
    Youngblood v. Birmingham Trust & Savings Co.
    
      Action on Accepted Draft, by Payee against Accommodation Acceptor.
    
    1. Discount of draft by banker, at usurious rate of interest. — When a draft, having been accepted by the drawee for the accommodation of the drawer, is presented by the latter to the banker to whose order it is made payable, and who then advances the amount to him, deducting a certain per cent, in advance for the use of the money until the maturity of the draft, the transaction is a discount of the draft within the meaning of the statute which makes it a misdemeanor for. any banker to “discount any note, bill of exchange or draft, at á higher rate of interest than eight per cent, per annum” (Code, § 4140); and if the sum deducted, excluding difference of exchange, is more than legal interest, the banker can not maintain an action against the acceptor, the contract being unlawful.
    2.- Same; constitutionality of statute. — The statute which makes it a misdemeanor for “any banker” to discount any note, bill or draft at more than legal interest (Code, § 4140), applies to banking corporations as well as individual bankers, and is not an unlawful exercise of class legislation.
    Appeal from tbe City Court of Birmingham.
    Tried before tbe Hon. W. W. WilkersoN.
    Tbis action was brought by tbe appellee, a private corporation located in Birmingham, against William Youngblood, and was founded on the defendant’s acceptance of a' draft for $1,000, drawn on him by Swem & Thomas, in favor of the plaintiff; which draft was dated at Birmingham, September 3d, 1889, payable to the plaintiff’s order, thirty days after date, and accepted by the defendant for the accommodation of said Swem & Thomas. The plaintiff advanced the money on the accepted draft to Swem & Thomas, deducting $11.34 for the use of the money until its maturity; and several partial payments having been made on the draft, this action was brought to recover the balance due. The defendant filed a special' plea, alleging, in substance, that plaintiff was a banker, and acquired the draft by a discount of it at a greater rate of interest than eight per cent., in violation of section 4140 of the Code. The plaintiff demurred to this plea, on the ground that the facts stated did not show a discount of the draft, and because said statute was unconstitutional. The court sustained the demurrer, and issue being joined on other .pleas, one of which set up usury, and a jury being waived, rendered judgment for the plaintiff, for the balance due, without interest. The judgment on the demurrer is assigned as error.
    Taliaeerro & Houghton, for the appellant.
    (1.) The plaintiff acquired the draft by an illegal discount of it, and therefore can not recover. — Code, § 4140; 3 Rand. Com. Paper, § 1704; Amer. & Eng. Encyc. Law, Discount; Bouv. Dictionary, tit. Discount; Saltmarsh v. P. M. Bank, 14 Ala. 668-77; Mauldin v. Br. Bank, 2 Ala. 513; Carlisle v. Hill, 16 Ala. 398; Faris v. King, 1 Stew. 259 ; Insurance Go. v. Quinn, 73 Ala. 558; 80 Ala. 258 ; Miller v. Bates, 35 Ala. 580. That a contract founded on an act prohibited by statute is void, see Woods v. Armstrong, 54 Ala. 150 ; s. o., 25 Amer. Rep. 671, and note; Williamsv. Evans, 87 Ala..725; Robertson v. Hayes, 83 Ala. 290; Harrison v. Jones, 80 Ala. 412; Shippey v. Eastwood, 9 Ala. 198 ; O’Donnell v. Sweeny, 5 Ala. 468. (2.) The statute now embraces individual bankers and banking corporations, and is not unconstitutional. — •Garter v. Coleman, 84 Ala. 256; Harrison v. Jones, 80 Ala. 412 ; Ex parte Marshall, 64 Ala. 266; Railroad Go. v. Baldwin, 85 Ala. 619; Mayor v. Yuille, 3 Ala. 137; Shelton v. Mayor, 30 Ala. 540; McCreary v. State, 73 Ala. 480. That a statute is not unconstitutional because it conflicts with natural right, see Dorman v. State, 34 Ala. 216-31.
    Gillespy & SMYER, contra.
    
    (1.) The transaction between the parties was simply a loan, of money, and not a discount of the draft. — Saltmarsh v. P. & M. Bank, 14 Ala. 677; Fleckner v. U. S. Bank, 5 L. C. P. Co. (U. S.) 634; Bank v. Johnson, 26 Ib. 742. (2.) The statute does not prohibit the discounting of notes, bills and drafts, but only the taking of illegal interest; and if the transaction be within its terms, the penalty incurred is the forfeiture of the interest under the general law against usury. A contract made in violation of a general statute is void only when the subject-matter thereof is prohibited. — Dudley v. Collier & Pinckard, 87 Ala. 433; Campbell v. Segars, 81 Ala. 259; Harrison v. Jones, 80 Ala. 412 ; Renfro v. Lloyd, 64 Ala. 95; Cuano Co. v. Dawkins, 57 Ala. 115; Woods v. Armstrong, 54 Ala. 150. If the plaintiff were a National bank, the principal would not be forfeited, and there should be no discrimination against a State bank. 23 L. C. P. Co. (U. S.) 126; 91 Ala. 217. (3.) The statute is unconstitutional. — Carter Bros. v. Coleman, 84 Ala. 259; Smith v. L. & N. Railroad Co., 
      75 Ala. 450; Some Protection Ins. Co. v. Richardson, 74 Ala. 466; Green v. State, 73 Ala. 26; Railroad Co. v. Morris, 65 Ala. 194; Ziegler v. Railroad Co., 58 Ala 594; Mayor v. Insurance Co., 53 Ala. 170.
   McOLELLAN, J.

