National Bank of Gloversville v. Johnson. It is urged that this statute is itself evidence that the bank was dissolved as a corporation by the proceedings in liquidation, and that the pendency of the bill authorized by it was a bar to any further proceeding in the present suit. We see nothing in the act of 1876 inconsistent with the continued existence of the bank as a corporation for the purposes of liquidation. Indeed, it seems to confirm the idea that for the purpose of being sued, in order judicially to determine the question of disputed liability, it continues to exist, and the remedy against the shareholders is added as a means of execution, in case the cor porate assets have in the meantime been otherwise applied or shown to have been insufficient. It is a cumulative remedy and against other persons, and cannot be considered as an objection to the rendition of the present decree. Decree affirmed. NATIONAL BANK OF GLOVERSVILLE V. JOHNSON.* (104 U. S. 271.) Usury-action to recover conflict of laws. One who procures the discount by a National bank of promissory notes of others, held by him, he indorsing the same, at an unlawful rate of interest, may maintain an action to recover back from the bank twice the amount of such interest, under the provisions of the United States Revised Statutes, section 5198, giving the right to such an action, and this notwithstanding the transaction would not, under the law of the State where the bank is located, be usurious if between private persons. N error to the Supreme Court of the State of New York. The action was brought by James H. Johnson to recover penalties for the taking of excessive interest. The opinion states the case. MATTHEWS, J. The original action was brought in the Supreme Court of the State of New York by the defendant in error to recover of the plaintiff in error, a National bank, penalties alleged to have been incurred by it under sections 5197 and 5198 of the *Affirming, Johnson v. National Bank of Gloversville, 2 Nat. Bank Cas. 302. National Bank of Gloversville v. Johnson. Revised Statutes of the United States. follows: These sections are as "SEC. 5197. Any association may take, receive, reserve and charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest at the rate allowed by the laws of the State, Territory or district where the bank is located, and no more, except that where by the laws of any State a different rate is limited for banks of issue organized under State laws, the rate so limited shall be allowed for associations organized or exist. ing in any such State under this title. When no rate is fixed by the laws of the State or Territory or district, the bank may take, receive, reserve or charge a rate not exceeding seven per centum, and such interest may be taken in advance, reckoning the days for which the note, bill or other evidence of debt has to run. And the purchase, discount or sale of a bona fide bill of exchange, payable at another place than the place of such purchase, discount or sale, at not more than the current rate of exchange for sight-drafts, in addition to the interest, shall not be considered as taking or receiving a greater rate of interest. SEC. 5198. The taking, receiving, reserving or charging a rate of interest greater than is allowed by the preceding section, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives may recover back, in an action in the nature of an action of debt, twice the amount of the interest thus paid from the association taking or receiving the same; provided such action is commenced within two years from the time the usurious transaction occurred. That suits, actions and proceedings against any association under this title may be had in any Circuit, District or Territorial court of the United States, held within the district in which such association may be established, or in any State, county or municipal court in the county or city in which said association is located, having jurisdiction in similar cases." The facts as stated in the record are undisputed. The defendant below, a National banking association, doing business at Gloversville, in the State of New York, from November 10, 1874, to February 7, 1876, discounted for the plaintiff commercial paper and promissory notes amounting to $158,003. All such discounts were made at a uniform rate of interest, being twelve per cent per annum. The whole amount of interest paid thereon by the plaintiff below was $6,564.88, being an excess beyond the rate allowed by the general laws of the State of $2,735.36. This interest was knowingly charged and received by the bank. The most of the paper discounted was business paper, that is, negotiable promissory notes, held and owned by the plaintiff below, and on National Bank of Gloversville v. Johnson. which he could have maintained actions against the prior parties. A small portion was accommodation paper, but not known by the bank to be such, and there was nothing upon its face to indicate that to be its character. All the paper discounted was paid to the bank at maturity or before the present action was brought. At the times when the notes were discounted they were indorsed by the plaintiff below, and the proceeds of the notes discounted were entered to his credit in his bank account. Upon these facts judgment was rendered against the defendant below for $5,470.72, twice the amount of the interest in excess of seven per cent per annum, to reverse which this writ of error is prosecuted. It is contended on behalf of the plaintiff in error that the sections of the Revised Statutes in question were intended only to prevent National banks from violating the usury laws of the State in which they were severally organized and established; and that while by the law of New York it is usurious to loan or advance money to a party upon his own paper, or upon paper made for his accommodation, at a greater rate of interest or discount