Wiley v. Starbuck. WILEY V. STARBUCK. (44 Indiana, 298.) Usury by National banks-Remedy for taking unlawful interest-Recoupment. By the statute of a State, six per cent was declared to be the legal rate of interest, but parties were authorized to agree in writing for a higher rate not exceeding ten per cent. Held, that National banks located in the State could charge ten per cent.* In an action on a note given for money borrowed of a National bank, the defendant cannot recoup illegal interest paid in advance. The remedies given by the National Banking Act for the taking of unlawful interest are exclu sive and cannot be supplemented by the statutes of the State. A CTION on promissory notes. The opinion states the case. J. B. Julian and J. F. Julian, for appellants. W. A. Bickle, for appellee. BUSKIRK, J. The action below was on two several writings obligatory, payable jointly and severally, as follows: 1. For one thousand two hundred dollars, dated December 7th, 1868, payable at ninety days, to Edward, Starbuck, or order, at the First National Bank of Union City. 2. For four thousand dollars, dated November 1st, 1868, payable at sixty days to the First National Bank of Union City. This last note is indorsed to said Edward Starbuck by said bank. The notes in other respects are similar, and each contains waiver of demand. of payment, notice, and protest, and authorizes any attorney at law to appear for the parties, or either, in any court in Indiana or Ohio, or elsewhere, and confess judgment for the note and interest, with damages on bills within the jurisdiction of the United States and without the jurisdiction of Ohio and Indiana, with costs, attorney's fees, and without relief, etc., and "with interest at ten per cent per annum, if not paid when due," etc. To this action an answer in nine paragraphs was filed. The first is a general denial. The second was a general plea that the plaintiff * See Newell v. National Bank, post. + See National Bank v. Davis, ante, p. 350. Wiley v. Starbuck. was not the real party in interest, without the allegation of any facts. The third, general plea of payment. The fourth and fifth paragraphs are to the first paragraph of the complaint, which declares on the note for one thousand two hundred dollars payable to Starbuck. The fourth paragraph is pleaded to four hundred and eightyone dollars of said note as the aggregate of the sums of thirtyseven dollars, alleged to have been "demanded," "received," and "reserved," by the bank at the end of each ninety days from the inception of the note, in December, 1865, to the giving of the note sued on; alleging that the note was given to Starbuck, president of the bank, to cover up the "illegal transaction of the bank;" that the sum of thirty-seven dollars was twelve per cent reserved by the bank "illegally;" that the said Starbuck had "no interest in the said money loaned, or the note given for the same." The fifth paragraph is also pleaded to the first count, and is addressed to the interest of thirty-seven dollars paid on the note sued on and accruing interest. It alleges that the transaction was with the bank; that said Starbuck had no interest in the money loved or note given. The sixth and seventh paragraphs are pleaded, in the same order and substantially to the same effect as the above, to the second count, on the four thousand dollar note. The eighth is on the common money count for indebtedness of the bank to defendant in the month of September, 1870. The ninth paragraph was as follows: "9th. The defendants Wiley and Wiley, for a ninth paragraph of answer, say that they are the sureties of the defendant McKemy on the notes sued on, he being the principal; that said notes were discounted by the First National Bank of Union City, an incorporation organized under the National Banking Law of the United States, and doing business in Randolph county, Indiana, and the money therein described was advanced and loaned by said bank, the said plaintiff being the president thereof and transacting the business, but having no interest whatever in said notes or the money loaned, and simply holding and taking the same in trust for the use of said bank, and taking one of them in his own name, and an assignment of the other with full knowledge of the facts stated, to cover up and conceal the illegal character and effect of the taking of illegal interest on said loan as hereinafter stated. And the said defendants say, that at the time of the discounting of the Wiley v. Starbuck. said notes, the said bank illegally charged, contracted for, reserved, and received interest on said several sums of money at the rate of one and one-half per cent per month, in advance, during the ninety days following the several discounts of said several notes; wherefore, because of such illegal and unwarranted acts of said bank, the defendants say that said notes are void." Issue was taken on the third and eighth paragraphs. A demurrer was sustained to the second, fourth, fifth, sixth, seventh, eighth and ninth paragraphs of the answer, and proper exceptions were taken. The cause was submitted to the court for trial and resulted in a finding for the plaintiff in the sum of five thousand four hundred and thirty-dollars and ninety three cents. The plaintiff moved the court for a new trial, for the following reasons: 1. The court erred in refusing to allow the plaintiff attorney's fees in said cause on said notes. 2. The court erred in refusing to compute interest on said notes from the date of each. The defendants moved the court for a new trial for the reasons following: 1. Because the finding and judgment of the court is excessive. 