UNITED STATES F. & GUARANTY CO. v. John R. Alley & Co.

• Decision Date: 26 July 1940
• Docket Number: No. 2018.,2018.
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. JOHN R. ALLEY & CO., Inc., et al.
• Court: U.S. District Court — Western District of Oklahoma

34 F. Supp. 604

UNITED STATES FIDELITY & GUARANTY CO. v. JOHN R. ALLEY & CO., Inc., et al.

No. 2018.

District Court, W. D. Oklahoma.

July 26, 1940.

Lynn Bullis, Jr., of Oklahoma City, Okl., for plaintiff.

James S. Twyford, of Oklahoma City, Okl., for John R. Alley.

Byrne Bowman, of Oklahoma City, Okl., for Walter T. Jones, receiver for John R. Alley & Co.

Mark Goode, of Shawnee, Okl., for Federal National Bank of Shawnee.

VAUGHT, District Judge.

John R. Alley and Company, Inc., entered into a contract with the State Highway Commission of Oklahoma for the construction of a certain highway within the state of Oklahoma, and the plaintiff executed for Alley and Company a contractor's bond, guaranteeing the faithful performance of said contract and guaranteeing the payment of all labor and material claims. Alley and Company completed the work under the contract but defaulted in the payment of labor and materialmen's claims, and it became necessary for the bonding company, under the terms of its bond, to assume and pay said obligations. The bonding company filed this suit for the purpose of having determined all valid claims against the contractor and also to determine its right and the rights of other claimants to any funds held by the Highway Commission for the purpose of paying the contract price for the construction of said highway.

Hereafter, John R. Alley and Company, Inc., will be referred to as the contractor.

The Federal National Bank of Shawnee, Oklahoma, filed its answer in the cause and alleged that the contractor was indebted to it in the sum of $5,177.16, the balance due on loans by the bank to said contractor, which indebtedness was represented by notes held by the bank, and claims an assignment of contractor's estimates as security.

Numerous other defendants filed their answers and set up their claims, the priority of which will be hereinafter determined.

The contractor filed an amended answer in which it pleaded that, under four separate contracts with the State Highway Commission, it entered into an agreement with the bank whereby the contractor agreed to pay to the bank a bonus of five per centum based on the amount of each of said contracts, in addition to the ten per centum rate of interest provided in the notes.

In the first cause of action, the contractor alleged that in July, 1936, under the Love County contract involving approximately $20,000, it borrowed from the bank the sum of $5,000; that it executed a note for $5,000; that it received credit for said amount upon the books of the bank and immediately withdrew $1,000 for the five per cent. bonus on said contract and paid said sum to an officer of the bank.

In the second cause of action, the contractor alleged that in October, 1936, under the Pittsburg County contract involving approximately $20,000, it borrowed from the bank the sum of $3,700; that it executed a note for $3,700; that it received credit for said amount upon the books of the bank, and immediately withdrew $1,000 for the five per cent. bonus on said contract and paid said sum to an officer of the bank.

In the third cause of action, the contractor alleged that in January, 1937, under the Carter County contract involving approximately $50,000, it borrowed from the bank the sum of $5,500; that it executed a note for $5,500; that it received credit for said amount upon the books of the bank, and immediately withdrew $2,500 for the five per cent. bonus on said contract and paid said sum to an officer of the bank.

In the fourth cause of action, the contractor alleged that in February, 1937, under the Washington County contract involving approximately $10,000, it borrowed from the bank the sum of $2,125; that it executed a note for $2,125; that it received credit for said amount upon the books of the bank, and immediately withdrew $500 for the five per cent. bonus on said contract and paid said sum to an officer of the bank.

The contractor further alleged that it paid the bank a total of $5,000 in bonuses and, in addition thereto, had paid $777.60 in interest on said notes, or a total of $5,777.60, and it asks judgment against the bank in double said sum, or $11,555.20.

The allegations of said answer are denied by the bank, and said issues are involved in the trial of this case as between the bank and the contractor.

The testimony of the contractor is that in every instance it paid the cash, as above alleged, to one Ellis, who was vice president of the bank and who received said sums as a commission. Ellis is now deceased and his testimony, therefore, is not available.

