Opinion · Supreme Court of the United States
Schuyler National Bank v. Gadsden
24 S. Ct. 129
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1903-12-07
- Topic
- general
Mr. Justice White, after making the 'foregoing statement, delivered, the opinion of the court. The question for decision is, Did the Supreme Court of Nebraska rightly .decide that the controversy concerning usurious interest paid was to be governed by the statute of Nebraska on that subject and not by the laws of the United States on the same subject, as expressed in section 5198 of the Revised Statutes? We say this is the sole question, because it is undoubted that if the rights of the parties are to be deter-piined by the laws of the United States, the ruling below was wrong. This results from the prior adjudications of this court holding that where usurious interest has been paid to a national bank, the remedy afforded by section 5198 of the Revised Statutes is exclusive, and. is confined to an independent action to recover such usurious payments.
Citator
- Cited by
- 30 opinions
SCHUYLER NATIONAL BANKv. GADSDEN,191 U.S. 451(1903)
24 S.Ct. 129
SCHUYLER NATIONAL BANKv. GADSDEN.
ERROR TO THE SUPREME COURT OF THE STATE OF NEBRASKA.
No. 50.
Argued November 3, 1903.
Decided December 7, 1903.
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 $5000, payable six
months after date. As collateral security for the payment of this
note, Thrush and his wife executed a note and mortgage for $5000
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 $3000. In that month and
year a new note was executed to the bank for the principal sum
then due and interest, in all, $3229. 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 encumbrancers of record were made parties
defendant, among them being Sumner, to whom the mortgage for
$5000, 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 $3229 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
Page 453
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 $5000 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 $3229 note, in this, that the said note of
$5000 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 $5000."
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
Page 454
be adjudicated except in a suit brought expressly for that
purpose under the provisions of section 5198 of the Revised
Statutes of the United States."
A decree was entered determining the priority of liens between
the respective lienholders and providing for a foreclosure. Among
other things it was adjudged that the mortgage to 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 defence 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.
On a rehearing, the appellate court reaffirmed its previous
decision.58 Neb. 340. Thereupon a writ of error was allowed
from this court, which was subsequently dismissed for want of
jurisdiction.179 U.S. 681. 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. The present writ of error was thereupon allowed.
The penalties imposed by §§ 5197, 5198, U.S. Rev. Stat., are exclusive.F. M. Bankv.Deering,91 U.S. 29. A national bank may take real estate for a past due debt;State Nat.Page 455Bankv.Flathers, 45 La. Ann. 75; or present or future debts;Wintonv.Little,94 Pa. 64. No one but the government can complain.Bankv.Whitney,103 U.S. 99;Union Nat. Bankv.Matthews,98 U.S. 621;Bankv.Haire,36 Iowa 443;Swopev.Leffingwell,105 U.S. 3;Reynoldsv.NationalBank,112 U.S. 405;Fortierv.National Bank,112 U.S. 439;Wheneyv.Hale,77 Mo. 20. The debt is the claim, the mortgage is a mere incident.Webbv.Hoselton,4 Neb. 318.
Estoppel must be pleaded.B. M.R. Co. v.Harris,8 Neb. 140. To constitute equitable estoppel it must appear the facts were known to the party against whom it is urged and unknown to the party urging it.Nashv.Bakes, 58 N.W. 706; Bigelow on Estoppel, 570, 669et seq.
InHaseltinev.Bank,183 U.S. 118, it was held that usurious interest could not be set off in an action on the note.Mr. George H. ThomasandMr. Frank Dolezalfor defendants in error submitted:
There is no Federal question. Under the facts in this case the remedy for usury paid is not under the Federal but the state statute.Exeter National Bankv.Orchard,39 Neb. 485.
