Johnson v. National Bank of Gloversville. Co. v. Babcock, 42 N. Y. 613. Hence this indorsement must be treated as personal security within the meaning of the Banking Act. [Omitting an immaterial point.] There was therefore no error, and the judgment must be affirmed, with costs. All concur, except ALLEN and MILLER, JJ., absent. Judgment affirmed. JOHNSON V. NATIONAL BANK OF GLOVERSVILLE. (74 N. Y. 329; 30 Am. Rep. 302.) Usury — discounting business paper. A National bank, discounting business paper at a greater rate than seven per cent is liable to the forfeiture of double the excess over seven per cent imposed by the National Banking Act, although the transaction is not usurious under the State law. A CTION to recover the forfeiture provided by sections 5147, 5198 of the National Banking Act. The point is sufciently indicated in the opinion. The plaintiff had judgment below. H. S. Parkhurst, for appellant. The discount of business paper is not within the prohibition of the usury laws of this State. Cram v. Hendricks, 8 Wend. 569; Repelye v. Anderson, 4 Hill, 472; Cobb v. Titus, 10 N. Y. 198; Nash v. White's Bank, 68 id. 396. A National bank has the same right as natural persons to purchase business paper at any rate of discount that may be agreed upon. Tiffany v. National Bk. of Missouri, 18 Wall. 409; s. c., Thomp. N. B. Cas. 90; Hintermeister v. First N. Bank, 64 N. Y. 216; Thomp. N. B. Cas. 741. C. M. Park, for respondent. RAPALLO, J. The same point which is raised in this case was made in Nash v. White's Bank of Buffalo, 68 N. Y. 396, viz.: Johnson v. National Bank of Gloversville. that the paper discounted being business paper and the transaction not usurious under the general statutes of the State the bank was not liable under the Banking Act for taking a greater rate of discount than seven per cent per annum thereon. We there held that the character of the paper was not material and that the act applied to all discounts as well as to loans. That case arose under the State Banking Act of 1870, chap. 163. The provisions affecting this case contained in the United States Banking Act, are identical with those of the State act, except that the latter specifies seven per cent per annum as the rate of interest which may be taken on every loan or discount made, or upon any note, etc., while the act of Congress says that on any loan or discount interest may be taken at the rate allowed by the laws of the State where the bank is located, and that when no rate is fixed by the laws of the State, the bank may charge a rate not exceeding seven per centum. We think that it was the intent of the act of Congress to limit the rate to be taken on the discount of commercial paper to seven per cent in those States where no rate was fixed by law for the interest of money, and where a rate was fixed, to limit the National banks to such rate. In this State the rate of interest on money is limited to seven per cent per annum, and the act of Congress consequently limits the rate of discount to that rate. It is claimed by the appellate that as the State law fixes no limit to the rate which natural persons may take for the discount or purchase of existing business paper, and the taking of discount at a greater rate than seven per cent on such paper is not usurious under the State law, there is no restriction upon the rate which National banks may take on similar discounts. We cannot so construe the act of Congress. It limits the rate of interest to be taken on loans and discounts. If the rate were limited only on loans there might be some plausibility in the argument that the purchase of business paper at a discount did not fall within the limitation. But it distinctly specifies discounts as well as loans, and it is well known that the principal office of banks of discount is to discount the business paper of their customers. The object of the statute was to limit the rate to be charged on these discounts as well as upon Johnson v. National Bank of Gloversville. loans, and this rate is limited to the rate of interest fixed by the State law, for it says that the National bank may take on any discount interest at the rate allowed by the laws of the State. This, we think, refers to the rate fixed by the State law for interest for the use of money, and not the rate fixed by such law for the discount of commercial paper. If, however, it should be deemed to refer to the rate fixed for discounts, as well as for the use of money, then as there is no rate fixed in this State for such discounts, the provision of the act of Congress, that when no rate is fixed by the laws of the State the banks may take a rate not exceeding seven per cent, would apply. That the framers of the act understood that it applied to the discount of business as well as accommodation paper is apparent from the concluding provision of section 5197, viz.: that 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. If the rate to be charged on the discount, purchase or sale of a bona fide bill of exchange was not restricted at all by the previous provisions as to discounts, this