The First National Bank of Columbus v. Garlinghouse.

The construction given to section 30, in Bank of Whitehall v. Lamb, to which we dissent, is in limiting the operation of the clause declaring the forfeiture of States and territories, where, by the local law, no rate of interest is fixed.

The preceding clauses prescribe the rate of interest to govern in all cases. Where the local law prescribes no rate of interest, it is declared that the rate allowed shall be seven per centum. In all other cases, the rate fixed by the local law is adopted by Congress to govern the National banks. It seems to us that, upon a fair construction of the section, the operation of the clause declaring the forfeiture, must be regarded as co-extensive with the authority conferred in the preceding clauses as to exacting interest; and as applying to all loans and discounts made under these clauses, irrespective of the locality in which they were made.

The construction given to the section in the opinion referred to, of the Court of Appeals, seems to have been influenced by the idea that, unless the forfeiting clause was limited to cases where, by the local law, no rate of interest is fixed, the provision would be unconstitutional. But we do not perceive that the question of constitutional power is varied by such limitation. If, in the absence of a State law fixing the rate of interest, Congress has power to prescribe a rate of interest for the banks, and the consequences of taking interest in excess of the rate allowed, the power must be derived from the Constitution of the United States; and, if so derived, its exercise cannot be made dependent on State authority. If, therefore, the power exists in Congress to prescribe for the National banks a rate of interest in any of the States, the power must exist to the same extent in all the States, irrespective of the rates prescribed by State laws.

The question, whether Congress had power to establish the National banks, must be regarded by the judicial tribunals as settled by the repeated decisions of the Supreme Court of the United States. McCulloch v. The State of Maryland, 4 Wheat. 316; Osborn v. United States Bank, 9 id. 738; Veazie v. Fenno, 8 Wall. 533.

In speaking of the faculty of lending and dealing in money, which Congress was authorized to confer upon the United States Bank, Chief Justice MARSHALL uses this language:

"Why is it that Congress can incorporate or create a bank? This question was answered in the case of McCulloch v. The State of Maryland. It is an instrument which is necessary and proper'

The First National Bank of Columbus v. Garlinghouse.

for carrying on the fiscal operations of the government. Can this instrument, on any rational calculation, effect its object unless it be endowed with that faculty of lending and dealing in money which is conferred by its charter? If it can, if it be as competent to the purposes of government without, as with, this faculty there will be much difficulty in sustaining that essential part of the charter. If it cannot, then this faculty is necessary to the legitimate operations of government, and was constitutionally and rightfully engrafted on the institution. It is, in that view of the subject, the vital part of the corporation; it is its soul; and the right to preserve originates in the same principle with the right to preserve the skeleton or body which it animates. The distinction between destroying what is denominated the corporate franchise, and destroying its vivifying principle, is precisely as incapable of being maintained, as a distinction between the right to sentence a human being to death, and a right to sentence him to a total privation of sustenance during life. Deprive a bank of its trade and business, which is its sustenance, and its immortality, if it have that property, will be a very useless attribute.

"This distinction, then, has no real existence. To tax its faculties, its trade and occupation, is to tax the bank itself. To destroy or preserve the one, is to destroy or preserve the other.

"The currency which it (the bank) circulates, by means of its trade with individuals, is believed to make it a more fit instrument for the purpose of government than it could otherwise be; and if this be true, the capacity to carry on this trade is a faculty indispensable to the character and object of the institution." 9 Wheat. 861-4.

In Veazie v. Fenno, supra, in the opinion delivered by the present chief justice, referring to the National banking system, it is said:

"The methods adopted for the supply of this currency were briefly explained in the first part of this opinion. It now consists of coin, of United States notes, and of the notes of the National banks. Both descriptions of notes may be properly described as bills of credit, for both are furnished by the government; both are issued upon the credit of the government; and the government is responsible for the redemption of both; primarily as to the first described, and immediately upon default of the bank as to the second. Having thus, in the exercise of undisputed

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The First National Bank of Columbus v. Garlinghouse. constitutional powers, undertaken to provide a currency for the whole country, it cannot be questioned that Congress may constitutionally secure the benefit of it to the people, by appropriate legislation."

It being thus established that Congress can provide a National currency through the agency of the banks, and authorize them to put it in circulation, it seems to us necessarily to follow that it can prescribe the terms or rate of interest upon which it is to be supplied and kept in circulation.