Tbe terms “discount” and “loan” are employed in tbe books indiscriminately and synonymously in all cases where compensation for the use of money advanced is retained out of tbe gross sum at tbe time of tbe advancement. Thus it is said: “Discounting, or loaning money, with a deduction of tbe interest in advance, is a part of tbe general business of banking,” &c. — 2 Amer. & Eng. Encyc. of Law, p. 92. And a discount is thus defined: “By tbe language of tbe commercial world, and tbe settled practice of banks, a discount by a bank means, eoc 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 tbe bank. Tbe term ‘discount,’ as a substantive, means tbe interest reserved from tbe amount lent at tbe time of making tbe loan; as a verb, it is used to denote tbe act of giving money for a note or bill of exchange, deducting the interest.” 5 Amer. & Eng. Encyc. of Law, 678-9. A distinction between discounts and loans is sometimes enforced by tbe terms of statutes obtaining in tbe premises; but, in tbe absence of any element of this kind — whenever tbe words stand alone upon tbe signification accorded them in tbe general law — every loan upon evidences of debt, where tbe compensation for tbe use of money till tbe maturity of tbe debt is deducted from tbe principal and retained by tbe lender at tbe time of making the loan, is a discount.- — Fleckner v. U. S. Bank, 8 Wheat. 351; Nat. Bank v. Johnson, 14 Otto, (U. S.) 276; Saltmarsh v. P. & M. Bank, 14 Ala. 677; Loan Co. v. Towner, 13 Conn. 259; Pope v. Capitol Bank, 20 Kans. 440; Bank v. Baker, 15 Ohio St. 85; Talmadge v. Pell, 7 N. Y. 328; Bank v. Bruce, 17 N. Y. 515; Freeman v. Britton, 2 Harr. (N. J.) 206.

On these principles, we entertain no doubt that tbe transaction in and by which plaintiff acquired tbe draft of Swem 6 Thomas, which bad been accepted by defendant for tbe accommodation of the drawers, by advancing to Swem & Thomas tbe face value thereof, less a certain per cent, thereon which was retained by plaintiff for tbe use of tbe gross sum so advanced for tbe time of tbe paper, was a discounting of tbe draft within tbe usual sense of that term, and hence within tbe meaning of tbe word as employed in section 4140 of the Code, there being nothing in the context of that section importing a different significance.

The section referred to is as follows : “Any banker who discounts any note, bill of exchange, or draft, at a higher rate of interest than eight per cent, per annum, not including the difference of exchange, is guilty of a misdemeanor.” It is admitted that the plaintiff discounted the draft in question at a higher rate of interest than eight per. cent.. per annum;. or rather, it is admitted that the plaintiff, which is a banking corporation, acquired the draft by paying or advancing thereon the sum nominated therein, less about one per cent, which was deducted and retained by it as compensation for the use of the money till maturity of the paper, which was due and payable at thirty days. This, as we have seen, was a discounting of the draft within the statute quoted; and the rate of discount being equal to twelve per cent, per annum, the discount was violative of the statute, and involved a crime on the part of plaintiff, assuming the. constitutionality of the enactment.

This was section 4435 of the Code of 1876. It was then directed against individual bankers only. As it then stood, it was adjudged to be unconstitutional by this court in Carter Bros. & Co. v. Coleman, 84 Ala. 256. The ground of that decision is not expressly stated, but it was based on authorities (Smith v. L. & N. R. R. Co., 75 Ala. 449, and S. & N. R. R. Co. v. Morris, 63 Ala. 193), a reference to which leaves little doubt that the statute was held invalid because it did not apply also to corporations engaged in the business of banking; and this is made manifest by the further statement of the court: “The statute has since been changed (Code, 1886, § 4140), with what effect we need not inquire.” The change here referred tcf consists in the omission from its last codification of the word “individual,” the effect being to make it applicable to corporate as well as individual bankers, and to obviate the infirmity pointed out in Carter Bros. & Co. v. Coleman. We do not conceive that there could have been any other objection to the constitutionality of the original enactment; and, that objection having been eliminated by amendment, we áre clear in the conviction that it is now a valid and efficacious exercise of legislative power. It is quite erroneous to say that it is class legislation, in a vitiating sense. It does apply to a class, of course, as do very many other statutes in our jurisprudence whose validity has never been, and can not be successfully questioned; as, for instances, statutes regulating railroads, physicians, lawyers, common carriers, warehousemen, &c.; but, like all these, its application is to all of a number of persons, natural and artificial, whose occupation and business mark the lines of the class to which they belong, and as members of which they are each and all, without invidious distinction whatever, amenable to its terms solely because they pursue an avocation which the law-making power'conceives should be specially regulated.

