Monongahela National Bank v. Overholt

Mr. Justice Trunkey delivered the opinion of the court, November 26th 1881. Section 5191 of the National Banking Act, R. S. U. S., prescribes the rates of interest which banks may receive. The next section is: “ The taking, receiving, reserving or charging a rate of interest greater than is allowed by the preceding section, when knowingly done, shall be deemed 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. In case the greater rate of interest has been paid, the person by whom it has been paid, or legal representatives, may recover back in the nature of an action of debt, twice the amount of the interest thus paid from the association taking or receiving the same'; provided such action is commenced within two years from the time the usurious transaction occurred.” Upon the actual payment by the borrower and receipt of the illegal interest by the bank, the right of action accrues, and can be maintained, whether the debt has been paid or not. This cannot be more clearly expressed than in the words of the statute, and decisions under other statutes, having little similarity to this, do not warrant departure from the plain meaning of the remedial and punitory provision. On June 25th 1878 the plaintiff presented his petition for adjudication in bankruptcy, and he was duly discharged on February 7th 1879.' This action was commenced after his discharge, and the usurious transaction occurred prior to his petition for adjudication. Did the right of action pass as part of his estate to the assignee ? The broad and comprehensive terms of the Bankrupt Act vest in the assignee for creditors the entire estate of the bankrupt debtor, except exemptions which are intended to protect him and his family from temporary distress. All debts due him, all rights in equity, choses in action, and rights of action arising from contract, or from the unlawful taking or detention or injury to the property of the bankrupt, pass at once to the assignee on his appointment, in virtue of the adjudication in bankruptcy. The assignee has like remedy to recover all the estate, debts and effects in his own name as the debtor might have had if the decree in bankruptcy had not been rendered and no assignment been made. Rights of action for torts to the debtor’s person do not pass, nor the right to sue for a penalty ; these are not assignable. It must be conceded that the sum which may be recovered from an [330] association, where illegal interest has been paid, is so penal in its character that it is commonly called a penalty. But is not the act in strictness more remedial than penal ? Taking interest beyond the prescribed rates is not a criminal offence, does not forfeit the debt, or give a qui tarn action to an informer, is not denounced by pains and penalties as was usury by the common law or ancient statutes. Nor is the right limited to the person who paid the excessive interest, for it may pass to his legal representative; and in this respect it is not treated as a penalty, or tort to the person. He may recover back twice the amount of interest thus paid by action in the nature of debt, and this is akin to double, or treble damages for injuries, allowed by certain statutes for the twofold purpose of compensation and example. In actions at common law exemplary damages are frequently recovered. The only vindicatory part of the statute as respects usury, is that providing remedies for the borrower against the association which has exacted illegal interest. These operate to recompense the borrower and punish the lender for the wrong done. Enough of the old doctrine of usury pervades the statute to place the borrower, who has paid or agreed to pay excessive interest, in the light of one injured in his property; but the lender is not made a criminal. Decisions of the federal courts are conflicting on the question whether the right of action vests in the assignee. As advised, it has not been decided by the United States Supreme Court. Among the cases in the district courts, where it has been held that the assignee of a bankrupt cannot maintain the action, is Brombey v. Smith, 5 Nat. Bank Rep. 152. On the other hand, in Crocker v. First National Bank of Chetopa, 3 Cen. L. Jour. 527, Dillon, C. J., ruled that the right passed, to the assignee, saying: “ It is our opinion that the assignee in bankruptcy -is, in respect of such a claim as this, which has injuriously affected and reduced the estate in bankruptcy, and which is to be enforced by an action in the nature of an action of debt, peculiarly and most appropriately the legal representative of the bankrupt. Every reason which in case of the death of the debtor, without bankruptcy, would give the right of action to his administrator or executor as his legal representative, applies with full force to the assignee in bankruptcy, if his estate-is, during his lifetime, administered in a court of bankruptcy.” A number of cases are, to same purpose, among them Wright v. First National Bank of Greensburg, 18 Nat. Bank Rep. 87. Nichols et al. v. Bellows, 22 Vt. 581, a case under the usury laws of Vermont, seems to support the view that the action is not assignable. In Gray v. Bennett, 3 Met. (Mass.) 522, a well considered case, it was decided that an insolvent debtor’s right of action for recovery of threefold the amount of interest paid by him on a usurious contract, passes by the assignment of his estate, and his assignee may maintain a bill in equity to recover it. It was there [331] claimed that the statute forfeiting threefold the amount of interest reserved, being in its nature penal, it resolves the demand into a mere claim for redress for a personal tort, which cannot be assigned. But the court, upon a careful review of the cases touching the principle, held that the' threefold act, while penal to some extent in its consequences, is so far remedial that it has the like privilege of liberal construction with those statutes which are wholly remedial; that the interest of the insolvent debtor was a vested interest and not a mere personal right, and unless it can be clearly shown by the statute that such an interest was not intended to be passed to the assignee, it becomes, by force of the assignment, vested in him. The weight of authority, and what we deem the better reasoning, impel to the conclusion that the bankrupt had a vested interest under the statute giving him a right .to recover back twice the amount of interest he had paid, and that it was vested in the assignee in virtue of the adjudication in bankruptcy. The defendant’s second point should have been affirmed. Judgment reversed.