Case Name: Benjamin E. Smith v. The Exchange Bank of Pittsburg
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1875-12
Citations: 26 Ohio St. 141
Docket Number: 
Parties: Benjamin E. Smith v. The Exchange Bank of Pittsburg.
Judges: McIlvaine, C. J., Welch, Rex, and Gilmore, JJ., eon•curred.
Reporter: Ohio State Reports, New Service
Volume: 26
Pages: 141–153

Head Matter:
Benjamin E. Smith v. The Exchange Bank of Pittsburg.
1. Under section 307 of the code, cases on demurrer may, in the discretion of the court, be heard out of the order in which they stand on the trial docket.
2. In the business of banking, the purchasing and discounting of paper is only a mode of loaning money; and a national bank is authorized thus to acquire notes and bills which are perfect and available in the hands of the borrower, as well as his own paper made directly to the bank.
3. Where a note or bill is an existing security in the hands of the holder, the usury .exacted by the bank in its acquisition, is not available, by way of defense, to the antecedent parties. Their rights and liabilities are not affected by the usurious character of a transaction in which they did not participate.
4. The party with whom the bank had the usurious transaction, is the party to whom, under the national banking act, the forfeiture of interest is to be adjudged; and who, in case the interest has been paid, is authorized to recover back twice the amount.
5. Where a separate action might have been maintained against a party, a separate judgment, under section 371 of the code, is proper.
Motion for leave to file a petition in error to reverse the judgment of the District Court of Eranklin county.
On the 17th day of October, 1874, the defendant in error commenced an action, in the Court of Common Pleas of Eranklin county, against Benjamin E. Smith, William Dennison, James M. McKee, Erancis Collins, D. T. Thompson, A. J. Ware, and C. R. Griggs, upon a bill of exchange, of which the following is a copy, with the indorsements thereon:
“ $6,000. Columbus, Ohio, March 5,1874. Eive months after date pay to the order of Harbaugh, Matthias ‡ Owens six thousand dollars, at St. Nicholas National Bank, New York city, value received, and charge to account of B. E. Smith. To Thompson, Griggs & Co., Columbus, Ohio. Accepted : Thompson, Griggs & Co.” Indorsed: “ Pay order of Exchange National Bank of Pittsburg. Harbaugh, Matthias' & Owens.”
The petition in the action alleges, among other facts, that the bill was accepted in writing by said Thompson, Griggs & Co., on the 4th day of April, 1874, and was on that day indorsed and delivered for value to the defendant in error; that said Smith is liable on the bill as drawer, and all the -defendants are liable thereon as acceptors; that on the day the bill became due no part thereof was paid, although then presented to said Thompson, Griggs & Co., at said St. Nich.olas National Bank, in New York, for payment, and protested—of all which said Smith had then due notice; that .said St. Nicholas National Bank is situate in th§ State of New Yoi’k, and the legal rate of interest therein is seven per centum per annum ; that there is due from the defendants to the plaintiff the sum of $6,000, with interest thereon, at the rate of seven per centum per annum, from August 8, 1874, and $2.49 costs of protest; and for all which the plaintiff prayed judgment.
On the 18th of November, 1874, two of the defendants— namely, Smith and Dennison—filed their answer. It sets up three grounds of defense:
(1.) That the plaintiff is not entitled to recover interest upon the amount of said bill at the rate of seven per cent.per annum from August 8, 1874, on which day the bill became payable. '
(2.) That on the 4th of April, 1874, the plaintiff in the action purchased said bill of said Harbaugh, Matthias & .Owens, the payees thereof; and that by the provisions of the act of Congress to provide a national currency, the plaintiff had no authority to purchase said bill, and therefore has no legal right to maintain the action. '
(8.) That the plaintiff has its place of business in the city of Pittsburg, Pennsylvania; that by the law of that state the rate of interest is six per cent, per annum, and by said act of Congress plaintiff is only entitled to charge interest at that rate upon its loans, discounts, etc.; but that in the purchase of said bill the plaintiff, as the defendants are informed and believe, and from such belief aver, charged and •received interest at the rate of nine per cent, per annum, ■and that such act was illegal, usurious, and void, and the plaintiff has no legal right to maintain said action on said bill.
On the 1st of December, 1874, the plaintiff' filed a demurrer to each ground'of defense.
