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The American reports: containing all decisions of general ..., Volume 36 online

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any piiichiisers willing to buy, and that it was sold to the appellee,
over the counter of its banking-house, at nine percent discount.



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APRIL TERM, 1879. 359

Lazear v. National Union Bank of Baltimore.

for Lazear Brothers, the drawers, who received the proceeds of sale.
None of the bank oflScers were informed.that the Winchesters were
acting for Lazear Brothers, nor were the latter told to whom the
note had been sold. The note was sold to the bank ou the 8th
of July, 1872. The president of the bank testified that the note
in question was purchased by order of the board of directors, and
that he had an impression, he believed, that Lazear Brothers were
to get the proceeds of it. He further proved that after ^the cus-
tomers of the bank were served, it sometimes invested its surplus
proceeds in notes. We are of opinion that this transaction was an
out-and-out purchase by the bank, and that such purchase was with-
out authority, and that the bank acquired no title to the note and
cannot recover thereon in this suit. While we do not mean that a
National bank may not invest its surplus capital in notes, weare
of opinion tliat it has no authority to use such surplus, funds, as
may remain on hand from day to day, for the purpose of buying
notes. Natio7ial BaiiJc of Rochester v. Pearson, 24 Min^n. 140 ;
s. c, 31 Am. Rep. 341 ; Thomp. Nat. Bank Cas. 637; Farmers and
Mechanics'^ Bank v. Baldwin, 23 Minn. 198 ; s. c, 23 Am, Rep.
CS3. If any other construction were given to such a transaction as
this, the intention of Congress to prohibit National banks from buy-
ing and selling notes would be entirely defeated, and those institu-
tions would be at perfect liberty to decline making discounts for
their customers and afterward to buy np the very paper which had
been offered for discount and refused, at such price as the bank might
choose to give. The note of the 22d June, 1872, for five thousand
dollars was acquired by the appellee by purchase without authority
to make such purchase, and it is not therefore entitled to the note
and cannot recover upon it, and the appellant's seventh prayer ought
to have been granted.

The guaranty of the appellant is shown to have been executed by
him and accepted by the appellee, and the subsequent discounting
of paper, of which Lazear Brothers were drawers, or which they had
indorsed, furnishes ^n'ma facie evidence that such discounts were
made upon the faith of the guaranty. But such prima facie evi-
dence may be rebutted by other proof offered by the guarantor, or
by facts and circumstances put in evidence by the appellee. Whether
the money was parted with by the appellee on the faith of the guar-
anty or otherwise is a question exclusively for the determination of
th*' jury, and there arc some facts and circumstances appearing in



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360 MARYLAND,



Lasear v. National Union Bank of Baltimore.



the evidence, as contained in the record, which should have been
submitted to the consideration of the jury, whose duty it is to deter-
mine to what weight, if any, they are entitled. We are of opinion
therefore that there was error in rejecting the appellant^s four-
teenth prayer. It follows from what we have said that there was
also error in granting the appellee's modified prayer, because it per-
mitted the jury to find for the appellee the amount of the five thou-
sand dollar note, after deducting the usurious interest received upon
it, and also because it took from the jury the question whether the
money obtained from the appellee had been loaned upon the faith
of the guaranty.

The sixth and thii*teenth prayers of the appellant were waived,
or abandoned at the argument of the<sase, and we need not refer to
thetn further than to say that we think there was no error in re-
jecting them.

As there was error in rejecting the seventh and fourteenth prayers
of the appellant, and in granting the modified prayer of the appellee,
the judgment appealed from will be reversed and a new trial
awarded.

