Schlesinger v. Lehmaier

McLaughlin, J.: This action was originally brought in the City Court by the receiver of the Federal Bank to recover the amount of two promissory notes made by'the defendant-for $500 and $454.50 respectively, each made payable to the order of the maker and indorsed by him. . The complaint alleges that before maturity the notes were indorsed in blank by the defendant and discounted by the Federal Bank in due course, and that as receiver the plaintiff is -the owner • and holder of them. .The answer denies that the plaintiff is a holder in due course, and alleges: “ VI. That both the notes described in the complaint were made and delivered to the Globe Security Company under the following circumstances: That on or about the 2d day of November, 1903, the defendant made a note for $819.50 dated on that day, wherein he promised to pay the said sum four months after said date to the order of the defendant, and thereafter endorsed the said note in blank and delivered the same to the Globe Security Company ; that thereafter, when the said last mentioned note .became due^ the defendant did not pay the said note, and in payment thereof made and delivered to the Globe Security Company the two notes mentioned in the complaint; that the said notes mentioned in the coim plaint, amounting in the total to Nine hundred and fifty-foiir and 50/100 dollars ($954.50) and interest include the said sum of Eight hundred and nineteen and 50/100 dollars ($819.50) and the sum of One hundred thirty-five and 50/100 dollars ($135.50) interest, the last mentioned, and being far in excess of interest at- the legal rate, and said interest is, therefore, at a usurious rate, and the Federal Bank of New Toi’k received the notes with knowledge of all facts alleged in this separate defense.” Another defense is set out .similar to the one above quoted, but tracing the notes back to their origin in a note exceeding $400, made on or about January 29, 1903,. for a loan of $350. At the trial the plaintiff made prima facie proof of the cause of action alleged and rested, and the defendant’s counsel. thereupon moved to dismiss the complaint upon the ground that the plaintiff had failed to prove that he was the owner and holder of the notes in question. The motion was denied and an exception taken, and a motion [430] was then made by plaintiff’s counsel for judgment upon the ground that the facts pleaded in the alleged defense quoted and the other " defense referred to did not, inlaw, even though such facts be estab-. fished by evidence, prevent a'recovery. This motion was subsequently granted and judgment entered for the plaintiff, from which • an appeal was taken to the Appellate- Term, which reversed the judgment of the City Court and ordered a new .trial, and from the determination thus made,, by permission^ an appeal was taken to this court. I am of the opinion that the determination of the Appellate Term should be reversed and the judgment of the City Court affirmed. The Federal Bank, of which the plaintiff is receiver,, was a. State bank, and tlfe notes. in suit were acquired by him as part of the assets of the bank when he was appointed such receiver. The disposition made by tile City Court in summarily disposing of the defenses pleaded necessarily admits that the notes sued on were usurious at their, inception, and that the Federal Bank took the. same .with full knowledge of this fact. Had the Federal Bank, in the first instance, discounted the notes and in doing so exacted a usurious rate of interest, or had it taken the notes in due course, then the defenses attempted to,, be pleaded would not be available. This was finally, settled, if the question were theretofore open, by this court in Schlesinger v. Kelly (114 App. Div. 546), where the latter-question was squarely presented. The reasons assigned.for reach ing that conclusion are fully set forth in the opinion delivered by Mr. Justice Clarke, and it is unnecessary in disposing of the question here presented to restate them.- The only difference between this case and the Kelly case is that .there the Federal Bank did not have knowledge that a usurious rate of interest had been exacted, while here it purchased the notes for value with knowledge that a usurious rate of interest had been exacted by the seller. Does this place the bank in any worse position than if it had taken, usurious interest itself? 1 think-not, and _this is upon the theory that what one can do himself he can do through'another. A national bank may proceed by action to recover a debt and the debtor claiming usury cannot -resist the enforcement of that debt because of usury, nor can he counterclaim the statutory penalty. He can only .recover that penalty in the manner pro, [431] vided by statute (Caponigri v. Altieri, 29 App. Div. 304; affd., 165 N. Y. 255) which is by a separate and independent action for that purpose and he can have redress in no other mode or form of procedure. (Barnet v. National Bank, 98 U. S. 555.) Under the provisions of the National Banking Act (13 U. S. Stat. at Large, 108, § 30; revised by U. S. R. S. §§ 5197, 5198) taking usury by a national bank does not involve a forfeiture of the debt, either as a penalty or otherwise. The most that can be claimed by the debtor is that the contract is good for what might be lawfully taken and void only as to the excess. (Farmers', etc., Nat. Bank v. Dearing, 91 U. S. 35.) By the act of Congress referred to there is a penalty imposed for .taking usury by national banks, but it can only be recovvered in an action of-debt and not as a-counterclaim or set-off to the original obligation. Caponigri v. Altieri, 165 N. Y. 261.) Section 55 of the Banking Law (Laws of 1892, chap. 689, as amd. by Laws of 1900, chap. 310) places State banks on an equality with national banks Caponigri v. Altieri, supra) and, therefore, the statute (1 R. S. 772, § 5, as amd. by Laws of 1837, chap. 430, § 1) relating to usury is not available as a defense in an action.to recover the original indebtedness. .The only remedy, where an illegal rate of interest has been taken, is by a separate action to recover the penalty, or, as said by Judge Martin in the Gaponigri case: “ Under the State as well as under the Federal law, a debtor claiming that usury has been paid cannot counterclaim the statutory penalty therefor, but his remedy under the statute of 1892, like that under the Federal law, is to bring an action for the penalties thus imposed, when the action may be tried untrapimeled by and disconnected from any other transactions or business between such person and the bank or individual banker.” But it is said that the bank here did not take an illegal rate of interest, but that was taken by the Globe Security Company, from whom it obtained the notes in suit and, therefore, an action to recover this penalty could not be maintained against the Federal Bank "or the plaintiff, its receiver. This does not necessarily follow, because the Federal Bank purchased with knowledge that a usurious rate of interest had been paid, and in doing so, it ratified and adopted the act of its assignor, and to the extent of the illegal rate of interest exacted, thereby it seems tome subjected" itself to the penalty provided by statute. It is not disputed but .what, under [432] the authorities cited, if the hank had taken the illegal rate of inter. est itself it could enforce collection of the notes. It would be a forced, strained and unwarranted construction of the statute which would prevent a recovery by reason of the knowledge'of the bank that an illegal rate of interest had been taken when, if it had taken. the illegal rate of interest itself, a recovery might be had. It could, as already said, do through another what it could do itself, but if it -chose to do so.it thereby became subject to the. penalty which would be imposed had it done .the illegal act- itself, For the reasons stated, therefore, the determination of the Appelz * late Term must be reversed, with costs, and the judgment of the City Court affirmed, with costs. 1 Lambert, J., concurred ; Patterson, P. J., Houghton and Scott, JJ., concurred in result. Determination reversed, with costs, and'judgment" of City Court-affirmed, with costs. Order filed.