Schuyler National Bank v. Gadsden

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 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 counter-claim and cannot be adjudicated except in a suit brought expressly for that purpose under the provisions of § 5198 of the Revised Statutes of the United States (U.S.C.omp. Stat. 1901, p. 3493).'

A decree was entered determining the priority of liens between the respecive lienholders, and providing for a foreclosure. Among other things it was adjudged that the mortgage 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, 76 N. W. 1060. On a rehearing, the appellate court reaffirmed its previous decision. 58 Neb. 340, 45 L. R. A. 654, 78 N. W. 632. Thereupon a writ of error was allowed from this court, which was subsequently dismissed for want of jurisdiction. 179 U.S. 681, 45 L. ed. 384, 21 Sup. Ct. Rep. 918. 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, 89 N. W. 403. The present writ of error was thereupon allowed.

Mr. Charles J. Phelps for plaintiffs in error.

Messrs. George Thrush and Mattie N. Thrush in propriis personis and Messrs. George H. Thomas and Frank Dolezal for defendants in error.

Statement by Mr. Justice White:

Mr. Justice White, after making the foregoing statement, delivered the opinion of the court: