The two-year limitation in Rev.Stat., § 5198, within which an
action must be commenced against a national bank to recover double
the amount of payments of usurious interest, begins to run from the
time of payment of the usurious interest, and not from the time of
payment of the note.
National banks are prohibited from making usurious contracts,
and whenever the debtor is sued on such a contract, he may plead
the usury and be relieved from payment; as to this defense, there
is no statute of limitations.
Where a national bank reserves or deducts usurious interest in
advance, the debtor may plead usury, but may not recover double the
amount paid under § 5198, Rev.Stat.
When the debtor actually makes, and the national bank knowingly
receives and appropriates, a payment of usurious interest, the
cause of action arises and the statute begins to run.
There is no
locus penitentiae. That privilege is only
granted to those banks which, having charged usury, may by refusal
to accept interest when tendered show that they will not carry the
illegal contract into effect.
18 S.D. 218 affirmed.
Patrick B. McCarthy, under the provisions of Rev.Stat. § 5198,
brought suit against the First National Bank of Rapid City, South
Dakota, for twice the amount of interest paid the bank.
The complaint alleged that, the maximum legal rate being 12
percent, McCarthy, on August 27, 1887, borrowed from the defendant
$4,000, giving therefor promissory notes payable at different
dates, each bearing
Page 223 U. S. 494
18 percent interest. These notes were not paid at maturity, and
from time to time were renewed at the same rate. Many payments of
usurious interest were made. The debt was finally consolidated into
a note, bearing 12 percent interest, dated May 22, 1889, for
$5,000, which included the original principal and unpaid interest.
It was renewed and secured by mortgage July 22, 1891. McCarthy
alleges that between August 27, 1887, and January 1, 1897, he paid
on the original and renewal notes various sums, aggregating
$3,802.74, as interest, and that the defendant
"knowingly . . . applied the same to the payment of usurious
interest, and indorsed the same on the said several promissory
notes as interest received thereon."
On January 26, 1897, the bank instituted proceedings to
foreclose the mortgage given by plaintiff, his wife and others, to
secure the debt. McCarthy filed a plea of usury, which was
sustained, and, after purging the debt of usury and forfeiting all
interest, a decree was finally entered, January 12, 1905,
foreclosing the mortgage for $5,951.56, made up of the original
debt of $4,000, taxes paid on the mortgaged property, and costs. On
January 21, this sum was paid to the bank, and on January 25, 1905,
plaintiff brought this suit for $7,605.48, or twice the amount of
interest paid. The defendant set up, by its plea, that the action
was barred because not brought within two years from the date of
payment of the usurious interest. The plaintiff replied that the
statute only began to run from the date the debt was paid. For the
purpose of showing that the payments on account of interest
($3,802.74) did not equal the amount of the original debt ($4,000),
and that the judgment had been paid (January 21, 1905) less than
two years before suit, he offered the record in the foreclosure
proceedings. It was excluded by the trial court, but incorporated
in the record by bill of exceptions.
Page 223 U. S. 497
MR. JUSTICE LAMAR, after making the foregoing statement,
delivered the opinion of the Court.
Section 5198 of the Revised Statutes, under which this
Page 223 U. S. 498
suit was brought, provides that "taking, receiving, reserving,
or charging" more than a lawful rate of interest, when knowingly
done by a national bank, shall be deemed a forfeiture of the entire
interest. In case a greater than the lawful rate
"has been paid, the person by whom it has been paid . . . may
recover back . . . twice the amount of the interest thus paid, . .
. provided such action is commenced within two years from the time
the usurious transaction occurred."
The debt was created in 1887, was paid in full in January, 1905,
and on January 25, of the same year, the maker of the note brought
suit to recover twice the amount of the interest paid thereon prior
to 1897.
In considering the bank's plea that the action was barred
because not brought within two years, and the plaintiff's claim
that the statute only ran from the date the debt was paid, the
Supreme Court of South Dakota pointed out the irreconcilable
conflict in the cases dealing with this question, and, after making
careful analysis of all the authorities, reached the conclusion, in
which we concur, that the statute begins to run from the date of
the payment of the usurious interest. 17 S.D. 393. Considering this
review of the decisions, we shall only discuss the statute itself,
and that briefly.
National banks are prohibited from making usurious contracts. If
they disregard its provisions, the law not only furnishes a
defense, but gives a right of action. As to the defense, there is
no statute of limitations. Whenever sued, the debtor may plead the
usurious contract and be relieved from paying any interest
whatever. But if he elects to avail himself of the cause of action,
he must sue "within two years from the time the usurious
transaction occurred."
If the making of the note was the "usurious transaction," from
which date the statute began to run, the anomaly of the right to
recover being barred before the
Page 223 U. S. 499
cause of action arose would result in all cases where the debtor
for two years after the loan failed to pay interest, even though he
subsequently discharged the debt, principal and usury. If the final
payment is the "usurious transaction," and suit must be brought in
two years from that date, then there could never be a recovery in
those cases where the debtor had paid usury, but was not able to
pay the debt in full.
That the statute does not begin to run from the date of the
loan, nor from the date of the satisfaction of the debt, but from
the date interest is paid, appears from an analysis of the two
classes of cases referred to in Rev.Stat. § 5198, noting that
"interest paid" in the last clause is used in contradistinction to
interest "reserved or charged" in the first sentence of the
section. Banks may make ordinary loans and charge interest to be
collected at the maturity of the note. But, as they usually reserve
and deduct it in advance by way of discount, the statute is framed
so as to apply to cases where the interest is paid by the debtor as
well as to those in which it is reserved by the bank. These
deductions by way of discount are not treated as payments. They do
not come out of the debtor's pocket, though they lessen the amount
which he receives when the loan is made, and when sued he, may
plead usury and escape liability for the amount thus charged or
retained. But such reservation by the bank, not being a payment
made by the debtor, he, of course, cannot avail himself of the
right to maintain a suit given only to those who have paid
interest.
But when the debtor actually makes a payment as interest, and
the bank knowingly receives and appropriates it as such, the
usurious transaction is complete, the right of the one and the
liability of the other is fixed, the cause of action arises, and
the statute of limitations begins to run. There is no
locus
penitentiae. That privilege is only granted to those banks
which, having charged
Page 223 U. S. 500
usury, may, by a refusal to accept interest when tendered, show
that they will not carry the illegal contract into execution, and
thus escape the two-fold penalty.
Those courts which hold that the statute begins to run from the
payment of the debt, instead of the payment of the interest, have
been influenced by statements of Mr. Justice Harlan in
McBroom
v. Investment Co., 153 U. S. 318,
which involved the construction of the usury statute of the
Territory of New Mexico. That act differed in several respects from
Rev.Stat. § 5198. But that case did not rule that, in a suit under
the Act of Congress, the statute did not run from the date usury
was paid and received as such. This Court did not understand that
such was the meaning of that case, as appears from his opinion in
Brown v. National Bank, 169 U. S. 416,
which involved a construction of Rev.Stat. § 5198. For he there
points out the difference between "paying" and "agreeing to pay,"
and says that
"if at any time the obligee actually pays usurious interest as
such, the usurious transaction must be held to have then, and not
before, occurred, and he must sue within two years thereafter."
The Supreme Court of South Dakota properly held that the
recovery of interest paid more than two years before suit was
brought was barred, and its judgment is
Affirmed.