Judgfnent reversed, and iiew trial awarded,

NoTC BT THE Rbpobter.— Thls case was argued before Bartol, C. J., Biudst, Miller,
Ohason, and Alvxy, JJ. Alvey, J., dissented on the question of title, observing, amoDg
other things: "Now, without invoking the aid of any implied power possessed by the
bank, to enable it to cany on the banking business, it is expressly authorized, as we have
seen, to discount and negotiate promissory notes. What, then, Is the meaning of the word
* negotiate,* according to its ordinary acceptation among buainess men ? According to the
most approved lexicographers, its meaning is, *to transfer, to sell, to pass, to proc^irt hjr
mviwd intercowrw and agrtement with another^ to arrange for. to settle by dealing and
management.* Webster's Die. ; Worcester's Die. This term would seem to becompre-
hensive enough for all the requirements of the case; but by allowing the full meaning to
the more exact and important term, * discount,* all doubt wiiatever would seem to be re-
moved. To discount is to deduct a sum of money from the debt in consideration of its
being paid before the usual or stipulated time for payment. In the case of Fleckner v.
Bank U. S., 8 Wheat. 350, Judge Story, in delivering the opinion of the courts having occa-
sion to define a discount by the bank, said: * Nothing can be clearer than that by the lan-
guage of the commercial world, and the settled practice of banks, a discount by a bank
means, exvi Icrmini^ a deduction or drawback made upon its advances or loans of money
upon negotiable paper, or other evidences of debt juiyable at a future day, which ara
transferred to the bank. We must suppose that the legislature used the language in thiK,
its appropriate sense; and if we depart from this settled construction, there is none ottier
which can be adopted, which would not defeat the great objects for which the charter was
granted, and make It as to the stockholders, a mere mockeiy.* Purchase may be by way
of discount, equally as a loan may be made by that means. When the party receiving the
proceeds of the paper discounted is himself either maker or iudorser, and the discount is
made on his responsibility, he receives the money as a loan, for he is bound to return it ;
but if he is in no way bound on the paper be receives the money as ao advance, and as a
consideration for the transfer of the paper. Both transactions are, aooording to the estab-
lished practice and usage of banics, discounts, though the latter is in effect a purchase by



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APBIL TEBM, 1879. 36J

Lasear v. National Union Bank of Baltimore.

the bank. The act of diflcounting simply has reference to the deduction from the face
amount of the paper for the time it has to run to maturity, and the rate of that deduction;
out whether the transaction amounts to a loan or to a purchase on the part of the bank,
depends upon other facts and condition of things. This idea of restricting the power of
discounting to a transaction in which money Is actually loaned upon the credit of the party
passing the paper, it seems to me, is novel, and I am sure is contrary to the receiTed under-
standing of the commercial community, and the established practice and usage of banks.
8upp<Me the payee of a promissory note payable to order takes it to a bank and procures
tlie money on it, less the rate of discount upon indorsement without recourse, would that
not be strictly a discount within the meaning of the law, notwithstanding it would not be a
loan upon the responsibility of the party obtaining the money ? Such a transaction would
not be a loan at all, according to the correct meaning of the term ; and yet if it be a dis-
count, according to the modes and usages of banking, why should not any third party
holding paper payable to bearer, or indorsed in blank, be able to negotiate that paper with
the bonk by way of discount, and transfer a good title to the bank notwithstanding his
name might not appear upon the paper, or he incur any liability In respect to it? I cannot,
I must confess, perceive the reason for the distinction that has been noade in this case. It
should be recollected that it Is not the rate of discount with reference to which the parties
deal« that determines the question of the validity of the transfer of the paper, or the title
of the bank, though the latter may have escacted and received more than the lawful rate of
discount . Ail the business of the National banks is done under the restrictions prescribed
by the act of Congress; and the rate of discount is expressly prescribed among the various
regulations contained in the act for the government of the banking business; and for tak-
ing, receiving, or charging any greater rate of interest or discount than is by the act al-
lowed, the bank subjects itself to the penalties prescribed by section 6196 of the Revised
Statutes ; but the title to the paper is not thereby affected. However the transaction here
involved might be characterized if it were between individuals — whether it be called shav*
log or otherwise — as a bank transaction, if the bank exacted a greater deduction from the
face value of the paper than the law allowed, it was excessive discount, for which it incur-
red the penalties of the statute; but the transfer of the paper vested a good title in the
bank.**

A rehearing w*as ordered, and Babtol, C. J., and Bowdb, Bbkmt, Obason, Mn.i.KB, Alvkt
and iKVDfO, JJ . participated in the decision on the reargument.

QoASON, J., delivered the opinion of the court, substantially the same as above, but Bab-
tol, C. J., Irv»o and Alvkt, J J., dissented.

