Delaware, Lackawanna and Western Railroad Co. v. Oxford Iron Co.

ment has any reference to any action on his part. And of course it would not be binding upon the estate in his hands to be administered.

But it is urged that under the articles of association and bylaws of the bank, a lien was created upon the stock for the payment of the indebtedness of the Oxford Iron Company and the liability of S. T. Scranton & Co. as indorsers upon the notes. The stock was not the property of the Oxford Iron Company, but was in fact the property of S. T. Scranton & Co., although standing in the name of Selden T. Scranton. But neither the articles of association, nor the by-laws, nor both together, created any lien upon the stock for the indebtedness of the stockholder to the bank. The articles provided that the board of directors should have power to make all by-laws that it might be proper and convenient for them to make, under the National Banking Act, for the general regulation of the business of the bank and the management and administration of its affairs, and that those by-laws might prohibit, if the directors should so determine, the transfer of stock owned by any stockholder who might be liable to the bank, either as principal debtor or otherwise, without the consent of the board. The by-laws provided that no transfer of stock should be made without the consent of the board of directors by any stockholder who should be liable to the bank either as principal debtor or otherwise, on any obligation due or not due. In Young v. Vough, 8 C. E. Gr. 325; 1 Nat. Bank Cas. 935, it was held in this court that that very by-law was authorized by the National Banking Law, and was a reasonable one, and that any attempted transfer of his stock by a stockholder, while indebted to the bank, was void, and that an indorser who paid the note by which such debt was created would be subrogated to the rights of the bank as against such shares of its capital stock. The decree in that case was affirmed in the court of last resort, but that court carefully refrained from determining whether the by-law was legal under the law of 1864, or whether, if it was, the indorser had any rights of subrogation, and expressly stated that it was not intended to determine either of those questions, and that they must be considered as unsettled in that court. Mattison v. Young, 9 C. E. Gr. 535. The decision in this court was renVOL. III-74.

586

NEW JERSEY COURT OF CHANCERY, 1884.

Delaware, Lackawanna and Western Railroad Co. v. Oxford Iron Co. dered at the February term, 1873, and that of the Court of Errors and Appeals in the June term of that year. In October following the Supreme Court of the United States held that a National bank organized under the law of 1864 cannot, even by provisions framed with a direct view to that effect in its articles of association, and by direct by-laws, acquire a lien on its own stock held by persons who are its debtors. Bullard v. Bank, 18 Wall. 589; 1 Nat. Bank Cas. 93. In that case the controversy was between an assignee in bankruptcy and the bank. It may be remarked that in the case in hand neither of the notes was due when the assignments for the benefit of creditors were made. By force of the authoritative decision just cited the articles of association and the by-laws were powerless to create any lien upon the stock in question.

It will be decreed that the bank is not bound to credit any thing on the claim against the Oxford Iron Company by reason of any lien on the stock.

Judge Stuart, the reporter, appends the following note in his report:

"That a corporation has no lien through its by-laws on its own stock for a debt due from the stockholder to the corporation, see 1 Abb. Dig. Corp. 757; 2 id. 648; Ang. & Ames Corp. (10th ed.), §§ 355, 356, 569-576; 1 Potter Corp., §§ 267-269, and notes; Field Corp., § 136-138; Green's Brice Ultra Vires (2d ed.), 15, note a; Morse Banks (2d ed.), 505; Overton Liens, §§ 82-86; and the following additional, mostly recent cases: Bank of Louisville v. Bank of N. J., 10 Bush, 367; Myers v. Valley Nat. Bank, 18 Bank Reg. 34; Kahn v. Bank of Mo., 70 Mo. 262; Case v. Bank, 100 U. S. 446; Nat. Bank v. Stewart, 107 id. 626; ante 96; Farmers' Bank v. Wasson, 48 Iowa, 336; Hagar v. Union Nat. Bank, 63 Me. 511; 1 Nat. Bank Cas. 573; Bank of Holly Springs v. Pinson, 58 Miss. 421; Carroll v. Mullanphy Sav. Bank, 8 Mo. App. 249; Bryon v. Carter, 22 La. Ann. 98; Lee v. Citizens' Nat. Bank, 2 Cin. Sup. Ct. 298; Petersburg Bank v. Lumsden, 75 Va. 327; New Orleans Nat. Bank v. Wiltz, 10 Fed. Rep. 330; Anglo-Cal. Bank v. Grangers' Bank, 16 Rep. 70; Merchants' Bank v. Shouse, id. 442. See however Bachman's Case (U. S. D. Ct. Mo.), 2 Cent. L. J. 119; Knight v. Old Nat. Bank, 14 Int. Rev. Rec. 125; Bigelow's Case, 1 Bank Reg. 667; Stringer's Case, L. R., 9 Q. B. D. 436; New London Bank v. Brockelbank, L. R., 21 Ch. Div. 302: First Nat. Bank v. Hartford Ins. Co., 45 Conn. 22; Planters' Ins. Co. v. Selma Sav. Bank, 63 Ala. 585; Mobile Ins. Co. v. Cullom, 49 id. 558; Mechanics' Bank v. Merchants' Bank, 45 Mo. 513; Vansauds v. Middlesex Co. Bank, 26 Conn. 144; Spurlock v. Pacific R., 61 Mo. 319; Mount Holly Paper Co.'s Appeal, 99 Penn. St. 513; Bohmer v. City Bank, 16 Rep. 411; Peeble's Case, 2 Hughes, 394; Dunlap's Case, 48 L. T. Rep. (N. S.) 89."

