Pittsburgh Locomotive and Car Works v. State National Bank of Keokuk.

pany a bill of sale; if not paid, the plaintiff "was to re-possess and enjoy the engine as though the instrument had never been made."

The instrument contained a stipulation on the part of the railroad company, that the said locomotive engine should be taken to Keokuk, Iowa, by the railroad company, and there kept and used and not removed from the control of the railroad company without the consent of the plaintiff.

The engine was sent to the railroad company, and was received by it at a town on its line in Missouri. While there, to wit, in September, 1873, said railroad company borrowed of the State National Bank of Keokuk $1,250, and pledged the engine to the bank as security, placing the same in the actual custody of a third person for the security of the bank. The bank had no notice of the plaintiff's lease or claim on the locomotive, and the plaintiff's lease was never recorded. The question in the case is whether the pledge to the bank gives it the right to hold the locomotives as security for its loan to the railroad company as against the plaintiff.

At the date of these transactions there was in force in the State of Iowa the following statute:

"No sale or contract or lease wherein the transfer of title or ownership of personal property is made to depend upon any condition, shall be valid against any creditor or purchaser of the vendee or lessee in actual possession obtained in pursuance thereof without notice, unless the same be in writing, executed by the vendor or lessor, acknowledged and recorded the same as chattel mortgages." Code, 1873, § 1922.

Howell & Anderson, for plaintiff.

Gillmore & Anderson, for bank.

DILLON, Circuit Judge, orally said:

1. Conceding that the instrument of lease was executed in Pennsylvania, and that as between the parties it does not show a sale of the engine, and that, aside from the Iowa statute (Code 1873, § 1922), the plaintiffs would have the superior right, I am of the opinion, in view of the express stipulation of the contract, that the locomotive was to be taken to Iowa and there used by the railroad company; that the Iowa statute controls the case, and has the

Crocker v. First National Bank of Chetopa.

effect to subordinate the rights of the plaintiffs to the lien of the bank as pledge. 2. I am furthermore of the opinion, that under the National Banking Act the bank had the right, on making the loan to the railroad company, to take a pledge of the locomotive as security. National banks are not, in my judgment, confined, in the taking of security for discounts and loans, to the security afforded by the names of indorsers or personal sureties, but may take a pledge of bonds, choses in action, bills of lading, or other personal chattels. The words "loans on personal security," in the Banking Act, are used in contra-distinction to real estate security. Such has been the usage of the banks, and any other construction would throw a bombshell into the community, and injure both the banks and their customers.

Judgment for defendant.

CROCKER, assignee, v. FIRST NATIONAL BANK OF CHETOPA.

(3 Am. Law Times Rep. [N. S.] 350.)

Revised Statutes, SS 5197, 5198, construed — Rate of interest· recover back illegal interest passes to assignee in bankruptcy —

A National bank located in Kansas of eighteen per cent per annum. Banking Act (Rev. Stats., §§ 5197, terest thus received.

Right of action to Extent of recovery.

charged and received interest at the rate Held, that it was liable under the National 5198) to pay back twice the amount of in

If the person who paid such illegal interest is adjudged a bankrupt, the right of action passes to his assignee in bankruptcy, such assignee being his "legal representative" within the meaning of section 5198 of the Revised Statutes.

The amount of the recovery is twice the full amount of interest paid, and is not limited to twice the excess of interest paid over the legal rate.*

(Circuit Court, Eighth Circuit, District of Kansas.)

THE

HIS is an action by an assignee in bankruptcy, brought in 1875, to recover from the defendant, a bank organized under the act of Congress commonly known as the National Banking Act,

*See, contra, Hintermister v. First Nat. Bank (64 N. Y. 212), post, and Brown v. Second Nat. Bank (72 Penn. St. 209), post, wherein it was held that the recovery was limited to twice the excess of interest paid. — REP.

Crocker v. First National Bank of Chetopa.

double the amount of interest which he charges was taken from the bankrupts by the defendants upon numerous transactions after 1872 and prior to the bankruptcy. The petition charges in each count that the interest charged was "a greater rate of interest than was allowed by the laws of the State of Kansas."

It is material to inquire what was the law of the State of Kansas in regard to interest, during the period covered by the counts not barred by the statute. To properly understand the Kansas interest law, it is necessary to begin with the General Statutes, 1868, chapter 51, page 525, which contains the following:

"SEC. 2. The parties to any bond, bill, or promissory note, or other instrument of writing for the payment or forbearance of money, may stipulate therein for interest receivable upon the amount of such bond, bill, note, or other instrument, at any rate not exceeding twelve per cent per annum.

SEC. 3. All payments of money or property made by way of usurious interest, or of inducement to contract for more than twelve per cent per annum, whether made in advance or not, shall be deemed and taken to be payments made on account of the principal, and the courts shall render judgment for no greater sum than the balance found due after deducting the payments of money or property made as aforesaid, without the interest; nor shall any debtor be deemed in equal wrong on account of having paid, or having agreed to pay, such usurious interest or such inducement, but shall have like remedy and relief in either case.

SEC. 4. Any person contracting, by promissory note, bill of exchange, bond, or otherwise, to receive a greater rate of interest than that allowed by this act, shall forfeit all interest, and shall recover no more than the principal of such note, bill, bond, or other contract."

