First National Bank of Waterloo v. Elmore. FIRST NATIONAL BANK OF WATERLOO V. ELMORE. (3 North Western Reporter, 547.) Mortgage to secure loans. A real mortgage to a National bank to secure a present debt or future advances is not void. (Supreme Court of Iowa.) NORECLOSURE. The opinion states the point. FOREC Alford & Elwell, for plaintiff. J. S. Root, for defendant C. E. Holt. A. M. Harrison, for O. A. Pray and Leffell & Co. George F. Boulton and West & Easton, for Union Bank of Cedar Rapids. DAY, J. 1. Is the plaintiff's mortgage ultra vires, and void, under section 5136, Revised Statutes United States? This question has recently been determined by the Supreme Court of the United States in the Union National Bank of St. Louis v. Matthews, 98 U. S. 621 (ante, 12). In that case an injunction was obtained in the State court of Missouri restraining the bank from proceeding to sell under a deed of trust executed to the bank in security for a loan of $15,000. Upon writ of error to the Supreme Court of the United States, the judgment of the State court was reversed. In the course of the opinion respecting the defense that the trust deed was taken in violation of the Banking Act, and was void, the court say: "We cannot believe it was meant that stockholders, and perhaps depositors and other creditors, should be punished, and the borrower rewarded, by giving success to this defense whenever the offensive fact shall occur. "The impending danger of a judgment of ouster and dissolution was, we think, the check, and none other, contemplated by Congress. That has been always the punishment prescribed for the wanton violation of a charter, and it may be made to follow Pape v. Capitol Bank of Topeka. whenever the proper public authority shall see fit to invoke its application. A private person cannot, directly or indirectly, usurp this function of the government." As the question under consideration arises under a statute of the United States, this decision of the United States Supreme Court is authoritative and binding upon us, and is conclusive of the validity of the mortgage in question as between the parties thereto. [Omitting other points.] PAPE V. CAPITOL BANK OF TOPEKA. (20 Kans. 440; 27 Am. Rep. 183.) Power to purchase negotiable paper. A bank, empowered to discount negotiable notes, has power to purchase such FORE ORECLOSURE. The opinion states the facts. The plaintiff had judgment. W. P. Douthitt and J. D. McFarland, for plaintiffs in error. N. C. McFarland and J. G. Slonecker, for defendant in error. BREWER, J. This was an action brought by The Capitol Bank of Topeka, to recover a personal judgment against Pape and wife, on three promissory notes made by them, and to foreclose a mortgage on lands in Shawnee county, given by them to secure the payment of said notes. The notes are made payable to" James M. Spencer, or bearer," and have written across the back “pay to bearer, without recourse on me: James M. Spencer." The mortgage was made to Spencer, and has indorsed thereon an assignment to "The Capitol Bank of Topeka." The notes and mortgage were made at Topeka on 27th of June, 1872, and are alleged to have been transferred to the defendant in error on 13th of See, contra, Farmers & Mechanics' Bank v. Baldwin (23 Minn. 198), 23 Am. Rep. 683; First Nat. Bank of Rochester v. Pierson (Minn.), 16 Alb. Law Jour. 319, and Thomp. N. B. Cas. 637, and note, 639; Lazear v. Nat. Union Bank, post. Pape v. Capitol Bank of Topeka. March, 1873. The petition also alleges that said bank is a body corporate, duly incorporated under and by virtue of the laws of the State of Kansas, as "The Capitol Bank of Topeka." The defendants answered separately, each interposing several defenses, only two of which are relied on, and they may be briefly stated as follows: First, a denial that plaintiff was or ever had been a body corporate under the laws of the State of Kansas as "The Capitol Bank of Topeka" (which denial was verified by the affidavits of the defendants); second, defendants admitted the making of the notes and mortgage sued on, but alleged that the plaintiff purchased the same of said Spencer, at a price agreed upon and for speculative purposes, and did not acquire or hold said notes or mortgage, or either of them, by reason of having made a loan of money on them, or either of them, or for any of the purposes for which it could legally acquire or hold the same, or either of them. [Omitting the consideration of the first defense.] IV. The final question as to the power of the plaintiff to acquire and hold the note and mortgage. The note and mortgage were made to Spencer. From him, as the owner and holder, the bank purchased. Was such a purchase beyond its power? Section 127 of article 16 of the General Incorporation Law (Gen. Stat. 225), specifically defines the powers of such associations, and is as follows: "Any five or more persons in any county in this State may organize themselves into a savings association, and shall be permitted to carry on the business of receiving money on deposit, and to allow interest thereon, giving to the