McCarthy v. First Nat. Bank of Rapid City
| Decision Date | 21 May 1909 |
| Parties | McCARTHY v. FIRST NAT. BANK OF RAPID CITY. |
| Court | South Dakota Supreme Court |
Appeal from Circuit Court, Pennington County.
Action by Patrick B. McCarthy against the First National Bank of Rapid City, S.D. Judgment for defendant. Plaintiff appeals. Affirmed.
Charles W. Brown, Schrader & Lewis, for appellant.
Buell & Gardner, for respondent.
This cause comes before this court upon an appeal from the judgment of the circuit court and from the order of said court denying a new trial. The action was one brought by the plaintiff and appellant, Patrick B. McCarthy, against the defendant and respondent, First National Bank of Rapid City to recover penalties in the sum of $7,605.48, being twice the amount of usurious interest which plaintiff claims he paid to the defendant, and that defendant received in violation of sections 5197 and 5198 of the United States Revised Statutes (U. S. Comp. St. 1901, p. 3493). For the purposes of this appeal, the following facts may be taken as established: In August, 1887, plaintiff loaned of defendant $4,000, evidenced by four promissory notes of $1,000 each, payable three, six nine, and twelve months after date, with interest on each note at 18 per cent. per annum until paid. These notes were extended until August 7, 1888, when a new note in the sum of $4,000 was given by plaintiff, his wife, and one other party. This note was due in 90 days, with interest at 18 per cent per annum. Considerable interest upon this note was paid, but no part of the principal, and on May 22, 1889, a new note was given signed by plaintiff, his wife, and a third party, which said note was for $5,000 due in one year, bearing interest at 12 per cent. per annum. Nine hundred dollars was paid and indorsed as interest upon this note, and on July 22, 1891, a new note of $5,000 was given by plaintiff and his wife, the same due in six months, bearing interest at 12 per cent. per annum. This last note was secured by a mortgage upon real estate belonging to the makers. It is admitted that the only consideration for this last note was the original $4,000 loaned to plaintiff, together with certain usurious interest upon such original loan. It is admitted that the plaintiff made a large number of payments dating from February 8, 1892, down to January 2, 1896, upon this note, all of which payments were indorsed upon said note as interest, and upon February 17, 1896, the plaintiff and his wife gave to defendant two notes in renewal, one for $5,000 due in four months with 12 per cent. interest, the other for $675.50, due in 30 days, with 12 per cent. interest; this last note purporting to be interest upon the note of July 22, 1891. Payments as and for interest were made upon the last $5,000 note; the last payment being made on or before January 1, 1897. It is alleged and admitted that the total payments by way of interest and which were by the defendants applied as interest upon the several notes aggregated the sum of $3,802.74, for twice which the plaintiff brought this action. On January 25, 1897, the defendant in this action commenced an action against the plaintiff and his wife for the foreclosure of the mortgage securing the above-mentioned notes, and to recover the amount due by the terms of said mortgage and notes thereby secured. The plaintiff herein appeared as defendant in said action, set up the facts hereinbefore stated in regard to the usurious interest on the original notes, and prayed that said mortgage and notes be adjudged to be usurious and be purged of the usury therein. Such proceedings were afterwards had that in May, 1901, judgment was rendered in the trial court in favor of the defendant in this action and against the plaintiff herein and his wife, whereby it was held that the said bank could recover the full amount apparently due under said notes. From this judgment the present plaintiff appealed, and this court in the case of First National Bank v. McCarthy, 18 S.D. 218, 100 N.W. 14, modified the judgment of the trial court, holding that under said evidence it appeared that the said indebtedness evidenced by the notes sued upon was usurious in all sums exceeding the original $4,000, and ordered that judgment be entered for said $4,000, together with certain sums which the bank had paid for, and on account of taxes on the land described in the mortgage. Judgment in conformity with the opinion of this court having been entered, it was alleged in the complaint in this action that on January 21, 1905, the plaintiff paid to the clerk of the circuit court the said judgment in full, and on said day said judgment was duly satisfied and discharged of record. This action was commenced January 25, 1905. Prior to the trial below, upon motion of the defendant, the paragraph relating to the payment of said judgment was stricken out, and upon trial the plaintiff sought to offer proof of the fact of the payment of such judgment, which proof was rejected, and also asked to have the allegations concerning payment of the said judgment reinstated in the complaint so that proof of the same might be received, and this request to amend was refused. It is the theory of the plaintiff and appellant that, inasmuch as the total amount of payments prior to the rendition of the judgment above referred to did not amount to the original loan of $4,000, until such judgment was paid, no cause of action arose in plaintiff's favor against the defendant for the penalties provided by section 5198 above referred to. It is the theory and claim of the defense that at the time any payment was made by plaintiff on any of said notes as interest and so appropriated and applied by the defendant that immediately a cause of action for the penalty provided by said section 5198 accrued, and that the statute of limitations provided by said section commenced to run. In fact, in their briefs both parties admitted, there being no dispute as to the facts, the sole question was whether or not the plaintiff's cause of action to recover the penalty claimed in his complaint is barred under and by virtue of the provisions of section 5198 of the Revised Statutes of the United States.
The Revised Statutes of the United States provide: Section 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. ***" Section 5198: ***" This cause has been very fully briefed on behalf of each party and a large number of authorities have been cited, and the briefs contain extensive quotations from the holdings of the several courts both federal and state; and, while a reading of the two sections of the federal statute above referred to might not at first awaken any doubt as to the meaning of the several parts thereof, yet a reading of the cases cited apparently presents for consideration an irreconcilable conflict of opinion as to the legal effect of such sections. We believe, however, that a thorough study of these cases, together with the facts in each case, will show, with possibly one or two exceptions, that there is no real conflict upon the construction which should be given to these sections as applied to the facts in this case. In reviewing and analyzing many of the decisions, as we shall do herein, it will be found that many of the cases cited in support of appellant's contention are based upon some previous ruling in these or other cases, which rulings will be found not to support the position claimed for them. In view of the importance of the question herein involved and the apparent conflict between the opinions of courts of very highest rank, we deem ourselves justified in a somewhat extended consideration of this case.
It will be noticed that there are two entirely different parts to section 5198, supra-the first provides for forfeiture of all interest unpaid when usury has been contracted for and such usury enters into the note or the consideration for such note; the second provides for an action to recover as a penalty double all interest paid whenever such interest so paid is in part usurious. The courts uniformly hold that under the first a debtor can defend against the paying of any interest, either legal or usurious; while, on the other hand if, in fact, he has made any payment or payments on interest even to the extent of paying usurious interest, he cannot plead such payment either as a credit on the principal or as an offset or counterclaim to the principal, but his only remedy for such usury paid is found in the second part of said section, and consists solely in his right in a separate suit brought under the second part of said section to recover the penalty therein provided for. In other words, that the common-law remedy by a suit or counterclaim for money had and received will not lie. Schuyler Nat. Bank v. Gadsden, 191 U.S. 451, 24 S.Ct. 129, 48 L.Ed. 258; Haseltine v. Central Nat. Bank, 183 U.S. 132, 22 S.Ct. 50, 46 L.Ed. 118; Driesbach v....
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