Crocker v. Whitney.

incurred and now owing by Whitney to the bank, they are entitled to have the surplus money applied upon their mortgage, and that the claim of the bank thereto should be rejected.

The appellant claims that the finding that the indebtedness of Whitney to the bank at the date of the mortgage has been paid is not sustained by the evidence, and that in fact it entered into and forms a part of the debt of $5,160.10 now owing by Whitney to the bank, represented by his note for that amount, of June 18, 1874, and they further claim that if the original debt is regarded as paid, the mortgage nevertheless is an authorized and valid security, under the National Bank Act, for the debt of Whitney to the bank, incurred after it was executed.

We are of opinion that upon the facts proved the notes of Whitney, held by the bank when the mortgage was given, were paid, and the referee was amply justified in his conclusion upon that question.

Whitney was a miller, and manufactured flour for sale. He was a dealer with the bank. The bank discounted his notes and passed the proceeds to his credit on its books. He drew drafts on his customers, which the bank received and credited to him, and he deposited in the bank money received in his business. The items of credit and debit were entered in a single account, and it was the usual, and, so far as appears, the uniform practice, that when his notes matured they were charged in his account and afterward surrendered. The notes held by the bank January 12, 1871, according to the usual custom, were not protested, but as they matured were charged to his account, and were afterward surrendered, and his credit on the books of the bank, made up of this blended fund, derived from discounts, drafts and deposits, was in consequence reduced to the extent of the paper charged against it.

There was no indorser on the notes discounted after January 12, 1871. They were discounted on the credit of Whitney and in reliance on the mortgage. The debit side of the account from January, 1871, to August, 1874, amounted to $171,175.82, and the credits to $168,237.51.

It is, we think, a clear proposition, in view of these facts, that the notes held by the bank in January, 1871, were paid. The credits to Whitney were applied to the payment of the notes as they matured. There is no other inference to be drawn from the acts of the bank. If the notes were not deemed to be paid, why were

Crocker v. Whitney.

the indorsers discharged and the notes given up. It was not the case of a mere renewal of notes. The transaction does not differ in legal effect from what it would have been if Whitney, having funds in the bank, had as each note matured drawn his check upon the bank for the amount and delivered it to the bank and the bank had received it and charged it to his account and then surrendered the not

We deem it unnecessary to consider the rule for the application of payments, when neither party have made the application. In this case, there was by force of the transaction and the manner of keeping and dealing with this account, an appropriation of the credits pro tanto to pay the maturing notes by the consent of both debtor and creditor and this in law was payment. The consent is inferable from the manner in which the business was conducted. There is no ground for the inference that the bank intended to keep alive the debt existing when the mortgage was given, for it was evident that it relied upon the mortgage as a valid security for the final balance of the account and for debts which might be contracted after its execution, as well as those existing at that time. We conclude, therefore, that the finding of the referee, that the bank debt owing by Whitney when the mortgage was given was afterward paid, cannot be disturbed. See Clayton's case, 1 Mer. 608; Truscott v. King, 6 N. Y. 147.

We come then to the only remaining question in the case, viz. : Whether National banks are prohibited by the act of June 3, 1864, from taking a mortgage on real estate as security for loans or discounts which the bank may thereafter make to the mortgagor. The business of a banking corporation necessarily involves the making of contracts, the loaning of money and the existence of the relation of creditor and debtor between the bank and its customers. A corporation has incidentally at common law, in the absence of any restriction imposed by its charter or implied from the nature and object of the incorporation, the power to take and hold real estate and may deal in respect to it to the same extent as a natural person. 2 Kent, 281; Ang. & Ames on Corp., § 145. A banking business or trading corporation having the right to make contracts and to. become creditors may secure their debts by taking a mortgage on real estate or in any way provided for by the convention of the parties and we see no reason to doubt that a bank, unless restrained by its charter, may take a mortgage in advance to secure anticipated

Crocker v. Whitney.

liabilities, as well as those existing at the time. This is a convenient and ordinary method, when a continuous dealing upon credit is contemplated, of securing the final indebtedness. But the Legislature, by whose fiat the corporation exists and whose creation it is, may prescribe and regulate the mode of its operation and in what manner its powers shall be exercised. It may by special restrictions in the charter define and limit the incidental powers which the corporation shall possess, and so far as this is done the statute and not the common law will determine what their powers Bank of U. S. v. Pardridge, 12 Wheat. 64; Head v. Prov. Ins. Co., 2 Cranch, 127.

are.

