lar state are permitted to charge such a rate.26 This statute applies to discounts or purchases of commercial paper at the bank as well as to loans; 27 but whether or not a note is void for usury in the hands of a bona fide holder where the note itself stipulates for legal interest must depend upon the statute.25 Under state statutes a discount of commercial paper is sometimes usurious and sometimes it is not.29 But a bank does not make itself liable for collecting usurious interest where it acted simply as agent, although it transferred the note.30 A bank may charge a certain rate for lending its credit by indorsement, where it does not discount the note, without making itself liable for a usurious transaction. Renewal notes are held to be within the statutes of usury.31 If the last note contained usurious interest, and each renewal also contained it, each note will be held to be usurious, and only the original principal can be recovered.32

26 If state banks of issue are permitted to charge any agreed rate, a national bank may charge it. First Nat. Bank v. Duncan, Fed. Cas. No. 4804; Tiffany v. State Bank, 18 Wall. 409. But where the law permits to private persons any rate, and there are no banks of issue, as there are not in some states, it would seem to follow that, no rate being fixed, the statute as to seven per cent. governs. So National Bank v. Johnson, 104 U. S. 271, expressly states, and says of Tiffany v. State Bank, supra: "It is not intimated or implied” that that case establishes any other rule. And so is Crocker v. First Nat. Bank, 4 Dill. 358. But contra are Hines v. Marmolejo, 60 Cal. 229, a state where banks of issue are prohibited by the constitution; Wolverton v. Exch. Nat. Bank, 11 Wash. 94; Guild v. First Nat. Bank, 4 S. D. 566; National Bank v. Bruher,

64 Tex. 571; Rockwell v. Farmers' Bank, 4 Colo. App. 562; California Bank v. Ginty, 108 Cal. 148. The difficulty is that the statute is wrongly worded, and these courts are doing some amending to make the law read correctly. .

27 National Bank v. Johnson, 104 U. S. 271; Johnson v. National Bank, 74 N. Y. 329; Danforth v. Nat. State Bank, 48 Fed. R. 271, semble.

28 Second Nat. Bank v. Morgan, 165 Pa. 199.

29 Dunkle v. Renick, 6 Ohio St. 527. Compare Nash v. White's Bank, 68 N. Y. 396; Atlantic State Bank v. Savery, 82 N. Y. 291.

30 First Nat. Bank v. Miltonberger, 33 Neb. 847.

31 Winterset Nat. Bank v. Eyre, 52 Iowa, 114; Farmers' Bank v. Hoagland, 7 Fed. R. 159; Snyder v. Mt. Sterling Bank, 94 Ky. 231.

32 Peoples v. First Nat. Bank, 15 Ky. Law R. 748. See also Moniteau

§ 197. Effect of usury.-The transaction which is usurious is necessarily an illegal agreement. If the illegal agreeinent has been consummated and the parties are in pari delicto, no recovery of the usurious interest paid would be permitted at common law. But most courts have held that the statute being for the protection of the borrower, he is not in pari delicto with the lender. The same result follows where a penalty is imposed upon the lender. Other statutes give the right to recover the illegal interest paid, and such is the case with the national bank act. In some states the loan is declared void,' in others the interest is forfeited, in others the excess of interest over the legal rate is forfeited. The subject is one which cannot properly be considered as belonging to a treatise of this nature.1

§ 198. Effect of usury under the national bank act.— The national bank act is exclusive in its terms. It declares the whole interest void1 if it be not paid, and it allows a recovery of twice the excess or the whole interest paid where

Nat. Bank v. Miller, 73 Mo. 187; Cake v. Lebanon Nat. Bank, 86 Pa. 303.

1 Mills v. Rice, 6 Gray, 458; Bank of U. S. v. Owens, 2 Pet. 527, applies such a ruling to a case where there was no statute, but on that point the case is not sound.

2 Grand Gulf Bank v. Archer, 8 Smedes & M. 151; Hawley v. Kountze, 38 N. Y. Supp. 327.

3 Chafin v. Lincoln Sav. Bank, 7 Heisk. 499; Darby v. Boatmen's Sav. Inst., 1 Dill. 141; Veazie Bank v. Paulk, 40 Me. 109; Lumbermen's Bank v. Bearce, 41 Me. 505.

