A. executed a promissory note to B., and, to secure the payment
thereof, a deed of trust of lands, which was in effect a mortgage
with a power of sale thereto annexed. A national bank, on the
security of the note and deed, loaned money to B., who thereupon
assigned them to the bank. The note not having been paid at its
maturity, the trustee was, pursuant to the power, proceeding to
sell the lands, when A. filed his bill to enjoin the sale upon the
ground that by secs. 5136 and 6137 of the Revised Statutes, the
deed did not inure as a security for a loan made by the bank at the
time of the assignment of the note and deed. Held
Bank is entitled to enforce the collection of the note by a sale of
On the 1st of March, 1871, Hugh B. Logan and Elizabeth A.
Matthews executed and delivered to Sterling Price & Co. their
joint and several promissory note for the sum of $15,000, payable
to the order of that firm two years from date, with interest at the
rate of ten percent per annum. The payment of the note was secured
by a deed of trust, executed by her, of certain real estate therein
described, situate in the State of Missouri.
On the 13th of the same month, the note and deed of trust were
assigned to the Union National Bank of St. Louis. Price & Co.
failed to pay the loan at maturity. The bank directed the trustee
named in the deed of trust to sell. Said Elizabeth thereupon filed
this bill in the proper State court to enjoin the sale. The bank in
its answer avers that it
"accepted the said note and deed of trust as security for the
sum of $15,000, then and there advanced and loaned to said Sterling
Price & Co. . . . on the security of said note and deed of
A perpetual injunction was decreed, upon the ground that the
loan by the bank to Price & Co. was made upon real estate
security, that it was forbidden by law, and that the deed of trust
was therefore void. The decree was made upon the pleadings. No
testimony was introduced upon either side. The bank removed the
case to the supreme court of the state, where the decree was
affirmed. The bank then sued out this writ of error.
Page 98 U. S. 624
MR. JUSTICE SWAYNE, after stating the facts, delivered the
opinion of the Court.
This case involves a question arising under the national banking
law, which has not heretofore been passed upon by this court. We
have considered it with the care due to its importance.
Our attention has been called to but a single point which
requires consideration, and that is whether the deed of trust can
be enforced for the benefit of the bank.
Page 98 U. S. 625
The statutory provisions which bear upon the subject are as
"SEC. 5136. Every national banking association is authorized to
exercise by its board of directors or duly authorized officers or
agents, subject to law, all such incidental powers as shall be
necessary to carry on the business of banking by discounting and
negotiating promissory notes, drafts, bills of exchange, and other
evidence 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 the
provisions of this title."
"SEC. 5137. A national banking association may purchase, hold,
and convey real estate for the following purposes, and for no
others: first, such as may be 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. 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."
Rev.Stat. 1999; 13 Stat. 99.
Here the bank never had any title, legal or equitable, to the
real estate in question. It may acquire a title by purchasing at a
sale under the deed of trust, but that has not yet occurred, and
Sec. 5137 has therefore no direct application to the case. It is
only material as throwing light upon the point to be considered in
the preceding section. Except for that purpose, it may be laid out
Sec. 5136 does not, in terms, prohibit a loan an real estate,
but the implication to that effect is clear. What is so implied is
as effectual as if it were expressed. As the transaction is
disclosed in the record, the loan was made upon the note as well as
the deed of trust. Non constat
that the maker who executed
the deed would not have been deemed abundantly sufficient without
the further security. The deed, as a mortgage would have been, was
an incident to the note and a right
Page 98 U. S. 626
to the benefit of the deed, whether mentioned or delivered or
not, when the note was assigned, would have passed with the note to
the transferee of the latter.
The object of the restrictions was obviously threefold. It was
to keep the capital of the banks flowing in the daily channels of
commerce, to deter them from embarking in hazardous real estate
speculations, and to prevent the accumulation of large masses of
such property in their hands, to be held, as it were, in mortmain.
The intent, not the letter, of the statute constitutes the law. A
court of equity is always reluctant in the last degree to make a
decree which will effect a forfeiture. The bank parted with its
money in good faith. Its garments are unspotted. Under these
circumstances, the defense of ultra vires,
if it can be
made, does not address itself favorably to the mind of the
chancellor. We find nothing in the record touching the deed of
trust which in our judgment brings it within the letter or the
meaning of the prohibitions relied upon by the counsel for the
defendant in error.
In First National Bank of Fort Dodge v. Haire,
443, the bank refused to discount a note for a firm, but agreed
that one of the partners might execute a note to the other, that
the payee should endorse it, that the bank should discount it, and
that the maker should indemnify the endorser by a bond and mortgage
upon sufficient real estate executed for that purpose, with a
stipulation that in default of due payment of the note, the bond
and mortgage should inure to the benefit of the bank. The
arrangement was carried out. The note was not paid. The maker and
endorser failed, and became bankrupts. The bank filed a bill to
foreclose. The same defense was set up as here. In disposing of
this point, the supreme court of the state said:
"Every loan or discount by a bank is made in good faith, in
reliance, by way of security, upon the real or personal property of
the obligors, and unless the title by mortgage or conveyance is
taken to the bank directly, for its use, the case is not within the
prohibition of the statute. The fact that the title or security may
inure indirectly to the security and benefit of the bank will not
vitiate the transaction. Some of the cases upon quite analogous
statutes go much further than this. Silver Lake Bank v.