It fellows from this familiar doctrine in respect to the powers of corporations, that in the absence of any restriction in the National Bank Act upon the power of the National bank to take mortgages on real estate to secure future loans or discounts, the power to do so cannot be successfully challenged, and those who deny that the power exists must show that its exercise is prohibited or restrained by the statute under which the banks are organized.

We come then directly to the consideration of this question.

The 8th section of the National Bank Act specifies the banking powers of institutions organized under it, viz.: "to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security, and by obtaining, issuing and circulating notes according to this title," and they are especially authorized to exercise all such incidental powers as shall be necessary to carry on the business of banking. The words "personal security" used in the section are manifestly, we think, used in contradistinction to real security, and define the description of securities upon which loans by National banks are to be made. Loans upon individual credit, or upon the pledge or security of personal property, are within the description, but a loan made upon a real estate mortgage is a loan upon real security, whether the mortgage is regarded as conveying to the mortgagee an estate in the land, as in some of the States, or as creating a lien simply to be enforced by foreclosure and sale as in this. This specification of the banking powers of National banks is very similar and nearly identical with the specification in the General Banking Law of this

Crocker v. Whitney.

Under our State law among

State of 1838. It differs in this. other powers specified was this "loaning money on real and personal security." The change in the National Bank Act, which was framed doubtless with knowledge of the provisions of our State law, is significant of the intention of Congress to restrict National banks to loaning upon personal property as distinguished from real security.

If the argument upon the point we are considering rested solely upon the language of the 8th section of the National Bank Act it might be strongly pressed that the authority to loan on personal security being specified, a prohibition was implied against loaning on real estate security, and that upon this ground alone the mortgage in question could not be held a valid security for Whitney's debt to the bank, contracted after the mortgage was given. Upon this point the language of Chief Justice THOMPSON in The People v. Utica Ins. Co., 15 Johns. 383, where the point was, whether the insurance company could under its charter exercise banking powers, is very suggestive. He says: "The specification of certain powers (in a charter) operates as a restraint to such objects only, and is an implied prohibition of the exercise of other distinct powers." And in New York Firemen's Ins. Co. v. Ely, 2 Cow. 300, SUTHERLAND, J., referring to the claim that the company was not prohibited from investing its surplus funds in loans upon promissory notes, said: "The 16th section of the act expressly provides that it shall be lawful for the corporation to invest their capital, or any portion of it, either in the stock of the United States, or of the individual States, thus by the strongest implication prohibiting any other mode of investment, and destroying the inference which might have resulted from the absence of all regulations on the subject."

But we are not required to decide in this case whether the taking of a mortgage by a National bank to secure future loans is prohibited by the true construction of the 8th section of the act, standing alone, but a reference to the 28th section of the act, in connection with the 8th section, makes it very clear that it was the intention of Congress to prohibit the taking by a National bank of a real estate mortgage for that purpose. That section is as follows: "It shall be lawful for any such association to purchase, hold and convey real estate for the following purposes and for no other: First, such as shall be necessary for its immediate accommoda

Crocker v. Whitney.

tion in the transaction of its business; second, such as shall be mortgaged to it in good faith by way of security for debts previously contracted; third, such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; fourth, such as it shall purchase at sales under judgments, decrees or mortgages held by the association, or shall purchase to secure debts due to it. But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it for a longer period than five years."

It is apparent on reading this section that it was the intention of Congress to enable National banks to acquire real estate for a bank building and accommodations, and in payment of, or to secure debts existing when the title was acquired, and to prohibit them from purchasing or holding lands under any other circumstances.

The second specification must be construed as prohibiting the taking of a mortgage as a security except for debts previously contracted, i. e., contracted before the mortgage was given. It has no other reasonable or sensible meaning, and this meaning is in harmony with the general object of the section, which was to prevent National banks from having their capital tied up in real estate investments or securities. The usefulness of the bank in aiding the business of the country depends to a great extent upon the mobility of their capital, and the readiness with which it can be turned and employed in aid of commerce, and the dangers to which, in the view of Congress, the banking system would be exposed by an unlimited power to the banks to loan their funds on real estate securities, may have led to the prohibition in question. The closing paragraph of the section indicates also perhaps a mortmain policy as in the view of Congress, although I apprehend the limit of five years, beyond which the banks are prohibited from holding real property as mortgagee in possession, or the title to purchase to secure debts due to them, was mainly designed as an additional guard against the withdrawal of bank capital from active use, and locking it up in real estate.

The suggestion that a bank by taking a mortgage on lands in this State is not a holder of the lands mortgaged and has no estate therein, and is therefore not within the prohibition against holding lands by mortgage to secure future loans, is specious, but not, we think, sound. The intention of Congress in passing the Bank Act was to provide for the creation of banking corporations throughout