Those sections clearly limited the rate of interest to twelve per cent per annum, and punished the creditor who contracted for more with an entire forfeiture of all interest, at the same time rewarding the debtor with a credit upon the principal debt of so much as he might have paid for interest on a usurious contract. This remained the law until June 20, 1872, when sections 2, 3, and 4 quoted were repealed by the act of February 28, and the following took effect:

Laws 1872, p. 284. "SEC. 2. The parties to any bond, bill, promissory note, or other instrument of writing for the payment or forbearance of money, may stipulate therein for interest receivable on the amount of such bond, bill, note, or other instrument of writing; provided, that no person shall recover in any court more than twelve per cent interest thereon per annum.

SEC. 3. All payments of money or property made by way of usurious interest or inducement to contract for more than twelve per cent per annum,

Crocker v. First National Bank of Chetopa.

whether made in advance or not, shall be deemed and taken to be payments made on account of the principal and twelve per cent interest per annum, and the courts shall render judgment for no greater sum than the balance found due after deducting the payments of money or property made as aforesaid."

A general denial was filed to the petition, a jury waived, and the cause tried by the court.

McComas & McKeighan, for plaintiff.

John K. Cravens, contra.

DILLON, Circuit Judge. The usurious transaction in respect of which this action is brought occurred after the State statute of June 20, 1872 (Laws of 1872, p. 284), went into operation. This statute, as construed by the Supreme Court of the State, "allowed parties to contract for any rate of interest they might choose, but did not allow the creditor to recover for more than the principal and interest at the rate of twelve per cent per annum." Jenness v. Cutler, 12 Kan. 511, per VALENTINE, J.

On the loans to the bankrupts, the defendant bank contracted for and received interest at the rate of eighteen per cent per annum. If the debtors had not been adjudged bankrupt, could they have recovered under section 30 of the National Banking Act? Rev. Stats., § 5197, 5198. If so, does this right of action pass to their assignee in bankruptcy? And if so, what is the extent of the recovery? These are the questions in the case.

1. If the effect of the State statute of June 20, 1872, was to abrogate all rates of interest; if after that enactment no rate of interest existed or "no rate is fixed by the laws of the State" of Kansas, then National banks would be restricted to seven per cent as the maximum rate they could lawfully charge. Rev. Stats., § 5197; Tiffany v. National Bank of Missouri, 18 Wall. 409 (ante, p. 90).

If, however, this was not the effect on that enactment, then twelve per cent is the maximum legal rate allowed by the laws of Kansas. In either event, the defendant bank charged and received an illegal rate. If bankruptcy had not supervened, it is clear that Marsh & Overhuls, the bankrupts, might, under the National Banking Act (Rev. Stats., § 5198), have recovered from the defendant bank twice the amount of interest paid, as therein provided. Indeed, the right of action is yet in them if it is not barred by

Crocker v. First National Bank of Chetopa.

the two years limitation (Rev. Stats., § 5198), unless it has passed to their assignee in bankruptcy.

2. The next question is, Is the assignee in bankruptcy their "legal representative" within the meaning of the statute? Rev. Stats., 5198. It is our opinion that an assignee in bankruptcy § is, in respect of such a claim as this, which has injuriously affected and reduced the estate in bankruptcy, and which is to be enforced "by an action in the nature of an action of debt," peculiarly and most appropriately "the legal representative" of the bankrupt. Every reason which in case of the death of the debtor, without bankruptcy, would give the right of action to the administrator or executor, as his legal representative, applies with full force to the assignee in bankruptcy, if his estate is, during his life-time, administered in a court of bankruptcy. See Tiffany v. National Bank of Missouri, supra; 1 Deacon on Bankruptcy (3d ed.), 523, 524; Beckham v. Drake, 2 H. L. Cases, 640.

In this view it is unnecessary to determine whether the right of action would vest in the assignee under the Bankrupt Act (Rev. Stats., §§ 5044, 5045, 5046, 5047), though it seems not improbable that the provisions of these sections are comprehensive enough to embrace it. Darby's Trustees v. Boatmen's Sav. Inst., 1 Dillon, 141; S. C., 18 Wall. 375.

Under the English Bankrupt Act no right of action passes to the assignee for a mere personal tort to the bankrupt, as for assault or libel, but it is otherwise in respect of injuries or torts which result in diminishing the estate of the bankrupt; and the distinction is taken between rights of action where personal suffering or inconvenience is the primary cause of the action (which do not pass), and when pecuniary loss or damage is the primary cause of action, which do pass. 1 Deacon on Bankruptcy (3d ed.), 522 et seq. This distinction seems to be made in our Bankrupt Act, which vests in the assignee all such "rights of action."

3. The next question is, whether the recovery shall be for double the whole amount of interest paid, or only double the amount in excess of the legal rate, whether that be seven or twelve per cent? Where an illegal rate of interest is charged, and an action is brought on the contract, the statute declares a "forfeiture of the entire interest," and if the usurious interest has been paid, the statute gives an action to recover back, not simply the excess over the legal rates, but "twice the amount of interest thus paid," that is, paid in pursuance of an usurious contract or transaction.