The effect of these statutes upon the contract is to forfeit the debt (Mills v. Rice, 6 Gray, 458); to forfeit the debt only as between borrower and lender, but not to annul the contract (Farmers' Bank v. Parker, 37 N. Y. 148); to render the

note or bill void (Orr v. Lacey, 2 Doug. 230; Brower v. Haight, 18 Wis. 102); but to leave the loan good (Rock River Bank v. Sherwood, 10 Wis. 230; Van Atta v. State Bank, 8 Ohio St. 27). See § 201, post.

1 See note 5, post.

2 The rule differs. Johnson v. National Bank, 74 N. Y. 329; affirmed in National Bank v. Johnson, 104 U. S. 271, without the point being raised, and other New York cases and Bobo v. People's Nat. Bank, 92 Tenn. 444, say the recovery is twice the excess. But Wiley v. Starbuck, 44 Ind. 298; Crocker v. First Nat. Bank, 4 Dill. 358; Markham v. First Nat. Bank, Fed. Cas. No. 9097; National Bank v. Johnson, 91 Ky. 181; Lucas v. Government Nat. Bank, 78 Pa. 229, say twice the whole interest.

3

the transaction is complete. This statute governs national banks to the exclusion of state legislation, and state penalties for usury do not apply. Where the interest has not been paid, the interest is simply declared void and the bank can recover only the principal of the note." The statute applies to overdrafts as well as other loans, but the note itself is not rendered void nor the deposit of collateral security. The title to the note is not affected, nor its negotiability destroyed, by a usurious discount.10 A state statute cannot forfeit the debt," but a state statute may make the act of the officers of a national bank in taking usury an offense against the state.12 The two years' limitation in the statute applies to the suit to recover, but does not apply to the forfeiture of the usurious interest reserved,13 and the forfeiture may be set up at any time in defense of the note.14 The action provided for the recovery of usurious interest paid

3 Farmers' Bank v. Dearing, 91 100 U. S. 239; Allen v. First Nat. U. S. 29. Bank, 23 Ohio St. 97.

4 First Nat. Bank v. Lamb, 57 Barb. 429 (wrongly reversed); Central Nat. Bank v. Pratt, 115 Mass. 539; Imp. & Trad. Bank v. Littell, 46 N. J. Law, 506.

5 Farmers' Nat. Bank v. Dearing, 91 U. S. 29; Peterborough Nat. Bank v. Childs, 130 Mass. 519. If part is paid, the rest is forfeited. It forfeits the interest which would have accrued after maturity (First Nat. Bank v. Stauffer, 1 Fed. R. 187; Shunk v. First Nat. Bank, 22 Ohio St. 508), even though lawful. Shafer v. First Nat. Bank, 53 Kan. 614; Nat. State Bank v. Brainard, 61 Hun, 339.

9 Newell v. First Nat. Bank, 13 Ky. Law R. 775; First Nat. Bank v. Garlinghouse, 22 Ohio St. 492; Hintermister v. First Nat. Bank, 64 N. Y. 212.

10 Nicholson v. National Bank, 92 Ky. 251.

11 Farmers' Bank v. Dearing, 91 U. S. 29.

12 State v. First Nat. Bank, 2 S. D. 568.

13 Peterborough Nat. Bank v. Childs, 130 Mass. 519; Moniteau Nat. Bank v. Miller, 73 Mo. 187; Pickett v. Merchants' Nat. Bank, 32 Ark. 346.

14 See cases in last note, and see,

6 Third Nat. Bank v. Miller, 90 further, Exeter Nat. Bank v. Or

Pa. 241.

7 Nat. Ex. Bank v. Moore, 2 Bond, 170; Wiley v. Starbuck, 44 Ind. 298.

chard, 39 Neb. 485, holding that the making of a new note to the bank, where the original note was to another person, does not cut off the

8 Oates v. Montgomery Nat. Bank, defense.

permits a recovery of twice the excess over the legal rate,13 or twice the whole interest paid.16 This remedy is exclusive and cannot be supplemented." The action is penal in its nature, and the double amount of the interest forfeited cannot be claimed by way of set-off or counter-claim.18 The two years' limitation begins to run either from the date of the payment of the usurious interest,19 or from the date of the transaction according to some insufficient authority.20 The bank cannot set off against the penalty sought to be recovered any claim of its own." Payments made are to be considered as paid on the face of the debt, not upon the interest.22

§ 199. Who may set up usury.- Generally speaking only the parties to a usurious transaction are affected by it. It is not a defense for the drawer of a bill of exchange against

15 See note 2, ante.

16 See note 2, ante. But the penalty does not draw interest (Higley v. First Nat. Bank, 26 Ohio St. 75) until judgment.

17 Barnet v. National Bank, 98 U. S. 555; Wiley v. Starbuck, 44 Ind. 298; Oldham v. First Nat. Bank, 85 N. C. 240; First Nat. Bank v. Gruber, 91 Pa. 377; Hill v. National Bank, 56 Vt. 582.

