is pledged as collateral for a usurious debt, it may be collected, to the extent of the sum legally due.42 On the other hand, if usury taints a note, it will also affect a collateral mortgage given to secure it; 43 but not a mortgage previously made to the maker, and transferred by him as collateral.* The defense of usury is, however, a personal one, and cannot be set up by the purchaser of premises covered by a collateral mortgage.*5 44 Usury by Corporation-National Bank Act. § 1792. In some states corporations are forbidden by statute to set up the defense of usury.46 And in Minnesota building associations are specially exempted from the operation of the usury law.*7 In general, a banking corporation taking a note or bill is subject to the usury laws in the same manner as a private individual.48 And usury is admissible against a national bank in a suit brought by it in the state courts, although such courts might not have had original jurisdiction in the matter.19 By the national bank act such corporations are allowed to make discounts at the rate allowed by the local law, and no more, unless by such local law a special rate is allowed to such banks. And when there is no rate fixed by the local law the rate is limited to 7 per cent., and the entire interest is forfeited, if such law is violated, and twice the amount of usury paid may be recovered in an action brought for that purpose within two years.50 This act has been 42 Partridge v. Williams, 72 Ga. 807. 43 Kleeman v. Frisbie, 63 Ill. 482. 44 Stevens v. Reeves, 33 N. J. Eq. 427. 45 Reed v. Eastman, 50 Vt. 67; Loomis v. Eaton, 32 Conn. 550; Town of Reading v. Town of Weston, 7 Conn. 409. 46 ILLINOIS (Hurd's Rev. St. c. 74, § 11); NEW YORK (Birdseye's Rev. St. p. 1665, §§ 16, 17); WEST VIRGINIA (Code, c. 52, § 22); WISCONSIN (Sanb. & B. Ann. St. § 1690). 47 In MINNESOTA (Gen. St. §§ 2218, 2794, 2879). But see, contra, in Ne braska, Lincoln Bldg. & Sav. Ass'n v. Graham, 7 Neb. 173. 48 Farmers' & Traders' Bank v. Harrison, 57 Mo. 503; notwithstanding the custom of the bank, Niagara Co. Bank v. Baker, 15 Ohio St. 68; Bank of Utica. v. Hillard, 5 Cow. (N. Y.) 153. 49 National Bank of Winterset v. Eyre, 52 Iowa, 114, 2 N. W. 995. 50 UNITED STATES (Rev. St. §§ 5197, 5198). held to apply both to accommodation and business paper, and to discounts made in a state like New York, where a rate of interest is fixed by law, but no rate of discount.51 In Massachusetts it has been held that this act supersedes the state usury laws as to national banks.52 But in New York the penalties of the state usury law have been held to apply to national banks.53 54 Usury-When Admissible. § 1793. Usury in the making of a bill renders it void as against all parties. And it may be set up in a suit brought by or against the party's personal representatives.55 The acceptor of a bill may set up usury, to which he is not a party, between the drawer and the indorsee who brings suit.56 So, a surety may avail himself of usurious payments made by his principal for the purpose of obtaining an extension, and may have such payments credited in his own discharge.57 And in Georgia it is provided by statute that a surety may recover against his principal the amount paid by him in taking up a note without notice that it was originally tainted with and included usury, and that the principal intended to resist its payment on that ground.58 But, if the right to recover usurious payments made by the maker on a note secured by mortgage has been released by him, they cannot afterwards be set up by a later mortgagee for his own benefit.59 A surety is not, in general, discharged by usury 51 Johnson v. Bank, 74 N. Y. 329. 