In Atlantic State Bank v. Savery, ® N. Y. 291, under a State statute having language
idmilar to that of the National Banking Act, it was held that the purchase of a promissory
note for a sumless than its face is a '^discount.'* The court said: *' The defendants claim
in the first place that this transaction was a purchase, and not a dlscotmt, and that * the
buying of promissory notes is not within the powers conferred upon a banking assodatJon.*
The plaintiff was, by the act above referred to, empowered * to carry on the business of
banking by discounting bills, notes and other evidences of debt, * * * by buying and
selling gold and other bullion, foreign coins and bills of exchange, in the manner spedfled
in their articles of association for the purposes authorized by this act, by loaning money
on reed and personal security, and by exeroising such incidental powers as shall be neces-
sary to carry on such business.*

**The transaction above narrated, and throu^ which the plaintiff acquired the note In
question, was, I think, directly within the power thus conferred to carry on its business,
* by discounting * * * notes and other evidences of debt,* and this is so aooording to
the general practice and understanding among men, and the decisions of our courts.
" Discount * is * reduction.* Roget's Thesaurus.

'* In MacLeod on Banking, a book of authority, speaking of 'price, discount and inter-
est,* the author sasrs, page 48, * Now as money naturally produces a profit, it is clear that
the price given for a debt payable a year hence must be less than the amount of the debt.
The difference between the price of the debt and the amount of the debt is called discount.
Therefore clearly the price, together with the discount, equals the amotmt of the debt ;
and as the price decreases the discount increases. In the language of the money market
It is usual to estimate the value of money by the discount or the profit it yields ; and to

Vol. XXXVI— 46



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362 MARYLAND,



Lazear v. National Uuion Bank of Baltimore.



buy or purchase a debt Is always in commerce termed to discount it.* And see further
page S91, where the subject is amplified.

** I find nothing in tho statute to Indicate that the word 'discount* Is there used in any
other than the general sense, above referred to, nor can I perceive that any evil can result
from the construction given to it in this respect by the trial court, and the learned judge
^ho delivered the opinion at General Term. It accords also with the decisions of tbo
courts. In Tracy v. Talmage^ 18 Barb. 4o«, referring to the provisions contained in section
18 of the law ubove cited, and a banking association organized under it, the court say : ' Ji
was authorized, among other things, therefore, ' to discount ' not only bills and notes, but
other evidences of debt, without restriction, and to loan money on any kind of security
' I'eal ' or ' personal.* ' Now to discount ' includes to buy, for discounting at most is bur
another term for buying at a discount, page 462. And although the judgment render^l
was subsequently modified by this court (14 N. Y. 462), it was not in disaffirmance of ti .
views above cited. Passing intermediate cases, we find Johiwon v. NtUwncU Banit o/
Ulm^crHvUle, 74 N. Y. 329; s. c, 80 Am. Rep. 302, where, although the distinction now in-
sisted upon was not taken, or before the court for judgment, yet the terms * discount ' and

* purrha*^} * were used interchangeably, and as synonymous, in construing the act of Con-
gress tliercin referred to, % 107, as applied to business paper taken by a National bank, and
the argument deduced in that cose from the word 'purchase,* applies, I think, with more
force to the case before us. Many other authorities to the same end are cited by the
learned counsel for the respondent, and they might easily be increased, but it is unneces-
sary to refer to them. The legislature itself has given to the provision in question the
same construction. By the act, chap. 193, Laws of 1870, amending the act of 1638, such

