of indorsement void (at the instance of the third person or borrower) would be adding a penalty to that imposed by the act, which the court has no power to do. Oates v. National Bank, 100 U. S. (10 Otto) 250, 25 L. ed. 585. As to the validity of such contracts outside the National Banking Act, where no penalty is prescribed, see Tiffany . Boatmen's Savings Institution, 18 Wall. 375, 21 L. ed. 868.

5. The right of action to recover the penalty prescribed by this section is a "claim" or debt," which passes to an assignee in bankruptcy, who is the "legal representative" of the bankrupt in whose favor it has accrued, within the mean ing of this section. Wright . First National Bank, 8 Bissell, 243, Fed. Cas. No

18,078.

6. The discount of a note by a national bank at a usurious rate works a forfeiture of such interest as would otherwise have accrued after the maturity of the note. First National Bank v. Stauffer, 1 Fed. Rep. 187. This section was amended by the Act of February 18, 1875, post, by adding a sentence providing in what courts suits, etc., may be brought.

7. The National Banking Act is to be liberally construed to effect the ends for which it was passed; but a forfeiture under its provisions should not be declared unless the facts upon which it must rest are clearly established, as when a bank discounts bills of exchange payable elsewhere, and in a suit brought thereupon by the bank the defense of usury is set up, it should appear affirmatively that the bank knowingly received or reserved an amount in excess of the statutory rate of interest and the current exchange for sight drafts; and where, in such case, it is proven that a certain rate of exchange was charged in addition to the legal rate of interest, but not that such exchange was in excess of the current rate at the time of discount. Held, insufficient to authorize a forfeiture Wheeler v. National Bank, 96 U. S. 268, 24 L. ed. 833.

8. Under this section suits may be brought "by" as well as "against " national banks. The word "by" omitted by mistake. Kennedy v. Gibson, 8 Wall. 505, 19 L. ed. 478.

9. National banks may, by reason of their character, sue in the Federal courts. First National Bank of Omaha v. Douglass County, 3 Dillon, 299, Fed. Cas. No. 4,809. This decision seems to be overruled by section 4 of Act of Congress of July 12, 1882, post. See also Union National Bank. v. Miller, 15 Fed. Rep. 703, in which case it was held that the effect of the said act (section 4) "is to place national and other banks, in respect to their rights to sue in the Federal courts, on the same footing." That a national bank cannot, therefore, in virtue of any corporate right, sue in a Federal court. But as to right of removal into Federal courts. by national banks, or suits begun by or against them in State courts, see section 2 of Act of Congress of March 3, 1875. The decision in Cruikshank v. Fourth National Bank, 21 Blatchf. 322, 16 Fed. 888, construing said section, practically gives to these banks the right to remove every such suit into the Federal courts.

10. The provisions of this section, respecting the jurisdiction of State courts in actions (by or) against national banks, was intended as a restriction on the general provision in regard to jurisdiction in subdivision 4 of section 5136, U. S. Comp. Stat. 1901, p. 3455, by confining the jurisdiction of such actions to the State, county or municipal court in the county or city in which the association

is located.

Cadle v. Tracy, 11 Blatchf. 115, Fed. Cas. No. 2,279. See also to same effect, Crocker v. Marine National Bank, 101 Mass. 240, 3 Rep. 336, and contra, Cooke . State National Bank, 52 N. Y. 96, 11 Am. Rep. 667. The decision (11 Blatchf.) seems to be overruled by Act of Congress of July 12, 1882, post.

11. A national bank cannot be sued in the United States District Courts outside of the district where it is located. Main v. Second National Bank, 6 Bissell, 26, Fed. Cas. No. 8,976.

12. National banks are not authorized to sue in the Federal courts out of the district in which they are located, when the amount in controversy does not exceed $500. St. Louis National Bank v. Brinkham, 1 McCrary, 9, 1 Fed. 45.

13. This section relates to transitory actions only, and not to such actions as are by law local in their character. It was not the intention of Congress to exempt banks from the ordinary rules of law, affecting the locality of actions. Hence a national bank can be sued in a State court, in a local action, in any other county or city than that where the bank is located. Casey v. Adams, 102 U. S. (12 Otto) 66, 26 L. ed. 52. In Cruikshank v. Fourth National Bank, above cited, it was held that a suit against a national bank in a case arising under the laws of the United States, within the meaning of section 2 of act of March 3, 1875, in regard to the removal of suits. WALLACE, J., in his decision, stating that he did not believe that the judgments to the contrary, in the cases of Pettilon v. Noble, 7 Bissell, 449, Fed. Cas. No. 11,044, and Wilder v. Union National Bank, 9 Biss. 178, Fed. Cas. No. 17,651, are a correct exposition of the section. In Union National Bank v. Miller, above cited, the court, after stating the effect of section 4 of act of July 12, 1882, to be the placing "of national and other banks, in respect to their right to sue, in the Federal courts on the same footing," says, "but like other banks and citizens, it (national bank) may thus sue (in Federal courts) whenever the subject-matter of litigation involves some element of Federal jurisdiction, of which a Federal court may, under the law, take judicial cognizance." But in Osborn . Bank of United States, 9 Wheat. 738, 6 L. ed. 204, it was recided that any suit brought by a corporation created by Congress, was one arising under the laws of the United States, although the questions upon which its (court's) decision might depend were to be solved by the general principles of common law or equity, because the law of Congress, which created the corporation, . . . was of necessity an ingredient in the case." See Cruikshank v. Fourth National Bank, above cited. Thus it would seem that every action by or against a national bank, in a State court, may be removed at the option of the bank into the Federal courts.