52 Davis v. Randall, 115 Mass. 547; Central Nat. Bank v. Pratt, Id. 539; National Bank of Winterset v. Eyre, 52 Iowa, 114, 2 N. W. 995; First Nat. Bank of Columbus v. Garlinghouse, 22 Ohio St. 492. And see Bramhall v. Bank, 36 N. J. Law, 243. 53 The double interest not being recoverable under the national bank act, Hintermister v. Bank, 3 Hun (N. Y.) 345; but the usurious contract being wholly void, First Nat. Bank of Whitehall v. Lamb, 50 N. Y. 95, reversing 57 Barb. 429; as to this case, see remarks of Bedle, J., in Bramhall v. Bank, 36 N. J. Law, 247. 54 Armour v. Moore, 5 Ill. App. 433. As against indorsees, see chapter 47, infra. 55 Fox v. Whitney, 16 Mass. 118. between his principal and the holder of the note." And where the principal is barred, as a corporation, from the defense of usury, it cannot be set up by the surety or indorser.62 61 But it has been held that one who indorses a corporation bill, after indorsement by officers of the corporation, to facilitate a sale for its benefit, is not a guarantor, and may set up usury in the sale by the maker's agent, although the company could not do so.63 Usury in Transfer. § 1794. The maker of a note cannot set up in an action against himself that the note was indorsed and discounted at a usurious rate.64 And this is true, also, under the national bank act.65 Even an accommodation maker cannot set up that the note was sold at a usurious discount by the payee, for whose accommodation it was made. A note may be sold at any discount, but, if it is given as mere security for a usurious loan, the indorsee cannot recover.67 66 68 In like manner, an indorser cannot set up usury between maker and payee, or between himself and a prior indorser." And the indorser of a note which has been discounted for the maker cannot set up that it was given in renewal of a note in which usurious interest was taken by the same payee.70 If A. indorses a note for a balance due on a usurious account between the maker and the payee, and afterwards takes it up, and gives his own note to the payee for it, he can 60 First Nat. Bank of Winterset v. Garlinghouse, 22 Ohio St. 492. And see § 921, supra. 61 First Nat. Bank of New York v. Morris, 1 Hun (N. Y.) 680. 62 Union Nat. Bank v. Wheeler, 60 N. Y. 612; Stewart v. Bramhall, 74 N. Y. S5, affirming 11 Hun, 139. 63 Bock v. Lauman, 24 Pa. St. 435. 04 Nichols v. Fearson, 7 Pet. 103; Knights v. Putnam, 3 Pick. (Mass.) 184; Newman v. Williams. 29 Miss. 212; Capital City Ins. Co. v. Quinn, 73 Ala. 558. 65 Importers' & Traders' Nat. Bank v. Littell, 47 N. J. Law, 233. 66 Gaul v. Willis, 26 Pa. St. 259. 07 Durant v. Kanta, 27 N. J. Law, 624. 69 McKnight v. Wheeler, 6 Hill (N. Y.) recourse, Challiss v. McCrum, 22 Kan. 157. Co Morford v. Davis, 28 N. Y. 481. 70 Bly v. Bank, 79 Pa. St. 453. And see § 523, supra. 492. Although he indorsed without not deduct the original usury paid as a set-off against his own note."1 But an accommodation indorser may avail himself of usury on the part of the maker.72 75 Usury-Recovery of Payment. 74 § 1795. Some states provide by statute for the recovery of all usurious interest paid,73 or of double or even treble the amount paid. And, if the maker is obliged to pay the face of the note to a bona fide holder, he may recover the usurious excess paid by him, in an action against the payee.76 But usury voluntarily paid cannot, in general, be recovered." If the statute prohibits an agreement in writing for payments beyond a certain rate, the prohibition will be waived by a verbal agreement for such payment, actually performed.s And, when an action is brought to recover usurious payment, an accord and satisfaction of usury will be a complete defense.7° 71 Craig v. Butler, 9 Mich. 21. 