1. A national bank may enforce against the mortgagee and parties
claiming under him with notice a mortgage of lands executed to it
as collateral security for his then existing indebtedness to it,
and such as he might thereafter incur.
2. An objection to the taking of such a mortgage as security for
future advances can only be urged by the United States.
3. In New York, a mortgage for a past indebtedness, if taken
without notice of one for an indebtedness to be subsequently
incurred, has precedence, if it be first recorded.
4. Costs are not payable out of the fund in controversy.
The facts are stated in the opinion of the Court.
MR. JUSTICE FIELD delivered the opinion of the Court.
It appears from the record that the defendant Whitney, sometime
previously to 1871, executed to Maria Crocker a mortgage upon
certain real property situated in the County of Genesee, in the
State of New York, to secure an indebtedness to her; that in a suit
brought for that purpose, the mortgage was foreclosed and a decree
entered for the sale of the premises; that such sale was had, and
the amount received satisfied the debt and left a surplus of over
$3,800, which was paid into court. The present controversy is
between subsequent mortgagees and judgment creditors for this
surplus.
On the 12th of January, 1871, Whitney executed a mortgage upon
the same premises to the National Bank of Genesee, providing in
terms for the payment of $5,000, one year from its date, with
interest, but declaring that it was made as collateral security for
the payment of all notes which the bank held at the time against
him, and for his other indebtedness then due or thereafter to
become due. This mortgage was recorded on the 19th of September,
1872. It subsequently appeared from an examination of the accounts
between the parties that his
Page 103 U. S. 100
indebtedness at the date of the mortgage was $3,200, and that
this was paid before Sept. 16, 1872.
On this last day, Whitney executed two other mortgages upon the
same property, one to Homer Bostwick and the other to Edward
McCormick. The one to Bostwick was executed as security for the
payment of liabilities and indebtedness which already had been or
might thereafter be incurred by him on account of Whitney, either
by endorsement or otherwise, to an amount not exceeding $2,500.
This mortgage was recorded at noon on the day of its execution. The
amount of the liability subsequently incurred by Whitney to
Bostwick exceeded the sum named. The mortgage to McCormick was
executed as security for similar liabilities and indebtedness which
might be incurred by him for Whitney, to an amount not exceeding
$1,500, and was recorded at forty-five minutes past one of the day
of its execution. The amount of liabilities incurred by McCormick
for Whitney exceeded the sum named.
It is unnecessary to give the particulars of other subsequent
encumbrances, as under no circumstances could any of the surplus be
applied to their discharge. In any view, that can be taken of the
mortgages mentioned, the surplus in controversy will be exhausted
by them.
The principal question for our determination relates to the
validity of the mortgage of Whitney to the national bank so far as
it applies to future advances to him. His indebtedness existing at
the execution of the mortgage has been satisfied. His indebtedness
subsequently incurred amounted at the sale of the premises to
$5,160. If the mortgage for the future indebtedness can be
sustained as a valid instrument for that purpose, the entire
surplus will be absorbed for its payment excepting such portion as
may be first payable to McCormick by reason of the fact that he
took his mortgage without notice of the one to the bank. It is
contended that the mortgage to the bank, so far as it applies to
future advances, is invalid because a mortgage of that character is
prohibited by the national banking law. That law, after in terms
authorizing every national banking association to loan money on
personal security, declares that it
"may purchase, hold, and convey real estate for the following
purposes, and for no others: first, such as may be
Page 103 U. S. 101
necessary for its immediate accommodation 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 to it."
The question presented is not an open one in this Court. It was
determined in the case of
National Bank v. Matthews at the
October Term of 1878. It there appeared that Matthews and another
person had given their joint note a mercantile company for $15,000,
secured by a deed of trust on certain real property in Missouri,
executed by Matthews alone. Soon afterwards, the company assigned
the note and deed of trust to the Union National Bank of St. Louis,
to secure a loan made to it at the time. The loan was not paid at
its maturity, and the bank directed the trustee to sell the
premises. Matthews thereupon filed a bill to enjoin the sale, and
obtained a decree for a perpetual injunction upon the ground that
the loan was made upon real security, which was forbidden by the
statute. The supreme court of the state affirmed the decree, and
the case was brought here, where the decree was reversed and the
cause remanded with directions to the court below to dismiss the
bill.
In coming to this conclusion, this Court considered the
transaction in two aspects: first, as not being within the letter
of the statute, because the deed of trust was not executed to the
bank, and second as a loan upon real estate security.
Viewed in the first aspect, the Court held that as a mortgage
the deed of trust was merely an incident to the note, and a right
to its benefit, whether it was delivered or not with the note,
passed with the transfer of the latter. If the loan had been made
upon the note alone, the benefit of the deed as a mortgage would
have inured to the bank by operation of law. Of course, that which
the law would give independently of a direct transfer by the
mortgagee the statute did not intend to defeat because such
transfer was made.
