Lebanon National Bank v. Karmany

Mr. Justice Trunkey delivered the opinion of the court, In the twenty-eight points presented to the court below and in the more than thirty assignments of error, no question is made but that the plaintiff paid and the defendant received a large amount of usurious interest. That fact was too patent to be gainsaid. The court submitted* to the jury to find ■the amount of interest charged on the several loans and discounts, and if in excess of the legal rate, with instructions that there could be no recovery for usurious interest paid' on any contract or note not declared upon. This submission, involving the merits of the case, is not specified among the alleged errors. The numerous assignments do not' present so many points, [73] and some of these do not seem to be so material as to require remark. In passing it may be noted that the statutes in this state providing for amendments in pleadings are very liberal, even permitting the courts to allow the filing of a declaration or plea after verdict, and these statutes have been liberally construed as remedial. When a declaration clearly sets forth the cause of action and the matters claimed, objections for defects in form will not avail as formerly. . The defendant denied the jurisdiction of the court. In Bletz v. Columbia Nat. Bank, 6 Nor. 87, it was decided that state courts have jurisdiction in an action by a borrower against a national bank, to recover back twice the amount of illegal interest paid by the borrower to the bank and taken in violation of the National Bank Act. That was the jjoint in the case. Since, the judgment has been repeatedly followed, without attempt to add to the reasoning of Agnew, C. J., who supported it independently of the. Act of February 18th 1875, amending section 5198 of the Revised Statutes of the United States. No sufficient reason appears for departure from the authority of that case. Moreover, said amendment expressly gives jurisdiction in said action to the state courts, and as it is purely remedial, it might be construed to apply where the action accrued prior to its date as well as after. The defendant asked instructions that the banks named in the special plea are banks of issue, under the laws of this Commonwealth, within the meaning of section 5197 of the R. S. U. S., to which the court answered: “ It does not appear that the banks named are banks of issue, having the right to charge a rate of interest greater than six per cent, per annum. And in fact, and in law, there is no bank of issue in Pennsylvania authorized to charge a rate of interest in excess of the legal rate.” This ruling was in accord "with the opinion of Agnew, C. J., in First Nat. Bank of Clarion v. Gruber, 6 Nor. 468, and with the subsequent decision of this court in the same case: 8 W. N. C. 119. At the second trial nearly all the same charters were pleaded as in this case. It is not alleged that these banks ever did issue circulating notes. It was not the legislative intent that they should have that right. Until their charters wore construed to give it by National Banks, it was not suspected that such power had been granted. At the first session of the legislature after the national banks had set up this construction in court, a statute -was enacted subjecting all banking corporations to the Act of May 28th 1858, relating to interest for the loan or use of money. It was well to remove any ground for said fictitious claims, and in doing so no validity or sanction was given those which were previously made. [74] In answer to the defendant’s twelfth and thirteenth points the jury were instructed that nothing in the statutes of this Commonwealth, relating to*the rate of interest, authorizes banks to take, reserve or charge a rate of interest in excess of six per centum per annum. The statute provides, “ The lawful rate of interest for the loan or use Gf money, in all cases where no express contract shall have been made for a less rate, shall be six per cent, per annum.” When a greater rate shall have been reserved or contracted for, the debtor shall not be required to pay the excess over the legal rate, and at his option he may deduct the excess from the amount of the debt, or when he shall have voluntarily paid the whole debt,with interest exceeding the lawful rate, he may recover the excess of interest by action: Act May 28th '1858, P. L. 622. This statute inflicts no penalties for charging or receiving unlawful interest, and it has been said that it is not unlawful for a debtor to pay, or a creditor to receive, more than the lawful rate, and that the man who agrees to pay more commits no violation of law, and is not bound to repudiate his contract: Appeal of Second Nat. Bank of Titusville, é Nor. 528. It is strictly true that no violation of law is committed in the making of such contract, that will be followed by pains and penalties, or forfeitures; or that such contract will be deemed a fraud upon other persons; and the remarks were to the end that the taking of more than six per cent, interest is not a fraud per se upon creditors. In another sense, the contract for a greater rate of interest than six per centmn is in violation of law. In absence of a contract for a less rate, the plain letter of the statute is, six per centum per annum is the lawful rate of interest, and if the parties contract for a greater rate the contract is voidable as to the excess; the debtor need not pay the excess, and if he pay the excess voluntarily he may recover it back by action. The court was clearly right in the instruction as as to the rate of interest banks may receive or charge on loans and discounts. It is alleged that the court erred in refusing the defendant’s points that no recovery can be had for the penalty under section 5198, unless the debt was also paid. The 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 his 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.” [75] “ Two categories are thus defined, and the consequences denounced. 