CASES ARGUED AND DETERMINED IN THE Supreme Court of Arkansas . At the July Term, 1856. MACATCLI DER FT _yr, vs • TTIE STATE ■ A TN' A note iven to the Bank of the State of : Arkansas, for a debt past due, and payable at a future day, including the interest then due and interest on tbe wholo cum to the day of payment, is net usurious ( S. & G. Turner vs, Miller. 1 Eng: H. 463, ) The Bank of the State of Arkansas permitted a debtor to renew his notes, then due, and gave him time upon his debt, in consideration that he would secure it by a mortgage upon property executed by a third person: this was a valid legal consideration for the mortgage Under the act of Liquidation: the Bank of the State of Arkansas was authorized to take mortaires to secure its debts: and if its officers did not strictly follow the directions of the law in taking such mortgages, they are amenable for their conduct ; but this would not make the mortgage null and voitl Appcni f ram Indc pew-Lace Circnit Court in Chancery. The HOU. BEAUFORT H. NEELY. Circuit Judge. Byres, for the appellants. We insist first: That the note and mortgage were executed upon a usurious consideration and void. Upon this point it is
CASES IN THE SUPREME COURT Magruder et al: vs: The State Bank. [July only necessary to refer to our Revised Stat. p 614, see. 1, 5, 6, 7 and S. :5 Barber S. C. Rep. 127, and the current of authorities. Seeond, That the Bank had no authority to make such a contract, and that it was not binding either upon the Bank or Pel-ham or Magruder. A corporation has no power except what is given by its incorporating act, either expressly or incidental to its existenee. Head & Amrvy vs. Providence R. Co , 1 Coml R. 371 Dart-mouth College vs. Woodward, 4 Cond. R. 526. Betts vs. Mallard, 1 Breese R. Appx. 14. State vs. Stibbens, 1. Stew. 299, Beaty vs. Knowlton, 4 Peteis R. 167, 171. Beaty vs. Marine In. Co. 2. Johns. R. 109: People vs. Utica Ins, Co. Johns: 4158. 7 Wendall R 34. 2 Cowen R. 699: Barber S. C. R. 107, 1 Barber S_ C. R. 127, We insist that as POliam and his securities were solvent and able to pay, that the officers of the Bank bad no authority to change the security or to take mortgages or deeds of trust. MUU Lr'nU t was Unh to secure doubtful debts that they had this power. And even if Pelham and his securities come within the "doubtful" list, and they had authority to take a mortgage, they could not extend the time beyond two years See 6th see., Act approved_ 4th Jan'y, 1845; Aots of 1840, p 72, see. 6-1853, p. 194. S. H, Hempstead for the appellee. _Mr. Chief Justice RAGLTSII delivered the opinion of the Court This was a bill filed by the Bank of the State, in the Independence Circuit Court, against Charles B. Magruder, Charles H. Pelham and Miles Williams, to foreclose a mortgage. The case made by the hill, is substantially as follows: On the 2d of August, 1849, Charles H. Pelham executed to the Bank his writing obligatory, of that date, for $6,259.50, due at twelve months, in renewal of certain promissory notes previously made by him to the bank. At the same time, Charles R Magruder, in consideration of such renewal, and for the pur-
OF THE SATAE OF AEKA W SiS 11 Term, 1856] Magrduer et al. vs. The State Bank. pose of securing the payment of said writing obligatory, executed to the bank, a mortgage upon the north-west quarter of sec. 9, T. 13 north, range 6 W., lying in Independence county, on Polk Bayou, and on which tract were situated the "Pelham mills," subject to the condition that, on the maturing of the writing obligatory, Pelham should have the privilege of renewing it by paying ten per cent, upon the amount due, with advance interest at seven per cent. per annum; and thus to renew from year to year, until the debt was extinguished; and if at the Maturity of the bond, or any subsequent renewal thereof, Pel-ham should fail to renew or pay the debt, the mortgage was to became absolute, ete. That Pelham had failed to make any renewal or payment. That, subsequent to the mortgage, Magruder bad made some conveyance of the mortgaged premises to Pelham ; and that Williams occupied them as tenants, etc. Prayer for foreclosuie and sale, etc. Williams made default: Pelham demurred to the bill, and Magruder answered. Final decree in accordance with the prayer ol-F the bill, and appealed hy the defewhints The points of defenee made by the demurrer of Pelham a ha the answer of Magruder, will be considered together, 1. It is insisted that the mortgage debt was Its/vriaos. The facts in relation to the origin of this debt, seem to be as follows :—Prior to the act of 31st January, 1843, placing the PAllk in liquidatiou, Pelham was indebted to thP Bank upon notes diseounted for him, and renewed them under the provisions of the act. In such renewal, he gave his note, with W. L. McGuire, James E. Pelham and Thomas J. Carter, securities. for $4000.00, dated 1st July, 1844, due at twelve months. On the 1st October, 1844, he gave the hank another note, with the two persons last named as securities, for $1,000.00, due at twelve months, in substitution of indebtedness of Joseph IL Eg-Iler to the Bank That CO/111 , time after these notes were due, the Bank brought suits upon them, against the makers, and while the suits were pending, the Bank and Charles H. Pelham made an agreement that'the two notes should be consolidated.
