Allen v. The First National Bank of Xenia.

would be the rights of the bank on a note or other evidence of indebtedness given for money borrowed of it in excess of the amount allowed by this section; for we do not regard the notes sued on in this case as coming within the operation of the section. The consideration of the four notes in controversy was the two notes previously held by the bank against Allen and his sureties. If these notes were valid, there could be no objection to the bank, if it saw proper, extending the time of payment for the convenience of Allen, the principal debtor, or to its taking other security in lieu of what it then held, to insure final payment.

That the two previous notes were not affected by the section of the statute in question, to us seems clear.

The balance due on the note of $16,000 was for money borrowed by Allen of the Xenia Branch of the State Bank of Ohio before its conversion into a National bank. This indebtedness passed to and became the property of the defendant in error on its organization. The indebtedness, it is true, had been continued by renewals, and reduced by payments, from time to time. But the consideration of the note was at no time money borrowed of the defendant in error. The consideration of the note of $10,000 was for money originally borrowed of the bank by Merrick, McClure & Co. Of this indebtedness, Allen assumed to pay $14,000, and gave his note to the bank therefor. This amount was for more than one-tenth of the capital stock of the bank paid in. Allen's note to the bank was from time to time renewed and reduced by payments, until this note of $10,000 was given.

Assuming, for the purposes of this case (though not conceding the correctness of the assumption), that Allen's note for $14,000 is to be regarded as given for money borrowed by him of the bank, and that the note for this amount would have been invalid; yet, if such were the case, it would not affect the validity of the note now under consideration. No part of the consideration was illegal in the sense of the maxim ex turpi causa, non oritur actio. If invalid at all, it would be so simply from want of corporate capacity on the part of the bank to make a contract in derogation of the authority conferred by its charter, and not because of any illegal element entering into the consideration of the note. First National Bank of Columbus v. Garlinghouse, 22 O. S. 502; Bissell v. The Michigan Southern and Northern Indiana R. R. Co., 22 N. Y. 259; Parish v. Wheeler, id. 494.

Allen v. The First National Bank of Xenia.

Regarding Allen as having borrowed a larger sum of money from the bank than it was authorized to loan to him, its repayment was neither contra bonos mores, nor forbidden by law. It was just and right for him to repay it. And having, by voluntary payments, reduced his apparent indebtedness below the amount which the bank was authorized to loan to a single borrower, the fact that it may have before taken his obligation for a loan in excess of its authority can constitute no ground for his discharge from an obligation given to the bank for the balance, and which it was clearly within the corporate capacity of the bank to take.

3. The remaining ground of error is the alleged invalidity of the mortgage.

By section 28 of the National Currency Act, the defendant in error is authorized to purchase and hold such real estate as may be mortgaged to it in good faith, by way of security for debts previously contracted.

We think the mortgage in this case comes within this provision of the statute. It was given to secure a debt previously contracted. The debt was valid to the extent of the principal sum included in the notes. The usury operated no further than to defeat the interest; and to the extent that there was a valid indebtedness, the mortgage was a bona fide security. The fact that time was given for payment can make no difference.

Nor do we think the objection is well taken that the mortgage was made to Merrick, and not assigned by him to the bank. The notes and mortgage were both made to Merrick, and the circumstances show this to have been done with his consent. The mortgage was a mere security for the payment of the notes; and both notes and mortgage were delivered to the bank in pursuance of an arrangement made between it and Allen for extending time on his indebtedness, and for giving up the securities the bank then held. By the indorsement and delivery of the notes, the bank acquired the equity in the mortgage.

Judgment affirmed.

Higley v. The First National Bank of Beverly.

HIGLEY V. THE FIRST NATIONAL BANK OF BEVERLY.

(26 Ohio State, 75.)

National bank-- Usury— Limitation of right to recoup or counter-claim illegal interest.

The knowingly taking or receiving by a National bank of a rate of interest greater than is allowed by law upon a loan of money does not entitle the person paying the same to have it applied as a payment of so much of the principal, in an action brought to recover the principal debt more than two years after such payment was made. The rights and liabilities of the parties in such case are prescribed in the National Bank Act, and cannot be controlled by State legislation.*

MOTI

OTION for leave to file a petition in error to the District Court of Washington county.

This action was brought in the Washington County Common Pleas by the First National Bank of Beverly, Ohio (a corporation organized under the act of Congress passed June 3, 1864), against B. S. Higley and others, on two promissory notes, each dated June 18, 1874 (one for $3,000, the other for $102.50), and both payable at said bank, to the order of its cashier, ninety days after date. The petition demanded judgment for $3,102.50, with interest thereon from September 19, 1874.

