First National Bank of Peterborough v. Childs

• Decision Date: 04 April 1881
• Citation: First National Bank of Peterborough v. Childs, 130 Mass. 519 (Mass. 1881)
• Court: Supreme Judicial Court of Massachusetts Supreme Court
• Parties: First National Bank of Peterborough v. Henry Childs & others

130 Mass. 519

First National Bank of Peterborough v. Henry Childs & others

Supreme Court of Massachusetts

April 4, 1881

Argued September 21, 1880

Franklin. Contract on a promissory note for $ 600. The case was submitted to the Superior Court, and, after judgment for the plaintiff for the full amount of the note and interest to this court, on appeal, on the following agreed facts:

The plaintiff is a corporation, duly and legally established under the laws of the United States relating to national banks, and is located in the State of New Hampshire. The defendants made and executed the note declared on in that State. The note is a renewal of former notes that have been renewed from time to time, for one and the same original loan.

The defendants from time to time have paid, and the plaintiff has knowingly charged and received on the note, and on the renewal notes, back to the time of the original loan discount and interest at a greater rate than at the rate of six dollars on a hundred dollars for one year, for the time said interest and discount were so paid and received. A part of said payments for interest were more than two years previous to the filing of the defendant's answer. The statutes of the United States and of New Hampshire may be referred to.

If the foregoing facts constituted no defence in whole or in part to said action, judgment was to be for the plaintiff for the full amount of the note. If the amount paid for interest and discount, within the two years, or during all the time the loan was continued, should be credited to the defendant in reduction of the plaintiff's demand, an assessor was to be appointed, who should determine, under the instruction of the court, the amount to be deducted, and the amount for which judgment should be entered.

A. De Wolf, for the plaintiff.

C. C Conant, for the defendants.

Soule, J. Colt, Morton & Field, JJ., absent.

OPINION

Soule, J.

The plaintiff corporation is a creature of the statutes of the United States, and its powers, rights and liabilities are governed by those statutes. Among the provisions therein contained are the following:

"Any 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, Territory or District where the bank is located, and no more." U.S. Rev. Sts. § 5197.

"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." § 5198.

The rate of interest allowed by the laws of the State of New Hampshire, where the note sued on was made, was six per cent. Gen. Laws of N. H. of 1878, c. 232, §§ 2, 3. Interest at a higher rate has been received by the plaintiff on this note, and on notes in renewal of which it was given.

The question before us is whether any deduction should be made from the amount apparently due on the note, according to its terms, on account of this receipt of interest in excess of six per cent. It was held in the Superior Court that no such deduction should be made, and that the plaintiff was entitled to judgment for the amount of the principal of the note and interest. This was error.

The taking of interest at a rate in excess of six per cent was in violation of a law of the United States which is in force in this Commonwealth as well as in New Hampshire, so far as relates to contracts made by national banks existing in New Hampshire. The rate of interest which a national bank in any State may take is determined and fixed by the statute of the United States, although it is measured in such State by reference to the local law concerning interest, if there be one. And when a bank takes interest in excess of the legal rate, it violates the law of the United States, and not the law of the State; and the consequences are those provided by the law of the United States, and not those provided by the State law. Davis v. Randall, 115 Mass. 547. Central National Bank v. Pratt, 115 Mass. 539. Farmers' & Mechanics' National Bank v. Dearing, 91 U.S. 29.

As the law regulating the rate of interest which the plaintiff might lawfully take is a national law, as binding in this Commonwealth as to all matters affected by it as our own laws are, the case differs from those in which it has been held that a penalty, as a partial defence, authorized by the laws of another State, cannot be applied...