14. "The acceptor of a draft purchased by way of discount by a national bank at a greater reduction than lawful interest may defend against the recovery of interest thereon by the bank under this section, for the section destroys the interest bearing power of the instrument." Danforth r. Nat. Bank of Elizabeth, 17 L. R. A. 622, 1 U. S. Circuit Ct. of Aps. Rep. 62, 3 U. S. App. 7, 48 Fed. 271. 15. A suit against a national bank to recover back twice the amount of interest illegally taken by it is a suit to recover a penalty incurred under a law of the United States. First Nat. Bank of Charlotte v. Morgan, 132 U. S. 141, 33 L. ed. 282, 13 Sup. Ct. Rep. 37. See First Nat. Bank of Springfield v. Haulenbeek, 65 Hun, 54, 19 N. Y. Supp. 567.

16. The effect of Kentucky usury law on national bank loans examined. Brown v. Marion Nat. Bank, 169 U. S. 418, 42 L. ed. 802, 18 Sup. Ct. Rep. 390.

17. The interest that may be recovered by debtor who has paid usurious interest is twice the entire amount of interest, and not twice the excess over lawful interest. Lake Benton Nat. Bank v. Watt, 184 U. S. 151, 46 L. ed. 475, 22 Sup. Ct. Rep. 457.

18. State laws regulate the charging of interest by national banks. Union Nat. Bank v. Louisville R. R. Co., 163 U. S. 331, 41 L. ed. 178, 16 Sup. Ct. Rep. 1039.

19. Excessive interest whether deducted by a court or surrendered before liti gation is not excessive interest paid within R. S., § 5198, U. S. Comp. Stat. 1901, p. 3493. Talbot v. First Nat. Bank, 185 U. S. 180, 46 L. ed. 861, 22 Sup. Ct. Rep. 612.

20. Where territorial law allows more than seven per cent. interest under R. S. 5197, 5198, U. S. Comp. Stat. 1901, p. 3493, under special agreement it is permissible. Daggs v. Phoenix Nat. Bank, 177 U. S. 549, 44 L. ed. 882, 20 Sup. Ct. Rep. 732.

21. The remedies and penalties in § 5198, U. S. Comp. Stat. 1901, p. 3493, are exclusive, and there can be no set off by maker of note for usurious interest previously paid for renewals. Haseltine v. Central Bank, 183 U. S. 136, 46 L. ed. 120, 22 Sup. Ct. Rep. 50.

22. See also editorial note to Citizens' Nat. Bank v. Gentry, 56 L. R. A. 673, on forfeiture or other effect of taking and reserving illegal interest by national bank, containing a full presentation of the authorities on that question.

23. These reactions limiting the rate of interest and superseding State laws is a valid exercise of Federal power. Schlesinger v. Gilhooly, 189 N. Y. 1.

24. A national bank which compounds interest in a way prohibited by the State law, forfeits all interest even though the total interest is less than the maximum rate permitted by that State. Remitting excessive interest later will not relieve from the forfeiture. Citizens' Nat. Bank v. Donnell, 195 U. S. 369.

25. The payment referred to in this section is an actual payment and not a promise to pay, and a renewed note will not sustain a recovery against a bank on account of usurious interest in the former note. First Nat. Bank v. Lasater, 196 U. S. 115.

§ 5199. [U. S. Comp. Stat. 1901, p. 3494.] The directors of any association may, semi-annually, declare a dividend of so much of the net profits of the association as they shall judge expedient; but each association shall, before the declaration of a dividend, carry one-tenth part of its net profits of the preceding half-year to its surplus fund, until the same shall amount to twenty per centum of its capital stock.

1. When a dividend has once been declared, the directors cannot afterward refuse to pay it, because they have determined to establish a surplus fund with a view to benefit the corporation and its stockholders. The dividend, when declared, becomes a debt, and cannot thenceforth be disposed of without the consent of him who is entitled to it. Beers v. Bridgeport Spring Company, 2 N. Y.

