Citizen Nat. Bank of Danville v. Forman's Assignee

• Decision Date: 07 June 1901
• Citation: 111 Ky. 206
• Parties: Citizens Nat. Bank of Danville v. Forman's Assignee.
• Court: Kentucky Court of Appeals

111 Ky. 206

Citizens Nat. Bank of Danville v. Forman's Assignee.

Court of Appeals of Kentucky.

June 7, 1901.

APPEAL FROM BOYLE CIRCUIT COURT.

JUDGMENT FOR DEFENDANT AND PLAINTIFF APPEALS. REVERSED.

ROBERT T. QUISENBERRY, ATTORNEY FOR APPELLANT.

R. T. JACOB, R. J. BRECKINRIDGE AND C. R. McDOWELL, FOR APPELLEE.

OPINION OF THE COURT BY JUDGE Du RELLE — REVERSING.

This was an action brought by appellee, as assignee for the benefit of the creditors of W. M. Forman, under section 5198 of the Revised Statutes of the United States, to recover of appellant bank double the amount of certain payments claimed to have been made of usurious interest by Forman to the bank upon a loan by the bank to Forman of $3,117.84 on January 29, 1895. A pleading called a "special demurrer in the nature of a plea in abatement" was filed in the clerk's office at the same time with an answer. The filing of these pleadings was afterwards entered of record by order of the court, and an order made reciting that the appellant "submitted to the court for its judgment its pleading filed herein, and denominated a `special demurrer,' and which pleading was submitted to the court as a demurrer; and on consideration of same the court overruled said demurrer," with an exception. The order recites that it was "made by the court prior to the making of the order heretofore entered on this day in the action of the Citizens' National Bank, etc. v. W. M. Forman, etc., in which order defendant dismisses the first paragraph of his answer in that said action; and it is ordered that this said foregoing order herein be, and the same is, noted as of record prior to the order in the action of the Citizens' National Bank, etc. v. W. M. Forman, etc., mentioned herein." It is now insisted that, inasmuch as the pleading was not a demurrer at all, but a verified plea in abatement setting up the pendency of a counterclaim by Forman in a suit by the bank, with the consent of his assignee, for the same cause of action set up in the petition, the court should not have treated it as a demurrer, but as a part of the answer. By a subsequent order it was provided that this pleading should be considered as the first paragraph of the answer, and the answer theretofore filed should be considered as the second paragraph; and it is insisted that the court erred in not treating it as a valid answer in abatement, upon the submission above mentioned, and that, if this is not so, the order that it should be taken as the first paragraph of the answer makes it take effect as a paragraph of the answer as of the date of the answer's filing, and not of the date of the order — the effort of the argument being to have this pleading considered as an answer in abatement prior to the dismissal of the counterclaim. There is no prejudicial error in all this. Appellant can not complain of his own action in submitting this pleading as a demurrer. It was clearly not sustainable as a demurrer. When it was ordered to be taken as a part of the answer, it became a part thereof as of the date on which the order was made, and not as of a prior date. Nor does it make any special difference to appellant whether it was filed as an answer in abatement before or after the dismissal of the counterclaim, as that dismissal would have been a sufficient response to it, even though the action was taken subsequent to the filing of the plea.

In Wilson v. Millikin 19 R., 1346 44, S. W., 660; 42 L. R. A., 449), in an opinion by Judge White, this court said: "The more modern rule seems to be that the objection of a former suit pending is removed by its dismissal or discontinuance, even after plea in abatement in the second suit. We think this the more just and reasonable rule, and so hold to be the law."

The answer in the case of Bank v. Forman is copied in the record. The order dismissing the first paragraph, which is the counterclaim, is embodied in the bill of exceptions. The dismissal of the counterclaim is pleaded in the reply, and is not sufficiently denied by the rejoinder. The denial is not a denial of the dismissal of the counterclaim, but an argumentative denial that the counterclaim was dismissed before the first paragraph of the answer was filed in the clerk's office; i.e. before the paper which afterwards became the first paragraph was filed. As before said, it makes no difference whether it was dismissed before or after. The dismissal removes the objection.

