Case ID: ohio-st_6/html/527, 528-01.html
Source: Caselaw Access Project
Author: {"author": "Scott, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*David Dunkle v. Joseph O’B. Renick and others.
    Where the charter of a bank gives it power to loan money, buy, sell, and negotiate promissory notes and to discount, upon banking principles and usages, promissory notes and other negotiable paper, with a proviso that said bank shall not take more tban six per cent, per annum in advance, upon its loans and discounts; and such bank receives from its debtor, in. good faith, and in payment of a pre-existing debt, but at a rate of discount .greater than six per cent, per annum, the negotiable promissory note of a third party, the same being bona fide business paper, such transaction is not usurious, nor beyond the corporate capacity of the bank.
    Motion to strike answer from the files. Beserved in the district court of Pickaway county.
    The opinion of the court contains a sufficient statement of the facts in the case.
    
      Hedges & Cradlebaugh, for the plaintiff:
    The pretended answer should be stricken from the files, because m no point of view, allowing every stretch to argument, and even to unwarrantable inference and supposition, does it contain a prima facie defense to the case made by the petition; for
    1. Its pretended defense is based upon an alleged invalidity by way of usury, in the original consideration of the bill of exchange, when between the present parties, such consideration can not be inquired into. Story on Promissory Notes, sec. 191, and the .authorities referred to in note; Brown v. Dairs, 3 Term, 80; Roscoe on Evidence, 167; Chitty, Jr., on Bills, 100; Avery v. Hutchins et al., 4 Mass. 370.
    2. Even allowing such inquiry, no such usurious invalidity appears as is charged. The answer declares that the usury consists in the bank’s purchase of the Williams note, *at what appears [528 to be the market value of that paper. F.or a definition of usury see Bank of Utica v. Wayne, 3 Cow. 714.
    That the sale of a note in good faith may be lawfully made at less than its face, when not to cover a usurious transaction. See Parsons on Contracts, 421, note 13, where all the authorities are collected.
    The indorsement by the person transferring the paper does not make it usurious. 2 Parsons, 424.
    
      Power is given the bank to buy and sell promissory notes and bills of exchange. See Charter, sec. 2, 32 L. L. 344.
    3. But even granting that in the purchase of that commercial paper it was usurious to esteem Mr. Williams’ credit as of less value than gold in hand, yet even then the usurious act does not touch the bill of exchange, and can only affect the purchase which it concerned, that is, the ownership of the Williams note.
    4. The case made by the bill upon which this action is brought— a bill confessedly given to pay a debt justly contracted, and thus-based entirely upon a good and valid consideration — a bill which has been used as money by defendant, Renick, for his personal advantage — still remains unanswered, and therefore the pretended answer should be stricken from the files.
    
      H. H. Swayne, H. H. Hunter, and C. N. Olds, for the defendants,
    
      Mr. Swayne made the following points:
    I. (1.) I claim that the transaction in regard to the Williams note was usurious, and that it tainted and made void the original bill in the hands of the bank. The bank had no capacity to make such a contract. This is clearly so, if the transaction were usurious. 529] 8 Ohio, 228, 287-289; *1 Ohio St. 235, 415; 2 Pet. 298; Charter of the Bank, 32 Ohio L. L. 343, sec. 2.
    (2). But it is said the charter of the bank gave it authority to-take the Williams note upon the terms stated. This requires an examination of the charter.
    The provisions of the charter on this subject will be found in the-second section above referred to.
    It gives the bank power “ to loan -money, and to buy, sell, and negotiate bills of exchange, chocks, promissory notes, and other obligations for the payment of money,” provided that said barjk shall not take more than six per cent, per annum in advance on its loans and discounts.
    (a.) It will be seen by these provisions that the bank may loan money, but that it is limited to the rate of six per cent, per annumin advance.
    (5.) It may discount bills of exchange, promissory notes, etc. Here again it is limited to the rate of six per cent, per annum in advance.
    (c.) Discount is defined to be a “ counting off,” and so reducing the sum to be paid, or the sum called for in the paper to be transferred,
    
