Talbot v. First National Bank of Sioux City/Opinion of the Court

1. We are first confronted by a motion to dismiss the action on the ground that no Federal question was decided by the supreme court of Iowa. We think the motion should be overruled. The plaintiff explicitly based his right of action upon §§ 5197 and 5198 of the Revised Statutes of the United States. The judgment of the trial court and that of the supreme court of the state denied such right. Stat. § 709. This court therefore has jurisdiction.

2. Section 5197 authorizes a national bank to charge the rate of interest fixed by the laws of the state in which the bank is doing business. The consequences of a charge in excess of such rate are expressed in § 5198 to be as follows:

'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. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover back, in an action in the nature of an action of debt, twice the amount of the interest thus paid from the association taking or receiving the same; provided such action is commenced within two years from the time the usurious transaction occurred.'

Two cases are provided for (1) where illegal interest has been taken, received, or charged; (2) where illegal interest has been paid. In the first case the entire interest which the 'evidence of debt carries with it' shall be deemed forfeited. In the second case the person who has paid 'the greater rate of interest may recover twice the amount of interest thus paid.'

In what way is the statute available to plaintiff? Or, rather, in what way was it available when the foreclosure suit was brought, and in what way is it yet available? Had illegal interest been paid by plaintiff at that time, or had illegal interest been only charged by defendant? The latter is the contention of the plaintiff, and he controverts the position taken by the supreme court of Iowa, that the agreement of June 17, 1890, constituted a payment, and that the action was barred because not commenced within two years from that date. We may yield, arguendo, to plaintiff's contention, and thereby eliminate the statute of limitations from consideration. But nevertheless the judgment must be affirmed.

The plaintiff's situation, then, at the time of the foreclosure suit, was that he was sued for illegal interest charged but not paid, and he entered a defense to avoid its payment. He was successful. The court found that he had been charged illegal interest, and deducted its amount from the sum for which he was sued. In other words, judgment was rendered against him for the principal sum and legal interest. But he insists that such judgment was not the full relief to which he was entitled. To that judgment, he claims, he was entitled under the state law which he pleaded, but that under the statutes of the United States, which he could not plead, as he contends, he was entitled to a forfeiture of the entire interest, and as such forfeited interest was included in the judgment, it was paid by the sale under the judgment of the property mortgaged, and a cause of action immediately arose to recover twice the amount of that interest so paid. We cannot assent to the contention. It is the interest charged, not the interest to which a forfeiture might be enforced, that the statute regards as illegal. And a forfeiture may or may not occur. Interest greater than the legal rate may be charged, but it may be relinquished and recovery be had of the legal rate. This was decided in McBroom v. ''Scottish Mortg. & Land Invest. Co.'' 153 U.S. 318, 38 L. ed. 729, 14 Sup. Ct. Rep. 852, and repeated in Savings & L. Soc. v. Multnomah County, 169 U.S. 416, 42 L. ed. 803, 18 Sup. Ct. Rep. 392. Those cases also decided that illegal interest ('the greater rate' the statute calls it) must be paid, to be recovered back. Indeed, it is a contradiction to say that interest may be recovered back which has not been paid, and whether it is relinquished before suit or deducted by order of the court before judgment, it is in neither case paid by the judgment or by the satisfaction of the judgment. The fact of payment of the illegal interest the statute makes a condition of the recovery of its penalty. If there can be a substitute for such payment it cannot be found in the insufficiency of the pleading or the deficiency of the relief in another action.

Judgment affirmed.

Mr. Justice Gray took no part in the decision.