It appears that on January 29, 1895, Forman executed his note for $3,250, payable to the order of J. M. Farris six months after date, and negotiable and payable at appellant bank. Farris was the president of the bank, and in this matter was acting for the bank, using the bank's money. He indorsed the note to the bank, and $3,117.84 was placed to his credit, for which sum Farris gave Forman his check, and that amount was placed to Forman's credit. Considerable argument is devoted by appellant to the question of whether the note was discounted at the bank. It may be conceded that it was. We are unable to see that the question whether the note was discounted cuts any particular figure in determining the questions involved.

The Revised Statutes of the United States provide:

"Sec. 5197. Any association may take, receive, reserve and charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest at the rate allowed by the laws of the State, territory or district 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 or existing in any such State under this title. When no rate is fixed by the laws of the State or territory or district, the bank may take receive, reserve or charge a rate not exceeding seven per centum, and such interest may be taken in advance, reckoning the days for which the note, bill or other evidence of debt is to run. . . .

"Sec. 5198. 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 a 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 such action is commenced within two years from the time the usurious transaction occurred. . . ."

The first question is whether the discounting of the note, and the deduction from its face of 8 per cent. for six months, was a payment by Forman on January 29, 1895, of that amount of interest to the bank. On behalf of the bank it is earnestly insisted that it was a payment. As matter of course, there was no physical payment of money by Forman to the bank. What he did was to execute and deliver his note for $3,250 to the order of Farris, and to receive or have placed to his credit the sum of $3,117.84. If this constitutes an actual payment by him of interest, as such, at 8 per cent., in advance, he was entitled to bring suit the next day for twice the amount of interest thus paid, and consequently his right of action was barred when he brought the suit on September 3, 1897. On the other hand, if, as contended by appellee, the transaction was a loan of $3,117.84, for which a note was then executed for $3,250, it follows that interest at 8 per cent. was carried in the note at least until September 4, 1895, when, according to the bank's calculation, the amount of the note was $3,273.85, $23.85 of which was interest on the $3,250 at 8 per cent. from August 1st to September 4th. Under the statute, we are unable to conclude that the original transaction was a payment of interest to the bank, or a payment at all. Upon the bank books it is treated as a loan of $3,250, or a discount of a $3,250 note, upon which the books show a profit placed to the credit of the discount account of $132.16. The statute makes no distinction between a reservation of interest by way of discount and the accomplishment of the same thing by any other mode. The bank could not lawfully reserve a greater rate by way of discount deducted in advance than it could as interest at the end of the loan period. And when we consider the distinction recognized by the statute between reserving and charging interest, on the one side, and actually paying interest, on the other, it becomes plain that there was in the initial transaction no actual payment of interest to the bank; for there was then no payment to the bank of anything. Interest was reserved and charged on the loan, or "discount," in the language of the statute, but was not "taken or received." Nor does this construction conflict with that part of the statute which authorizes interest to "be taken in advance, reckoning the days for which the note, bill or other evidence of debt is to run." That language would apply to a case where, upon a renewal of a note for the face of an existing debt, the debtor paid in cash or by check, in advance, the amount of the discount upon the renewal. What was done in the original transaction was this: Forman gave the bank his note for $3,250, and that was all he gave the bank. He received from the bank $3,117.84, and he kept it all. Harvey v. Insurance Co., 60 Vt., 209 (14 Atl., 7). Moreover, to hold that discounting a note for $3,250, and giving credit to the maker for $3,117.84, was an actual payment to the bank of $132.16, would give the maker or his assignee the right immediately to bring an action for twice the amount of the usurious interest, when in fact nothing had been paid to the bank at all. And until the interest at the usurious rate was actually paid,...