Smith v. The Exchange Bank of Pittsburg.

Whether the rebatement made from the plaintiff's claim of twice the amount of usurious interest paid thereon within two years next preceding was properly allowed is a question not now before us.

It is also contended that, under the statute law of this State, if not the entire interest, at least the excess above the rate allowed by law, paid by the defendants below, should have been held as payments made on account of the principal.

Conceding that National banks are in many respects subject to the laws of the States where situate, and especially to their remedial laws, it is a good answer to the above claim to say that, in relation to usury and the rights and liabilities of the parties participating in the offense, Congress has assumed to make provision, and the provision so made must be regarded as exclusive. In this respect the act of Congress prescribes the only rule, and over it the legislative power of the State has no control.

The point is also made that a person entitled to recover back twice the amount of usurious interest paid is entitled to interest thereon from the date of payment until the time of recovery. On this point also we differ with counsel. The amount thus recoverable is in the nature of a penalty, and the statute must be strictly construed. Interest on such claim, before judgment, not being expressly given by the statute, cannot be allowed.

Motion overruled.

WELCH, WHITE, REX and GILMORE, JJ., concurred.

SMITH V. THE EXCHANGE BANK OF PITTSBURG.

(26 Ohio State, 141.)

Purchase of notes by National banks — Usury-Who entitled to forfeiture of interest.

In the business of banking, the purchasing and discounting of paper is only a mode of loaning money; and a National bank is authorized thus to acquire notes and bills which are perfect and available in the hands of the borrower, as well as his own paper made directly to the bank.*

Where a note or bill is an existing security in the hands of the holder, the

*See First National Bank v. Pierson, ante, p. 637, and note

Smith v. The Exchange Bank of Pittsburg.

usury exacted by the bank in its acquisition is not available, by way of defense, to the antecedent parties. Their rights and liabilities are not affected by the usurious character of a transaction in which they did not participate.

The party with whom the bank had the usurious transaction is the party to whom, under the National Banking Act, the forfeiture of interest is to be adjudged; and who, in case the interest has been paid, is authorized to recover back twice the amount.

M°

OTION for leave to file a petition in error to reverse the judgment of the District Court of Franklin county.

On the 17th day of October, 1874, the defendant in error commenced an action in the Court of Common Pleas of Franklin county, against Benjamin E. Smith, William Dennison, James M. McKee, Francis Collins, D. T. Thompson, A. J. Ware and C. R. Griggs, upon a bill of exchange, of which the following is a copy, with the indorsements thereon:

"$6,000.

COLUMBUS, OHIO, March 5, 1874.

Five months after date pay to the order of Harbaugh, Matthias & Owens, six thousand dollars, at St. Nicholas National Bank, New York city, value received, and charge to account of B. E. Smith. To Thompson, Griggs & Co. Columbus, Ohio. Accepted: Thompson, Griggs & Co."

Indorsed: "Pay order of Exchange National Bank of Pittsburgh. Harbaugh, Matthias & Owens,"

The petition in the action alleges, among other facts, that the bill was accepted in writing by said Thompson, Griggs & Co., on the 4th day of April, 1874, and was on that day indorsed and delivered for value to the defendant in error; that said Smith is liable on the bill as drawer, and all the defendants are liable thereon as acceptors; that on the day the bill became due no part thereof was paid, although then presented to said Thompson, Griggs & Co., at said St. Nicholas National Bank, in New York, for payment, and protested of all which said Smith had then due notice; that said St. Nicholas National Bank is situate in the State of New York, and the legal rate of interest therein is seven per centum per annum; that there is due from the defendants to the plaintiff the sum of $6,000, with interest thereon, at the rate of seven per centum per annum, from August 8, 1874, and $2.49 cost of protest; and for all which the plaintiff prayed judgment.

On the 18th of November, 1874, two of the defendants—namely, Smith and Dennison - filed their answer. It sets up three grounds of defense:

Smith v. The Exchange Bank of Pittsburg.

1. That the plaintiff is not entitled to recover interest upon the amount of said bill at the rate of seven per cent per annum from August 8, 1874, on which day the bill became payable.

2. That on the 4th of April, 1874, the plaintiff in the action purchased said bill of said Harbaugh, Matthias & Owens, the payees thereof; and that, by the provisions of the act of Congress to provide a National currency, the plaintiff had no authority to purchase said bill, and therefore has no legal right to maintain the action.

3. That the plaintiff has its place of business in the city of Pittsburg, Pennsylvania; that by the law of that State the rate of interest is six per cent per annum, and by said act of Congress plaintiff is only entitled to charge interest at that rate upon its loans, discounts, etc.; but that in the purchase of said bill the plaintiff, as the defendants are informed and believe, and from such belief aver, charged and received interest at the rate of nine per cent per annum, and that, such act was illegal, usurious and void, and the plaintiff has no legal right to maintain said action on said bill.

