
    John E. Kendall vs. William L. Vanderlip.
    Law. No. 21,748.
    < Decided November 20, 1882.
    
      i The Chief Justice and Justices Cox and James sitting.
    1. Under section 716 of the Bevised Statutes of this District, it is the party only who pays the illegal interest, who is given the right to recover, and not some other party; therefore, where certain prpmis-
    !. sory notes made by V. for the accommodation of T. were deposited with K. as collateral security for money loaned by K. to T. at usurious rates, Y. cannot, when sued by K. upon the notes, set off against K.’s demand, the amount of the usurious interest paid by T.
    2. Whether, under Section 716, B. S. D. 0., the party paying the usurious interest may set off the amount so paid in an action against him by the party receiving it, quiere.
    
    3. Money cannot be set off against the plaintiff’s demand which the defendant could not recover from him in an independent suit.
    4. It is not competent for the court, where parties have paid money expressly as usury, to make a different application of it, and apply it as a payment on account of the debt and legal interest.
    STATEMENT 0E THE CASE.
    Motion for a new trial on exceptions.
    This was an action to recover a balance of $575.92, with legal interest claimed to be due on certain promissory notes executed by the defendant. The defendant had signed the notes at the request of, and for the accommodation merely of one Seth Terry, -who desired to negotiate a loan. Terry then delivered them to the plaintiff, who advanced the money upon them without discount ; it being agreed, however, between Terry and the plaintiff, that Terry was to pay five per cent, a month interest for the use of the money. Terry paid this usurious interest until the amount thus paid aggregated $347.82. This suit being then brought against Vanderlip, as maker of the notes, the latter, besides a number of other pleas not material to be stated here, sought to have the usurious interest paid by Terry, applied in reduction of the plaintiff’s claim upon the notes, and to that end pleaded it first as a partial payment, and second by way of set-off; his pleas to that effect being as follows : •
    “That there has been paid and discharged to the said plaintiff, on account of said several promissory notes, the sum of $347.82, for which said sum the plaintiff has given the defendant no credit.
    
      “That the plaintiff:' at the commencement of this suit was and still is indebted to the defendant in the sum of $847. 82, for money received by him for the use of the defendant, as appears by the particulars of said debt hereunto annexed, and he is willing that the same be set-off against the plaintiff’s demand.”
    Particulars oe Set-oee.
    “John E. Kendall to William L. Yanderlip, Dr.
    To money paid plaintiff for the use of the defendant (W. L. Yanderlip).....................$347 82.”
    Issue being joined, the plaintiff on the trial, after proving the execution and delivery of the notes rested. The defendant, then having proven the facts above stated, and having placed Terry upon the stand, asked him the following question :
    
      “ IIow much, if any, money did you pay, or cause to be paid to the plaintiff as usurious interest, at the rate of five per cent, per month before this suit was brought, and within one year, immediately preceding the 7th day of September, 1881?”
    . Whereupon plaintiff’s counsel objected to the question •, and the court, the defendant excepting, sustained the objection. The jury having found for the plaintiff, for the amount claimed, and a motion for a new trial being overruled, the case came to this court on the exception to the above ruling.
    Leoi? Tobriner for plaintiff:
    1st. Section 715 of the Revised Statutes of the District of Columbia contemplates, it will' be observed, an executory ■contract, in which case if there be a usurious agreement, the plaintiff' merely recovers his principal.
    Section 716 contemplates an executed contract, and provides for an aggressive not a defensive action — it allows the person who has paid usurious interest to sue for, and recover all the interest paid upon a usurious contract.
    It is submitted that the statute having created a new right, and declared the remedy, the right can only be enforced in the manner, and the remedy can only be that which the statute prescribes. Farmers’ National Bank vs. Dearing, 91 U. S., 35; Barnet vs. National Bank, 98 U. S., 558.
    In the case of the Bank vs. Dearing, the Supreme Court says : “ Where a statute creates a new offeuse and denounces ■the penalty, or gives a new right, and declares the remedy, the punishment or the r.emedy can be only that which the ■statute provides.”
    In Barnet vs. The Bank, a case involving the right to set ■off’ usurious interest under what is known as the National Bank act, which provides, “and in case a greater rate of interest has been paid, the person or persons paying the same,- or their legal .representatives, may recover back in any action of debt twice the amount of interest thus paid,” the Supreme Court says: “In the first defense, the payment of the usurious interest is distinctly averred, and it is sought to apply it by way of off-set or payment to the bill of exchange at suit. In our aualysis of the statute we have seen that this could not be done. Nothing more need to be said upon the subject;” and further: “Where a-statute •creates a new right, and provides a specific remedy or punishment, they alone apply. Such provisions are exclusive.”
    That a claim arising out of the penalty under the usury law was not intended to be used by way of set-off, is evident. The act respecting set-off, was passed February 22, 1867— fully three years before the act regulating the rates of interest (April 22, 1870), and yet in the latter act, there is no provision for set-off', but an affirmative remedy is only provided.
    “ The usury laws can only be taken advantage of as a defense in the manner prescribed by law.” Ramson vs. Hays, 39 Mo., 448; Hadden vs. Imes, 24 Ill., 384; Bank vs. Sherwood, 10 Wis., 184; Eastwood vs. Kennedy, 44 Md., 563; Wiley vs. Yale, 1 Metc., 553.
    2d. The defense of usury is personal to the party paying or contracting to pay the same.
    
