LOANS AND DISCOUNTS 43. The term discounting, as used in banking, means the purchase of commercial paper by a bank, or bankers, before maturity, deducting the interest, and taking an indorsement of the seller thereon by way of security, he thereby becoming accountable for its payment. The discount is the difference between the sum of money paid by the bank and the amount of the instrument. There is a difference between buying an instrument and discounting it; the former term is used when the seller does not indorse the instrument; the latter, when he does. The true discount for a given sum, for a given time, is such a sum as will in that time amount to the interest of the sum to be discounted.100 The taking of legal interest in advance is not usurious," but it is only allowed for the benefit of trade and where the bill or note discounted is meant for circulation and is for a short term. 162 The powers of discounting commercial paper and making loans belong to banks generally. Where a bank makes a loan, it may, unless prevented by law or by a provision in the bank's charter, take either personal or real estate as security for the loan. The power to take collateral security is one incidental to the banking business.163 The deposit of the borrower held by the bank may be collateral security for the loan; and a bill of lading is sometimes given as collateral, by which the bank secures a lien on the property covered by the bill of lading to the amount of its advance." 164 44. The interest charged by a bank as a consideration for a loan must not exceed the legal rate, unless the right to charge interest in excess of the legal rate be expressly conferred by the charter of the bank, or by statute. Interest in excess of the legal rate is termed usury. Where a bank's charter provides that the bank "may discount notes and other evidences of debt, and lend money on such terms = 160 Bouv. Law Dict. 1612 Cow. (N. YJ 712 (1824); 3 Wend. (N. Y.) 408 (1829). 162 11 Ark. 145 (1850); 105 Cal. 376 (1895). 163 Zane B. & B.. Sec. 192. 164 108 N. Y. 242 (1888). and rates of interest as may be agreed upon," it does not authorize the bank to charge more than the legal rate of interest for money loaned." 168 National banks are permitted to charge the rate fixed by the laws of the state for natural persons, unless a higher rate be allowed to banks of issue, in which case they may charge the latter rate. Where no rate is fixed by the laws of the state, national banks may charge seven per centum.' In most of the states, the legal rate of interest is six per centum, and interest in excess of that is usury. 166 The effect of a usurious contract is usually declared in the statute making such contracts illegal, and varys in the different states. In some states, the loan is declared void; in others, the interest is forfeited; in others, the excess of interest over the legal rate is forfeited.'" The national bank act, making seven per centum the legal rate of interest so far as concerns national banks, declares that, where a usurious interest is charged, the whole interest is void if it be not paid, and allows a recovery of twice the excess, or, as held by some courts, of twice the whole interest paid, where the transaction is complete. Where the interest has not been paid, the interest is simply declared void and the bank can recover only the principal of the note. CAPITAL STOCK OF BANKS 168 45. Capital stock is the property or means contributed, or to be contributed, by the stockholders of the corporation, as the fund or basis for the business or enterprise for which the corporation or association was formed. The terms capital and capital stock are frequently used interchangeably; capital stock sometimes refers to the property and assets of the corporation, and capital to the amount paid in or to be paid by the stockholders. But capital, or capital stock, is to be distinguished from shares of stock, or certificates of stock, which represent and are the evidence of the interest which a stockholder has in the corporation. The capital stock of a company is its capital, existing in money or other property, while that of the shareholders is representative, not merely of that existing and tangible capital, but also of surplus, of dividend-earning power, of franchise, and the good-will of an established and prosperous business.170 169 The capital of a national bank is required to be not less than one hundred thousand dollars, except that banks with a capital of not less than fifty thousand dollars may, with the sanction of the secretary of the treasury, be organized in any place having not more than six thousand inhabitants. No national bank is permitted to be organized in a city, the population of which exceeds fifty thousand persons, with a smaller capital than two hundred thousand dollars." The currency act of March 14, 1900, provides for the formation of national banks with capitals of twenty-five thousand dollars in places having less than three thousand inhabitants, when sanctioned by the secretary of the treasury." 168 21 Wall. (U. S.) 284 (1874); 30 Conn. 290 (1861). 169 63 Cal. 529 (1883); 95 U. S. 679, 686 (1877). 171 170 126 N. Y. 433 (1891); see The Law of Corporations: Capital Stock. 171 U. S. R. S., Sec. 5,138. 172 Stat. at L., 1st Sess. 56th Cong. (18891890), c. 41, Sec. 10. The capitals of state banks, savings banks, and other institutions having banking privileges, are regulated by the statutes of the states in which they are chartered. In the District of Columbia, such institutions are organized, operated under, and regulated by, national legislation. Certain savings banks and trust companies which were organized under former acts of congress are regulated as provided in the national bank act, and must make reports in the same manner as national banks, and are subject to the same penalties. HOLDERS OF BANK SHARES 46. A stockholder in a bank is one who owns a share, or shares, of the stock of the institution. The term is used synonymously with shareholder in the United States. In England, the word shareholder is almost exclusively employed. The shareholders, or stockholders, of a banking institution are persons who subscribe for the shares at the formation of it, or procure them by subsequent transfer. It is the money contributed by them which makes the capital upon which the business operations of the bank are based; they are the bone and sinew of the bank's existence. Each stockholder has a proportionate share in the bank's assets, and is entitled to take part in its control and receive its dividends; in other words, the stockholders have each a separate interest in the corporate property consisting in the right to participate in the profits, according to the number of shares of stock they may own respectively, and to a distributive share of the residue of the corporate property after the payment of its debts. 173 The right of a stockholder to visit the bank and inspect the books is conferred by statutes in some states, and is binding alike upon all banks, state and national. Banks are private enterprises for profit, and a stockholder's participation in the profit accumulation and his right to demand the 173 67 Fed. Rep. 816 (1895). same are inviolable; and the electoral right in the choice of directors, and the right to be a director or other officer, which in a national bank requires a stockholder to be the owner of at least ten shares, are undisputed. LIABILITIES OF STOCKHOLDERS 47. The national bank act declares that the holders of the shares of a national bank are individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of the association to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares." The first engagement of liability is when a person becomes a stockholder by subscription to pay the amount thereof, which is the same liability that attaches to stockholders in other corporations. Whatever is stipulated to be paid on the subscription, be it money or other valuable thing, must be complied with. The subscriber to the stock of a bank is subject to the same legal process that is employed against those of other corporate bodies to compel payment of the sum subscribed; also, to the remedies which creditors have by garnishment. Liability attaches to a person who holds himself out, or permits himself to be held out, as a stockholder. Such a person is known as a stockholder by estoppel." In all essential particulars, a stockholder is distinguishable from one who holds stock as collateral, and, therefore, one who holds stock of an insolvent national bank as collateral security for a loan, which stock is registered in his name "as collateral," is not liable to assessment upon such shares under the statutory liability of stockholders. 176 Persons holding national-bank stock in a fiduciary capacity, such as executors, administrators, guardians, or trustees, are not personally liable as stockholders, but the estate and funds in their hands are liable in like manner and to the 174 U. S. R. S., Sec. 5,151. 175 See The Law of Corporations. 176 67 Fed. Rep. 816 (1895). |