In re Wild.

The Canal Company having received the proceeds of the discounts of the various notes given for the loan, subsequently paid considerable sums, by paying the interest coupons attached to the bonds, held by the bank as collateral security, and other considerable sums derived otherwise; and it seems conceded, that the two notes indorsed by the bankrupt, Wild, and the subject of controversy here constitute the residue of the claim of the bank arising out of the said loan, assuming its entire validity and their title to the same, with interest.

The assignee of Wild (the appellant here) insists, that the loan was usurious, and that there is, on that ground, no valid claim against Wild, as indorser; that, under the National Banking Act, the loan being made by the bank reserving a compensation exceeding seven per cent interest per annum, all interest on the loan was forfeited, and the payments made by the Canal Company amount to satisfaction of the principal debt; and that the notes, therefore, which are here presented bearing the indorsement of the bankrupt, are without consideration, and constitute no valid claim. against his estate.

In the court below the transaction was assumed to be such, that, had the loan been made to an individual instead of a corporation, it was a violation of the statutes of New York regulating the subject of interest, and the securities or notes given therefor would have been void for usury.

In that view of the subject I most fully concur, and must find, as a fact, upon the evidence, that the conditions of the loan reserved to the bank, in money, more than seven per cent per annum. No one unaffected by interest, bias or prejudice can, I think, read the testimony without being satisfied that the bank, in prescribing the terms of the loan, made it an occasion for extorting from the Canal Company most onerous conditions, greatly exceeding lawful interest, and that the form of a sale of Georgia railroad bonds, for a price far above their either real or market value (if, indeed, they had any value, which is very doubtful), was only a cover and means of securing in money the excessive and illegal compensation the bank reserved and secured for making this loan.

It was, however, held below, that under the laws of the State of New York, which forbid a corporation to interpose the defense of usury, the transaction must be deemed between the bank and the Canal Company a legal transaction, the notes given by the Canal

In re Wild.

Company to the bank legal and binding notes, and, therefore, the indorsement thereof by the bankrupt, as surety for the Canal Company, a legal and binding indorsement; and, further, that the provisions of the National Banking Law relating to the interest which National banks may receive, and imposing penalties for charging more, do not affect the transaction, because they only apply to States which have no laws fixing the rate of interest.

It was not the intention of Congress, when enacting the National Banking Law, to authorize National banks in respect to exacting interest, to violate the laws of the States within which they might be organized, nor, as I think, to relieve them from the consequences of such violation prescribed by the State laws, if they were guilty thereof.

This is the result of the decision of the Court of Appeals of the State of New York, in First National Bank of Whitehall v. Lamb, 50 N. Y. 95.

Without adopting the reasoning of the opinion in that case, I deem the conclusion as above stated correct.

On the other hand, it was entirely competent for Congress when providing for the organization of National banks, to place them under such restrictions in respect to the rate of interest which they might charge or receive, as Congress might see fit.

As creatures of their own creation, they could be subjected to such inhibitions as were deemed expedient, even though the privileges were far short of those enjoyed by State banks, or by individuals within the several States.

This would involve no conflict with State laws, nor be an attempt to regulate private and domestic affairs within the States beyond the powers of the Federal government.

It would be merely defining the powers and regulating the conduct of the organizations which existed only by force of Federal enactment, possessed the powers Congress chose to confer upon them, and exercised them subject to the restrictions and conditions of the law giving them existence. Indeed, the acceptance of the organization under the law, and the enjoyment of its privileges are necessarily subordinate to the conditions upon which the powers and privileges are conferred. Hence, had Congress seen fit to say that no National bank should contract for, reserve, or receive more than at the rate of five per cent per annum for a loan of money, or for or upon the discounting of a note, bill, or other security, it would have been a perfectly valid limitation of their powers.

In re Wild.

It would be in no conflict with any law of a State which permitted the making of loans in general at a higher rate of interest; and, if Congress could do this, Congress could also declare the forfeiture or penalty incurred by the National bank for violating the prohibition.

Such bank would still be left subject to the operation of the State law imposing, it might be, a different penalty for the violation of its own State laws, as was held by the New York Court of Appeals in the case above referred to.