Afterward—to wit, December 21, 1874—the plaintiff moved the court to hear the issues of law raised by said ■demurrers, out of the order in which the cause had been ■placed on the trial docket. Smith and Dennison resisted the motion, and filed a paper styled an answer to the motion, in which they claimed that their legal counsel had not “ prepared properly for the hearing and argument of said issues of law ” at the term of the court then being holden, and asserted that the court could not legally order the cause to be heard on the demurrers until it was regularly reached on the docket.
The motion was sustained, and the cause heard upon said ■demurrers, and taken under advisement by the court.
At the January term, 1875, the demurrers were sustained. Thereupon, said Smith not asking leave to amend his answer to the petition, nor to plead further, the plaintiff submitted the cause to the court; whereupon the court found that said Smith, as drawer of said bill of exchange, owed to the plaintiff' the sum of $6,221.82, as alleged by the plaintiff, and that the action was one in which a several judgment could properly be rendered against said Smith as drawer of said bill, leaving the action to proceed against the parties defendant charged in the petition as acceptors; and a judgment was accordingly rendered against said Smith for said sum, and an order entered that the action proceed against the defendants charged in said petition as acceptors of said bill.
Smith afterward filed a petition in- error in the District Court to reverse said judgment. Before the cause came on to be heard, the plaintiff below, by leave of the court, remitted from said judgment the sum of thirty-two dollars, as of the date of rendition thereof, being the amount of interest included therein over and above the rate of six per cent, per annum, computed on the amount of said bill of exchange after its maturity, and leaving due on said judgment, at the rendition thereof, the sum of $6,189.82. And thereupon the cause was heard, and the court adjudged that said judgment, deducting said sum of thirty-two dollars remitted as aforesaid, be affirmed, but at the costs of the-defendant in error.
The entry of the remittitur of all interest over and above six per centum per annum, from the maturity of the bill to the rendition of the judgment, put an end to the question made by the demurrer to the first defense.
Leave is now asked to file a petition in error in this court, to reverse the judgment of affirmance of the District Court, and also the judgment of the Court of Common Pleas.
L. English and J. W. Baldwin, for the motion:
I. The court erred in hearing the demurrer out of the-order in which it stood on the trial docket. When a case is placed upon the trial docket of the term, it becomes subject to all of the regulations prescribed by the code as to time of trial, under article 8, of title 9, sections 806 and 307. *
Each trial docket for each term is intended for the disposition of the causes pending for adjudication in the court at that particular time; belongs to it; must be made solely in reference to it, and can not be arranged, assigned, or dis. posed of in any other mode than prescribed by the law.
The court has no authority to prescribe how it shall be made, or the actions thereon set for trial. That is the clerk’s duty under the law, and not under any rule of court, for the latter has no authority to make any rule, except in accordance with the law. When the court convenes, it takes the docket as made up, and the causes thereon assigned or set for particular days, in the order in which the issues were made up. The issues of fact can not be tried, except in that all must be tried in their order. As to all other cases, however, a discretion is given as to ■the time of their hearing.
The discretion given to the court by section 807, is-nothing other or more than to direct, if it deems expedient for the disposal of business, that all such cases may be taken out of the several places they occupy on the docket as to issues of fact, and be tried, or set for trial, at any particular time, in the order or priority in which they all have been placed upon the docket as to themselves “ inter sese.”
They may be heard out of the order in which they stand upon the docket as to issues of fact, but must be heard in the order in which they stand upon the docket as to issues like themselves.
II. The question arising under the fourth error assigned is: Does the act of Congress, under which it exists, authorize or permit a national bank to purchase a promissory note, bill of exchange, or other evidence of debt ?
The banking powers of these associations are to be found in section 8 of the act referred to. This is the law of the bank’s capacity, its life, powers, and existence. It accords with the nature of banking—“ discounting and negotiating bills and notes; buying and selling exchange, coin, and bullion; loaning money on personal security.” The reasons are manifest. Congress did not intend, and did not create, a. horde of brokers’ institutions, but what were expected to be associations, in which capital could be placed and used with advantage to itself and for the promotion of the business interests of the various communities in which they should be located.