Much of the testimony of the contractor is corroborated, but the records of the bank do not disclose that this money was received by the bank, yet if the money was received by an officer of the bank in his official capacity in a transaction with the bank, the bank will be considered to have received the money whether the records disclose it or not.

The court is satisfied that the contractor made this agreement with Ellis, as is disclosed by the record, and that at the time the bank made these various loans to the contractor, it actually received $5,000 less than the face of the notes.

The purpose of this action was to determine what claims were outstanding against the contractor for which the bonding company would be liable. One material question for determination is what amount the contractor owed the bank at the time it failed to carry out its contract with the State Highway Commission.

Another question is whether or not in an action of this character the contractor could by this pleading raise the question of usury.

The bank contends that it did not receive this money and that under no circumstances could the contractor maintain an action for usury in this particular case.

The bank duly filed its motion to dismiss the amended answer of the contractor on the ground that an action to recover usury must be an independent action and could not be filed as a setoff or a counterclaim to an action on the primary obligation.

Title 12 U.S.C.A. ß 86 is as follows: "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 an action in the nature of an 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."

It will be noted that this section of the statute includes the words, "in an action in the nature of an action of debt." The remedy to collect usury is in the nature of a penalty and under the terms of the statute the remedy is by an independent action.

In Barnet v. Muncie National Bank, 98 U.S. 555, 558, 25 L.Ed. 212, the court said: "Where a statute creates a new right or offense, and provides a specific remedy or punishment, they alone apply. Such provisions are exclusive."

In McCollum v. Hamilton National Bank, 303 U.S. 245, 58 S.Ct. 568, 570, 82 L.Ed. 819, which case is cited by both parties, the court said: "The penalty is to be enforced according to the terms of the statute. Guilt being established, the law itself fixes the punishment at precisely twice the usurious exaction paid; it may not be enhanced or mitigated because of aggravating circumstances or equitable considerations. As the sum demanded is certain, recovery in an action of debt is authorized, though the claim arises not in contract but in tort. Chaffee & Co. v. United States, 18 Wall. 516, 538, 21 L.Ed. 908. The liability can only be enforced in an action `brought specially and exclusively for that purpose— where the sole issue is the guilt or innocence of the accused, without the presence of any extraneous facts which might confuse the case.' Barnet v. National Bank, 98 U.S. 555, 559, 25 L.Ed. 212. One paying a national bank usurious interest and entitled to enforce the penalty may not recover it by way of set-off in a suit brought upon his note to the bank. Haseltine v. Central Bank, 183 U.S. 132, 137, 22 S.Ct. 50, 46 L.Ed. 118; Barnet v. National Bank, supra; Driesbach v. National Bank, 104 U.S. 52, 26 L.Ed. 658; Stephens v. Monongahela Bank, 111 U.S. 197, 4 S.Ct. 336, 337, 28 L.Ed. 399; See Schuyler National Bank v. Gadsden, 191 U.S. 451, 456, 24 S.Ct. 129, 48 L.Ed. 258." And the opinion concludes: "Punishment for usury does not depend upon payment of the borrower's debt. It follows that respondent is not entitled to satisfy petitioner's judgment by deducting the amount of it from respondent's claim against the bankrupt's estate."

In Schumacher v. Lawrence, 108 F.2d 576, 577, the Circuit Court of Appeals. Sixth Circuit, said: "Appellant contends that this was error, urging that under ß 86, Title 12, U.S.C., 12 U.S.C.A. ß 86, usurious interest which has been paid must be recovered back in an independent action; that this remedy is exclusive, and that the federal statute controls. This clearly is the law. The latest statement of the rule is found in McCollum v. Hamilton National Bank, 303 U.S. 245, 58 S.Ct. 568, 82 L.Ed. 819. In that case the judgment of the state court applying usurious interest as a credit upon a debt of a bankrupt estate was reversed. The Supreme Court said: `One paying a national bank usurious interest and entitled to enforce the penalty may not recover it by way of set-off in a suit brought upon his note to the bank.' 303 U.S. page 247, 58 S.Ct. page 570, 82 L.Ed. 819. The court declared that the right of set-off does not at all depend upon the state statute. Other decisions to the same effect are Haseltine v. Central Bank of Springfield, 183 U.S. 132, 137, 22...