Where usurious interest has been paid to a national bank, the
remedy afforded by sec. 5198, U.S. Revised Statutes, is exclusive,
and is confined to an independent action to recover such usurious
payment.
Hazeltine v. Central National Bank, 183
U. S. 118.
A claim that usurious interest has been paid on a debt to a
national bank secured by mortgage on real estate given by the
debtors to an individual for the benefit of the bank cannot be
asserted under the state law in foreclosure proceedings in the
state courts.
Where the state law does not forbid an agent from taking
security for the benefit of a principal, the taking of real estate
security by the president of a national bank for a debt due to the
bank is, in legal effect, the taking of such security by the bank
itself.
The provisions of the United States statutes forbidding the
taking of real estate security by a national bank for a debt
coincidentally contracted do not operate to make the security void,
but simply subject the bank to be called to account by the
government for exceeding its powers.
Logan County v.
Townsend, 139 U. S. 67.
Page 191 U. S. 452
On August 8, 1890, George Thrush, one of the defendants in
error, being indebted to the Schuyler National Bank, one of the
plaintiffs in error, for money then and theretofore lent, executed
a note to the bank for the sum of $5,000, payable six months after
date. As collateral security for the payment of this note, Thrush
and his wife executed a note and mortgage for $5,000 to one Sumner,
who was at that time the president of the bank. The collateral note
and mortgage were delivered to the bank, and by it retained. The
note made to the bank was renewed by the bank from time to time,
and various payments of interest and on account of the principal
were made to the bank, the principal sum thereby being reduced in
March, 1894, to $3,000. In that month and year, a new note was
executed to the bank for the principal sum then due and interest,
in all, $3,229. No money dealings were had at any time between
either Thrush and his wife and Sumner individually.
James Gadsden, one of the defendants in error, sued Thrush and
his wife in a Nebraska court to foreclose an asserted mortgage on
real estate. Junior encumbrances of record were made parties
defendant, among them being Sumner, to whom the mortgage for
$5,000, securing the collateral note previously referred to, had
been executed. He answered, and by cross-petition asserted the lien
of the mortgage, which he alleged was made to him as trustee for
the benefit of the Schuyler National Bank; he prayed foreclosure of
such lien and the payment of the indebtedness to the bank, stated
to be $3,229 and interest. The Schuyler National Bank was
subsequently made a party defendant, and, by answer and
cross-petition, claimed the benefit of the mortgage to Sumner,
securing the indebtedness just stated, and joined in the prayer for
foreclosure. Separate answers, similar in tenor, were filed on
behalf of Thrush and his wife, in which were averred, in numerous
paragraphs, many payments to the bank of usurious interest during a
period of five years, and in substance it was prayed that the
amount of such payments might be deducted
Page 191 U. S. 453
from the principal sum claimed by the bank to be due. In each of
the answers was contained the following paragraph:
"That the said note of $5,000 of the defendants George Thrush
and Mattie N. Thrush, together with the mortgage securing the same,
were not executed and delivered to said William H. Sumner upon any
consideration whatsoever, but the same are simply held by said
defendant as collateral security to the amount owing by the
defendant, George Thrush, on the said indebtedness now being
evidenced by said $3,229 note, in this: that the said note of
$5,000 and the mortgage securing the same were executed and
delivered by this defendant and Mattie N. Thrush to said Sumner for
the purpose that said Sumner might protect therewith said bank on
account of the indebtedness of said George Thrush to said bank, and
said note and mortgage were accepted by said Sumner with the
knowledge and consent of said bank, and because said bank refused
to take said mortgage, and said Sumner in nowise protected said
loan or advanced any money thereon and at the time of the maturity
thereof, by virtue of the premises and the payments of usurious and
illegal interest made thereon, as aforesaid, there was due and
owing, after deducting the payments made upon the principal and the
said payments of usurious interest, the small balance, to-wit, of
$252.20, and for the aforesaid balance the said defendant Sumner is
entitled to a lien upon said premises under and by virtue of said
mortgage and promissory note of $5,000."
A reply was filed to these answers. It was therein stated in
substance that most of the alleged usurious interest had been paid
to the bank more than two years before the commencement of the
action, and that the remaining interest payments were not in excess
of the rate allowed by law to be contracted for. The pleading
concluded with the claim
"that this Court has no jurisdiction in this action to consider
the question raised in said answer to each and every item of
interest mentioned in said answer as paid to said Schuyler National
Bank; that said items are not proper items of set-off or
counterclaim and cannot
Page 191 U. S. 454
be adjudicated except in a suit brought expressly for that
purpose under the provisions of § 5198 of the Revised Statutes
of the United States."
A decree was entered determining the priority of liens between
the respective lienholders, and providing for a foreclosure. Among
other things, it was adjudged that the mortgage to Sumner was
executed and delivered for the benefit of the bank, and that the
bank was entitled to the proceeds of the note and mortgage. As to
the defense of usury set up in the answers, it was decided that, as
the transaction was one with a national bank, it was governed by
the laws of the United States, and therefore recovery by way of
set-off of the usurious interest alleged to have been paid was
refused. Recovery of the interest embraced in the claim of the bank
was, however, denied, and judgment was entered only for the
principal sum found to be due and owing to the bank.