The answer was in two counts, both of which set out that the notes sued on were made in renewal of a series of other notes given for a loan of $3,000 from said bank, July 5, 1871. The first count also alleges the payment of usurious interest on said loan, which was knowingly taken and received by said bank, as follows: July 5, 1871, $77.50; October 6, 1871, $77.50; January 6, 1872, $77.50; April 8, 1872, $77.50; July 10, 1872, $77.50; total $387.50.

The second count also sets out the payment of usurious interest on said loan, knowingly taken and received by said bank, in addition to the sums mentioned in the first count, as follows: October 11, 1872, $77.50; January 12, 1873, $77.50; April 12, 1873, $77.50;

*See Farmers' National Bank v. Dearing, ante, p. 117; National Bank v. Davis, ante, p. 350; Duncan v. First National Bank, ante, p. 360; Wiley v. Starbuck, ante, p. 436; Shinkle v. First National Bank, ante, p. 824.

Higley v. The First National Bank of Beverly.

66

July 14, 1873, $77.50; October 15, 1873, $77.50; January 16, 1874, $40; April 1, 1874; $60.50; June 18, 1874, $102.50; total, $592.50. In the Common Pleas, the bank interposed a general demurrer to the first count of the answer, which was sustained. To the second count the bank replied, alleging that the payment of $77.50, October 11, 1872, was made more than two years " before the filing of the answer, which was October 24, 1874. There was a general demurrer to this reply, which was overruled. Thereupon judgment was entered against the defendants, in favor of the bank, for the whole amount claimed in the petition (except interest), less $1,030, a penalty in twice the amount of the usurious interest paid within two years before filing the answer; to which judgment, as well as to the action of the court upon the two demurrers, the defendants below excepted; and afterward, at the April term thereof, 1875, prosecuted their petition in error in the District Court, which resulted in an affirmance of the judgment below.

This action is prosecuted to reverse the judgment rendered in the District Court, and also the original judgment of the Common Pleas.

Ewart & Sibley, and Higley, for the motion.

S. B. Robinson, contra.

MCILVAINE, C. J. The main question in this case is thus stated by counsel for plaintiff in error: "Does the knowingly taking and receiving a rate of interest greater than is lawful, by a National bank, on a loan made, or note discounted by it in this State, entitle the party paying the illegal interest to have it applied as a payment of so much of the principal debt, in an action brought more than two years after the payment was made, to recover the principal sum?"

This question, we think, must be answered in the negative.

By section 8 of the National Bank Act, there is conferred upon National banks general powers necessary to carry on the business of banking, "by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt," etc. By section 30, the rate of interest which such banks may lawfully take, receive, reserve, and charge is limited; and it is also therein declared that "the knowingly taking, receiving, reserving, or charging a rate of interest greater than aforesaid shall be held and adjudged a forfeit

Higley v. The First National Bank of Beverly.

ure 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 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; provided that such action is commenced within two years from the time the usurious transaction occurred." Laws 1st Sess. 38th Cong. 114, 8 30.

Without stopping to inquire how a bank may be affected in its relations to the government by reason of usurious transactions, it is quite certain that a customer who participates in the offense by paying or agreeing to pay a usurious rate of interest to such bank, is entitled to no relief or remedy except as provided in this section.

By the first provision in that part of the section above quoted, if the contract or promise to pay usurious interest be unexecuted, it cannot be enforced; and in such case the debtor is released from the payment, not only of the interest in excess of the lawful rate, but "the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon," must be held and adjudged to be forfeited. By the latter provision, if usurious interest "has been paid," twice the amount of interest paid may be recovered back from the association "taking or receiving" it, provided the action therefor be commenced within two years from the time the usurious transaction occurred. And by construing the whole section together we are inclined to believe that in case usurious interest has been "reserved" at the time of the loan or discount, there is left to the bank a locus penitentiæ. In such case the bank may, upon receiving payment of the debt, discharge itself from all liability to the debtor by giving credit for the amount of interest reserved; otherwise the debtor may insist upon a reduction of his indebtedness to the amount actually loaned or advanced, or he may pay the whole claim, and afterward, within two years, recover back twice the amount of interest paid.

On this construction of section 30, it is clear that defendants below had no right, by virtue of the National Bank Act, to recoup from plaintiff's claim any sum whatever on account of usurious interest paid to the bank more than two years next preceding the time of filing their answer in the action below.