthens upon these agencies as a condition to the grant; and the conferring and receiving of these reciprocal benefits, with these duties and burthens and subject to its penalties, are the terms, and these only, of the compact between the government and the corporators in these institutions. 'No other burthens are annexed to the enjoyment of the rights and privileges conferred by this act of Congress." Van Allen v. The Assessors, 3 Wall. 583.

Some of the evil consequences, which would result from holding that the penalties prescribed by the acts of Congress are cumulative only, are pointed out in the opinion of the court in the above case, where the court say: "If the penalties given by the act of Congress are cumulative, leaving the State law also in force, the penalties in the former would probably never be set up as a defense; the latter being a defense to the whole contract, principal and interest, while the former goes only to the interest. So if both are in force, the State law can first be used to defeat the entire recovery upon the contract, which is thereby made void; and by the law of Congress there would be superadded, by way of further penalty, the liability to have recovered back twice the amount of the interest that had been paid. I do not think it reasonable to suppose that Congress intended to add to the penalties existing by the State law. That was no part of the reason for its enactment, and therefore the law of Congress is not cumulative."

The same consequences and confusion would result in this State. As we have seen by the act of Congress, there are imposed, as penalties for usury, the forfeiture of the entire interest unpaid and the right to recover back twice the amount paid. While in this

Wiley v. Starbuck.

State, the excess only over the legal rate of interest can be recouped, in an action upon the instrument affected with usury.

It was decided by this court, in Musselman v. McElhenny, 23 Ind. 4, that, "if usurious interest is paid on the note after its execution, it amounts to a payment of so much on the principal of the note; and if the amount thus paid exceeds the principal, it may be recovered back."

It was held in Yancy v. Teter, 39 Ind. 305, that the excess over the rate of interest as fixed by the statute of the contract of the parties could be recovered back or recouped.

If the penalties prescribed by the act of Congress and of this State are to be enforced, then it would seem that in an action on an instrument tainted by usury, the illegal interest that had been paid would be regarded as a payment upon the principal, and the party could afterward recover in an action against the bank twice the amount of the interest paid.

It is finally insisted by counsel for appellee, that the fourth, fifth, sixth, and seventh paragraphs of the answer were bad, because it is not alleged that the usurious interest was corruptly reserved and received.

It was held in The Bank of the U. S. v. Owens, 2 Pet. 527, and in the case of The Bank of the U. S. v. Waggener, 9 id. 378, that the word "corruptly " meant intentionally and designedly. The language of the present National Banking Law is "knowingly,” and it is charged in the several paragraphs of the answer that the contract for the usurious interest was knowingly made, and we think that such averment is equivalent to charging that it was corruptly made, even if, under the usury laws of this State, it was necessary to charge that the contract was corruptly made.

It was held in Cohee v. Cooper, 8 Blackf. 115, that in a plea of usury it was necessary to charge that the unlawful interest was corruptly reserved, and such ruling was followed in subsequent cases; but in the well-considered case of Cole v. Bansemer, 26 Ind. 94, it was held that under the usury laws as they have existed since 1861, such allegation was unnecessary.

The court in that case say: "There is therefore now no reason here for the allegation that the contract was corruptly made, and the rule of pleading requiring it must consequently be deemed to have ceased to exist."

It is very plain and obvious to us, that the appellants were not

City of Richmond v. Scott.

entitled in this action to recoup the interest which they had paid upon the notes in suit. The facts stated in the paragraphs under examination are sufficient to show that the transaction was with the bank, and not with the plaintiff, and that the bank is chargeable with the acts of the plaintiff as the president thereof, and that the penalties prescribed by the act of Congress attach in the same manner, and to the same extent, as though the action was brought by and in the name of the bank. But it does not result from this, that the action could not be maintained by the plaintiff, for the facts alleged show that he was the trustee of an express trust and as such was entitled to maintain the action. Heavenridge v. Mondy, 34 Ind. 28.

It results, from what has been said, that the court below committed no error in sustaining the demurrer to the fourth, fifth, sixth and seventh paragraphs of the answer.

[The court then decided that the taking of illegal interest did not render the contract void; a point settled by the Supreme Court of the United States in Farmers and Mechanics' National Bank v. Dearing, ante, p. 117.]

State banks were exempt from taxation under a statute passed prior to the National Banking Act. Held, that shares in National banks could nevertheless be taxed.*

A tax was levied on money belonging to plaintiff on the first day of January. In March, he bought, with this money, shares in the stock of a National bank. Held, that the shares could be also assessed under a statute providing that persons should be assessed for bank stock held by them on April first.

* See Lionberger v. Rouse, ante, p. 41; Hepburn v. School Directors, ante, p. 113; Adams v. Mayor, ante, p. 148.