These banks have no powers except those conferred upon them by the act referred to. Bank of U. 8. v. Dandridgc, 12 Wheaton, 64; Head v. Ins. Go., 4 'Cranch, 127; Dartmouth College v. Woodward, 4 Wheat. 436; Bank of Augusta v. Harle, 19 Peters, 587; Penrose v. G. $ D. Canal Go., 9 Howard, 184; Venango National Bank v. Taylor, C. 1’. E. Smith, 14; Bank of Chillicothe v. Swayne, 8 Ohio (pt. 2), 257.
By said act (and we only refer to section 8, because we conceive all its powers of banking are therein alone con ferred), such bank has power to discount, and negotiate promissory notes and bills of exchange. Do these terms include the power to purchase—buy such notes and bills ? “ Negotiate ” can not by any possibility be tortured into any such meaning as “purchase.” But can the word “discount ” cover any such meaning ?
The language of the act was probably copied from the New York free banking act of 1838, of which it is almost a literal transcript. The meaning of the New York act has been judicially determined. Talmadge v. Pell, 3 Selden, 328; Niagara County Bank v. Baker, 15 Ohio St. 68; Flecker v. U. S. Bank, 8 Wheaton, 338; Morse on Banking, 20.
It is claimed that section 30 is a recognition of the power to purchase: but it is only of “ bona fide bills of exchange,” not a mere evidence of debt; not paper made in that form to sell and raise money upon; not accommodation paper, nor even business paper made in that form, so as to insure its purchase, at a greater rate of interest than the bank is allowed to receive as discount, but a bona fide bill of exchange—exchange as it is expressed in section 8, and not intended in any way as a shift for a loan of money, or a -discount at illegal interest. The bill of exchange is not to be determined alone by its form, but by the real character of the transaction. Corcoran &¡ Biggs v. Powers, 6 Ohio ■St. 19.
In the case at bar, according to the petition, all the defendants are partners. One of these defendants drew the bill of exchange upon his firm, which is accepted by them at the same place where drawn, the firm’s principal place of doing business.
A bill drawn by a man upon himself is a promissory note. Beach v. Ostler, 1 Mass. 120; 9 Ala. 76; Miller v. Thomas, 3 Mass. 576; Allen v. Ins. Co., 9 O. B. 574; lb. 570; Noser v. White Pigeon Co., 1 Doug. 193; M. <§• M. B. B. Co. v. Dillon, 7 Ind. 404; 2 Greenleaf, 121; 5 Ala. 657; 28 Barb. 390.
III. The bank, in the purchase of this paper, knowingly took and received more than six per cent, interest, the rate .allowed by tbe law of tbe state where located. It, in fact, took and received nine per cent., which was illegal and usurious, and this should defeat the recovery of any interest at all. Sec. 30 of the National Banking Act; Skunk v. First Nat. Bank of Galion, 22 Ohio St. 508.
IV. The court erred in rendering a separate judgment against one of the defendants, Smith. The finding of the court is, that Smith owes a certain amount as drawer. This is erroneous, where the petition shows, as it does in' this case, that the bill is drawn by one partner upon the firm of which he is a member, and accepted by such firm. If, as shown above, such a bill is not a bill in reality, but a promissory note, all the incidents, rights, and benefits of a promissory note attach at the making of the paper, and govern all subsequent transactions, as well as holders thereof. Smith, in the eye of the law, is a joint promisor, and a separate action could not have been maintained against him. Under this judgment, what has become of Smith’s liability as a member of the firm of Thompson, Griggs & Co., as one of the acceptors of said paper ? Ilis liability then is joint with them, and yet this judgment must merge all right of further action against his partners.
Harrison ^ Olds, contra:
Section 307 of the code clearly gave the court the right to hear the demurrers when it did.
It was clearly in the discretion of the court whether it would then hear the demurrers, and no abuse of discretion .appears.
The court, in the exercise of its discretion, rightly ordered that the demurrers should be tken heard.
We submit that this objection is frivolous, and could have been interposed for no other purpose than delay. ,
II. Has a national bank power to purchase a bill of exchange ?
We submit that it manifestly appears from sections 8,18, 30, and 39 of the act to provide a national currency, that -such power is expressly given and clearly recognized. Sec tion 30 has been construed in The Farmers and Mechanics’’ National Bank v. Dearing, 23 Wallace, —. Also see Buckingham v. McLean, 13 How. 151; Greed v. The Commercial' Bank of Cincinnati, 11 Ohio, 489; Niagara Bank v. Baker, 15 Ohio St. 68; White’s Bank of Buffalo v. Toledo Ins. Co., 12 Ohio St. 601; Morse on Banking, 164.
