decided: April 30, 1900.
PHOENIX NATIONAL BANK.
APPEAL FROM THE SUPREME COURT OF THE TERRITORY OF ARIZONA.
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MR. JUSTICE McKENNA, after making the foregoing statement, delivered the opinion of the court.
We are confined by the record to the points passed on by the Supreme Court of the Territory, to wit, the defence of usury, and the motion for judgment on the counter-claim.
(1.) By section 5197 of the Revised Statutes of the United States a national bank may charge on any note interest at the rate allowed by the laws of the State or Territory where it is situated. It is further provided, however, that if no rate is fixed by such laws the bank may not charge a greater rate than 7 per cent, and if a greater rate be knowingly charged, the entire interest agreed to be paid shall be forfeited. (Sec. 5198.)
The laws of the Territory are as follows:
"2161. SEC. 1. When there is no express agreement fixing a different rate of interest, interest shall be allowed at the rate of seven per cent per annum on all moneys after they become due on any bond, bill, promissory note or other instrument in writing, or any judgment recovered in any court in this Territory, for money lent, for money due on any settlement of accounts from the day on which the balance is ascertained and for money received for the use of another."
"2162. SEC. 2.Parties may agree in writing for the payment of any rate of interest whatever on money due or to become due on any contract; any judgment rendered on such contract shall conform thereto, and shall bear the rate of interest agreed upon by the parties, and which shall be specified in the judgment."
The contention of appellant is that the rate of interest is not fixed by the laws of the Territory. It permits the parties to do so, but does not do so itself. In other words, it is urged that the rate is fixed by permission of the laws, and not by the laws, and upon this distinction a power which every person and every bank in the Territory has, it is contended, the national banks do not have.
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We cannot accept this as a correct interpretation of either the spirit or the words of the national banking act. By that act, certainly no discrimination was intended against national banks, and that the interpretation contended for would seriously embarrass their business is manifest.
We said in Tiffany v. National Bank of Missouri, 18 Wall. 409, that national banks "were established for the purpose, in part, of providing a currency for the whole country, and in part to create a market for the loans of the general government. It could not have been intended, therefore, to expose them to the hazard of unfriendly legislation by the States, or to ruinous competition with state banks."
The language of the Revised Statutes is that national banks "may take, receive, reserve and charge on any loan . . . upon any note . . . interest allowed by the laws of the State, Territory or district" where 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 or existing in any such State under this title." The italics are ours.
The meaning of these provisions is unmistakable. A national bank may charge interest at the rate allowed by the laws of the State or Territory where it is located; and equality is carefully secured with local banks.
The clear meaning and purpose of these provisions remove the ambiguity of those which follow, if there is any ambiguity. "Where no rate is fixed by the laws of the State or Territory or district, the bank may take, secure, reserve or charge a rate not exceeding seven per centum. . . ." "Fixed by the laws" must be construed to mean "allowed by the laws," not a rate expressed in the laws. In instances it might be that, but not necessarily. The intention of the national law is to adopt the state law, and permit to national banks what the state law allows to its citizens and to the banks organized by it. Tiffany v. National Bank of Missouri, supra.
It is urged, however that National Bank v. Johnson, 104 U.S. 271, is in conflict with these views.
In that case the defendant, a national bank doing business in
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the State of New York, discounted for the plaintiff in the case, at the rate of twelve per cent per annum, commercial paper and promissory notes, amounting to $158,003.The interest which the bank knowingly charged amounted to $6564.88, an excess of $2735.36 beyond the rate allowed by the general laws of the State. Judgment was rendered for twice the amount of the interest, which was affirmed by this court upon the statute of the State, which established the rate of interest for the loan or forbearance of money at seven per cent.
Meeting the arguments of counsel upon a supposed difference between loans and discounts, and usurious and non-usurious contracts under the laws of the State in the transactions of natural persons, the learned justice, who delivered the opinion of the court, made some remarks which seemed to imply that a rate allowed by a state law was not a rate fixed by a state law. The remarks, however, were not necessary to the decision, and cannot be considered as expressing the judgment of the court.