The business of banking is well understood and defined. A chief part of it, in most instances, consists in the lending of money, and this is almost always done by discounting-evidences of debt. The opportunities and temptations of persons engaged in it to evade or violate laws against usury are so much greater and more frequent than those of persons not so engaged, as to raise up a necessity for the application of more' stringent measures of repression than are necessary in respect of other businesses and persons engaged therein. And it is this consideration which differentiates the business of banking from all others in respect of usury, and furnishes a predicate for such legislation as is embodied in section 4140 for the regulation of banking and bankers, which does not exist as to any other occupation; just as the inherent clangers involved in the operation of a railroad differentiates that from other occupations, and necessitates legislation which would be entirely unnecessary and innocuous in respect of the business of farming, for instance. Anri upon this ground statutes of this character, when made to apply to all persons, whether individuals or corporations, regulating occupations, have been uniformly upheld. Judge Cooley, in this connection, says: “The legislature may also deem it desirable to prescribe particular rules for the several occupations, and to establish distinctions in the rights, obligations, duties and capacities of citizens. The business of common carriers, for instance, or of bankers, may require special statutory regulations for the general benefit; and it may be matter of public policy to give laborers in one business a specific lien for their wages, when it would be impracticable and impolitic to do the same for persons engaged in some other employments. If the law be otherwise unobjectionable, all that can be required in these cases is, that they be. general in their application to the class or locality to which they apply ; and they are then public in character, and of their propriety and policy the legislature must judge.” — Cooley’s Const. Lim., pp. 480-81.

In a recent case, a statute of Kentucky which gave a right of action against railroads to the representatives of persons, not in the service of the road, killed through the negligence of railroad employes, came before tbe Supreme Court of tbat State on tbe question of its constitutionality. Tbe argument was tbat tbis was class legislation in tbat it applied to railroads alone, and no liability was imposed upon other common carriers. Tbe court, in bolding tbis position to be unsound, among other things, said : “ Tbis statute does not single out a particular individual or corporation, and subject him or it to special burdens or peculiar rules. Nor does it do so as to some of those engaged in a particular business, as for instance, tbe Chinese in tbe laundry business, and which tbe Supreme Court of tbe United States condemned in tbe case of Soon Hing v. Crowley, 113 U. S. 703, but it subjects all in a particular business to its provisions, just as a law relative to banks and tbe conduct of banking would subject all in tbat particular business to its terms. Legislation of like character is to be found upon tbe statute books of every State.” — Louisville Safety Vault & Trust Co. v. Louisville & Nashville R. R. Co., 17 So. W. Rep. 567; s. c., 14 L. R. A. 579 and notes; and to like effect in principle are tbe following cases therein cited: Railway Co. v. Mackey, 127 U. S. 205; Railway Co. v. Beckwith, 129 U. S. 27; and so, 'on tbe same principle, a statute fixing tbe rate of interest which maybe charged by pawnbrokers, is no violation of a constitutional provision for “uniform laws.” Jackson v. Showle, 29 Cal. 267. And tbe general power of tbe legislature to regulate occupations and businesses of all kinds, keeping within tbe principle tbat all members of a particular class proposed to be regulated must be equally amenable to tbe regulations made, has been time and again declared by tbis court. — Mayor v. Yuille, 3 Ala. 137; Ex parte Marshall, 64 Ala. 266; Harrison v. Jones, 80 Ala. 412; L. & N. R. R. Co. v. Baldwin, 85 Ala. 619 ; McDonald v. State, 81 Ala. 274. Upon a consideration of tbe foregoing authorities, and tbe reasons which underlie them, we are, we repeat, without doubt in tbe conclusion tbat section 4140. of tbe Code of 1886 is a constitutional enactment.

It is equally free from doubt, in our opinion, tbat tbe effect of tbis statute on tbe transaction in and by which tbe plaintiff acquired tbe draft and acceptance sued on would vitiate it in toto, and avoid and defeat all right on tbe part of tbe plaintiff under tbat contract. Tbe title upon which plaintiff relies is one which be acquired in confessed and palpable violation of a law which denounced bis act in tbat regard as a crime. Tbe doctrine is nowhere more firmly established than in Alabama, tbat no rights can spring from or be rested upon an act in tbe performance of which a criminal penalty is incurred, and that all contracts which are made in violation of a penal statute, are as absolutely void as if the law had in so many words declared that they should be so. — Moog v. Hannon’s Adm’r, 93 Ala. 503, where our cases are collated. And the logical consequence of the doctrine, in a case like the present one, involving the acquisition of a note, bill or draft by criminal means, is that not only is the act of acquisition a crime and invalid, but the paper itself — the supposed security for money advanced in contravention of the statute — is absolutely void, in the hands, at least, of him who comes by it through the commission of a penal offense. — Pennington v. Townsend, 7 Wend. 276; Bank of U. S. v. Owens, 2 Peters, 527.

The rulings of the trial court on the pleadings, and its finding and judgment on the facts, are opposed to these views. The judgment is reversed, and the case having been tried without jury below, judgment will • be here rendered for the defendant.

Beversed and rendered.  