4 J.C.R. 370. "
Page 98 U. S. 627
But it is alleged by the learned counsel for the defendant in
error that in the jurisprudence of Missouri, a deed of trust is the
same thing in effect as a direct mortgage -- with respect to a
party entitled to the benefit of the security -- and authorities
are cited in support of the proposition. The opinion of the Supreme
Court of Missouri assumes that the loan was made upon real estate
security within the meaning of the statute, and their judgment is
founded upon that view. These things render it proper to consider
the case in that aspect. But, conceding them to be as claimed, the
consequence insisted upon by no means necessarily follows. The
statute does not declare such a security void. It is silent upon
the subject. If Congress so meant, it would have been easy to say
so, and it is hardly to be believed that this would not have been
done instead of leaving the question to be settled by the uncertain
result of litigation and judicial decision. Where usurious interest
is contracted for, a forfeiture is prescribed and explicitly
In Harris v.
12 How. 79, this Court said that
"the statute must be examined as a whole, to find out whether or
not the makers meant that a contract in contravention of it was to
be void, so as not to be enforced in a court of justice."
In that case, a note given for the purchase money of slaves,
taken into Mississippi contrary to a statute of the state, was held
to be valid.
Where a statute imposes a penalty on an officer for solemnizing
a marriage under certain circumstances, but does not declare the
marriage void, the marriage is valid, but the penalty attaches to
the officer who did the prohibited act. Milford v.
7 Mass. 48; Parton v. Hervey,
(Mass.) 119; King v. Birmingham,
8 Barn. & Cress.
Where a bank is limited by its charter to a specified rate of
interest, but no penal consequence is denounced for taking more, it
has been held that a contract for more is not wholly void.
Planters' Bank v. Sharp,
12 Miss. 75; Grand Gulf Bank
151; Rock River Bank v.
10 Wis. 230.
The charter of a savings institution required that its funds
should be "invested in, or loaned on, public stocks or private
Page 98 U. S. 628
mortgages," &c. A loan was made and a note taken, secured by
a pledge of worthless bank stock. The borrower sought to enjoin the
collection of the note upon the ground that the transaction was
forbidden by the charter, and therefore void. The court held the
borrower bound, and upon a counterclaim adjudged that he should pay
the amount of the loan with interest. Mott v. The United States
19 Barb. (N.Y.) 568.
Where a corporation is incompetent by its charter to take a
title to real estate, a conveyance to it is not void, but only
voidable, and the sovereign alone can object. It is valid until
assailed in a direct proceeding instituted for that purpose.
Leazure v. Hillegas,
7 Serg. & R. (Pa.) 313;
Goundie v. Northampton Water Co.,
7 Pa.St. 233;
14 Pet. 122; The Banks v.
3 Rand. (Va.) 136; McIndoe v. City of St.
10 Mo. 577. See also Gold Mining Company v.
National Bank, 96 U. S. 640
The authority first cited is elaborate and exhaustive upon the
subject. So an alien, forbidden by the local law to acquire real
estate, may take and hold title until office found.
Fairfax's Devisee v.
7 Cranch, 604.
In Silver Lake Bank v. North,
4 Johns. (N.Y.) Ch. 370,
the bank was a Pennsylvania corporation, and had taken a mortgage
upon real estate in New York. A bill of foreclosure was filed in
the latter state. The answer set up as a defense
"that by the act of incorporation the plaintiffs were not
authorized to take a mortgage except to secure a debt previously
contracted in the course of its dealings, and here the money was
lent after the bond and mortgage were executed."
The analogy of this defense to the one we are considering is too
obvious to need remark. Both present exactly the same question.
Chancellor Kent said:
"Perhaps it would be sufficient for this case that the
plaintiffs are a duly incorporated body, with authority to contract
and take mortgages and judgments, and if they should pass the exact
line of their power, it would rather belong to the government of
Pennsylvania to exact a forfeiture of their charter than for this
court in this collateral way to decide a question of misuser by
setting aside a just and bona fide
contract. . . . If the
loan and mortgage were concurrent acts, and intended so to be, it
was not a case within
Page 98 U. S. 629
the reason and spirit of the restraining clause of the statute,
which only meant to prohibit the banking company from vesting their
capital in real property, and engaging in land speculations. A
mortgage taken to secure a loan advanced bona fide
loan, in the course and according to the usage of banking
operations, is not surely within the prohibition."
It is not denied that the loan here in question was within this
category. This authority, if recognized as sound, is conclusive.
See also Board v. Bank of Washington,
11 Serg. & R.
Sedgwick, Stat. and Const. Constr. 73, says:
"Where it is a simple question of authority to contract, arising
either on a question of regularity of organization or of power
conferred by the charter, a party who has had the benefit of the
agreement cannot be permitted in an action founded upon it to
question its validity. It would be in the highest degree
inequitable and unjust to permit a defendant to repudiate a
contract, the benefit of which he retains."
What is said in the text is fully sustained by the authorities
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
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 invoke its application. A
private person cannot, directly or indirectly, usurp this function
of the government.
The decree of the Supreme Court of Missouri will be reversed,
and the cause remanded with directions to dismiss the bill, and it
MR. JUSTICE MILLER dissenting.
I am of opinion that the National Banking Act makes void every
mortgage or other conveyance of land as a security for
Page 98 U. S. 630
money loaned by the bank at the time of the transaction to
whomsoever the conveyance may be made; that the bank is forbidden
to accept such security, and it is void in its hands.
The contract to pay the money, and the collateral conveyance for
security, are separable contracts and so far independent that one
may stand and the other fall.
In the present case, the money was loaned on the faith of the
deed of trust, and that instrument is void in the hands of the
bank, but the note, as evidence of the loan of money, is valid
against Mrs. Matthews personally. With this latter contract the
state court did not interfere. It enjoined proceedings under the
deed of trust against the land, and did no more.
Its judgment in that matter ought, in my opinion, to be