O'Hare v. Second National Bank

Chief Justice Agnew

delivered the opinion of the court,

The main question ip these cases is, whether the notes in suit are illegal, and cannot be recovered upon, because at the time they were discounted the bank had previously lent the drawer, for whose accommodation O’Hare endorsed, more than one-tenth part of its capital. It is contended that the discount was contrary to the 29th section of the National Bank Law of June 3d 1864, providing that “ the total liabilities to any association, of any person, or of any company, corporation or firm for money borrowed, including in the liabilities of a company or firm, the liabilities of the several members thereof, shall at no time exceed one-tenth of the amount of the capital stock of such association actually paid in : Provided, That the discount of bonfi fide bills of exchange drawn against actually existing values, and the discount of commercial business paper, actually owned by the person or persons, corporations or firms, negotiating the same, shall not be considered as money borrowed.”

The affidavits of defence, upon which -the question is raised, do not aver that the excess above one-tenth of the paid-in capital, was knowingly and voluntarily lent to the drawer of the note. This defect in the affidavit would support the judgment, for surely it cannot be contended that an accidental excess made in mistake or in ignorance would forfeit an honest loan. But without resting the case on this defect, we cannot think that an excess known to the bank only, is such an unlawful act, entering into the vitality of the loan, as will avoid it. The fact of an excess of indebtedness over one-tenth of the paid-in capital is a matter aside from the loan itself, not entering into its terms, and therefore collateral. The loan of the money is an act within the authorized power of the bank ; a part of its proper business, and therefore, not in itself illegal. The note or security given for the money was an instrument within the power of the bank to accept. The drawer had a right to make it, and the bank a right to discount it. In this lies the difference between this case and that of Fowler v. Scully, 22 P. F. Smith 456, relied on as authority. There the very instrument itself, a mortgage of real estate, for future advancement, was illegal and void, being forbidden to the bank as well as to the mortgagor, who is presumed to know the law. It appeared on the face of the mortgage that it was given to secure future discounts up to the sum of $100,000, and for the expressed purpose of enabling the mortgagor “ to avoid the necessity of procuring the additional endorsement to said paper by a third party.” It therefore presented a case where both parties combined purposely to do an act expressly forbidden by the law, and where the thing itself (the mortgage) was the very ground of attempted recovery by scire facias, and the bank was directly asking the aid of the law and of the court to enforce the illegal instrument. Eowler v. Scully is no authority for this case. What might be the consequence if the bank and Garfield, the drawer, had combined knowingly and wilfully to defeat the restriction in the 29th section referred to, it is not proper to say or to speculate upon. Therein, however, lies the difference between the case of the Morris Run Coal Company v. Barclay Coal Company, 18 P. F. Smith 174, cited and relied on, and this case. There the contract was void because in restraint of trade, both parties were in pari delicto, and the draft sued on was the provided instrument for carrying the illegal agreement into execution. Hence, it was said there, “ the illegal consideration entered directly into the instrument, and is followed up, because the law will not permit itself to be violated by mere indirection.” Here the fact of the excess of indebtedness, and the bank’s knowledge of the fact, were only collateral to the contract of discount, and not presumed to be within the knowledge of the borrower, and the note was not intended by both parties to be the instrument of committing a fraud upon the law. Both the consideration and the note were lawful in themselves. The affidavit does not charge combination or conspiracy to defeat the law.

Other considerations connect themselves with the question. It was evidently not the intention of Congress to aim at the securities taken by the bank and declare them illegal, as it was in the 28th section, forbidding mortgages other than those taken to secure previously contracted debts. The securities not being referred to in the 29th section, or declared illegal, we are at liberty to inquire into the true purpose of Congress, in considering whether we should declare the securities themselves illegal by implication. If such were not the real intent of Congress, we ought not to raise an implication to defeat recovery. Evidently the limitation of the indebtedness to the one-tenth in the 29th section, was intended as a general rule for conducting the business of the bank; a rule laid down from experience to regulate its loans for its own best interest and those of stockholders and creditors, not a rule to regulate its customers. It was, as remarked in Eowler v. Scully, a regulation to prevent these associations from splitting on the rock which has ruined so many banks, to wit, that of lending too much of their capital to one person or firm. The intention being to protect the association and its stockholders and creditors from unwise banking, we cannot suppose it was meant to injure them by forbidding recovery of the injudicious loans. We should not interpret the section so as to carry its prohibition beyond its true purpose, and thus cause it to destroy the very interest it intended to protect by the regulation. To do so would be', as said by the court below, to demand a penalty in favor of an individual for an offence against the country, and invite to dishonesty under a pretence of a regard for the law.

As to the usurious interest we shall say nothing, the defendant in error having, in his paper-book, agreed to correct the judgments by proper deduction. We leave the enforcement of this agreement to the court-below, if the correction should not be voluntarily made.

Judgment affirmed.