On appeal, the Supreme Court of Nebraska reversed the judgment
of the district court in the particular just noticed, and remanded
the cause with directions
"to ascertain the amount of money advanced to Thrush by the
Schuyler National Bank, deduct therefrom all payments, whether of
principal or interest, and award foreclosure for the remainder, if
any."
56 Neb. 565. On a rehearing, the appellate court reaffirmed its
previous decision. 58 Neb. 340. Thereupon a writ of error was
allowed from this Court, which was subsequently dismissed for want
of jurisdiction. 179 U.S. 681. Subsequently, the state district
court entered a judgment in conformity with the mandate of the
Supreme Court of Nebraska, and such judgment was affirmed on
appeal. 63 Neb. 881. The present writ of error was thereupon
allowed.
Page 191 U. S. 456
MR. JUSTICE WHITE, after making the foregoing statement,
delivered the opinion of the Court.
The question for decision is did the Supreme Court of Nebraska
rightly decide that the controversy concerning usurious interest
paid was to be governed by the statutes of Nebraska on that
subject, and not by the laws of the United States on the same
subject, as expressed in § 5198 of the Revised Statutes? We
say this is the sole question because it is undoubted that, if the
rights of the parties are to be determined by the laws of the
United States, the ruling below was wrong. This results from the
prior adjudications of this Court holding that, where usurious
interest has been paid to a national bank, the remedy afforded by
§ 5198 of the Revised Statutes is exclusive, and is confined
to an independent action to recover such usurious payments.
Haseltine v. Central National Bank, 183 U.
S. 132, and cases cited. If, on the other hand, the
controversy is governed by the local law of Nebraska, then the
construction and application of that law made by the court of last
resort of the state is binding.
In fact, this is not controverted, and could not be since, the
Supreme Court of Nebraska conceded that, if the contention as to
usurious interest ought to be determined by the laws of the United
States, the conclusion which the court reached was erroneous. That
court, however, held that the rights of the parties were to be
measured by the law of the state, instead of the law of the United
States, because the collateral mortgage was not made,
eo
nomine, to the bank, but to an individual. This view was
deemed to be fortified by the suggestion that, as the collateral
note was secured by mortgage on real estate,
Page 191 U. S. 457
it could not, under the laws of the United States, have been
lawfully made in favor of a national bank. The collateral note and
mortgage, it was therefore intimated, must be assumed to have been
executed to an individual to avoid the effect of the laws of the
United States, and the consequent knowledge which would have been
conveyed to the proper officers of the United States that the bank
was violating the law.
The reasoning by which the judgment of the Supreme Court of
Nebraska was controlled is, in our opinion, erroneous. The court
did not hold that, because the collateral mortgage was taken in the
name of an individual, it could not be enforced by the bank under
the law of Nebraska, but simply held that, although it was
enforceable by the bank, the remedy as to the usurious interest was
governed exclusively by the state law, upon the theory that the
transaction was not with the bank. But the usurious interest had
all been paid not to the individual upon the collateral note, but
to the bank, upon the principal obligation held by it. It was this
interest so paid to the bank on the principal note held by it which
was in effect imputed so as to fix the amount due. The result of
this was to treat the transaction as an individual one in order
thereby to exclude the law of the United States, and then at once
to treat it as a bank transaction for the purpose of ascertaining
and imputing the sums of usurious interest which had been paid.
This was to administer the rights of the parties upon distinct and
wholly inconsistent theories. Either it was an individual
transaction or it was not. It could not in reason have been at one
and the same time both the transaction of the bank excluding the
individual and a dealing between individuals excluding the bank. As
the usurious interest for which a remedy was afforded had been paid
to the bank in dealings by the bank with its debtor, and as the
necessary effect of the judgment below was to reduce the debt due
to the bank by allowing the imputation of the sum of the usurious
interest, we are of opinion that the controversy was governed by
the laws of the United States, and not by the law of the State of
Nebraska.
Page 191 U. S. 458
Nor do we think the suggestions made in the opinion of the court
below respecting the power of a national bank under the laws of the
United States to accept real estate security operate in any way to
modify the conclusion we have just expressed. It is not contended
that, under the law of Nebraska, an agent, acting in his own name,
may not take security for the benefit of a principal, or that there
is or could be any valid statute of the State of Nebraska
discriminating against national banks, and depriving them of the
benefit of transactions so consummated. This being true, it follows
that the taking of real estate security by the president of the
bank in his individual name, for the benefit of the bank, was in
legal effect but the taking of security by the bank itself. Now it
is no longer open to controversy that the provisions of the
statutes of the United States forbidding the taking of real estate
security by a national bank for a debt coincidentally contracted do
not operate to make the security void, and thus enable the
individual who has contracted with the bank to defeat recovery, but
simply subjects the bank to be called to account by the government
for exceeding its powers. In
Logan County v. Townsend,
139 U. S. 67, the
rule on this subject, as settled by the previous authorities, was
thus stated by the Court, speaking through MR. JUSTICE HARLAN (p.
