"Nothing can be clearer than that, by the language of the
commercial world and the settled practice of banks, a discount by a
bank means,
ex vi termini, a deduction or drawback made
upon its advances or loans of money, upon negotiable paper or other
evidences of debt, payable at a future day, which are transferred
to the bank,"
and he added that if the transaction could properly be called a
sale, "it is a purchase by way of discount."
Discount, as we have seen, is the difference between the price
and the amount of the debt the evidence of which is transferred.
That difference represents interest charged, being at some rate,
according to which the price paid, if invested until the maturity
of the debt, will just produce its amount. And the advance,
therefore, upon every note discounted,
Page 104 U. S. 277
without reference to its character as business or accommodation
paper, is properly denominated a loan, for interest is predicable
only of loans, being the price paid for the use of money.
The specific power given to national banks, Rev.Stat. sec. 5136,
is "to carry on the business of banking by discounting and
negotiating promissory notes, drafts, bills of exchange, and other
evidences of debt." So that the discount of negotiable paper is the
form according to which they are authorized to make their loans,
and the terms "loans" and "discounts" are synonyms. It was so said
in
Talmage v. Pell, 7 N.Y. 328, and in
Niagara County
Bank v. Baker, 15 Ohio St. 68, the very point decided was that
"to discount paper, as understood in the business of banking, is
only a mode of loaning money with the right to take the interest
allowed by law in advance."
But whether loans and discounts are identical in the sense of
sec. 5197 or not is quite immaterial, for both are expressly made
subject to the same rate of interest. And unquestionably the
transfer of the notes which forms the basis of this controversy, if
not a loan, was a discount.
The contention of the plaintiff in error that under this
section, whatever by the law of the state is lawful to natural
persons in acquiring title to negotiable paper by discount is
lawful for national banks, cannot be sustained, and derives no
countenance, as is argued, from the decision in
Tiffany v.
National Bank of Missouri, 18 Wall. 409. All that
was said in that case related to loans and to the rate of interest
that was allowed thereon, and it was held that where, by the laws
of a state in which a national bank was located, one rate of
interest was lawful for natural persons and a different one to
state banks, the national bank was authorized to charge on its
loans the higher of the two. The sole particular in which national
banks are placed on an equality with natural persons is as to the
rate of interest, and not as to the character of contracts they are
authorized to make, and that rate thus ascertained is made
applicable both to loans and discounts, if there be any difference
between them. It is not intimated or implied that if in any state a
natural person may discount paper without
Page 104 U. S. 278
regard to any rate of interest fixed by law, the same privilege
is given to national banks. The privilege only extends to charging
some rate of interest, allowed to natural persons, which is fixed
by the state law.
If it be said that the rate is allowed by the law of the state
when it permits the parties to reserve and receive whatever they
may agree upon, then the section furnishes the conclusive answer
that "when no rate is fixed by the laws of the state, &c., the
bank may take, receive, reserve, or charge a rate not exceeding
seven percentum." So that the transaction in question, in either
aspect, is within the prohibition of the statute and subjects the
bank to the penalties sued for.
The conclusion is confirmed by the provision which declares
that
"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."
Here the purchase, discount, and sale of bills of exchange are
classed as one, and subject to the same rule and rate of interest.
In sec. 5198, the forbidden transaction for which the penalties are
prescribed is spoken of as usurious; but this reference is to the
prohibitions of the preceding section, and not to the laws of the
state.
In the present case, the paper was transferred by an
endorsement, imposing the ordinary liability upon the endorser. It
may perhaps be distinguished from cases where the title to the
paper is transferred by an endorsement without recourse, or by mere
delivery. The advance in such cases, to the previous holder of the
agreed consideration can hardly be considered a loan, for the
relation of debtor and creditor as between them is not created by
the transaction, if made, as supposed, in good faith, and not as a
cover for usury. Whether it be a discount within the meaning of the
sections we have considered, and therefore subject to the same rule
as to the rate of interest at which it may be discounted, which we
have decided to be applicable to the transactions described in the
present case, and if not, but is to be treated as a purchase of the
paper, lawful at any proportion which the price paid bears to the
amount
Page 104 U. S. 279
ultimately payable by the parties to it, whether, in that case,
national banks are authorized by the law of their organization to
acquire title to it in that way, are questions which do not arise
in this case, and upon which we express no opinion.
Judgment affirmed.