2. Because the judgment ought to have been for the defend ants. 3. Because the court erred in sustaining demurrers to the defendants' answer. Both motions were overruled, and each party took an exception. The plaintiff has assigned the following cross error: That the court erred in overruling his motion for a new trial. The defendants have assigned for error the sustaining of the demurrers to the answer of the defendants, and in overruling their motion for a new trial. Did the court err in sustaining the demurrer to the several paragraphs of the answer? The second paragraph of the answer was clearly bad, for the reason that it did not state facts sufficient to constitute a defense. Raymond v. Pritchard, 24 Ind. 318. The fourth, fifth, sixth, and seventh paragraphs of the answer present for our decision the questions of what rate of interest the Wiley v. Starbuck. National banks may charge in this State, and whether a person who has paid an illegal rate of interest may deduct the amount so paid from the principal of the note, in an action upon such note. The solution of these questions depends upon the construction to be placed upon the 30th section of the National Banking Law, and the laws of this State. Section 30 of said law reads as follows: "SEC. 30. And be it further enacted, that every association may take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State or Territory where the bank is located, and no more except that where by the laws of any State a different rate is limited for banks of issue organized under State laws, the rate so limited shall be allowed for associations organized in any such State under this act. And when no rate is fixed by the laws of the State or Territory, the bank may take, receive, reserve, or charge a rate not exceeding seven per centum, and such interes may be taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to run. And the knowingly taking, receiving, reserving, or charging a rate of interest greater than aforesaid, shall be held and adjudged 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. 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 the 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. But the purchase, di:count, or sale of a bona fide bill of exchange, payable at another place than the place of such purchase, discount, or sale, at not more than the current rate of exchange for sight drafts in addition to the interest, shall not be considered as taking or receiving a greater rate of interest." The above section contains five distinct propositions, namely: 1. That every association may take, etc., on loans, etc., interest at the rate allowed by the laws of the State, etc., where the bank is located, and no more, except where a different rate is limited for banks of issue under the State, the same shall be allowed, etc., for such first-named associations. 2. When no rate is fixed by the laws of the State, they may take seven per cent. 3. The "knowingly taking," etc., a greater rate than aforesaid" shall be held a "forfeiture of the entire interest which the note," etc., "carries with it, or which has been agreed to be paid thereon." Wiley v. Starbuck. 4. If a greater rate has been paid, twice the amount may be recovered back, if the action is brought within two years from the time the usurious transaction occurred. 5. But the purchase, etc., or sale of bills of exchange, with current rate of exchange added to the interest, shall not be considered as taking or receiving greater interest. Here, then, we have four rules prescribed for the taking of interest in the above first, second, and fifth subdivisions. 1. The rate allowed by the laws of any State, etc. 2. Any rate that any bank of issue in any State may take. 3. If no rate is fixed, seven per cent. 4. Current exchange added to interest. There being a bank of issue, created by the laws of this State, we are required to ascertain what rate of interest may be charged and received by such bank. The 13th section of the charter of the Bank of the State of Indiana reads as follows: "SEC. 13. Said bank shall be entitled to charge and receive for money loaned the legal rate of interest established by law in this State, and not more, and the same may, according to bank rules, be taken in advance out of the sums loaned, and may be computed according to the standard and rate set forth in 'Rowlet's Tables,' reckoning the days for which a note or bill has to run inclusively; but it shall not, directly or indirectly, place any money in the hands of any broker or other person, to be loaned to others, or charge, take, or receive any interest, compensation, or benefit, whatever, from any loan made by any other person or party, whether such loan be made from its own funds or otherwise." 1 G. & H. 141-42. By the above section, the bank of the State is entitled to charge and receive the legal rate of interest established by the laws of this State. The first section of an act concerning interest on money, approved March 9th, 1867, reads as follows : "That interest upon the loan or forbearance of money, goods or things in action, shall be at the rate of six dollars a year upon one hundred dollars, and no greater rate of interest shall be taken, directly or indirectly, unless the agreement to pay a higher rate of interest be made in writing, and signed by the party to be charged; but such rate of interest shall in no case exceed the rate of ten dollars a year on one hundred dollars; but it may be taken yearly, or for any shorter period, in advance." 3 Ind. Stat. 317. By the above section, six per cent is the legal rate of interest in this State, unless there is an agreement in writing to pay a higher |