This action was brought by the plaintiff in error in the district court of Iowa, in and for Woodbury county, under 5198 of the Revised Statutes of the United States, to recover twice the amount of interest alleged to have been due the defendant by the plaintiff on account of certain transactions had between it and the plaintiff. The district court gave judgment against the plaintiff, and the supreme court of the state affirmed the judgment. The Chief Justice of the state allowed this writ of error.
The defendant in error was at the time of the transactions between it and the plaintiff a national bank. Plaintiff did business with it from January 1, 1886, until March, 1890, the instances of which are detailed in a pleading which occupies fifty-six pages of the record. During that time deposits were made by plaintiff with the bank, drafts were drawn by him, and his own and the promissory notes of others were given to the bank. Finally the transactions culminated, according to the petition, as follows:
The answer of the defendant admitted substantially the allegations of the petition detailing the transactions between it and the plaintiff, but alleged that it charged plaintiff only the interest permitted by the laws of Iowa, 'and that if at times, through the inadvertence or mistake of the clerks and accountants of the bank, the bank charged more than such proper rate, at other times, through similar inadvertence and mistake, a less amount was charged, so that, during the course of its business with the plaintiff, the total amount charged to him as interest upon overdrafts was two thousand seventy-eight dollars and eighty cents ($2,078.80), while at the legal rate under the laws of Iowa, and according to the custom of bankers, there was due from the plaintiff to the defendant the sum of two thousand ninety-six dollars and sixty cents ($2,096.60), and there was no intention to charge usurious interest at any time.'
The answer also admitted that all the unpaid indebtedness of plaintiff remaining was included in the bonds of plaintiff, which was secured by a mortgage upon his real estate as alleged, and that the mortgage was foreclosed and the property sold, but denied that any interest upon the overdrafts was paid by the sale, but averred 'that before the rendition of the judgment and decree in the said foreclosure proceedings, the court ordered deducted from the amount found due all sums charged as interest upon overdrafts, which was in fact deducted, and such sums were not included in the judgment and decree, and the defendant denies that on the sale of the property of the plaintiff on the said judgment foreclosure, any of the sums of interest upon overdrafts were thereby paid, but, on the contrary, alleges that there is still a large deficit on the said judgment, amounting to about the sum of ten thousand dollars ($10,000), which was not paid by the sale of the said property, and has not since been paid.' [185 U.S. 172, 175] The answer also alleged that if usurious interest was paid by the plaintiff 'it was so paid more than two years prior to the time of the commencement of this suit, and therefore said suit is barred by lapse of time.'
The answer also alleged a settlement between defendant and the plaintiff on the 17th of June, 1890, in pursuance of which the plaintiff delivered to the defendant $61,000 in the bonds already mentioned, and his promissory note for $3,048.38, and 'that the said bonds and note were received by the defendant in full payment and settlement of all existing liability and indebtedness on the part of the plaintiff to the defendant, and thereby the plaintiff paid to this defendant all sums charged for interest or otherwise, and that the said settlement took place more than two years prior to the bringing of this suit, and this suit is therefore barred by limitation.'
The answer also pleaded the foreclosure suit in bar.
The plaintiff filed a reply traversing the allegations of the answer.
The case was referred to a referee to report the facts. It is not necessary to give the report of the referee in full. He found that defendant had charged interest on plaintiff's overdrafts to the amount of $ 2,064, and that the average rate of interest charged was 10.22 per cent, and the total amount of interest charged in excess of 10 per cent was $72. That the interest on the overdrafts was included in the various notes given by the plaintiff prior to March 15, 1890; 'and all of the indebtedness of plaintiff to defendant, arising or growing out of said bank account from January 1, 1886, to March 15, 1890, was evidenced by said notes, but said notes were not given in payment of said indebtedness.'
The referee also found the execution of the negotiable bonds by plaintiff, and the mortgage to secure the same as alleged in the proceedings, the foreclosure of the mortgage, and that plaintiff, 'in his answer and amendments in said case set up that excessive interest had been charged on overdrafts by the First National Bank, and said interest had been included in the notes afterwards given, and said notes were merged in the bonds in suit, and asked that an accounting be had of the amount of ex- [185 U.S. 172, 176] cessive interest charged on said overdrafts, and that the amount so found be deducted from the amount due on the bonds; and said D. H. Talbot, in support of his allegation, introduced evidence showing the amount of interest charged on said overdrafts; and in the determination of the case the court found that excessive interest on overdrafts to the amount of two thousand and sixty-four dollars ($2,064.00) had been charged the plaintiff, and ordered that said two thousand and sixty-four dollars ($2,064.00), with interest at the rate named in the bonds, amounting to five hundred ninety-five dollars and forty-six cents ($595.46), making a total of two thousand six hundred nine dollars and forty-six cents ($2,609.46), be deducted from the amount due on the bonds, and a decree was entered in said case for the amount due on said bonds, less said sum of two thousand six hundred nine dollars and forty-six cents ($2,609.46).
As conclusions of law the referee found as follows:
He recommended that judgment be entered dismissing plaintiff's petition, and that defendant have judgment for costs.
The plaintiff filed exceptions to the report, and the matter came on to be heard March 19, 1896, and the court adjudged that the conclusions of the referee were correct; that the matters in the suit had been adjudicated in the former action; that plaintiff's cause of action had accrued June 17, 1890, and that his suit was barred by the statute of the United States upon which the action was based, and plaintiff's petition was dismissed.
The supreme court of the state, in passing on the case, affirmed the findings of fact of the referee, but said that it was [185 U.S. 172, 178] 'entirely clear under the evidence that all interest charged on overdrafts in excess of 6 per cent was a greater rate of interest than was allowed by the laws of this state.'
The court further said:
The assignments of error present the following contentions: That the agreement of June 17, 1890, in pursuance of which the negotiable bonds of plaintiff were delivered to the defendant, did not constitute a payment of the interest on the overdrafts theretofore charged, but that the sales in the foreclosure suit May 19 and July 2, 1894, constituted such payment, and as the action was brought within two years from the latter dates, it was not barred; that the foreclosure suit was not res judicata because the defense of illegal interest was based upon the law of the state of Iowa, and not upon the Revised Statutes of the United States; that illegal interest was embraced in the judgment in the foreclosure suit; that the deduction which was made was only of the illegal interest on the overdrafts, and of no other interest; that the Revised Statutes direct 'a forfeiture of the entire interest,' not merely of the amount of interest paid in excess of that allowed by law; that 5198 provides that in case the greater rate of interest has been paid, the person so paying the sum 'may recover back . . . the amount of the interest thus paid.'
Messrs. A. A. Hoehling, Jr., and James K. Redington for plaintiff in error.
Mr. Asa F. Call for defendant in error.
Mr. Justice McKenna delivered the 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 over- [185 U.S. 172, 180] ruled. 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:
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. [185 U.S. 172, 181] 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.
Mr. Justice Gray took no part in the decision.