Cameron v. Merchants' & Manufacturers' Bank ( 1877 )

Campbell, J.

The only question in this case is, whether under the general banking law, a bank may take ten per cent., instead of seven, for discounts on loans. The statute, in giving discounting and other banking powers, contains a proviso “that it shall not be lawful for any such association to take or receive more than the legal rate of interest in advance on its loans and discounts.” 1 Comp. L., § 2185. It is claimed by plaintiff in error that the phrase “legal rate of interest” means seven per cent., which is the rate fixed where the contract is silent on the rate, and that it •cannot authorize the taking of ten per cent., although that amount may be agreed upon by all persons except banks.

It seems to be assumed that although ten per cent, may be taken by those who stipulate for it in writing, ye.t this rate is in some way to be regarded as not favored in law, and as allowed under such restrictions as indicate that it is -to be deemed a hard exaction. And attention is also called to the fact that the old bank charters only allowed seven per cent, to be taken.

So far as these old charters are concerned, it will be found that of the banks chartered before the Revised Statutes of 1838, all were allowed to take the highest legal interest permitted by the general laws existing at their chartered date, the earliest being confined to six per cent., and the subsequent charters allowing seven. Private contracts at the same period involved forfeitures for any excess beyond the legal rates. The statutes rescinding these forfeitures and simply making the contract invalid to the extent of the excess of interest, are comparatively recent. "We find no trace in our early legislation of any disposition to put banks on any worse footing than individuals, as lenders on inter•est. After the rate of interest had been so fixed as to ■allow contracts for ten per cent., the charters were, it is true, granted in such terms as to put the new corporations on the same footing as the old, and confine them to seven per cent. But it is evident this was only done to prevent inequality. The early State Legislatures never tampered with the older charters, and left the six per cent, restriction in force, where existing, just as they did the seven per cent, •clause. Most of the banks were organized before ten per -cent, could be taken by any person. And it is worthy of remark that no bank charter is to be found which does not fix the percentage to be allowed expressly. The term “legal rate of interest” is never used in those instruments.

The general banking law of 1857 was passed at a time when it was desired to bring capital into the State, and relieve our citizens from depending on foreign banks and currency. This law imposed some restrictions intended to secure bill-holders and prevent frauds. But, contrary to the policy of the earlier legislation, it permitted no favoritism and created no monopolies. There was no reason, therefore, for exacting from banks any unusual conditions of business. The rejection of any fixed percentage, and the permission to discount at the legal rate of interest show, as we think, an intention to place bank loans on the same footing, as to rates, with private loans. This is the natural inference from the language, and this has been the general understanding and usage, continued without question from any source, and open and notorious. This practical interpretation by the people and the authorities, would deserve consideration if the language had been ambiguous. We do not think it is ambiguous, and the narrow meaning is unnatural, and at variance with the policy which has for forty years tended towards the removal and not the creation of usury penalties. If either seven or ten per cent, had been mentioned in terms, it might happen, as it did in 1833, that bank rates would differ from others; whereas by leaving contracts subject to legal rates, changes in the law would operate on banks as on all others, whether enlarging or restricting commercial freedom.

The suggestion that the statute requires stipulations for ten per cent, to be in writing, and that unless that rate is expressly mentioned the paper is illegal, is not well founded. The object of the statute was evidently to require the writing to remove the ambiguity that would otherwise exist on the face of an instrument calling for interest, and mentioning no rate. It was to conform to the rule rejecting parol explanations of writings. But where the sum of money to be paid is expressed, there is no ambiguity, and if it included no more than ten per cent, interest it is valid. Smith v. Stoddard, 10 Mich., 148.

There is no error in the record, and the judgment must be affirmed with costs.

The other Justices concurred.