Viewed in the second aspect, as a loan upon real estate
Page 103 U. S. 102
security, the Court observed that, so treating it, the
consequence insisted upon did not follow; that the statute did not
declare such security void, but was silent on the subject; that had
Congress so intended it would have been easy to say so, and it can
hardly be presumed that this would not have been done instead of
leaving the question to be settled by the uncertain result of
litigation and judicial decision. And after citing numerous cases
where a disregard of statutory prohibitions has not been held to
vitiate the contracts of parties, but only to authorize actions by
the government against them, the Court held that the prohibitory
clause of the banking law did not vitiate real estate securities
taken for loans and that a disregard of them only laid the
association open to proceedings by the government. "The impending
danger," said the Court,
"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 whenever the proper public
authority shall see fit to enforce its application."
The construction of the act of Congress thus given has been
acted upon by the national banks throughout the country ever since
it was published. It is not unreasonable to suppose that they have
conducted their business and made loans to a large amount in
reliance upon it, and that in many cases great injury would follow
a departure from it. Judicial decisions affecting the business
interests of the country should not be disturbed except for the
most cogent reasons, certainly not because of subsequent doubts as
to their soundness. The prosperity of a commercial community
depends in a great degree upon the stability of the rules by which
its transactions are governed. If there should be a change, the
legislature can make it with infinitely less derangement of those
interests than would follow a new ruling of the court, for
statutory regulations would operate only in the future.
The decision in the case cited controls the present case, and in
conformity with it we must hold that the mortgage to the bank, so
far as the subsequent encumbrances are concerned, is to be regarded
as a valid security for the future advances to
Page 103 U. S. 103
the mortgagor. Whatever objection there may be to it as security
for such advances from the prohibitory provisions of statute, the
objection can only be urged by the government.
Fleckner
v. United States Bank, 8 Wheat. 338,
21 U. S.
355.
But it appears from the record that the mortgage to McCormick
was taken by him without notice of the prior mortgage to the bank,
which had not then been registered. He has therefore a right as
against the bank to prior payment of the $1,500 and interest, for
which amount his mortgage was a lien upon the premises.
Bostwick took his mortgage with notice of the one to the bank.
He cannot, therefore, claim any of the surplus until the debt of
the bank is paid. The surplus should therefore be first applied to
McCormick's claim, and the balance to the claim of the bank.
It follows that the decree of York must be reversed, and the
case remanded with directions to enter a decree in conformity with
this opinion.
So ordered.
MR. JUSTICE MILLER and MR. JUSTICE HARLAN dissented.
A petition for a rehearing having been filed, MR. JUSTICE FIELD,
at a subsequent day of the term, delivered the opinion of the
Court.
By the decision in this case, we held that in the distribution
of the surplus moneys in court, the claim of McCormick should be
paid before that of the bank. He took his mortgage without notice
of the one to the bank, which had not been registered. The bank now
asks a rehearing of the case on this point, contending that, under
the decisions of the New York courts, the priority of its mortgage
cannot be displaced. It cites the statute of the state to show that
the recording act gives priority only to the mortgage first
recorded, when that is executed for a valuable consideration,
which, according to those decisions, means some new consideration
advanced at the time, and that a mortgage for a preexisting
indebtedness is not protected by a prior record against a
nonrecorded mortgage for value. Here the mortgage to McCormick was
given to secure -- to
Page 103 U. S. 104
the extent of $1,500 -- a previous liability and indebtedness,
and such as might be subsequently incurred. The previous
indebtedness at the time equaled the whole amount of the intended
security.
There would be force in the position of the bank if its own
mortgage stood in any better condition. When the McCormick mortgage
was executed -- Sept. 16, 1872 -- the indebtedness of Whitney to
the bank was paid, and his mortgage remained in force only for any
future indebtedness which he might incur. For such future
indebtedness it could not cut out the mortgage to McCormick,
executed for an existing indebtedness, and of which mortgage the
bank had notice. For advances afterwards made, the mortgage to the
bank was a subsequent encumbrance.
As between two mortgages -- one for a past indebtedness and one
for an indebtedness to be subsequently incurred -- the one for the
past indebtedness must have precedence if first recorded.
The petition for a rehearing by the bank must therefore be
denied.
The petition of McCormick to be allowed costs out of the fund in
court must, according to the usual practice of the court in such
cases, be also denied. His costs are chargeable against the bank
which contested his right to be paid out of the proceeds in court.
If paid out of the fund, they would reduce by their amount the
moneys properly applicable to the indebtedness of Whitney.
Petition denied.