provision was clearly superfluous. It evidently was understood that such paper was embraced in the restrictions, and the language "purchase, discount or sale of a bona fide bill " was employed so as to confine the privilege of including exchange in the sum charged for discount, to bona fide bills, drawn in the regular course of business, and to prevent its being made available to enable the banks, under the pretext of exchange, to charge additional discount on accommodation bills drawn merely for the purpose of raising money. The effect of the act was, we consider, to restrict the rate of discount on all paper, whether accommodation or business paper, to the rate established by the State law for interest for the use of money, and when no such rate was established, to seven per cent per annum. The use of the word "usurious" at the end of section 5198 is not sufficient to govern the construction, and make it appear that the transaction must be usurious under the State law to authorize the recovery back of excessive interest paid. It National Bank of Auburn v. Lewis. is used for brevity, with reference to the preceding prohibitions, and a violation of them may be usury under the act of Congress though not under the State law. The judgment should be affirmed. All concur, except MILLER and EARL, JJ., absent. Judgment affirmed. NATIONAL BANK OF AUBURN V. LEWIS. N. Y. 516; 31 Am. Rep. 484.) Usury-set-off — accommodation indorser. Under the National Bank Act, in an action upon a note usuriously discounted by a National bank, the amount of the usury may be set off by an accommodation indorser, although the note does not carry interest on its face.* A CTION on a promissory note. Defense of usury by an accom modation indorser. The defense was excluded. The opinion sufficiently discloses the points. The plaintiff had judgment below. Rollin Tracy, for appellant. E. H. Avery, for respondent. None of the facts alleged constituted or worked a forfeiture of any of the interest paid by the makers. 12 U. S. Stat. 99, § 30; Hasbrouck v. Paddock, 1 Barb. 635; Hintermister v. First Nat. Bank, 64 N. Y. 215. Usurious interest paid by the makers of a note cannot be recovered back by the indorser, or allowed by way of defense or set-off in an action against him. Nash v. White's Bk. of Buffalo, 67 N. Y. 396; 2 R. S., tit. 3, §§ 3, 4; 12 Stat. 99, § 30; Marine Bank of Buffalo v. Fiske, 9 Hun, 363; 2 R. S. 354, § 18, subd. 1, 2; Kingston Bk. v. Gray, 19 Barb. 459; Lafarge v. Halsey, 4 Abb. 397; Rice v. Milks, 7 Barb. 340; Almy v. Harris, 5 Johns. 175; Stafford v. Ingersoll, 3 Hill, 38. MILLER, J. The first question for consideration upon this appeal * See Barnet v. Muncie Nat. Bk., ante, 18. VOL. II --39 National Bank of Auburn v. Lewis. is whether the answers of the defendant state facts sufficient to establish the defense of usury if proven. [Omitting this consideration.] The facts stated in the answers referred to were amply sufficient, if proven, to make out a corrupt and usurious agreement; and the offer of proof presented the distinct question whether the interest paid was forfeited or could be allowed by way of set-off against or in rebatement of the plaintiff's demand. As to the forfeiture of the interest under the act of Congress, we think it is quite clear that the facts stated by the pleadings establish a case within the meaning and intent of the act, and that the taking and receiving of illegal interest, under the circumstances, is available as a defense, by way of set-off or rebatement, in an action brought on the note claimed to have been usuriously discounted. The provision, section 5198, which declares a forfeiture, is penal in its character, and we concede should be strictly construed, and not held to include any alleged violation that is not clearly within the plain intention of the act. Nor should it be enlarged by implication, but confined within its legitimate scope and object. Having due regard to this rule, we think, a forfeiture of the interest means that it shall be lost to the lender, and that it shall be refunded, if required, when "taken in advance," as is authorized by section 5197, or otherwise received; and such forfeiture may be enforced when a suit is brought upon the note or obligation, and the recovery restricted to the actual sum loaned. Such a construction is placed upon the sections cited in some of the reported cases. In Hintermister v. First National Bank of Chittenango, 64 N. Y. 212, 215, Thomp. N. B. Cas. 741, ALLEN, J., in construing the provisions cited, says: "That this forfeiture attaches and is enforced only in actions brought upon or to enforce the usurious contract. It limits the right of recovery in such actions to the money actually loaned without interest." In the State of Pennsylvania, it is held, in several cases, that when an action is brought by a National bank, upon notes discounted at a usurious rate of interest, when the defense of usury is interposed, the bank can only recover the sum actually loaned or advanced, and the entire interest is forfeited, and may be set off against the demand. Brown |