72 National Bank of Auburn v. Lewis, 75 N. Y. 516, reversing 10 Hun, 468; Newport Nat. Bank v. Tweed, 4 Houst. (Del.) 225. 73 MINNESOTA (Gen. St. § 2213); MISSISSIPPI (Ann. Code, § 2348). And see § 521, supra. So, in LOUISIANA, where the suit must, however, be brought within one year. Walker v. Villavaso, 18 La. Ann. 718. 74 NORTH CAROLINA (Code, § 3836), if the action is brought within two years. 75 WISCONSIN (Sanb. & B. Ann. St. § 1691), if action is brought within one year after payment. 76 Kock v. Block, 29 Ohio St. 565. So, by statute in MINNESOTA (Gen. St. § 2214). 7 Riddle v. Rosenfeld, 103 Ill. 600; Kinney v. Sherman, 28 Ill. 519; Reed v. Loan Co., 160 Mass. 237, 35 N. E. 677. 78 Nutting v. McCutcheon, 5 Minn. 382 (Gil. 310). 79 Rogers v. Ball, 54 Ga. 15. But the penalty provided for usury in the national bank act cannot be used as a set-off. Danforth v. Bank, C. C. A. 62. 48 Fed. 271; National Bank of Rahway v. Carpenter, 52 N. J. Law, 165, 19 Atl. 181; Barnet v. Bank, 98 U. S. 555. And see § 526, supra. And this rule is now applied in New York to state banks (which are by statute put on the footing of national banks), Caponigri v. Altieri (Sup.) 51 N. Y. Supp. 418; although at first held otherwise in the same case, 21 Misc. Rep. 510, 47 N. Y. Supp. 715, and 22 Misc. Rep. 101, 48 N. Y. Supp. 808. (2528) Recoupment of Usury. And even a § 1796. Where usurious interest has been paid on a note, it may be set off against it, to reduce the balance due.00 And such payment will be regarded as a payment on account of the principal debt, and not a mere set-off, which might be barred as such by the statute of limitations.81 And such excessive payment on the original note may be set up as a counterclaim against the renewal.82 voluntary payment of usury, which could not be recovered, as we have seen, may be used as a counterclaim in recoupment.83 Such payments are recouped by applying the amount to the lawful interest accrued at the date of payment, and afterwards to reduction of the principal.84 The maker of a note, who has paid usurious interest on it, may treat it as a payment on account of principal, or avail himself of it as a set-off.85 But he cannot set off on one note a usurious payment made on another note, although between the same parties.8G And if usury is voluntarily paid on a contract originally usurious, after the passage of a law making the rate reserved in it legal, it cannot be recouped as a usurious payment.87 A note may be purged of usury, if the illegal interest is refunded, and a new agreement made for legal interest only in future.88 And in Maine the holder may recover costs on a usurious note, if he reduces it voluntarily before trial to the amount lawfully due.89 so National Bank of Auburn v. Lewis, 75 N. Y. 516, reversing 10 Hun, 468; Thomas v. Shoemaker, 6 Watts & S. (Pa.) 179; Wilkinson v. Wooten, 59. Ga. 584; House v. Davis, 60 Ill. 367; Richards v. Kountze, 4 Neb. 200. 81 Union Nat. Bank v. Fraser, 63 Miss. 231. 82 National Bank of Madison v. Davis, 8 Biss. 100, Fed. Cas. No. 10,038. 83 Mitchell v. Lyman, 77 Ill. 525. 84 Lemmon v. Whitman, 75 Ind. 318. And in Indiana it can only be recouped and not recovered, Holcraft v. Mellott, 57 Ind. 539. 85 Lewis v. Jewett, 51 Vt. 378. 86 Ewing v. Griswold, 43 Vt. 400. So, under the national bank act, Barnet v. Bank, 98 U. S. 555. 87 Sims v. Squires, 80 Ind. 42. 88 Phillips v. Association, 53 Iowa, 719, 6 N. W. 121. 89 Knight v. Frank, 48 Me. 320; but not by a mere indorsement after suit brought without the maker's knowledge, Gray v. Brown, 49 Me. 544. RAND.C.P.-159 (2529) |