The national currency act makes no distinction between sight drafts and bills of exchange, and time drafts or bills. The power granted is to buy and sell bills of exchange. Sight drafts are mentioned in section 30 solely for the purpose of declaring that the purchase, discount, or sale of a bill of exchange, payable at another place, at not more than the current rate of exchange on sight drafts, in addition to-the interest, shall not be considered usury.
The business of dealing in bills of exchange is a department of the general business of banking, and the business includes discounting, purchasing, and selling time bills, as well as sight bills.
III. The third defense raises the question of usury.
But usury between whom ?
Not between the parties to the original bill. They do not claim that the drawer or acceptors of this bill of exchange, or that any of the defendants in this action, were charged or paid any usurious interest.
The bill took its inception and had been negotiated before-the plaintiff below bought it. It was an available and unimpeachable security in the hands of the payees, Harbaugh, Matthias, and Owens. If they had continued to hold it until after due, they could have sued and recovered upon it, without the possibility of the assertion- of any claim of usury on the part of the drawer or acceptors.
Now, Harbaugh, Matthias, and Owens, by their indorsement, transferred all their right and interest in the bill to the plaintiff below.
Consequently, the plaintiff can assert and enforce against the drawer and acceptors any rights that the payee could have asserted and enforced, and is subject to no defense that could not have been set up against the payees.
If Harbaugh, Matthias, and Owens indorsed the bill upon .a usurious consideration, and were sued upon their indorsement, then there might have been some pretense for them to plead usury; or, if they chose, they might waive it. If they paid usury, then they might raise the question whether they could not -recover double the amount so paid. Or, if usurious interest was reserved or charged on their indorsement, they might raise the question whether, in an action against them, any interest could be recovered. But how the plaintiff in error can set up usury occurring in a transaction between wholly different parties, as a defense to his obligation, which is untainted with usury, passes our comprehension.
According to the general rule of law applicable to the ■subject, even Harbaugh, Matthias, and Owens could not allege usury of the transaction between them and the defendant in error: The bill was not originally negotiated by their sale. It had been negotiated before, and was a complete and available security in their hands. They could sell it for any price they saw fit; and such sale would not be usurious. The purchase of such paper in good faith is not a loan or forbearance of money. And a purchase for any .■sum less than the face of the paper is not usurious.
Eor a full discussion of this subject, see 2 Parsons’ Bills and Notes, 426 et seq., 429; Dunkle, v. Renick, 6 Ohio St. 527.
This is the rule in Pennsylvania, where the transaction of sale took place. ' Wycoff v. Longhead, 2 Dallas, 92; Griffith v. Ruford, 1 Rawle, 196.
IV. Did the court err in rendering judgment against the . defendant Smith, and leaving the action to proceed against the others ?
Smith, individually, drew the bill of exchange, and was liable thereon as drawer.
The firm of Thompson, Griggs & Go., and the members thereof (of whom Smith was one), jointly accepted the bill, and were jointly liable thereon as acceptors. Code, secs, 38, 555.
It is optional with the plaintiff to join in the same action parties who are severally liable on a bill of exchange or' note. An obligation to sue all the parties is nowhere imposed. The only penalty for bringing more than one action is the payment of costs. Green v. Burnet, 1 Handy, 285.
On this bill the plaintiff below might have brought two actions—one against Smith alone, as draioer; another against the firm and members of Thompson, Griggs & Co., as acceptors. In each case a several judgment might have been properly rendered in favor of the plaintiff for its debt, but in only one would it have recovered its costs. Code, sec. 871; Gloon v. City Ins. Go., 1 Handy, 32; 2 Nash’s PI. & Pr. 1058.

Opinion:
White, J.
We find no error in this case.
We will briefly consider the several questions raised in argument.
1. It is alleged the court erred in hearing the demurrers to the answer before the cause was reached in its order on the trial docket.
The order in which the trial docket is to be made up by the clerk, before the term, is provided for in section 306 of the code; and section 308 provides for bringing on to the docket cases which become at issue or in default after the docket is first made up.
Section 307 prescribes the order in which cases on the trial docket shall be disposed of. After providing for certain specified classes of cases, it declares that, " the time of hearing all other cases shall be in the order in which they are placed on the docket, unless the court in its discretion shall otherwise direct."
