Sydner v. Mt. Sterling National Bank

CHIEF JUSTICE BENNETT delivered the opinion op the court. The appellee is doing a banking business in this State under the United States hanking law. As such banking institution, it loaned the appellants money, and took their note therefor, charging them a usurious rate of interest and adding the same in the note, and at the maturity of the note, it was renewed and usurious interest again charged and included in the new note. Renewals were in like manner made and usurious interest added therein, until it resulted in the present note, when it was sued on. The appellants pleaded the foregoing facts in regard to the usury embraced in the several renewal notes, and asked that the interest be forfeited in consequence of the usury embraced in the several renewals, and that ■only the principal be recovered. [232] The National banking law provides: “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.” There is no doubt that each renewed note contained usury therein, and that it was “knowingly done.” The question to be decided is, whether the entire interest that the several renewed notes bore, can be eliminated from said notes in an action on the last note, so that nothing shall be recovered thereon except the principal. Upon that subject the following cases seem conclusive : In the 'case of Farmers and Mechanics’ Bank of Mercer v. Hoagland (United States Circuit Court) 7 Fed. Rep., 161, the court say: “By the terms of the act of Congress the charging of such rates of interest worked a forfeiture of the entire interest which the several notes carry with them. Now such forfeiture was not waived by the giving of the subsequent notes,' although as respects them the agreed rate of interest was a legal rate. They were mere renewals, and given without any new consideration. Nor did the new notes operate as payment of the debts for which they were given. In so far, then, as the notes in suit embrace the forfeited interest, they are without consideration. Moreover, it is an established principle that if there be usury in the original transaction it affects all consecutive securities, however remote, growing out of it; and neither the renewal of an old nor the substitution of a new se [233] curity between the same parties can efface the usury. The bank incorporated iu the new notes usurious interest previously charged, as a part of the new principal, and this illegal consideration pervaded the whole subsequent series of notes. Upon fresh renewal interest was charged upon usurious interest which had entered into the prior notes as principal.” The case of the Moniteau National Bank v. Miller, 73 Mo., 187, decides the same question the same way. The case of Alves’ Assignee v. The National Bank of Henderson, 89 Ky., 126, directly decides the same principle. The leading idea in these decisions is, that the new notes are mere renewals — new evidences of an old debt — and given without any new consideration. Nor do the new notes operate as a payment of the debts for which they were given; and as the usury embraced in the old notes taints the entire interest, and renders it vicious and void, the agreement to pay it is without any lawful consideration. Consequently the unlawful consideration may be eliminated from each renewal note; for such note is but the new evidence of the old debt, which includes the vice and unlawful consideration, which, as between the same parties, may be traced to the new note and eliminated. We now construe Brown, Assignee, &c., v. Marion National Bank, 92 Ky., 607, to be in harmony with the foregoing views. The judgment does not eliminate the entire interest from the several notes, but only the usury. This is error. The entire interest on all the notes should be eliminated, and judgment rendered for the prin [234] cipal alone, and the partial payments should bo applied to the principal. The judgment is reversed, and cause remanded, &c.