      Sec. 716, R. S. D. C., allows the person paying usurious interest to sue for, and recover the same. The right under this act is, therefore, personal to the party paying. Lazear vs. Nat. Union Bank of Maryland, 52 Md., 122; Cady vs. Goodnow, 49 Vt., 400; Farmers’ and Mechanics’ Bank vs. Kimmel, 1 Mich., 84.
    3d. Is the claim arising out of the alleged payment of usury such a claim as can be made the subject-matter of a plea in set-off by the defendant in this caset
    
    Sec. 810 of the R. S. D. C., provides : “ Mutual debts between the parties to an action, may be set off,” &c., &c.
    To be mutual, the claim or debts sought to be set off must belong to the defendant in his own right, it must be such that he could maintain an independent suit thereon in his own name. Waterman on Set-off and Recoupment, §150 et seq.
    
    This the defendant could not have done- with the claim he seeks to establish as a set-off; it therefore does not meet the requirements of a “ mutual debt.”
    E. A. Newman for defendant:
    A debt arising out of a penalty is the proper subject of set-off. Sec. 810, Rev. Stat., D. C.
    Set-off is in the nature of a cross-action. Chase vs. Strain, 15 N. H., 535.
    Statutes of set-off ought to be liberally expounded to advance justice and prevent circuity of action. Pate vs. Gray, 1 Hemp., Ark., 155.
    Money paid as usury may be set off' against the principal in an action for the principal. Cook vs. Lillo, 103 U. S., 792; Farwell vs. Meyer, 35 Ills., 40; Sayler vs. Daniels, 37 Ills., 331; Fay vs. Lovejoy, 20 Wis., 424; Wood vs. Lake, 13 Wis., 94; Dole vs. Northup, 19 Wis., 266.
    In the, case of Ewing vs. Griswold, (43 Vt., 400), the court used this language : “The general right of a defendant in an action of assumpsit to offset any claim that he might recover in a declaration for money had and received cannot be questioned, and we think there is no reason or authority for making the action to recover usury an exception.”
    
      Where, upon a promissory note, the plaintiff has received interest above the rate fixed by law, the defendant in a suit upon the note is entitled to have such excess deducted, Larabee vs. Lambert, 32 Me., 97; Loud vs. Merrill, 45 Me., 516; West vs. Meddock, 18 Ohio St., 418.
    Surety or accomodation maker may take advantage of usury. Livingstone vs. Harris, 11 Wend., 329; Post vs. The Bank, 7 Hill, 391; Thompson, Ex’r, vs. Thompson, 8 Mass., 135; Smith vs. Cooper, 9 Iowa, 376; 9 Iowa, 254 and 276; 33 N. Y., 31.
    A fair construction of our statute touching usury, as compared with the construction given similar statutes, would ■authorize the party bound by the usurious contract to plead set-off or recover usury. Rev. Stat., §§ 713 to 717, inclusive; Cole vs. Savage, Clark’s Ch. R. (N. Y.), 487, and authorities •cited, supra.
   Mr. Justice Cox

delivered the opinion of the court.

This is an action of assumpsit to recover a balance of -'$575.92, alleged to be due on certain promissory notes, with interest from the 9th of March, 1868.

At the trial it appeared that Vanderlip, the defendant, was simply an accomodation maker of the notes for the benefit of a third party, one Seth A. Terry, who was not a party to the notes. Terry delivered the notes to Kendall (although they were in form made payable to Kendall in the first instance) .and received the full amount of them from Kendall; and, under the plea of set-off, there was an offer to prove for the •defence, that at the time Terry obtained the money from the plaintiff, there was a stipulation to pay him extra interest at the rate of five per cent, a month, and that Terry did, in fact, pay as such extra interest, the sum of $347.82 ; and the defendant claimed the right to have this sum deducted from the $575.92, the balance due on the notes, of principal and legal interest. The court below refused to admit the evidence on this point, and exception was taken ; and the only question before us in the case is : Had the defendant the right to have this deduction made, that is to have this usurious interest deducted from the legal debt?

The arguments for the defence in support of this offer were :

1st. That the Revised Statutes of the District of Columbia give the right to a party who pays illegal interest to recover it in an action.

2d. That where a party has a right to maintain an action for a money demand, he has a'right to set that off against a demand in an action against him.

3d. That the maker of the note is competent to make this defence as w.ell as any other party.