In an action by a National bank on a promissory note discounted by it, the defendant may not counter-claim or set off usurious interest taken by the bank on the discount of it and other notes of which it was a renewal. The remedy is an action of debt to recover back twice the amount paid. The practice and pleadings prescribed by the Legislature of the State in regard to a counter-claim or recoupment may not be used to defeat the inten. tion of a Federal enactment.

The provision of the United States Statutes (§ 914) that the practice, pleadings, forms and modes of proceedings, in civil causes, in the Circuit and District Courts, shall conform, as near as may be, to those existing at the time in the courts of record of the State, has no application in such case.

Where a National bank has usuriously reserved a sum greater than the lawful rate of interest on a discount, the amount so reserved is forfeited, and may not be recovered in an action upon the note.

R

EARGUMENT. The decision upon the former argument is reported in 75 N. Y. 516; 2 Nat. Bank Cas. 305.

Action on a promissory note indorsed by defendant Lewis, for the accommodation of the makers, and discounted by plaintiff. Lewis answered, plaintiff discounted the same, "and then and there knowingly, corruptly and usuriously deducted therefrom and took, received, reserved and charged, by way of discount, and * for the loan or forbearance of the sum of money secured by the note for the time the same then had to run

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a sum of money much greater than at and after the rate of seven per cent, to-wit, the sum of $160, or thereabouts," and claimed that plaintiff thus forfeited the entire interest.

Evidence of these facts was excluded. Further facts appear in the opinion. Judgment for plaintiff.

Rollin Tracy, for appellant.

E. H. Avery, for respondent.

PER CURIAM. A reargument was ordered in this case by reason of the recent decision of the Supreme Court of the United

National Bank of Auburn v. Lewis.

States in Barnet v. Muncie National Bank of Indiana, 98 U. S 555; 2 Nat. Bank Cas. 18. In the case cited, the court, in considering the provision contained in section 30 of the National Currency Act of Congress of June 3, 1864 (13 Stat. 99), which relates to knowingly taking, receiving, reserving or charging an illegal rate of interest, holds that two categories are enforced, and the consequences denounced:

1. Where illegal interest has been knowingly stipulated for, but not paid, there only the sum lent without interest can be recovered.

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2. Where such illegal interest has been paid, then twice the amount so paid can be recovered in a penal action of debt against the bank taking the same, by the persons paying such illegal interest or their representatives. The court say: "The payment of the usurious interest is distinctly averred, and it is sought to apply it by way of offset or payment to the bill of exchange in suit. In our analysis of the statute, we have seen that this could not be done." They further remark, that "the remedy given by the statute for the wrong is a penal suit. To that the party aggrieved must resort. He can have redress in no other mode or form of procedure * where the sole issue is the guilt or innocence of the accused, without the presence of any extraneous facts which might confuse the case, and mislead the jury to the prejudice of either party." In the case cited the defendant set up that illegal interest was taken, and claimed to recover twice the amount paid, and the case differs from the one at bar in this respect, as in the latter the defendant averred in his answer that illegal interest was taken, and claimed that the taking, receiving or charging greater rate of interest than seven per cent was a forfeiture of the entire interest which was taken, received, reserved or charged, and that such interest should be set off against the plaintiff's demand. It will be seen that in the former case the claim was for double the amount, while in the latter it was only for the actual amount paid. A distinction therefore exists between the two cases in this respect, but it is not of such a character, we think, as would authorize a holding that the case cited is not controlling and decisive. It is for the Federal court to determine that question, when it may arise, and in accordance with a well-settled

National Bank of Auburn v. Lewis.

principle we must follow and stand by its decision upon the main question determined, that in an action brought to recover the amount of a promissory note discounted by a National bank, it cannot be set up by way of counter-claim or set-off that the bank in discounting a series of notes, the proceeds of which were used pay other notes, knowingly took and was paid a greater rate of interest than that allowed by law, and that the remedy in such a case is an action of debt to recover back twice the amount paid.

to

The counsel for the defendant claims that the question is one of practice, and not the construction of a statute, and that the remedy by way of set-off or rebatement should be upheld; and reliance is placed upon section 914 of the United States Revised Statutes, which provides that the practice, pleadings and forms and modes of proceeding in civil causes, in the Circuit and District Courts, shall conform as near as may be to those existing at the time in the courts of record of the State within which such Circuit or District Courts are held. This provision was intended to bring about uniformity in the law of proceeding in the Federal and State courts, and was merely a rule of practice in reference to the hearing of cases on trial. Nudd v. Burrows, 91 U. S. 426; Blease v. Garlington, 92 id. 1; Ind. & St. L. R. Co. v. Horst, 93 id. 291. It cannot annul or operate to prevent the application and enforcement of a statutory provision of a penal character, and render it of no avail. Such a statute has no such connection with or relation to the practice, pleadings or forms of proceedings in civil cases as to render it of secondary consideration in carrying them into effect, and although the State and Federal courts are clothed with concurrent jurisdiction in actions by and against National banks, it by no means follows that the practice and pleadings which the Legislature has prescribed for the State courts, in regard to a counter-claim or a recoupment of mutual demands, shall defeat the object and intention of a Federal enactment. The statute in question is aimed against the receiving or charging of illegal interest, and provides for a forfeiture of the same and for a recovery of double the amount in an action, and upon no principle can it be held that it shall not be enforced because the action. is brought upon the instrument affected by it in the State court, and the practice of that court allows a set-off of a claim against