than seven per cent per annum, yet it is not usurious or illegal in that State for natural persons to acquire business paper, that is, paper valid in the hands of the holder, so that he might maintain an action thereon against the prior parties, at any rate of discount agreed upon between the parties to the negotiation, without limit in excess of seven per cent per annum. It is assigned for error that the Court of Appeals negatived this proposition. The rate of interest upon the loan or forbearance of money, established and in force by the laws of New York, is seven per cent per annum. Part II, chap. 4, tit. III, 3 R. S. (N. Y.) 72, § 1. By section 5 of the same act it is provided that all bonds, bills, notes, assurances, conveyances, all other contracts or securities whatever (except bottomry and respondentia bonds and contracts), etc., whereupon or whereby there shall be reserved or taken or secured, or agreed to be reserved or taken, any greater sum or greater value for the loan or forbearance of money, etc., than is above prescribed, shall be void. It is and long has been the law in New York, as decided in National Bank of Gloversville v. Johnson. Cram v. Hendricks, 7 Wend. 569, that "the transfer by the payee of a valid available note, upon which when due he might have maintained an action against the maker, and which he parts with at a discount beyond the legal rate of interest, is not a usurious transaction, although the payee on such transfer indorses the note; and on non-payment by the maker, the indorsee may maintain an action against the indorser; but the sum which the indorsee in such case is entitled to recover of the indorser is the amount of the advance made by him, together with the interest thereon at the legal rate; while in an action against the maker, the indorsee is entitled to the whole amount of the note." This proceeds upon the idea that the original note is founded upon a valid consideration, free from usury in its inception; and that the indorsement and delivery contain two contracts; one executed, which transferred the title, as upon a sale, as if indorsed without recourse; the other executory, upon which the indorser is liable to the indorsee, to pay upon the default of the maker, after demand and due notice thereof; although in the latter case it will be observed the recovery is limited by the New York decisions to the actual consideration paid, with lawful interest thereon. The transaction is treated as a sale of the note, and no limits are fixed by law upon the price of the article sold; but so far as the liability of the vendor is concerned, in order to avoid the consequences of treating the advance money, which constituted the consideration, as a loan, it is limited to a return thereof, with lawful interest. The question we have now to determine is whether, in transactions of this description, in which a National banking association is the transferee, the same view can be taken of the relations and rights of the parties, in the present case the Court of Appeals having decided that the same rule does not apply. 74 N. Y. 329. The very point had been previously raised and decided by that court in Nash v. White's Bank of Buffalo, 68 N. Y. 396, which was an action to recover penalties under the State law of 1870, in reference to banking institutions, for discounting paper at a greater rate of interest than seven per cent per annum. The provisions of that act, being chapter 163, Laws of New York of 1870, Nationar Bank of Gloversville v. Johnson. correspond almost exactly with those of sections 5197, 5198 of Revised Statutes of the United States, now under consideration, it being the declared intent of the statute to place the banking associations of the State on an equality, in the particulars specified, with National banks under the sections referred to. It was held that the fact that the paper discounted was business paper, purchased by the defendant, did not constitute a defense, for the question was not whether it was an illegal transaction under the general statutes against usury, but whether it was within the terms of the prohibition, which forbade banks from charging on any discount a rate greater than seven per cent per annum. And in Atlantic State Bank of Brooklyn v. Savery, 82 N. Y. 291, it was decided that the purchase of a promissory note for a sum less than its face, is a discount thereof within the meaning of the provision of the Banking Act of that State (§ 18, chap. 260, Laws of 1838), which authorizes associations organized under it to discount bills and notes. And in support of that definition of the terms, the court cites the authority of MacLeod on Banking, 43, where the author says: "The difference between the price of the debt and the amount of the debt is called discount," and "to buy or purchase a debt is always in commerce termed to discount it." In Fleckner v. Bank of United States, 8 Wheat. 350, Mr. Justice STORY said: "Nothing can be clearer than that by the language of the commercial world and the settled practice of banks, a discount by a bank means, ex vi termini, a deduction or drawback made upon its advances or loans of money, upon negotiable paper or other evidences of debt, payable at a future day, which are transferred to the bank," and added, that if the transaction could properly be called a sale, "it is a purchase by way of discount." Discount, as we have seen, is the difference between the price and the amount of the debt, the evidence of which is transferred, and that difference represents interest charged, being at some rate, according to which the price paid, if invested until the maturity. of the debt, will just produce its amount. And the advance therefore upon every note discounted, without reference to its character as business or accommodation paper, is properly denominated a loan, for interest is predicable only of loans, being the price paid for the use of money. |