Cases on demurrer come within this provision; and the time of hearing such cases is clearly within the discretion of the court.
2. The next alleged ground of error arises on the demurrer to the second and third defenses.
The objections to the action of the court In sustaining, the demurrers are, in substance :
1. That' the bank, the plaintiff below, had not capacity to acquire title to the bill sued on.
2. That if it had such capacity, the usurious transaction by which it acquired the bill from the holders, Harbaugh, Matthias & Owens, disables it from collecting any interest from the antecedent parties.
As to the first of these objections, the answer in the first defense sets up that the bank purchased the bill of the holders, the payees. It does not state that the purchase was made at a usurious rate of discount; but it avers that under the act of Congress to provide a national currency, under which the bank was incorporated, it had no authority to purchase the bill.
It seems to be the idea of counsel making the objection, that negotiable paper, perfect and available in the hands of the holder, is not the subject of purchase by a national bank at any rate of discount. This view, we think, entirely erroneous. We see nothing in the act of Congress nor in reason why a borrower may not obtain the discount by a bank of the existing notes and bills of others of which he is the holder, as well as of his own paper, made directly to the bank.
It is true that, as between natural persons, the purchase of such paper, when made in good faith, and not as a disguise for a loan, is not subject to the usury laws; but it is otherwise as to a bank. In the business of banking, the purchasing and discounting of paper is only "a mode of loaning money." Niagara County Bank v. Baker et al., 15 Ohio St. 69; Fleckner v. The Bank of the United States, 8 Wheat. 333.
As to the second objection—namely, that the usury exacted by the bank from Harbaugh, Matthias & Owens, in the acquisition of the paper, disables it from recovering any interest from the antecedent parties.
The general rule is, that where a bill or note is valid, as between the drawer or maker and the payee, so that the latter can maintain an action upon it against the former, it is valid in the hands of an indorsee, who has discounted it at a usurious rate of interest, and lie may recover the full amount of the bill or note against the maker or acceptor. Munn v. Commission Company, 15 Johns. 44.
The question is, whether this principle has been modified by the act of Congress now in question.
Section 8 of the act defines the powers of the national banks. It declares, among other things, that they shall be authorized "to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt."
Section 30 prescribes limitations upon these powers, and imposes penalties upon the banks for the transgression of such limitations.
The section declares "that every association may take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest at the rate allowed by the state or territory where the bank is located, and no more," etc. It also declares that "the knowingly taking, receiving, or reserving, or charging a rate greater than aforesaid, shall be held and adjudged a forfeiture of the entire interest which the note, hill, ,or other evidence of debt carries with it, or which has been agreed to be paid thereon." The section also contains a provision, that in case a greater rate of interest has been paid, the person or persons paying the same may recover back twice the amount of the interest thus paid.
Now, manifestly, this section has reference to the agreement or transaction between the bank and its customer. It is the party with whom the bank had the usurious transaction to whom the forfeiture of the entire interest is to be adjudged, and who, in case it has been paid, is authorized to recover back twice the amount. The rights and liabilities of antecedent parties can not be affected by the usurious character of a transaction in which they did not participate.
In the present case, if the indorsers to the bank—Harbaugh, Matthias & Owens—should take up the bill, under their indorsement, their right to recover the full amount from the drawer and the acceptors would be unaffected by the fact as to whether they had or had not asserted against the bank their rights growing out of the usurious transactions.
The remaining objection is to the action of the court in rendering a separate judgment against the plaintiff in error, and continuing the case as to the other defendants.
The liability of the drawer of a bill of exchange is a several liability, and at common law was required to be enforced by a separate action. The code, by allowing all the parties to the bill to be joined in one action, does not re-quire a joint judgment against all. Section 371 expressly provides that, " in an action against several defendants, the court may, in its discretion, render judgment against one •or more of them, leaving the action to proceed against the others, whenever a several judgment may be proper." Where a separate action might have' been maintained against a party, a separate judgment under this provision of the code is certainly proper.
What effect the fact that the drawer is also one of the firm who accepted the bill, may have on the right of the plaintiff to take a future judgment against the acceptors, we are not called on now to consider.
Leave refused.
McIlvaine, C. J., Welch, Rex, and Gilmore, JJ., eon•curred.