McCollum v. Hamilton National Bank
Headline: Bank cannot deduct doubled usury penalty from its bankruptcy claim; Court reversed state ruling, protecting a trustee’s separate right to recover illegal interest from a national bank.
Holding: The Court held that a bank that knowingly took excessive interest cannot satisfy the doubled usury penalty by deducting it from its claim against the bankrupt estate, and reversed the state court.
- Prevents banks from offsetting usury penalties against bankruptcy claims.
- Lets trustees separately recover doubled illegal interest paid to banks.
Summary
Background
A trustee in bankruptcy for Lookout Planing Mills sued a national bank under the federal statute that punishes knowingly taking too-high interest. The trustee sought the statutory penalty of twice the illegal interest. The bank countered that the bankrupt owed it $25,493.70 and the chancery court applied the trustee’s penalty judgment as a credit against the bank’s claim. The Tennessee Supreme Court approved that set-off and allowed the bank to reduce its claim by the penalty amount.
Reasoning
The central question was whether a bank can satisfy the doubled usury penalty by deducting it from its claim against the bankrupt estate. The Court said no. It explained that the statutory penalty is a forfeiture, not an ordinary contractual debt, and the right to recover vests in the trustee when appointed. Because the penalty must be enforced in a separate action brought exclusively to determine guilt and the fixed punishment is twice the illegal interest, a bank may not erode that statutory sentence by claiming a set-off in bankruptcy. The Court therefore reversed the state court’s ruling.
Real world impact
The decision means trustees (or borrowers) keep a separate, statutory remedy to recover doubled usury payments from national banks, and banks cannot simply deduct that penalty from their bankruptcy claims. The ruling enforces the penalty exactly as the statute prescribes and prevents creditors from avoiding the required payment by informal crediting or deduction.
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