* banking association is authorized to take, receive, reserve and charge on every loan or
discount nmde, or upon any note, bill of exchange or other evidence of debt,' interest at the
rate of seven per t-ent in advance; it prescribes a penalty for taking more, and then
declares that * tho purrliase, discount or sale of a bona fide bill of exchange, note or other
evidence of debt * * * at not more than the current i*ate of exchange, or a reasonable
charge for collecting in additi«>n to interest, shall not make a case within the penalty.' It
is thus assumed that the power to purchase a promissory nott^ is contained in the act thus
amended, and by this later provision we have a legislative interpretation of the words
used in the earlier statute. It is also to bo observed that the act just cited of 1870 is
broader than the act of Congress relating to the same matter (J 5197, IT. S. Rev. Stat.), for
the latter applies its last clause to the purchase, et<;., of bills of exchange only, while the
former includes notes and other evidences of debt. I have not overlooked the authorities
referred to by the learned counsel for the appellants as holding a different doctrine. Tlie
ones chiefly relied upon by him are Niagara ("aunty Bank v. BaJter^ 15 Ohio St. 68: Far^
mersand McduinicH' Bank v. lialdwin, 23 Minn. 198; s. c, 83 Am. Rep. 683; but the first
turned upon thf question of usury. The action was against pariies who had indorsed and
transferred tho notes in suit to the bank in this State In consideration of money advance<l
to them thertMin at the rate of twenty per cent per annum discount, and the €M>urt say:
'Without undertaking to «iy what may be the h'^al bearings of this transaction in other
directions, we are of opinion that the contract of in<lorsement was made upon a usurious
consideration and cannot be enforced.' There was plainly a loan of money and it was
made subject to the law of the ?tate, which permitted interest at seven per cent only, and
to which tho bank was subject. If the action had been against the makei-s of tho not";
who were not parties to their negotiation to the bank, a dilTerent question would havt>
Ufn prt»sented, and one more analogous to that now before us. In the other case the nolo
in suit was made by Judd, and iiidorsetl by Baldwin, Its payee, for Judd's accommodati; • ,
for him to raise money upon, and thti agent in whose hand it was placed by Judd for that
purpose transferred it to tlie plaintiff, receiving from it the face of the note, less intertn t
thereon at the rate of fifteen iier cent per annum. Judd did not defend, but the Indorsor
did, and set up that by its charter the plaintiff was prohibited from taking upon loans "t
discounts more interest than at the rate of twelve i>er cent per annum ; that this stati't*
was coutravtMUHl by the plaintiff in this transaction, and so it was void. Upon the trJ*
the court in^tnicted the jury that the plaintiff had no power under it« charter to buy rlw
note in suit, or to btn.>onie the owner thereof except by discounting or loaning money upoX
it nt a rat*' of ii»t«M-cst not «'.\c«'«diiij; twelve jhm- cent i>er annum, and that if the plain>'^



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APRIL TEllM, 1879. ^

Lazear v. National Union Bank of Baltimore.

discounted the note, or became the owner of it as a security for a loan made at a rate of
interest exceeding twelve per cent p^r annum, the verdict must be for the defendant, and
so it was. It is difficult to see how any other result could have been reached. But the
question determined in these cases dees not concern us. The indorsement in the first was
void for usury in the hands of the plaintiff ; the note in the second never had a valid
inception ; both were in violation of positive law, and the theory upon which the actions
rested was adopted to evade the statute. But if such questions had arisen imder the
banldng law of this State, as amended in 1870, the plaintiff in each Instance could main-
tain its action, being itself subject only to the i)enalty which that act prescribes, and after
a careful examination of all the other cases cited in behalf of the appellant I can find none
which hold otherwise. It will be seen that In the principal cases cited (15 Ohio and 23
Hinn., $upra) the plaintiffs sought to uphold the transactions in question, upon the ground
that the notes were purchased, and so not within the statute relating to usury, or which
regulated the rate of interest to be taken upon loans of money or the discount of anote.
They did not succeed. In the case before us the defendants do not allege, and upon the
facts of the case cannot allege usury, but they say the note was purchased, not discounted,
and so not within the terms of the statute. The defense then rests upon a supposed du«-
tinction or difference between discount and purchase, and upon the assumption that the
plaintiff purchased and did not discount the not<\ I cannot so regard it. The note was
one which was the subject of discount It was a negotiable promissory note, properlj-
made and Indorsed. If it had been handed over the counter of the bank by Leonard,
Sheldon & Co.. seven per cent deducted and the residue paid to them, no one, I think,
would deny that the transaction was, within any definition, a discount. Does it make ^y
difference in Substance that the bank or the bank offlcer went to Leonard, Sheldon & CJo.,
and received the note over their counter? Certainly not. Is the distinction to be found In
the writing which accompanied the note? It was not necessary; a delivery of the note
would have conferred a title; Leonard, Sheldon & Co. would have ceased to be the owners,
and the bank would have become the owner of the paper. Does the paper change the
character of the title? If the note had been taken to the bank, offered for discount and
accepted, and some evidence of the act asked for, the bank would have written:

* Received of Leonard, Sheldon & Co., and discounted for them — Note. C. F.