The power to create implies the power to preserve. The lending of the currency they issue is a vital element in the system of National banks, and the right to take interest is a necessary incident of the power to loan. If the States can, in derogation of the act of Congress, limit the capacity or right of the banks as to the rate of interest they may charge, the States would seem to have plenary power over the whole subject; and could so exercise it, if they saw proper, as to destroy, for all practical purposes, the value of the franchise. The power would seem to extend not only to prescribing the rate of interest, but to include also authority to prescribe the character of the securities to be discounted by the banks, and the terms in all other respects on which they were to exercise the power to loan.

2. The next question is, whether the statute of this State, of March 19, 1850, already referred to, affects the note now in question. We are clearly of opinion that it does not. The third section of the act, which is the only one that can be supposed to have any application, was intended to operate on banking institutions in this State whose authority to discount or purchase notes, bills or other evidences of debt, was subject to the control of the legislation of this State, and was intended to limit such authority. It imposes no penalty. It has no application to banking institutions existing and exercising their power under the authority of Congress.

3. The remaining question is, whether the discounting of the note, at an illegal rate of interest, was such a misuse of the note as discharged the defendants as sureties from liability.

This question was determined in the negative by this court, in Selser v. Brock, 3 Ohio St. 302. It was held in that case, that where a joint and several promissory note in blank is signed by several persons as sureties, and delivered to the principal debtor,

The First National Bank of Columbus v. Garlinghouse.

to be by him filled up and given to the payee, if an illegal rate of interest be agreed upon between the principal debtor and the creditor, and incorporated in the amount for which the note is made payable, the contract is voidable to the extent of the usury only, and creates a binding obligation on the part of the surety for the principal and legal interest, whether the usury be inserted with the knowledge and consent of the surety or not.

Usury, it is said in the opinion, will not avoid a contract as to a surety beyond the extent to which it is vitiated as to the principal. And it may be remarked that, in this State, the effect of usury is not to vitiate the entire contract, but only to the extent of the usury.

It may be inferred from the answer that the note in the present case was filled up at the time it was signed by the sureties. But it can make no difference in principle whether the note is made to cover illegal interest by filling it up, if it is in blank, for a larger amount than the actual loan and lawful interest, or, where it is already written out, by diminishing the amount of the actual loan. The effect is the same in either case.

It is not averred in the answer that there was any agreement between the defendants and Garlinghouse, the principal, that the note was not to be used unless it could be discounted at the legal rate of interest. The averment is that the defendants executed the note for the accommodation of their principal, for the purpose only of having it discounted at that rate. Whether this purpose was communicated to the principal does not appear. In the absence of any express agreement or understanding between the sureties and the principal, of which the creditor had notice, and of any intention to practice a fraud on the sureties, they must be held to have trusted to the judgment and discretion of the principal as to the terms on which the note might be discounted.

Judgment reversed, and cause remanded for further proceedings. DAY, J., did not sit in this case.

Shunk v. The First National Bank of Galion.

SHUNK, plaintiffs in error, v. THE FIRST NATIONAL BANK OF GALION.

National banks

(22 Ohio State, 508.)

Usury - Forfeiture of interest-State banks.

Under section 30 of the National Currency Act (13 Stat. at Large, 108), the taking or charging a rate of interest greater than six per cent per annum, in advance, by a National bank located in Ohio, is a forfeiture of the entire interest which the note or other evidence of debt carries with it, or which has been agreed to be paid thereon; as well the interest accruing after maturity and before judgment, as the interest which accrued before the maturity thereof.

A National bank is limited, in its right to take or charge interest on its loans and discounts, to the rate of interest allowed by the State laws to banks of issue organized under those laws, if the rate so allowed is different from the general rate allowed by the laws of the State.

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RROR to the District Court of Cuyahoga county.

The original judgment was rendered upon a cognovit, in the Court of Common Pleas of Cuyahoga county, on the 23d of November, 1871, in favor of the First National Bank of Galion against Shunk and others, for $2,183.50 and costs, upon a note for $2,000, dated October 1, 1870, payable to said bank, one year after date, with interest at the rate of eight per cent from date. Shunk and others moved to vacate the judgment, for the reason, among others, that usurious interest had been included therein. The plaintiff in the action entered a remittitur, upon the record, for the sum of $165.83, being the interest, at the rate of eight per cent, from the date to the maturity of the note, and two per cent of the interest thereon, from its maturity to the date of the judgment. The court thereupon overruled the motion, and awarded execution on the judgment for $2,017.67, being the principal of the note and six per cent interest thereon from its maturity to the entry of the judgment.

The defendants excepted to the ruling and judgment of the court, and tendered a bill of exceptions, and prosecuted their petition of error in the District Court, which resulted in an affirmance of the judgment below.