By the Federal statute, a national bank is forbidden to loan money on real estate security. While this inhibition will not invalidate a mortgage on lands given to such a bank nor prevent its foreclosure, and the Federal government alone may forfeit the charter of the bank, it certainly will not be questioned, however, that it is the duty of the bank to honestly observe this inhibition; that it is the duty of the courts to so construe the statute that an honest observance will be compelled. In addition to the plain legal phase of this case, it seems equally plain that the bank should be so held, that when the government brings process to enforce the statute the bank cannot evade it by proving that it took no mortgage on land, and where the State as to that very mortgage, attempts to enforce its remedy for usury say that it is protected by a privilegePage 456given by the very statute which it violated, and under which it claimed as against the government it did not act. A construction of the statute which would permit such double dealing is not to be seriously considered as proper in a court of justice.
In fact, this is not controverted and could not be, since the Supreme Court of Nebraska conceded that if the contention as to usurious interest ought to he determined by the laws of the United States, the conclusion which the court reached was erroneous. That court, however, held that the rights of the parties were to be measured by the law of the State instead of the law of the United States, because the collateral mortgage was not made,eo nomine, to the bank, but to an individual. This view was deemed to be fortified by the suggestion that, as the collateral note was secured by mortgage on real estate,Page 457it could not under the laws of the United States have been lawfully made in favor of a national bank. The collateral note and mortgage, it was, therefore, intimated must be assumed to have been executed to an individual to avoid the effect of the laws of the United States and the consequent knowledge which would have been conveyed to the proper officers of the United States that the bank was violating the law.
The reasoning by which the judgment of the Supreme Court of Nebraska was controlled is, in our opinion, erroneous. The court did not hold that, because the collateral mortgage was taken in the name of an individual, it could not be enforced by the bank under the law of Nebraska, but simply held that, although it was enforceable by the bank, the remedy as to the usurious interest was governed exclusively by the state law, upon the theory that the transaction was not with the bank. But the usurious interest had all been paid, not to the individual upon the collateral note, but to the bank upon the principal obligation held by it. It was this interest so paid to the bank on the principal note held by it which was in effect imputed so as to fix the amount due. The result of this was to treat the transaction as an individual one in order thereby to exclude the law of the United States, and then at once to treat it as a bank transaction for the purpose of ascertaining and imputing the sums of usurious interest which had been paid. This was to administer the rights of the parties upon distinct and wholly inconsistent theories. Either it was an individual transaction or it was not. It could not in reason have been at one and the same time both the transaction of the bank excluding the individual and a dealing between individuals excluding the bank. As the usurious interest for which a remedy was afforded had been paid to the bank, in dealings by the bank with its debtor, and as the necessary effect of the judgment below was to reduce the debt due to the bank by allowing the imputation of the sum of the usurious interest, we are of opinion that the controversy was governed by the laws of the United States and not by the law of the State of Nebraska.Page 458
Nor do we think the suggestions made in the opinion of the court below respecting the power of a national bank under the laws of the United States to accept real estate security operate in any way to modify the conclusion we have just expressed. It is not contended that under the law of Nebraska an agent, acting in his own name, may not take security for the benefit of a principal, or that there is or could be any valid statute of the State of Nebraska discriminating against national banks, and depriving them of the benefit of transactions so consummated. This being true, it follows that the taking of real estate security by the president of the bank in his individual name, for the benefit of the bank, was in legal effect but the taking of security by the bank itself. Now it is no longer open to controversy that the provisions of the statutes of the United States forbidding the taking of real estate security by a national bank for a debt coincidently contracted do not operate to make the security void, and thus enable the individual who has contracted with the bank to defeat recovery, but simply subject the bank to be called to account by the government for exceeding its powers. InLogan Countyv.Townsend,139 U.S. 67, the rule on this subject, as settled by the previous authorities, was thus stated by the court, speaking through Mr. Justice Harlan (p. 76):
"InNational Bankv.Matthews,98 U.S. 621, it appeared that a national bank loaned money upon the security of a note and a deed of trust of lands, both of which were assigned to it. The statute declared that a national banking association could loan money `on personal security,' and could purchase, hold and convey real estate for certain named purposes, `and for no others,' among which was not included the securing of a present loan of money by a deed of trust or mortgage on real property. The court, while assuming that the statute, by clear implication, forbade the bank from making a loan on real estate, refused to restrain the bank from enforcing the deed of trust. The decision went upon these grounds: That the bank parted with its money in good faith; that the question as to the violationPage 459of its charter, by taking title to real estate for purposes unauthorized by law, could be raised only by the government in a direct proceeding for that purpose; and that it was not open to the plaintiff in that suit, who had contracted with the bank, to raise any such question in order to defeat the collection of the amount loaned. If any doubt existed as to the scope of the decision in that case, it was removed byNational Bankv.Whitney,103 U.S. 99, where it was held that the right of a national bank to enforce a mortgage of real estate taken by it to secure indebtedness then existing, as well as future advances, could not be questioned by the debtor, and that a disregard by the bank of the provisions of the act of Congress upon that subject only laid the association open to proceedings by the government for exercising powers not conferred by law."