1. Where illegal interest lias been knowingly stipulated for, but not paid ; there only the sum lent, without interest, can be recovered. 2. Where such illegal interest has been paid; then twice the amount so paid can be recovered in a penal action of debt, or suit in the nature of such action, against the offending bank, brought by the persons paying the same .or their legal representatives Barnet v. National Bank, 8 Otto 555. The terms of the statute are too plain for different constructions. If illegal interest be contracted for the debt shall bear no interest. If such interest be paid, the offending bank is liable in an action for twice the amount. That liability is incurred the moment the bank takes the illegal interest. The intendment is to prevent banks contracting or receiving more than lawful interest for the use of money. To permit a bank which had actually received illegal interest, when sued for the penalty, to chop round and call it a credit on the principal, would vitiate the vindicatory clause of the statute. In such case the taking would amount to nothing more than a contracting to receive. The statute inflicts twice the penalty for taking that it does for contracting : Monongahela Nat. Bank v. Overholt, 38 Leg. Intell. 185. In Pennsylvania the statute authorizes the debtor, at his option, to deduct the excess of interest from the debt, or to pay the whole debt and unlawful interest, and then recover back the excess over the lawful. Such statutes and decisions under them throw no light on the question now pending. It is urged that the court erred in refusing the defendant’s point that no more can be- recovered than twice the amount of the interest paid in excess of the legal rate. The statute makes the receiving or charging “ a rate of interest greater than is allowed ” “ a forfeiture of the entire interest.” “ In case the greater rate of interest has been paid ” the debtor may recover back “ twice the amount of interest thus paid.” The bank may take or charge the “ rate ” allowed by the laws of the state where it is located, and if no “ rate ” is fixed by said laws, it may take or charge a “ rate ” not exceeding seven per centum. It is clear the word rate is used in the same sense throughout. The lawful rate, measure, is certain, and a greater rate, whatever it may be, is a fixed measure by agreement of the parties. The entire interest forfeited is just the rate which was contracted. IJpon payment and receipt of a greater rate than is lawful, twice the amount thus paid is twice the rate, twice the entire interest. To„say that the meaning is, only a part of said greater rate, only the excess over the lawful rate, may be taken to measure the penalty, is a wresting of the words. The de [76] fendant cites and relies on tlie case of Hintermister v. First Nat. Bank of Chittenango, 3 Iiun, 345, where it was decided that only twice the amount paid in excess of the lawful interest can be recovered. Great weight is justly given to the decision of that court, but in this case we think its reasoning and conclusion are directly at variance with the statute. We adopt the ruling of-Dillon, .Cir. J. of U.S., thattlie amount of the recovery is twice the full amount of interest paid, and is not limited to twice the excess of interest paid over the legal rate: Crocker v. First Nat. Bank of Chetopa, 3 Cent. L. Jour. 527. In answer to the defendant’s twenty-seventh point the court charged that there can be no set-off in this action. The plaintiff's claim is not within the Defalcation Act, which applies where the parties are “ indebted to each other upon bonds, bills, bargains, promises, accounts or the like.” It arises from the defendant’s violation of a statute, remedial and penal, which gives the borrower the right to recover back from the bank twice the amount of illegal interest paid, for the two-fold purpose of compensation and example — the recovery being a recompense to the one and a punishment of the other : Monongahela Nat. Bank v. Overholt, supra. It was decided in Barnett v. National Bank, 8 Otto 555, that in an action on a bill of exchange, the defendant could not set off a claim for twice the amount of illegal interest he had paid the bank; that his remedy for the wrong was a penal suit, and he could have redress in no other mode or form of procedure. That set-off is not allowed in such actions is well settled. When the prescribed action for recovery is debt, or action in the nature of debt, it gives no right of set-off. After the plaintiff shall have obtained judgment, if the defendant have a judgment against the plaintiff in another case, there is power in the court to order one judgment to be set off against the other, governed by equitable principles. But such principles do not apply in a suit where the claim is in the nature of a penalty for violation of a statute so as to allow defalcation. Nothing need be added to the'opinion of the learned judge of the Common Pleas, wherein he gave his reasons for denying the motion in arrest of judgment. Judgment affirmed.