On the 1st of December, 1874, the plaintiff filed a demurrer to each ground of defense.

Afterward-to wit, December 21, 1874-the plaintiff moved the court to hear the issues of law raised by said demurrers, out of the order in which the cause had been placed on the trial docket Smith and Dennison resisted the motion, and filed a paper styled an answer to the motion, in which they claimed that their legal counsel had not "prepared properly for the hearing and argument of said issues of law" at the term of the court then being holden, and asserted that the court could not legally order the cause to be heard on the demurrers until it was regularly reached on the docket. The motion was sustained, and the cause heard upon said demurrers, and taken under advisement by the court.

At the January term, 1875, the demurrers were sustained. Thereupon, said Smith not asking leave to amend his answer to the petition, nor to plead further, the plaintiff submitted the cause to the court; whereupon the court found that said Smith, as drawer of said bill of exchange, owed to the plaintiff the sum of $6,221.82, as alleged by the plaintiff, and that the action was one in which a several judgment could properly be rendered against said Smith as drawer of said bill, leaving the action to proceed against the parties defendant charged in the petition as acceptors; and a judg

Smith v. The Exchange Bank of Pittsburg.

ment was accordingly rendered against said Smith for said sum, and an order entered that the action proceed against the defendants charged in said petition as acceptors of said bill.

Smith afterward filed a petition in error in the District Court to reverse said judgment. Before the cause came on to be heard, the plaintiff below, by leave of the court, remitted from said judgment the sum of $32, as of the date of rendition thereof, being the amount of interest included therein over and above the rate of six per cent per annum, computed on the amount of said bill of exchange after its maturity, and leaving due on said judgment, at the rendition thereof, the sum of $6,189.82. And thereupon the cause was heard, and the court adjudged that said judgment, deducting said sum of $32 remitted as aforesaid, be affirmed, but at the costs of the defendant in error.

The entry of the remittitur of all interest over and above six per centum per annum, from the maturity of the bill to the rendition of the judgment, put an end to the question made by the demurrer to the first defense.

Leave is now asked to file a petition in error in this court, to reverse the judgment of affirmance of the District Court, and also the judgment of the Court of Common Pleas.

L. English and J. W. Baldwin, for the motion.

We will briefly consider the several questions raised in argument. [The court here considered a question of practice.]

The objections to the action of the court in sustaining the demurrers are in substance:

1. That the bark, the plaintiff below, had not capacity to acquire title to the bill sued on.

2. That if it had such capacity, the usurious transaction by which it acquired the bill from the holders, Harbaugh, Matthias & Owens, disables it from collecting any interest from the antecedent parties.

As to the first of these objections, the answer in the first defense sets up that the bank purchased the bill of the holders, the payees. It does not state that the purchase was made at a usurious rate of discount; but it avers that under the act of Congress to provide a

Smith v. The Exchange Bank of Pittsburg.

National currency, under which the act was incorporated, it had no authority to purchase the bill.

It seems to be the idea of counsel making the objection, that negotiable paper, perfect and available in the hands of the holder, is not the subject of purchase by a National bank at any rate of discount. This view, we think, entirely erroneous. We see nothing in the act of Congress nor in reason why a borrower may not obtain the discount by a bank of the existing notes and bills of others of which he is a holder, as well as of his own paper, made directly to the bank.

It is true that, as between natural persons, the purchase of such paper, when made in good faith, and not as a disguise for a ioan, is not subject to the usury laws; but it is otherwise as to a bank. In the business of banking, the purchasing and discounting of paper is only "a mode of loaning money." Niagara County Bank v. Baker et al., 15 Ohio St. 69; Fleckner v. The Bank of the United States, 8 Wheat. 333.

As to the second objection-namely, that the usury exacted by the bank from Harbaugh, Matthias & Owens, in the acquisition of the paper, disables it from recovering any interest from the antecedent parties.

The general rule is, that where a bill or note is valid, as between the drawer or maker and the payee, so that the latter can maintain an action upon it against the former, it is valid in the hands of an indorsee, who has discounted it at a usurious rate of interest, and he may recover the full amount of the bill or note against the maker or acceptor. Munn v. Commission Company, 15 Johns.

44.

The question is, whether this principle has been modified by the act of Congress now in question.

Section 8 of the act defines the powers of The National banks. It declares, among other things, that they shall be authorized "to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt."

Section 30 prescribes limitations upon these powers, and imposes penalties upon the banks for the transgression of such limitations. The section declares "that every association may take, receive, reserve and charge on any loan or discount made, or upon any note,