139 U. S.
76):
"In
National Bank v. Matthews, 98 U. S.
621, it appeared that a national bank loaned money upon
the security of a note and a deed of trust of lands, both of which
were assigned to it. The statute declared that a national banking
association could loan money 'on personal security,' and could
purchase, hold, and convey real estate for certain named purposes,
'and for no others,' among which was not included the securing of a
present loan of money by a deed of trust or mortgage on real
property. The Court, while assuming that the statute, by clear
implication, forbade the bank from making a loan on real estate,
refused to restrain the bank from enforcing the deed of trust. The
decision went upon these grounds: that the bank parted with its
money in good faith; that the question as to the violation
Page 191 U. S. 459
of its charter by taking title to real estate for purposes
unauthorized by law could be raised only by the government in a
direct proceeding for that purpose, and that it was not open to the
plaintiff in that suit, who had contracted with the bank, to raise
any such question in order to defeat the collection of the amount
loaned. If any doubt existed as to the scope of the decision in
that case, it was removed by
National Bank v. Whitney,
103 U. S.
99, where it was held that the right of a national bank
to enforce a mortgage of real estate taken by it to secure
indebtedness then existing, as well as future advances, could not
be questioned by the debtor, and that a disregard by the bank of
the provisions of the act of Congress upon that subject only laid
the association open to proceedings by the government for
exercising powers not conferred by law."
It follows from the foregoing reasons that the Supreme Court of
Nebraska erroneously determined the rights of the parties by the
rule of the state law when it should have applied the law of the
United States.
The judgment of the Supreme Court of Nebraska is reversed,
and the cause is remanded for further proceedings not inconsistent
with this opinion.
MR. JUSTICE BROWN, with whom was MR. JUSTICE BREWER,
dissenting:
I am constrained to dissent from the opinion of the Court in
this case.
The facts, concisely stated, are as follows: George Thrush
executed a note to the bank for $5,000, payable in six months. At
the same time, Thrush and wife executed a collateral note and
mortgage for the same amount to Sumner, president of the bank. This
note and mortgage, given partly for an antecedent and partly for a
contemporaneous debt, were delivered to the bank, and retained by
it.
The note made to the bank was renewed from time to time,
Page 191 U. S. 460
and various payments of interest and principal were made, and
the principal sum thereby reduced, in March, 1894, to $3,000. At
that time, a new note was executed to the bank for the principal
sum due and interest, namely, $3,229. No dealings were had at any
time between Thrush and wife and Sumner individually.
Suit having been begun be Gadsden to foreclose a prior mortgage,
and Sumner having been made a party as junior encumbrancer, he
answered, and by cross-petition asserted the lien of the mortgage,
which he alleged was made to him as trustee of the bank. The bank,
being also made defendant, filed an answer and cross-petition,
claiming the benefit of the mortgage to Sumner.
It is clear that there was but one actual debt. The question is
whether, in asserting its right to foreclose the mortgage made to
Sumner individually, it must not submit itself to the laws of the
state affecting usury -- in other words, whether, in the
foreclosure of a mortgage created under the laws of a state, and
executed by one citizen of a state to another, its obligations are
to be determined by state law or federal law. Congress forbids such
a mortgage; the state permits it. There can be no doubt that the
bank caused the mortgage to be given to Sumner on account of the
law forbidding national banks from receiving security by way of
mortgage upon real estate, and to obviate any difficulties which
might be interposed either by the mortgagor or by the government,
by taking the mortgage in the name of the bank.
Had the mortgage expressed upon its face the exact truth --
namely, that it was given for the benefit of a national bank, and
partly at least, for the security of a contemporaneous debt -- it
would have fallen within the ban of the federal statute. It is true
the state law permitted it, but accompanied it with a forfeiture of
the entire interest if usury were taken. The question is whether,
in enforcing this mortgage, which the bank was prohibited from
taking in its own name, it may claim an exemption from the usury
laws of the state. So long as the
Page 191 U. S. 461
dealings were solely between the bank and Thrush, and payments
were made upon the bank note in question, the transaction with
regard to usury was governed by the federal law. But in case the
bank elected to foreclose the mortgage, I think it took the benefit
of it
cum onere. He who seeks equity must do equity. It
could not take the benefit of the mortgage to Sumner, and claim a
right to foreclose for the amount due, without at the same time,
admitting that the payments which had been made were made upon a
debt secured by the mortgage, and subject to the disability of the
state law. As was justly said by the Supreme Court of Nebraska:
"It would be highly unconscionable to permit a person to give a
contract a false form to evade the burdens which would follow from
its true expression, and then permit him to show the truth as
against the form to evade the burdens cast by a contract in the
form which has been so chosen."
The bank ought not to be permitted to blow hot and cold in the
same transaction. If it claimed the benefit of a mortgage made to
an individual, it should take it with such burdens as would rest
upon it if the transaction had originally been what it was
represented to be upon its face. The opinion of the Court suggests
an easy method by which the prohibition of the federal statute
against the lending of money upon real estate security may be
successfully evaded without the slightest danger to the bank.