      Thus the merchant sells goods for certain prices, and discounts so much for cash payment. The creditor discounts so much for payment by his debtor before the debt is due, or for securing the debt, etc. A.bank “ counts off,” or discounts a given sum from a note or ■bill, which it takes from a customer. Tide Bouvier’s Law Dictionary, title “Discount;” Webster’s Dictionary, title “Discount;” Richardson’s Dictionary, idem.
    (3.) The bank may buy bills of exchange, promissory notes, etc. Here there is no limit to the rate in terms, and there is no upward limit in fact.
    That is, the bank may give for such paper the amount of its face, •and as much more as it chooses.'
    *(a.) An unquestionable sight-bill on New York is always [530 worth, in Ohio, its face, and frequently one or two per cent. more. This the bank may give.
    (6.) A promissory note payable in New York is worth as much, and the bank may give it.
    (c.) But at how much less than their face may the bank take such paper ?
    The moment it “ counts opr ” anything from the face of the paper, it becomes a discounting, as well as a buying (if a buying it be within the meaning of the charter), and the rate of discount must not, in any case, exceed six per cent, per annum in advance. If it do exceed that rate, the transaction is forbidden by the charter, and void. If this were not so, every shaving of paper by a'bank, would be called buying, and not discounting; and there would be no check or restraint upon them. This the law will in nowise permit.
    Here (as to the Williams note) there was clearly a discounting by the bank at more than the rate of six per cent, per annum in advance — whether it amounted to so much as has been suggested, is immaterial. The transaction was, in all respects, an ordinary discount. The answer avers it to have been a discount.
    
    II. But, granting these views’to be correct, it is insisted that they .affect only the transaction as to the note. We reply:
    (1.) That the answer avers that it was all one transaction.
    (2.) The very texture of the affair shows that it was so.
    (3.) If authorities be desired on the subject, see Schroepel v. Corning, 2 Selden, 167; Idem. 10 Barbour, 576, and the cases therein referred to.
    
      In the cases first above referred to in this brief, it is affirmed and; 581] reaffirmed that securities taken under such ^circumstances, by a bank are not merely voidable, but void for “ want of capacity on the part of the bank to make such a contract.”
    III. If the original bill were void, this bill, which was given in renewal of it, is equally so. Powell v. Waters, 8 Conn. 692, 696.
    IY. It is insisted that if this bill were void in the hands of the bank, it may, nevertheless, be enforced by the plaintiff, as the indorser thereof, by virtue of the act of January 12, 1848. Swan’s Stat. 481.
    We reply:
    (1.) That statute was intended to apply only to individuals, and: not to banks.
    (2.) Where a security is made void by statute, it is void in the hands of every holder, whether taken with or without notice. This-is so in all cases, whether the statute expressly or by implication makes the instrument void. Story, Prom. Notes, sec. 192, vide 1; 8 Price, 281; 5 Denio, 240; 2 Selden, 167; 16 Ala. 398; 2 Barn. & Ald. 588; 8 Conn. 678, 692, 696; 2 Sand. Sup. Ct. 85; 2 Pet. 43; 4 Idem. 205, 228; 14 Ala. 679; Chitty on Bills, 98, 108, 109; 8 Ohio, 263.
    This bill was utterly void in the hands of the bank.
    Indorsing it could not give it new validity, and make that valid which was before void. Such was not intended to be the effect of the statute.
    It was intended to apply only to paper taken and transferred by individuals, which never was held to be void in Ohio for usury, but only subject to a deduction to the extent of the usury. It would be contrary to the policy of all our legislation to give this statute' the construction contended for. It would enable a bank to shave on such terms as it might think proper to resort to, and then to realize the full fruits of its covin by transferring the paper, and 582] *with no responsibility on its part, but a liability to be sued for the excess taken over the lawful rate of interest.
    The contract was void, for want of power in the bank to make it. In this respect it is like any other contract of a corporation, which it has no power to make. It is void, and can not be made valid by a transfer. Reserving and retaining usurious interest has the same effect as taking it. 2 Peters, 538; 3 Halsted, 233; 2 Denio, 157.
    
      The rights of the bank in respect of the original indebtedness of Renick are not necessary to be considered in this case-.
   Scott, J.

The plaintiff in this case sues as first indorsee of a bill of exchange, alleging indorsement before maturity, for full value, and protest for non-payment at maturity. The bill is set forth as follows:

“ $3,400. Circleville, O., September 2,1854.
“ One hundred days after date, or whenever thereafter presented at the office of Sturges & Ellis, New York, pay to the order of H. K. Lawrence, cashier,/thirty^-four hundred dollars for value received, first of same tenor and date being unpaid; acceptance waived.
“ J. O’B. Renick,
“ John Cochran,
“ J. C. Thompson.
“ To A. G-. Allen, Esq., New York.”

To the case thus made, an answer is put in by defendants, stating that on the bill in suit Renick is principal, and Cochran and Thompson sureties, and denying the liability of defendants, by reason of the following facts, which are set up as a bar to the action: That on May 27, 1854, Renick was indebted to the Bank of Circleville (of which H. K. Lawrence, the payee of the bill, was cashier), in the sum of $16,322.15, and that he agreed to pay and did pay this debt in the following manner:

*1. By'bill of exchange on New York for $3,558, at four [533 months, drawn by Renick as principal, and the other defendants as sureties, which was received by the bank, for.......................................................... $3,289 20

2. By the transfer and indorsement to the bank of the promissory note of one Edwin Williams, for $10,000, due March 1, 1855, taken by the bank for............... 8,938 27

3. By check on Renick’s own deposits in that bank...... 4,094 68

Making in the aggregate......................... $16,322 15

The bill on which suit is now brought was a renewal by the same parties of the bill above mentioned, which failed to be paid at maturity.

