Evans v. National Bank of Savannah
Decision Date | 08 December 1919 |
Docket Number | No. 67,67 |
Citation | 64 L.Ed. 171,251 U.S. 108,40 S.Ct. 58 |
Parties | EVANS v. NATIONAL BANK OF SAVANNAH |
Court | U.S. Supreme Court |
Mr. Frederick T. Saussy, of Savannah, Ga., for petitioner.
Messrs. Edward S. Elliott and William Garrard, both of Savannah, Ga., for respondent.
The court below rightly construed the pleadings as presenting only one substantial federal question: Did respondent subject itself to the penalties prescribed for taking usury by discounting short-time notes in the ordinary course of business and charging therefor at the rate of eight per centum per annum in advance? And we think it correctly answered that question in the negative.
Respondent is a national bank. Its powers in respect of discounts, whether transactions by it are usurious and the consequent penalties therefor, must be ascertained upon a consideration of the National Bank Act. Act June 3, 1864, c. 106, 13 Stat. 99, 101, 108; R. S. § 5133 et seq. (Comp. St. § 9658); Farmers' & Mechanics' Bank v. Dearing, 91 U. S. 29, 23 L. Ed. 196; Barnet v. National Bank, 98 U. S. 555, 558, 25 L. Ed. 212; Haseltine v. Central Bank of Springfield, 183 U. S. 132, 134, 22 Sup. Ct. 50, 46 L. Ed. 118. Section 8 declares:
'That every association formed pursuant to the provisions of this act * * * may elect and appoint directors, * * * and exercise under this act all such incidental powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt, by receiving deposits. * * *'
Section 30, printed in the margin,1 contains regulations presently important in respect of usury. Among other things, it provides:
'That 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. * * *'
All these provisions were carried into sections 5136, 5197, and 5198, Revised Statutes (Comp. St. §§ 9661, 9758, 9759), set out below.2
The National Bank Act establishes a system of general regulations. It adopts usury laws of the states only in so far as they severally fix the rate of interest. Farmers' & Mechanics' Bank v. Dearing, supra; National Bank v. Johnson, 104 U. S. 271, 26 L. Ed. 742; Haseltine v. Central Bank of Springfield, supra.
The Georgia Code (1910) contains the following:
'Sec. 3436. Beyond Eight Per Cent. Interest Forbidden.
It shall not be lawful for any person, company, or corporation to reserve, charge, or take for any loan or advance of money, or forbearance to enforce the collection of any sum of money, any rate of interest greater than eight per centum per annum, either directly or indirectly by way of commission for advances, discount, exchange, or by any contract or contrivance or device whatever.'
Construing these sections, in Loganville Banking Co. v. Forrester (1915) 143 Ga. 302, 305, 84 S. E. 961, 962 (L. R. A. 1915D, 1195), the Georgia Supreme Court held that charges reserved in advance by a state bank at the highest permitted rate of interest on a loan, whether short or long time, constitute usury, and said:
Earlier opinions by the court express a different view of the same sections. In Mackenzie v. Flannery (1892) 90 Ga. 590, 599, 16 S. E. 710, 713, it is said:
See, also, Union Savings Bank v. Dottenheim, 107 Ga. 606, 614, 34 S. E. 217; McCall v. Herring, 116 Ga. 235, 243, 42 S. E. 468.
Petitioner maintains the loans in question would have been usurious if made in Georgia by an individual or a state bank and that the same rule applies notwithstanding the lender happened to be a national bank. Respondent insists that the federal act permits it to discount short-time notes, reserving interest in advance at the maximum interest rate allowed by the state law—in this instance, 8 per centum.
In Fleckner v. Bank, 8 Wheat. 338, 349, 354 (5 L. Ed. 631) the charter of the Bank of the United States inhibited it from taking interest 'more than at the rate of six per centum' and plaintiff claimed that by deducting interest at the rate of 6 per centum from the amount of a discounted note, the bank received usury. Replying to that point, this court, through Mr. Justice Story, said:
See, also, McCarthy v. First National Bank, 223 U. S. 493, 499, 32 Sup. Ct. 240, 56 L. Ed. 523.
This view has been generally adopted. Many supporting cases are collected in a note to Bank of Newport v. Cook, 60 Ark. 288, 30 S. W. 35, 29 L. R. A. 761, 46 Am. St. Rep. 171, and in 39 Cyclopedia of Law and Procedure, 948 et seq.
'That it is not
usury to discount commercial paper in the ordinary course of business is absolutely settled. This rule of law arose out of custom and does not depend upon statute.' Webb on Usury (1898) § 111.
Associations organized under the National Bank Act are plainly empowered to discount promissory notes in the ordinary course of business. To discount, ex vi termini, implies reservation of interest in advance; and, under the ancient and commonly accepted doctrine, when dealing with short-time paper such a reservation at the highest interest rate allowed by law is not usurious. Recognizing prevailing practice in business and the above stated doctrine concerning usury, we think Congress intended to endow national banks with the power, which banks generally exercise, of discounting notes reserving charges at the highest rate permitted for interest. To carry out this purpose, the National Bank Act provides that associations organized under it may reserve on any discount interest at the rate allowed by the state, and only when there is reservation at a rate greater than the one specified does the transaction become usurious.
The maximum interest rate allowed by the Georgia statute is 8 per centum. That marks the limit which a national bank there located may charge upon discounts; but its right to retain so much arises from federal law. The latter also completely defines what constitutes the taking of usury by a national bank, referring to the state law only to determine the maximum permitted rate.
Affirmed.
I agree that in this case but one federal question is properly presented for our consideration, and that is whether the National Bank of Savannah took usury in violation of sections 5197 and 5198, Rev. Stat. U. S. when, in discounting short-term notes in the ordinary course of business at its banking house in the state of Georgia, it knowingly reserved in advance a discount at the rate of 8 per centum per annum, computed upon the face of such notes, when by the laws of Georgia this was not allowed to be done by state banks of issue.
I agree that this question is to be determined by the provisions of section 5197; but, so far as it depends upon ascertaining the local rate of interest, we must determine it according to the law of the state of Georgia, because the cited sections make that law the criterion. It is settled that although the consequences of acceptance of usurious interest by a national bank and the penalties to be enforced are to be determined by the provisions of the National Banking Act, the ascertainment of the rate of interest allowable is to be according to the state law. Farmers', etc., National Bank v. Dearing, 91 U. S. 29, 32, 23 L. Ed. 196; Union National Bank v. Louisville, &c. Railway, 163 U. S. 325, 331, 16 Sup. Ct....
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