On the part of the plaintiff’ two answers to this claim are-made. It said, first, that the Revised Statutes of the District provide a new right and declare the remedy, and that in such a. case, only the specific remedy which the law prescribes can be resorted to. Section 716 of the Revised Statutes of the-District gives simply the right to sue for the illegal interest paid — not the right to set it off by way of defence in an - action ; and decisions of the Supreme Court have been appealed to, in which it has been held that, although the National Bank act provides that a party paying illegal interest may recover twice the amount in an action, yet he-cannot set off the amount so illegally paid, in an action against him, his only remedy being the one provided for in the act. It is a question with us whether this decision would govern in a case arising under the law of the District, which does not give the right in exactly the same shape as that in which it is given by the National Bank act ; but it becomes-unnecessary in this case to decide that question.

The second point is that the law of set-off applies only to-mutual demands. ° That is, that the defendant may set off a demand which he has against the plaintiff, but not a demand which belongs to another party. Under our statute, it is the party paying the illegal interest to whom is given the right to recover,.and not some other party. The language of the statute is : “ If any person or corporation within the District shall directly, or indirectly, take or receive any greater amount of interest than is provided for in this chapter, upon any contract or agreement whatever, it shall be lawful for the person, or his personal representative, or the corporation paying the same, to sue for and recover all the interest paid upon any such contract or agreement.” Now, in this case, the illegal interest was paid by Terry, for whose accomodation these notes were made, not by the maker of the notes ; and it is very plain that the maker cannot maintain a suit against Kendall to recover money paid by Terry, a third party, out of his own pocket.

This being the case, the defendant cannot set off in this suit this claim which he could not recover in an independent suit against the party to whom it was paid. This answer is, we think, conclusive, at least upon the defence made in its present form. Indeed, this very question has been decided by the Court of Appeals in Maryland, and also by the court of last resort in Wisconsin, in a case almost exactly like the present, with the exception that there the party for whose accommodation the note was made was a party to the paper, whereas in this case Terry was not a party to these notes-In that case, it appeared that the defendant had never paid the plaintiff anything upon the note, either as interest or usury, but that the person for whose' accommodation it was endorsed had ; and the court held that, so far as the personal payments were concerned, the defendant could not apply them to his own benefit, either as payment or as set-off

So that, as far as this evidence was offered by the defendant to sustain the plea of set-off, we think the court below was. correct in ruling it out.

, We have looked through the record and the decisions cited, to see whether the defence could not be made in some other form. There is a plea of partial payment covering the same facts. Now, if this money could be treated as a payment on account of the principal and legal interest, no matter by whom paid, such payment would, of course, reduce the debt by so much, and the plaintiff’ could only recover the balance actually due. Perhaps, then, if this could be treated as such a payment, although the evidence was offered in suppoi’t of the defence of set-off, it would still be pertinent under the issues in this action ; but the question is : Will the law impute or ascribe or apply a payment made expressly as usury, to the principal and legal interest of a debt ? There is a great difficulty in doing this. The case put is that of a.debt, partly legal and partly illegal — not illegal in the sense of malum in se, but in the sense of malum prohibitum, and it may be regarded also as made illegal for the benefit of the defendant. Now, the question is, whether, when payments of this character have been made and applied to illegal interest by consent of both parties, it is the duty of the court to apply those payments to the part of the debt which is legal and not to that which is illegal? When the parties have agreed that the payment shall be applied to a part of the debt which was not legally binding, and have actually made such application, can the court step in and say : We will undo all that and make a new agreement for you, so that this payment shall be applied, not to the part of the debt which is usurious but to that part which is legal? It seems to us that to do this would be transcending the power of the court.

A number of cases have been cited on the part of the defence from the reports of Wisconsin, Illinois, New York, Massachusetts and Iowa. In one case in Wisconsin it was held that the part}' should be allowed to deduct, by way of set-off, the interest which had been illegally paid. The payment was expressly relied upon as a set-off, not as an application of the illegal payment to the legal part of the debt.

In an Illinois case general language was used to the effect that the party might deduct; but the pleadings are not set out, nor does it appear on what principle the court so held.

In certain cases cited from the Maine reports the right to deduct was allowed expressly upon the authority of the revised statutes of that State.

The New York and Massachusetts cases cited have no application to this direct question.

There is an Iowa ^case which holds that where the party gave a separate note of $300 to cover usury upon another debt, the defendant, who had himself given and paid the note, might claim to have it deducted.

In other words, notwithstanding the application of the payment made by the parties themselves, the court undertook to make another application, and to treat it precisely .as it would treat a payment made without any specific appropriation ; but that decision seems to be contrary to the whole tenor of the authorities. We think, therefore, that it is not competent for the court, when parties have actually paid money expressly as usury to afterwards make a different .application of the money, and apply it as a payment on account of the debt and the legal interest. So that even in ■connection with the defence of partial payment, this evidence was not admissible. The judgment is,,therefore, .affirmed.

The Chief Justice dissented.  