(2.) The counter-claims of plaintiffs in error present these facts:
The making of the five thousand dollar note by W.A. and P.P. Daggs, and its delivery to Thomas Armstrong, Jr.; its assignment by the latter to the Phoenix National Bank, (appellee,) and by the bank, in writing, for a valuable consideration to the defendant, A.J. Daggs (one of the appellants); the insolvency of the makers, W.A. and P.P. Daggs, and the non-payment of the note or any part of it.
To the counter-claim there was a demurrer for insufficiency, and a denial of each and every one of its allegations. The denial was not verified. The Supreme Court of the Territory, considering an error assigned on the overruling of appellants' motion for judgment on the counter-claim, held it insufficient because it did not allege that due diligence to collect the note had been exercised, as required by the statute of the Territory, or that any effort had been made to collect the same.
By this ruling it is urged that the court assumed that the counter-claim was based on the rights of a surety instead of upon the direct obligation of the Phoenix Bank, as assignor of the Armstrong note on account of Armstrong's insolvency. Articles 122, 1226 and 788 of the Arizona Statutes.
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Assuming without deciding that appellants are correct in their construction of the Arizona statutes, and assuming that the answer to the counter-claim did not put in issue the making of the Armstrong note, and its assignment to plaintiff in error, nevertheless the answer to the counter-claim did put in issue the other facts alleged, to wit, the insolvency of the makers of the note and its non-payment.
But it is said that the contract marked "Exhibit B" shows the insolvency. It certainly does not. It recites the transfer of the Armstrong note to A.J. Daggs, and that it is secured by a mortgage on 3500 sheep; that the note is in litigation between the Phoenix Bank and Hugh McCrum of San Francisco as assignee of D.A. Abrams as assignee of the Bank of Tempe, "to establish and determine the priorities of rights under mortgages between said litigants hereinbefore mentioned, which said cause of action and rights of the Phoenix National Bank, under its first mortgage in said litigation described, is also hereby sold, assigned, transferred and set over unto A.J. Daggs for the above nine thousand seven hundred and forty-one and 73/100 dollars ($9741.73). It is further agreed that the aforesaid cause of action described shall be continued in the name of the Phoenix National Bank until the said case is determined and settled; but it is further agreed that from this date, November 1, 1894, A.J. Daggs shall pay the costs that shall hereafter accrue in the said case."
This contract standing alone establishes nothing definite, and appreciating this the appellants attempt to explain it by a resort to what they allege to be the testimony in the case. It is said that "they (W.A. and P.P. Daggs) could not pay their notes, three suits in court foreclosing three mortgages, each seeking priority, hanging to them like mill stones, grinding them to dust. Appellee had lost its reputed first mortgage in the district court and appealed. It then sold this note and litigation; the contract shows, and agreed to stand up and carry the suit on in its name. The case was tried in the Supreme Court of Arizona, and held adversely to the appellee in appellants' suit against the makers of the five thousand dollar note. The appellee then fell down and refused to let its name be used any farther to carry on
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the suit, refused to sign the bond, and would have nothing more to do with the suit. . . . Appellant then demanded payment of the five thousand dollar note, and was refused. Appellant spent over $500 in money and $500 in services prosecuting the makers of the $5000 note; followed it to the Supreme Court of Arizona, and would have gone further, but appellee refused to let its name be used and he was compelled to stop. Appellant then demanded credit for the $5000 note."
Those facts, however, are not a part of the counter-claim and it is hardly necessary to say cannot be considered in passing on a motion for judgment based on a confession of the allegations of the counter-claim.
Nor can it be said that such facts should have been found by the lower court, because, as we have seen, under the statement of the case as considered by that court, the questions for decision was the sufficiency of the averments of the counter-claim as a defence.
We repeat, therefore, that we are confined to the propositions we have stated above and discussed, and as there was no prejudicial error in the ruling of the Supreme Court of the Territory on them, its judgment is
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