It follows from the foregoing reasons that the Supreme Court of Nebraska erroneously determined the rights of the parties by the rule of the state law, when it should have applied the law of the United States.The judgment of the Supreme Court of Nebraska is reversed, andthe cause is remanded for further proceedings not inconsistentwith this opinion.
The facts, concisely stated, are as follows: George Thrush executed a note to the bank for $5000, payable in six months. At the same time Thrush and wife executed a collateral note and mortgage for the same amount to Sumner, president of the bank. This note and mortgage, given partly for an antecedent and partly for a contemporaneous debt, were delivered to the bank and retained by it.
The note made to the bank was renewed from time to time,Page 460and various payments of interest and principal were made, and the principal sum thereby reduced, in March, 1894, to $3000. At that time a new note was executed to the bank for the principal sum due and interest, namely, $3229. No dealings were had at any time between Thrush and wife and Sumner individually.
Suit having been begun by Gadsden to foreclose a prior mortgage, and Sumner having been made a party as junior encumbrancer, he answered, and by cross petition asserted the lien of the mortgage, which he alleged was made to him as trustee of the bank. The bank being also made defendant, filed an answer and cross-petition, claiming the benefit of the mortgage to Sumner.
It is clear that there was but one actual debt. The question is, whether, in asserting its right to foreclose the mortgage made to Sumner individually, it must not submit itself to the laws of the State affecting usury; in other words, whether, in the foreclosure of a mortgage created under the laws of a State and executed by one citizen of a State to another, its obligations are to be determined by state law or Federal law. Congress forbids such a mortgage; the State permits it. There can be no doubt that the bank caused the mortgage to be given to Sumner on account of the law forbidding national banks from receiving security by way of mortgage upon real estate, and to obviate any difficulties which might be interposed either by the mortgagor or by the government, by taking the mortgage in the name of the bank.
Had the mortgage expressed upon its face the exact truth, namely, that it was given for the benefit of a national bank, and partly, at least, for the security of a contemporaneous debt, it would have fallen within the ban of the Federal statute. It is true the state law permitted it, but accompanied it with a forfeiture of the entire interest if usury were taken. The question is whether, in enforcing this mortgage, which the bank was prohibited from taking in its own name, it may claim an exemption from the usury laws of the State. So long as thePage 461dealings were solely between the bank and Thrush, and payments were made upon the bank note in question, the transaction with regard to usury was governed by the Federal law. But in case the bank elected to foreclose the mortgage, I think it took the benefit of itcum onere. He who seeks equity must do equity. It could not take the benefit of the mortgage to Sumner, and claim a right to foreclose for the amount due without at the same time admitting that the payments which had been made were made upon a debt secured by the mortgage, and subject to the disability of the state law. As was justly said by the Supreme Court of Nebraska: "It would be highly unconscionable to permit a person to give a contract a false form to evade the burdens which would follow from its true expression, and then permit him to show the truth as against the form to evade the burdens caused by a contract in the form which has been so chosen." The bank ought not to be permitted to blow hot and cold in the same transaction. If it claimed the benefit of a mortgage made to an individual, it should take it with such burdens as would rest upon it if the transaction had originally been what it was represented to be upon its face. The opinion of the court suggests an easy method by which the prohibition of the Federal statute against the lending of money upon real estate security may be successfully evaded without the slightest danger to the bank.