Johnson v. . National Bank of Gloversville

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., that the paper discounted being business paper and the transaction not usurious under the general statutes of the State, the hank 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' *331 United States banking act, are identical with those pf 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 appellant 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 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 *332 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 bo 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 where 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 is used for brevity, with reference to the preceding prohibitions, and a violation of them *333 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.