It follows that transactions may not be condemned by the State laws, applied to individuals or to corporations in general, and may, under such State laws, be legal and valid, which, nevertheless, National banks may not make, and for which, if made, they may be liable to penalties or forfeitures prescribed by the law of their being. It may be that in reference to the conduct of merely private or domestic affairs within the States, having no connection with or relation to their functions or agents of the government, Congress cannot authorize National banks to do what is forbidden by State laws, nor relieve them from the forfeitures or penalties prescribed by State laws for doing what is so forbidden.

But this concession would be far short of admitting that, within the range of what the State laws do permit, Congress may not restrict National banks as is seen fit, or may not impose such penalties and forfeitures for a violation of those restrictions as Congress thinks lawful. These latter propositions are unquestionable. How, then, do the laws of the State of New York and the National Banking Law bear upon the case under consideration? The 30th section of the National Banking Act of June 3d, 1864 (13 U. S. Stat. at Large, 108), 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 evidence of debt, interest at the rate allowed by the laws of the State or Territory 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 allowed for associations organized in any such State under this act.

And, when no rate is fixed by the laws of the State or Territory, 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.

In re Wild.

And the knowingly taking, receiving, reserving, or charging a rate of interest greater than aforesaid, shall be held and adjudged 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.

And, in case a greater rate of interest has been paid, the person or persons paying the same, or their legal representatives, may recover back, in any action of debt, twice the amount of the interest thus paid, from the association taking or receiving the same: Provided, that such action is commenced within two years from the time the usurious transaction occurred."

The State of New York has statutes which prohibit the taking, receiving, or reserving of interest for the loan or forbearance of money, etc., at a greater rate than seven per cent per annum, and making any note, or bill, or other contract whereon or whereby any greater rate is reserved void.

But the State has a further statute (Laws of 1850, chap. 172, p. 334) which enacts that no corporation shall interpose the defense of usury in any action.

Such was the state of the law in New York when the National Banking Act was passed.

The force and effect of this last-named statute has been declared by the courts of the State of New York in numerous cases.

Those cases are collected, carried to what is deemed their legitimate conclusion, by the Court of Appeals, and distinctly affirmed, in Rosa v. Butterfield, 33 N. Y. 665.

The doctrine of that case is, that the dealings of a corporation, as a borrower, and its contracts or obligations for loans, are unaffected by any laws of the State of New York regulating interest; that, as to them, such laws theretofore existing are repealed; that, therefore, the rate of interest which corporations may agree to pay is not fixed or limited, but they may agree to pay any rate they see fit, and their contract will be valid; and, also, that one who becomes surety, guarantor, or indorser of such a contract is legally bound to its performance-in short, that, as to contracts made by corporations, whether foreign or domestic, whether made in the State of New York or elsewhere, they stand, in the State of New York, as if no usury law existed. See, also, Belmont Bank v. Hoge, 35 N. Y. 65.

In respect to contracts made within the State of New York, or

In re Wild.

entered into under or with reference to the laws of the State, I may accept the exposition thus given of the state of the law of New York; and it follows, that there is no law in New York fixing the rate of interest which any one may take upon the loan of money to a corporation, or, in other words, any rate of interest is allowed to which the parties may agree.

As to dealing with corporations, National banks in the State of New York are, therefore, within the case described in the National Banking Law above cited, to wit," when no rate is fixed by the laws of the State or Territory, the bank may take, receive, reserve, or charge a rate not exceeding seven per centum," etc.

This is a necessary and logical result.

If the rate were fixed by the laws of New York, then her usury laws would apply.

If the limitations in her statutes relating to interest do not apply, then no rate is fixed by her laws.

Hereupon the restriction, contained in the section of the National Banking Law, comes into effect without any interference or conflict with State laws, that is to say, a National bank "may take, receive, or charge a rate not exceeding seven per centum, and such interest may be taken in advance," etc., " and the knowingly taking, reserving, or charging a rate of interest greater than the aforesaid, shall be held and adjudged 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; and, in case a greater rate of interest has been paid, the persons paying the same, or their legal representatives, may recover back, in any action of debt, twice the amount of the interest thus paid, from the association taking or receiving the same; provided that such action is commenced within two years from the time the usurious transaction occurred."

It is not necessary that I should express an opinion upon the question whether this forfeiture and right to recover back can, in any circumstances, be applicable to the case mentioned in the previous clause of the section, to wit, where the National bank reserves or receives a greater rate of interest than is allowed by the laws of a State in which a rate is fixed and limited by the State laws. It is sufficient for the purposes of the present case that it does apply to a case in which no rate is fixed and limited.

By the laws of the State of New York, as expounded by her high