Central Nat'l Bank v. Pratt

• Decision Date: 10 September 1874
• Citation: 115 Mass. 539
• Parties: Central National Bank v. Joseph Pratt
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

115 Mass. 539

Central National Bank v. Joseph Pratt

Supreme Court of Massachusetts

September 10, 1874

[Syllabus Material] [Syllabus Material]

Suffolk. Contract by a national bank organized under the national banking acts of the United States, and having its place of business in the city of New York, against the indorser of a bill of exchange drawn by Joseph M. Strong of New York upon Matt Ellis of Boston, payable to the order of the defendant, and by him indorsed to the plaintiff, and accepted by Ellis. Trial in the Superior Court, before Devens, J., who reserved the case for the consideration of this court on the following report:

"The bill of exchange was discounted by the plaintiff in New York on the day of its date, upon presentation for discount by said Strong. It was agreed by the defendant at the trial that the plaintiff was entitled to recover, unless the plaintiff took or reserved a greater rate of interest for discounting said bill than seven per centum per annum, and unless the bill of exchange was void by virtue of the laws of the State of New York against usury. The defendant's answer set up that in discounting the bill of exchange, the plaintiff lent to the drawer a sum of money for which it received usurious interest contrary to the laws of New York, and that by so doing the bill of exchange was void.

"The plaintiff contended that the laws of New York against usury were controlled by the national banking acts, and that the bill of exchange sued upon would not be void even if usurious interest had been reserved or taken by the plaintiff in discounting said bill; and this question is reserved, at the request of both parties, for determination by the Supreme Judicial Court. If the court shall hold that such usury does not render the bill of exchange void, then judgment is to be rendered for the plaintiff; if such usury does render the bill of exchange void, the case is to stand for trial in the Superior Court."

Judgment for plaintiff.

D. E. Ware & J. T. Morse, Jr., for the plaintiff.

E Avery & R. C. Lincoln, for the defendant. 1. The question whether the effect of usury is a forfeiture of the whole debt or bill, under the law of the State of New York, or of the interest merely, under United States law, depends upon the construction and operation of the U. S. St. of 1864, c. 106, § 30. It is contended for the defendant that the consistent and correct construction of this section leaves the case to be governed by the New York usury laws; and further, that if its operation were such as to supersede the state law, it would be unconstitutional. This is the ground taken by the New York Court of Appeals, in a case like the present one. First National Bank of Whitehall v. Lamb, 50 N.Y. 95. See also In re Wild, 11 Blatchf. 243. But, independently of that case, the question may admit of a further consideration. It is submitted that any provision of the banking act which is not necessary, i. e. conducive or useful to the end proposed by the act, especially if in conflict with a state law upon the same subject, is unconstitutional, and that the provision concerning forfeiture, if connected with the first paragraph of § 30, is, so far, unnecessary and incongruous. That construction, therefore, which avoids such result (as the structure of the section admits equally of two interpretations) may properly be considered the better expression of the intention of the framers. It is, then, contended for the defendant, that the enactment of a forfeiture and penalty for usurious loans and discounts in all the states, is unnecessary. It is manifest from the general tenor of the act, and from § 30 itself, that the sole purpose therein was to establish banks of issue, to provide for the circulation of a national currency, and to legislate for the other functions of a bank, discount and deposit, only so far as such legislation was "necessary and proper" to carry out that sole purpose. The banks must be protected in the lawful exercise of their powers; but is it therefore necessary and proper for carrying into execution these powers that Congress should prescribe punishment for an exercise of such powers, arising in purely private dealings, which may be unlawful merely because so ordained by state laws, unless such illegal acts hinder the usefulness of the banks in accomplishing the purpose for which they were established? It is submitted that the ordaining a rate of interest on loans and discounts, and, at all events, a punishment for taking a greater than the fixed rate, is not necessary or appropriate to promote the sole purpose for which these national banks were established,--the circulation of a national currency. In some states there are no usury laws, and yet the usefulness of these banks has not been impaired. Usury laws are made solely for the benefit and protection of trade and the community, and not of the banks. And inasmuch as Congress evidently favored the existence of usury laws, the forfeiture for which the national banking act has provided may well be explained as enacted for the purpose of protecting the public from any oppressive dealings of these United States agents in those states where there are no usury laws. In other states, Congress has expressly left this protection to be afforded by the legislatures of the states themselves. A further explanation of this provision with regard to forfeiture may be that, since without it a note discounted by a bank, at more than seven per cent., in a state where no rate is fixed, would be void, under the common law, its purpose is also to modify the common law in those states where it has not already been changed by state enactment.

It is also contended that this provision, if made to apply to usurious loans and discounts in all the states, is, so far, incongruous. The utility of usury laws is a matter which each state has determined for itself; and if it does not militate against the purpose of the creation of these national banks, that state law should determine the rate of interest on their loans and discounts, how can it operate against this purpose, that state law should determine the penalty or forfeiture? Certainly, the power that establishes the maximum rate of interest which can legally be charged or taken, is the proper power to ordain the penalty or forfeiture which is to compel observance of the law. Therefore it is urged, that Congress is not to be supposed to have meditated or done so incongruous a thing, as to impose a penalty for the violation of a state law. The penalty of the section is not cumulative, there is no concurrent power in this matter between the States and the United States; and the first paragraph of the section is declaratory merely, and not a reenactment of the various state laws upon the subject of interest. The last amendment agreed to in the House of Representatives was, that "each bank should be bound by the state law regulating interest in the state where it should be located;" and such is manifestly the meaning and design of the section in its present form.

2. If any enactment of Congress, under an implied power, being in direct conflict with the laws and unsurrendered powers of the states, is not necessary or conducive to the end proposed the state law is not to yield, but the enactment is unjustifiable and unconstitutional. In National Bank v. Commonwealth, 9 Wall. 353, 362, the court say of the banks of the United States: "They are subject to the laws of the state, and are governed in their daily course of business far more by the laws of the state than of the nation. All their contracts are governed and construed by state laws. Their acquisition and transfer of property, their right to collect their debts, and their liability to be sued for debts are all based upon state law. It is only when the state law incapacitates the banks from discharging their duties to the government that it becomes unconstitutional." It would certainly seem, then, that any qualification of that right should be...