Week. Dig. In connection with this last statement, see also Seeley v. New York National Exchange Bank, 4 Abb. N. C. 66.

2. A national bank has the right to hold a cash dividend as pledged for the indebtment of the shareholder to the bank. It may also attach the shares of a stockholder therein for his debt due the bank. Hagar v. Union National Bank, 63 Me. 509.

5200. The total liabilities to any association, of any person, or of any company, corporation, or firm for money borrowed, including in the liabilities of a company or firm the liabilities of the several members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association, actually paid in and unimpaired and one-tenth part of its unimpaired surplus fund: Provided, however, That the total of such liabilities shall in no event exceed thirty per centum of the capital stock of the association. But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same shall not be considered as money borrowed."

(As amended June 22, 1906.)

1. A loan made by a national bank in excess of the restriction imposed by this section is not void on that account. When a statute prohibits an act, or annexes (as in this case) a penalty for its commission, it does not follow that the unlawfulness of the act was meant to avoid a contract made in contravention of it." HUNT, J. Even though the loan were voidable, it seems the borrower, after obtaining and holding to his own use the money, cannot be allowed to interpose the plea that the bank had no right to loan the money. Gold Mining Company v. National Bank, 96 U. S. 640, 24 L. ed. 648.

2. Where a national bank loans money in excess of the restriction contained in this section and takes collateral security therefor, the contract being executed, the bank acquires an absolute or qualified title to the securities, and the borrower cannot recover the latter without returning the loan, even though the contract were illegal and void. Shoemaker v. National Mechanics' Bank, 31 Md. 396, 100 Am. Dec. 73.

3. In a suit by a national bank against an indorsee on notes discounted for the drawer's accommodation, where the defense set up was, that, at the time of the discount, the drawer was indebted to the bank for money lent in excess of one-tenth of its capital, and that the loan was, therefore, void under this section. In holding to the contrary, the court said, "that the fact of the excess of indebtedness, and the bank's knowledge of the fact, was only collateral to the contract of discount and not presumed to be within the knowledge of the borrower, and the note was not intended by both parties to be the instrument of committing a fraud upon the law." The court further said, the section "was intended as a general rule for conducting the business of the bank." O'Hare v. Second National Bank, 77 Pa. 102.

4. Directors who assent to a loan to one person of an amount exceeding onetenth of the capital stock of the bank are personally liable for all loss sustained thereby. But where the borrower is in the case of such excessive loan also a director he is liable only as an ordinary debtor to the bank. Witters, Receiver, v. Sowles et al., 31 Fed. Rep. 1.

5. Where a national bank lends an amount in excess of that allowed by above section, the borrower cannot avail himself of the statute as a defense to the note. The penalty can only be enforced by the United States. Such a loan is not void. Wyman v. National Bank, 29 Fed. Rep. 734.

6. By virtue of section 5239 in case of an excessive loan the Comptroller may, if he thinks proper, proceed to have the charter revoked, and whether he does so or not a director who knowingly participates in or assents to the loan may be compelled to make good whatever damage results to the bank from making the same. Stephens v. Overstoltz, 43 Fed. Rep. 771. See Nat. Exch. Bank v. Peters, 44 Fed. Rep. 13.

7. The action to recover against a director may be at law; there is no necessity of resorting to equity. Id. See also Nat. Exch. Bank v. Peters, 44 Fed. Rep. 13. The action does not abate with the death of the director, but survives against his personal representatives. Id.

8. The personal liability of a director under this section cannot be enforced in an action at law. Welles v. Graves, 41 Fed. Rep. 459.

§ 5201. [U. S. Comp. Stat. 1901, p. 3494.] No association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchaes shall be necessary to prevent loss upon a debt previously contracted in good faith; and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale; or, in default thereof, a receiver may be appointed to close up the business of the association, according to section fifty-two hundred and thirty-four.

1. A deposit by one bank with another is a loan; and where, at the time of making the deposit, the depositor takes a pledge of its own shares as security for the deposit then made, and for future deposits, the transaction, as to national banks, is illegal, as coming within the probitition of this section. Bank v. Lanier (citing Bridgeport Bank v. Schuyler, 34 N. Y. 30) 11 Wall. 369, 20 L. ed.

172.

2. Loans by national banks to their stockholders do not give a lien to the former on the stock of the latter. Id.

3. A national bank issued two certificates of stock to C., wherein it was declared that he was entitled to 150 shares of the institution, and that these shares were transferable on the books of the bank, in person or by attorney, only on the surrender of the certificate. L. & H. purchased 138 of these shares of C. for value, and received the certificate regularly assigned. The bank refused to transfer the stock on the books, on the ground that the shares had been pledged. to it by C. as security for deposits made by it with him, and had already sold