Central National Bank v. Pratt

Morton, J. The thirtieth section of the act to provide a national currency is as follows: “ Every association may take, receive, reserve and charge on any loan or discount made, or upon any note, bill of exchange or other evidences of debt, interest at the rate allowed by the laws of the state or territory 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 in any such state under this act. And when no rate is fixed by the laws of the state or territory, 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 knowingly taking, receiving, reserving or charging a rate of interest greater than aforesaid, shall be held and adjudged 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. Aid in case a greater rate of interest has been paid, [544] the person or persons paying the same, or their legal representatives, may recover back, in any action of debt, twice the amount of the interest thiis paid from the association taking or receiving the same: Provided that such action is commenced within two years from the time the usurious transaction occurred. But the purchase, discount or sale of a bond 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.” U. S. St. 1864, c. 106, § 30. The first question in this case is as to the true construction of this section. The defendant contends that in the provision that “ the knowingly taking, receiving, reserving or charging a rate of interest greater than aforesaid, shall be held and adjudged a forfeiture of the entire interest,” the word “ aforesaid ” refers only to the rate established by the paragraph immediately preceding, “ when no rate is fixed by the laws of the state or territory.” If this be so, then the act of Congress provides no penalty for taking usurious interest when the rate of interest is fixed by the laws of the state or territory where the bank is located, and the defendant contends that the penalty is to be determined by the laws of the state. On the other hand if the true construction of the statute is, that the penalty therein provided applies uniformly to all banks which take more than a legal rate of interest, it is clear that it supersedes the state law so far as repugnant to it. It cannot be contended that Congress intended to expose banks located in states wherein the rate of interest is fixed by law, to a double penalty; but if the act imposes a uniform penalty upon all banks, this excludes the power of the states to legislate upon the same subject, and annuls or renders inoperative the state laws in their application to banks established under the act. In construing statutes it is to be assumed that the framers intended the meaning which the words used naturally convey to the reader. And this rule determines the construction unless there be found something in the context, or in the nature and relations of the subject matter, which clearly shows a different intention. In the act in question it seems clear to us that, by the natural and obvious meaning of the language, the penalty of a forfeiture of the entire interest applies to all cases where a rate of interest [545] is charged by any bank greater than the rate which the bank is authorized to take by the previous provisions of the section. The expression “ a rate of interest greater than aforesaid ” refers as well to the rate established by adopting the rate allowed by the laws of the states or territories, as to the rate fixed at seven per cent, if no rate is fixed by such laws. There is no rule of grammatical construction which limits its reference to the paragraph immediately preceding. We think, in view of the whole act, that the policy of Congress clearly was to keep within its own control the penalties to be imposed upon the banks for violating the provisions of the act. This view is confirmed by the history of the legislation upon this subject. The original currency act, of February 25, 1863, of which the act of 1864 is a revision and amendment, provided that every association might charge such rate of interest as was the established rate in the state where it was located, and that the charging a greater rate should be held a forfeiture of the debt, thus making the rate conform to the laws of the state, but establishing a fixed and uniform penalty for a violation of the act, and showing that it was the policy of the legislation upon this subject to keep the matter of the penalties to be imposed upon the banks for usurious transactions within the control of Congress. It seems to us therefore, that considering the natural meaning of the language, the context, and the history of legislation, by the only reasonable interpretation of this section, a bank located in a state wherein the rate of interest is fixed by its laws, which takes a greater rate of interest, is subject to the penalty of a forfeiture of the entire interest provided by the act, and is not subject to a greater or different penalty provided by the state laws against usury. The defendant also contends that the provision, thus construed, exceeds the constitutional powers of Congress, and is invalid. It is settled, as a judicial question, that the Constitution confers upon Congress the power to establish a bank or a system of banks, as necessary instrumentalities for executing the powers expressly given it and performing the duties imposed upon it. This was decided by the Supreme Court of the United States in 1819, in the case of M'Culloch v. Maryland, 4 Wheat. 316. Chief Justice Marshall, in delivering the opinion of the com, [546] puts the case upon the ground that a national bank was a con» venient, useful and essential instrument in the prosecution of the fiscal operations of the government. In the later case of Osborn v. United States Bank, 9 Wheat. 788, 859, the question was reconsidered, and the doctrine reaffirmed, that a national bank was an instrument which was necessary and proper for carrying into effect the powers vested in the government ; that Congress had the power to create a bank for national purposes and to endow it with such faculties and functions as were necessary to enable it to effect its object, and that among these is the faculty of lending and dealing in money. The precise question in these cases was as to the right of a state to tax the national bank, but the principles upon which this question was decided are decisive of the case at bar. The power of the government to create a bank is supreme; from its nature it ^includes the power to endow it with all such faculties as are appropriate to accomplish its object. It is clear, as stated in Osborn v. United States Bank, supra, that the faculty of lending and dealing in money is an appropriate and necessary faculty for a bank, and that without it the bank would want the capacity to perform its public functions in the most efficient manner. The rate of interest to be charged for the use of money is a necessary incident of a loan, and the power in Congress to authorize a bank to lend money involves the power to fix the rate of interest and the penalty for taking a greater rate. If a state may fix the rate of interest, it may practically destroy this faculty of the bank. The power to create a bank includes the power to fix the limitations within which it may exercise its functions and faculties, and to determine the causes for which and the manner in which it may be destroyed. This power vested in Congress is inconsistent with a power in any state or territory to affix penalties upon the bank for taking unlawful interest, or for any other violation of the act of Congress. We are of opinion that it was within the constitutional power of Congress to fix the rate of interest which a national bank might take upon a loan of money, and to determine the penalty to be imposed for taking a greater rate; that such power, when exercised by Congress, is exclusive of state legislation ; that the provision of the thirtieth section of the act of Congress we are considering, imposing a penalty foi [547] taking unlawful interest, applies as well to banks established in states where a rate of interest is fixed by law, as to banks in states where no rate is fixed, and therefore that the laws of New York imposing penalties for taking usury do not apply to national banks established within its limits. The Supreme Court of Ohio has taken the same view of the constitutionality and construction of the statute which we entertain. First National Bank of Columbus v. Garlinghouse, 22 Ohio St. 492. We are aware that the Court of Appeals of New York has decided differently upon both points. First National Bank of Whitehall v. Lamb, 50 N. Y. 95. But, notwithstanding the great respect we have for that eminent tribunal, we are unable to concur in the conclusions it reached. Judgment for plaintiff.