Parker & Co., due June 30 $3,000 00

Ind. A. Law and Jno. Savery^s Sons, eighty-^even days at nine per cent 65 25



$2,d34 T5 »



Would not the title of the bank have been precisely the same as now? In the one casie the
vendor and in the other case the vendee states the contract ; nor would it have changed
the meaning of the paper if the words ' bought of * were substituted for * discounted for.*
This supposed paper and the one actually drawn complement each other, and taken
together describe the transaction. Nor does the fact that Leonard, Sheldon & Co. did not
Indorse the note make any difference. A note payable to the order of the maker becomes
when indorsed payable to bearer. That was this case. If it had been payable to the
order of Leonard, Sheldon & Co., they might have indorsed it without recourse. The
money in either form would have been lent or advanced, without personal liability on the
part of the person receiving it, for the loan or advance would have been made as It was lo
this case on the credit of the note, and when that was paid the loan would be discharged.

**I think the transaction was within the statute, and whether it is called a discoimt or 4
tmrchase, valid.**

To same effect, Ptjpe r. Capital Bank of Topeka, 20 Kans. 440; s. a, 87 Am. Rep. 183



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364 MABYLAND,



Stonebraker v. Zollickoffer.



Stokebrakeb y. Zollickoffer.

(SSMd. 154.)
Timber — interest of tenant for life in windfaXL

A quantity of timber growing on a fann was blown down hj wind, and b^ tbe
trustee under the will of the former owner was converted Into cooper stuif
and firewood, and sold. HeU^ that the tenant for life of the farm was en-
titled to the proceeds of the firewood, and to the interest for life of the
amount realized for the timber. {See note, p. 366.)

BILL in equity. On the hearing, Altby, J., delivered the fol-
lowing opinion. [Omitting a preliminary question.]

^* Such being the right and estate of George M. Stonebraker, the
plaintiff, the next question is, what interest has he in the fund pro-
duced by the sale of the timber and wood from the farm ?

" Timber as such belongs to the inheritance. Tenant for life,
unless he holds without impeachment of waste (which is not the
case here) has no right to fell timber, except for necessary and
proper repairs of the buildings and erections on the premises.
And where timber has been blown down by wind, or seyered by
accidental cause, or has been cut down by a wrong-doer, it belongs to
the party who has, at the time of severance, the first estate of in-
heritance. This was ruled in Bowlegs case (11 Co. 79), and the
principle has been acted upon in many subsequent cases. And
where timber has been so severed, the fund arising from the sale of
it, the court will order to be invested for the benefit of the estate —
that is, the inheritance ; and according «to the later cases, though
otherwise in some of the earlier ones, the tenant for life, though
he may be subject to impeachment for waste, if free from blame in
respect to the particular timber severed, will be allowed to receive
the interest of the fund for life. This is the settled rule in case
where the timber is cut by order of court for the benefit of the
estate ; and it has been decided that the reason and justice of the
rule equally apply to the case where the timber has been severed by
tempest, accident, or trespass, if the tenant for life be without
fault. Tooker v. Anneslej/y 5 Sim. 235 ; Waldo v. Waldo, 7 id. 261;
Bateman v. HotchJcmy 31 Beav. 486; Bagot v. Bagot, 32 id. 509. The
tenant for life being entitled to the interest of the fund in the one



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APRIL TERM, 1879. 366



Stonebraker v. Zollickoffer.



case, it is difficult to perceive any good reason why he should r.ot
be entitled in the other ; as in both cases he is equally deprived of
the possible benefits that the trees might be to the use and enjoy-
ment of his term, and that, too, without his fault.

'^ But though the tenant for life may not be entitled either to the
timber or the corpus of the fund arising from its sale, yet he is
entitled to the old trees which cannot be nsed as timber, and to the
tops and branches of the trees which have been felled for timber,
and also to the regular thinnings and trimmings of the trees in the
woods ; and these he may convert into fire wood, or to any other
use that he can make of them. HerlaJcenden^s case (3d resol.), 4
Co. 62 ; Channon v. Patchy 6 B. & Cr. 897. Here, while the fund
in question is alleged to have arisen from the sale of timber and
wood, it is not alleged, nor shown in proof, what part of the fund
was produced by the sale of timber, and what part from the sale of
wood. Upon the supposition that nothing was converted into fire
wood, that was valuable as timber, it will be necessary that the



Online LibraryIrving Browne Isaac Grant ThompsonThe American reports: containing all decisions of general ..., Volume 36 → online text (page 41 of 123)