person depositing, credit therefor; and of buying and selling exchange, gold, silver, coin, bullion, uncurrent money, bonds of the United States, of the State of Kansas, and of the city, county and school district in which any association shall be organized; of loaning money on real estate, and personal security, at a rate of interest not to exceed twelve per cent per annum; and of discounting negotiable notes, and notes not negotiable; and on all loans made may keep and receive the interest in advance." Now the contention is, that the clause under which alone au Pape v. Capitol Bank of Topeka. thority for this purchase can be claimed is that which authorizes "discounting negotiable notes, and notes not negotiable;" and that this was not a discount but a purchase. Counsel for plaintiffs in error say: "Whatever loose or general meaning may have been given to the term discount, when not applied to banking business, no proposition is more firmly established by judicial decisions than this, that discounting paper as understood in the business of banking is only a mode of loaning money on the same and taking the interest in advance. Niagara Co. Bank v. Baker, 15 Ohio St. 56; Tal mage v. Pell, 3 Seld. 343; Fleckner v. Bank of United States, 8 Wheat. 338; People v. Utica Ins. Co., 15 Johns. 391; Fireman's Ins. Co. v. Ely, 2 Cow. 699; Philadelphia Loan Co. v. Towner, 13 Conn. 259; McLean v. Lafayette Bank, 3 McLean, 597; Dunkle v. Renick, 6 Ohio St. 527; Farmers and Mechanics' Bank v. Baldwin, 23 Minn. 198; Thomp. N. B. Cas. 639; 23 Am. Rep. 680; Fowler v. Scully, 72 Penn. St. 456; s. c., 13 Am. Rep. 699; Thomp. N. B. Cas. 854. It necessarily follows from the reasoning of these cases, that there is a difference between discounting a note and buying it. For authority directly on this point, see Morse on Banks and Banking, 29, and 1 Bouv. Law Dict. 481, title Discount, citing Pothier De l' Usure, n. 128, where it is said the latter expression is used to denote that the transaction' when the seller does not indorse the note, and is not accountable for it." " An examination of some of the authorities chiefly relied on by defendant may be of value. In Fowler v. Scully, 72 Penn. St. 456; s. c., 13 Am. Rep. 699; Thomp. N. B. Cas. 854, the question was as to the power of a National bank to take a mortgage to secure notes to be thereafter discounted; and by a divided court the mortgage was held void. There is nothing in the question or opinion which throws any special light on the question before us. In the case of Talmadge v. Pell, 7 N. Y. 328, it was decided that a banking corporation, empowered "to carry on the business of banking by discounting bills and other evidences of debt," was not thereby authorized to traffic in State stocks, and that a Pape v. Capitol Bank of Topeka. purchase of such stocks, with a view of sale, was beyond its powers. In Niagara Co. Bank v. Baker, 15 Ohio St. 68, the plaintiff, a bank of the State of New York, sued the defendants as indorsers of certain promissory notes. The answer alleged a loan from the bank to them, and a discount of these notes at usurious rates. The reply denied any loan, and alleged that it discounted the notes in the usual course of business. Counsel for defendant laid down two propositions in their brief — 1st, that if the transaction was a loan, it was void for usury; and 2d, if a purchase, void for want of power in the bank to make it. The court in its opinion, after giving the general meaning of the word discount, as we quote hereafter, proceed: "And this brings us to the precise question upon which the decision of this case depends. Was this bank empowered to discount, by way of purchase, promissory notes? or must all such discounts be deemed loans, and thus be brought within the purview of the usury law?" And they conclude in favor of the latter alternative, saying, " But the naked power to discount paper is not given; it is the power to carry on the business of banking by (among other things) discounting bills, notes and other evidences of debt." And then inquiring what" discounted paper" means, as used in the business of banking, hold, that it refers simply to loans, referring with especial stress to the case of Talmage v. Pell, supra, as an authoritative exposition of the New York statute under which plaintiff was organized. In the case of Farmers & M. Bank v. Baldwin, 23 Minn. 198; 23 Am. Rep. 683; Thomp. N. B. Cas. 639, the language of the statute appears similar to that referred to in 15 Ohio St., supra. The bank was given "power to carry on the business of banking, by discounting bills, notes," etc.; and a majority of the court held, that that was not a power to purchase such securities, but simply to loan thereon, with the right to take lawful interest in advance. In Fleckner v. Bank, 8 Wheat. 338, it appeared that the plaintiff purchased from another bank a note which had passed to it through several parties from the original holder. The bank was forbidden to deal in any thing except bills of exchange, gold or VOL. 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