The answer further avers that the transfer of the Williams note, the giving of said bill on New York, and the cash payment by Eenick’s check, were dependent parts of the same transaction, done in pursuance of one and the same agreement; that the bank’s receiving said note at $8,938.27, when its face called for $10,000, March 1, 1855, was a discounting of said note at a rate of more than six per cent., and was therefore usurious; that the bank had no corporate power to make such a contract, and that as a consequence, the bill of exchange, which was drawn at the same time, and by virtue of the same agreement, was absolutely void in the hands of the bank and of the plaintiff.

A motion was made in the district court to strike this answer from the files, for the reason that it does not set forth facts sufficient to constitute a defense to the action; and this motion, by reservation, comes now before us.

It is insisted by counsel for the defense that the facts stated in the answer show the bill upon which the plaintiff sues to be abso534] lutely void, because the transaction in regard *to the Williams note was usurious; that this tainted and made void the original bill in the hailds of the bank, which had no power .to make such a contract; that the bill now in suit, being but a renewal of the original bill, is equally void, and that being thus void, it could not become valid by assignment to the plaintiff.

It could scarcely be necessary to inquire into the usurious character of the contract alleged in the answer, except for the bearing which the result of that inquiry may have on the question of corporate capacity in the bank. For, admitting that capacity, the plaintiff, as the bona fide indorsee of negotiable paper purchased before due, without notice of the usury, could not be affected thereby. Swan’s Stat. 481. The rule of the common law is the same, unless the usurious note is made void by statute.

The provisions of the charter of the bank which bear upon the question of its corporate capacity to make the contract, are to be found in the second section of the act by which it was incorporated, and read as follows:

“It shall be lawful for said bank to loan money, buy, sell, and negotiate bills of exchange, checks,-and promissory notes, and to discount, upon- banking principles and usages, bills of exchange, post-notes, promissory notes, and other negotiable paper or obligations, for the payment of any sum or sums, of money certain, . . . Provided, that said bank shall not take more than six per cent, per annum in advance on its loans and discounts.” 32 Ohio L. L. 343.

It is claimed in argument that the Williams note was discounted within the meaning of this section, and being so discounted at a rate exceeding that authorized by its charter, the contract by which such unauthorized discount was made, was wholly void.

It is true that the term “ discount ’ ’ may, in a general *sense, [535 be understood as a counting .off, an allowance, or deduction made from a gross sum on any account whatever. But in the section under consideration, this term is evidently used in a more limited and technical sense. It is applied in the proviso to transactions in which the bank may take interest in advance. The power to discount promissory notes, upon banking principles and usages, is given in terms as distinct from, and additional to the qiower to buy, sell, and negotiate promissory notes, which is also given in terms, and is unqualified. The restriction of the proviso was, doubtless, intended to define and prohibit usury by the bank, and must, as we think, be construed as applying only to transactions in the nature of a loan. Usury is defined by Parsons, in his Law of Contracts, to be “the taking of more interest for the use of money than the law allows.” And Bouvier, in his Law Dictionary, under the title •“Usury,” says, “To constitute a usurious contract, the following are the requisites: 1. A loan, express or implied,” etc.

It is well settled that the' bona fide sale of a note, bond, or other security at a greater discount than the limit of legal interest is not, per se, a loan, and the purchaser is not liable to the imputation of usury, although the note may be indorsed by the •seller, and he remains responsible. 7 Pet. S. C. 103; 1 Clarke’s Ch. 38; 2 Parsons on Contracts, 421.

In the case presented in the answer under consideration, the Williams note was transferred by Renick, and received by the bank in payment of a pre-existing bona fide debt owing by Renick to the bank; the note itself was business paper, valid in its inception ; 'it was a marketable commodity; and whatever may have been its value as ascertained by the agreement of the parties, usury can not be predicated of the transaction.

*There was neither a loan nor the continuance of an exist- [536 ing debt, but simply a payment and extinguishment of a previous indebtedness.

The contract does not therefore come within the operation of the proviso contained in the charter, as a loan or a discount.

Had the sale been merely colorable to disguise a loan, the law would be otherwise. But the answer charges nothing of that kind. It represents the transaction as a payment by Renick, and íx purchase by the bank. We think the motion of the plaintiff to strike the answer from the files must prevail.

Bartley, C. J., and Swan, Brinkerhoee, and Bowen, JJ., concurred.