Evans v. National Bank of Savannah/Opinion of the Court
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,  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. 

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. 3426. What is Lawful Interest. The legal rate of      interest shall remain seven per centum per annum, where the      rate per cent. is not named in the contract, and any higher      rate must be specified in writing, but in no event to exceed      eight per cent. per annum.

'Sec. 3427. What is Usury. Usury is the reserving and taking,      or contracting to reserve and take, either directly or by      indirection, a greater sum for the use of momey than the      lawful interest.'

'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:

'If the intent be to take only legal interest, a slight and      trifling excess, due to mistake or inadvertence, will not      taint the transaction with usury. * * * But if the purpose be      to take from the money advanced, at the time of the loan, the      legal maximum rate of interest, the transaction is an      usurious one.'

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:

'Nor can we determine, without reference to the evidence,      whether the taking of eight per cent. interest in advance by      way of discount was usurious. Eight per cent. was legal if      agreed upon in writing; * * * and it is well settled that the      taking of interest in advance on short loans in the usual and      ordinary course of business is not usurious, if the interest      reserved does not exceed the legal rate.'

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:

'If a transaction of this sort is to be deemed usurious, the      same principle must apply with equal force to bank discounts,      generally, for the practice is believed to be universal; and      probably few, if any, charters contain an express provision      authorizing, in terms, the deduction of the interest in      advance upon making loans or discounts. It has always been      supposed that an authority to discount, or make discounts,      did, from the very force of the terms, necessarily include an      authority to take the interest in advance. And this is not      only the settled opinion among professional and commercial      men, but stands approved by the soundest principles of legal      construction. Indeed, we do not know in what other sense the      word 'discount' is to be interpreted. Even in England, where      no statute authorizes bankers to make discounts, it has been      solemnly adjudged, that the taking of interest in advance by      bankers, upon loans, in the ordinary course of business, is      not usurious.'

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.

'The taking of interest in advance, upon the discount of a      note in the usual course of business by a banker, is not      usury. This has long been settled, and is not now open for      controversy.' Tyler on Usury (1872) p. 155.

'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.

Mr. Justice PITNEY, with whom concurred Mr. Justice BRANDEIS and Mr. Justice CLARKE, dissenting. 

Notes

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Seventh. To exercise by its board of directors, or duly authorized officers or agents, subject to law, 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; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this title.

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R. S. § 5197. Any association may take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange of other evidences of debt, interest at the rate allowed by the laws of the state, territory, or district 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 lallowed for associations organized or existing in any such state under this title. When no rate is fixed by the laws of the state, or territory, or district, 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 purchase, discount, or sale of a bona 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.

R. S. § 5198. The taking, receiving, reserving or charging a rate of interest greater than is allowed by the preceding section, when knowingly done, shall be deemed 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. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover back in an action in the nature of an action of debt, twice the amount of the interest thus paid from the association taking or receiving the same: Provided such action is commenced within two years from the time the usurious transaction occurred. [That suits, actions, and proceedings against any association under this title may be had in any circuit, district, or territorial court of the United States held within the district in which such association may be established, or in any State, county, or municipal court in the county or city in which said association is located having jurisdiction in similar cases. Act Feb. 18, 1875, c. 80, § 1, 18 Stat. 320.]