18 Driesbach v. Wilkesbarre Bank, 104 U.S. 52; Danforth v. Nat. State Bank, 48 Fed. R. 271, 3 U. S. App. 7; Farmers' Nat. Bank v. Stover, 60 Cal. 387; Stephens v. Monongahela Bank, 111 U. S. 197, and numerous other cases. One case says the maker of the note may plead to a suit brought upon a collateral mortgage the satisfaction of the debt by the payment of usurious interest on renewals before debt came into the possession of the bank. Exeter Nat. Bank v. Orchard, 39 Neb. 485.

19 National Bank v. Davis, 8 Biss. 100; Kinser v. Farmers' Nat. Bank, 58 Iowa, 728; Lynch v. Merchants' Nat. Bank, 22 W. Va. 554; Carpenter v. National Bank, 50 N. J. Law, 6; First Nat. Bank v. Smith, 36 Neb. 199. Or judgment. Duncan v. First Nat. Bank, Fed. Cas. No. 4135. Giving a note seems to be payment. Lebanon Nat. Bank v. Karmany, 98 Pa. 65; but see Cadiz Bank v. Slemmons, 34 Ohio St. 142. See note 11 to § 196, ante.

20 Henderson Nat. Bank v. Alves, 91 Ky. 142.

21 Morehouse v. National Bank, 30 Hun, 628; Lebanon Nat. Bank v. Karmany, 98 Pa. 65.

22 Danforth v. Nat. State Bank, 48 Fed. R. 271, 3 U. S. App. 7; Cadiz Bank v. Slemmons, 34 Ohio St. 142. But where renewal notes are given after crediting payments, see Kinser v. Farmers' Bank, 58 Iowa, 728.

the bank; but under the national banking law the reservation of usurious interest destroys the interest-bearing quality of the instrument, and hence the acceptor of drafts purchased without an indorsement to it by a bank at usurious rates may defend against interest upon the drafts. A corporation forbidden by a state statute to set up the defense of usury may nevertheless claim the defense under the national banking law. A director of a bank may set it up against the bank on a loan to himself. But a renewal note which was given for an accommodation note which had an indorser, who indorsed the accommodation note to the bank at a usurious rate, is not subject to the defense of usury in favor of an indorser upon the renewal note." Parties who may sue are noticed in the next section.

The charge

§ 200. Matters of pleading and procedure. of usury must always be that the act was done knowingly,' but a corrupt intent need not be averred in the answer if facts equivalent thereto are pleaded. The person to set up the usury must be one covered by the statute. Under the statute giving the right to legal representatives, the executor or administrator of a decedent and the receiver of a corporation would be entitled, as well as, perhaps, an indorsee of a bill of exchange, an assignee for creditors," but not a

1 Oneida Bank v. Ontario Bank, Bank, 4 S. Dak. 566; Morgan v. 21 N. Y. 490. First Nat. Bank, 93 N. C. 352.

2 Danforth v. Nat. State Bank, 48 Fed. R. 271, 3 U. S. App. 7. This rule would apply to any person not a bona fide holder.

3 Union Nat. Bank v. Louisville R. Co., 145 Ill. 208; In re Weed, 11 Blatch. 243.

2 National Bank v. Orcutt, 48 Barb. 256.

3 Barbons v. Nat. Ex. Bank, 45 Ohio St. 133.

4 Barnett v. National Bank, Fed. Cas. No. 1026, is wrong. The correct rule was stated in National

4 Cadiz Bank v. Slemmons, 34 Bank v. Lewis, 75 N. Y. 516, 81 N. Y.

Ohio St. 142.

15, and Cake v. First Nat. Bank, 86

5 Bly v. Second Nat. Bank, 79 Pa. Pa. 303. 453.

1 Schuyler Nat. Bank v. Bollong, 24 Neb. 821. For sufficiency of pleading, see Guild v. First Nat.

5 Osborn v. First Nat. Bank, 175 Pa. 494. This case is opposed to the weight of authority, which gives the rule stated in the text. Wright