Hackettstown National Bank v. Rea — 64 Barb. 175

Majority

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The Hackettstown National Bank vs. Rea and wife

Headnote

An isolated transaction of loaning money, in this State, by a foreign bank, upon the note of the borrower, dated and payable here, is not necessarily a violation of the statute against unauthorized banking. (1 B. S. 712 § 6.) It is not every loan, made in this State by a foreign corporation, which is prohibited.

When the maker and endorser of a note reside in New York, and the note is drawn, dated and payable here, the laws of New York must govern as to the rate of interest. If it be drawn, "with interest”, the rate will be seven per cent; if drawn without specifying interest, the same rate of discount must be legal.

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And where such a note is discounted by a Rew Jersey bank, the statute of Rew Jersey, limiting the rate of interest to six per cent, does not render the note usurious and void, when discounted at seven per cent.

A clause in the charter of a foreign bank, providing that such bank shall not take more “ than the legal rate of interest for the time being,” is but a clause inserted for greater security; and does not alter the legal rate, or make that illegal which would otherwise be legal.

Ro other effect should be given to such a clause than that which would result from the general law of the foreign State on the subject of usury.

APPEAL, by the defendants, from a judgment entered upon the report of a referee.

The action was brought to foreclose a mortgage executed by' the defendants, to secure the payment of promissory notes made by the defendant George M. Rea and others, and discounted by the plaintiff, in the city of Yew York; which mortgage was given to Aaron Woodman, the endorser of the notes, and had been assigned to the plaintiff.

The promissory notes were made payable in Yew York, and dated and executed there, and the makers and endorsers resided there, and were discounted by the plaintiff at the rate of seven per cent, and the proceeds remitted to Yew York.

The defence of usury was set up in the answer of the defendants.

The action was referred to a referee, who reported the facts found by him. And as matter of law, he found that the makers and endorsers of the notes, not being residents of, or located in, Yew Jersey, at the time of the making or discounting of the notes, the law of that State, at those times, allowed, in those transactions, interest at the rate of seven per cent per annum ; and that the charter of the plaintiff also allowed it. That the notes being made payable in Yew York, and dated and executed here, and the makers and endorsers resident here, the law of the State of Yew York as to the rate of in-interest governs them, and that the restriction in the char

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ter of the bank applies, in snch cases, the law of this State to the contract. He also found, as matter of law on these facts, that no more than the legal rate of interest was reserved or agreed upon, and that there was no act connected with any of said notes and the mortgage in suit, in violation of any of the laws of the State of Hew York, or of the laws relating to usury or interest in the State of Hew Jersey, or in violation of the charter of said bank.

The referee reported in favor of the plaintiff, for the amount due upon the mortgage, with interest and costs; and directed that the ordinary judgment of foreclosure and sale be entered, with a judgment against Geo. M. Eea for any deficiency there might be.

Charles N. Black, for the appellants.

John Chetwood, for the respondent.

By the Court, Learned, J.

This is an action of foreclosure. The defence is usury. The usury is alleged to consist in this; that a note dated and payable in Hew York was discounted at seven per cent by the plaintiff—a Hew Jersey bank ; the rate of interest being six per cent in Hew Jersey; and that the borrower paid the expressman seventy-five cents, being his proper charges for bringing the money.

Another defence is, that the plaintiff, a foreign corporation, kept an office in Hew York for the purpose of issuing money, &c. And also that it was interested in a fund employed for making discounts, &c., in Hew York, in violation of the statute against unauthorized banking.

As to the second defence, the referee has found that the plaintiff did not keep any office (except at Hackettstown,) for the purpose of discounting, &o., and did not employ its effects and was not interested in a fund, for such purposes, (except at Hackettstown.)

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TMs is a question of fact; and we tMnk the referee found correctly.

The case of Suydam v. The Morris Canal Company, ( 5 Hill, 491 n., and 6 id., 217,) shows that transactions like those in the present case are not necessarily violations of that act. It is not every loan made in this State by a foreign corporation which is prohibited. And there is no ground, upon the evidence, to disturb the referee’s finding.

In the case of Jewell v, Wright, 80 N. Y. 259 ,) a note was made and dated in Hew York, and was payable . here. It was first negotiated in Connecticut. The court held that on the question of usury, the laws of this State applied. To the same effect is Cutler v. Wright, 22 N. Y. 472 .) In the present case, therefore, where the maker and endorser of the note lived in Hew York, and where the notes were drawn, dated and payable here, the laws of Hew York must govern, as to the rate of interest. If drawn “with interest,” the rate would have been seven per cent. As they were without interest, the same rate of discount must be legal.

We do not think, therefore, that the statute of Hew Jersey, limiting- interest to six per cent, made the notes in question usurious and void; when discounted at that rate.

The charter of the plaintiff contains a clause that it shall not take more “than the legal rate of interest for the time being.” This undoubtedly is but a clause put in for greater security. It does not alter the legal rate, or make that illegal which would otherwise be legal. Indeed the expression, “for the time being” seems to imply that there might be transactions of- the bank in which interest might be taken lawfully at a rate greater than that usually authorized in the State. But however that may be, we see no reason to give to that clause in the bank charter any other effect than that which would result from the general law of Hew Jersey on the sub

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ject of usury. And, as appears by the oases cited above, that law does not render these notes usurious.

[First Department, General Term, at New York,

November 4, 1872.

Ingraham, Leonard and Learned, Justices.]

The judgment entered on the report of the referee should be affirmed, with costs.

Cases cited

Cutler v. Wright 22 N. Y. 472 N.Y. p. 170