12 CASES IN THE SUPREME COURT Magruder et al: vs: The State Bank. [July that Pelham should pay four years lock interest at the rate of eight per cent, per annum, and a curtail of $750, and seven per cent, advance interest for one year, and that he should give a new note payable at twelve months, with the privilege of renewing at the end of each year, by paying ten per cent, curtail on the amount of the debt, and advance interest on the residue at seven per sent, per annum; to secure the payment of which note, Magruder should execute the mortgage, etc.; Thus— The one note for _ $4,00000 Interest thereon for 4 years at 8 per cent. 1,280.00 The other note for_ „„ 1,000.00 Interest added for 4 years at S per cent._ 320.00 Making $6,6110.110 Curtail on tins sum 750.00 Balance due $5,850.00 Advance interest on this sum at 7 per cent . 409.50 Total $0,i!59.50 And according to the above agreement, Pelham gave tlie bond, and Magruder the mortgage in question to secure to the Bank the amount due to her as by the above stateineht. The counsel for the appellants has not pointed out what par ticular feature of this contract makes it, in his jndgment, ous; nor have we been able to discover the usuary, The Bank did not charge more back interest upon the two notes of Pelham, renewed by the mortgage bond, than she was legally entitled to. The law allowed her interest at 8 per cent. upon notis payable at twelve months. (Acts of 1838, p. 11: ) And where she had to put the notes in suit, as it seems she did Pelham's notes, she was authoried to collect ten per cent. (Acts 1537—called session, p, 160.) In the above statement, Pelham is charged -with $1,280 on the $4,000 note, and $320 on the $1,000 note, making an aggregate back interest of $1,600. 'Tlie bond and mortgage bear date 2d August, 1849. The note for $4,000 ww, due the 1stc,f July, 1845, and the interest upon it from that time to the date of the mortgage, at ei ght per cent.
OF THE STATE OF ARKAN SAS Terru,1556] Magrduer et al. vs The State Bank was $1,307.52. The note for $1,000 was due 1st October, 1845, and the interest upon it, at the same rate, to the date of the mortgage, was $307.32, making an aggregate of back interest, actually due1 xi on the two notes, at the date of the mortgage, of $1,614.84, being an PN-Pess of $15.84 above the amount of back interest with which Pelham was charged by the agreement between him and the Bank. The curtail of $750 paid by Pelham did not extinguish the back interest by $850, and this balance of interest was included in the bond, and thus he was subjected to compound interest ; but this was not usurious, as decided by this court, in S. & (4. Turner v. Milled, 1 Eng_ R. 463. Pelham, instead of paying the advance interest of seven per cent., at the time of executing the bond, according to banking usage, retained it in his own hands, and i nserted the amount of it ( $409.50) as part of the principal in the bond, which was made payable at twelve months without interest imtil after due, There was surely no usuary in this. It was to his advantage. It is alqo insi,;ted for Magruder that the mortgage was without consideration and void. No consideration moving from the hank to him was necessary make the mortgage valid, He had the right to hind himself ill writing for the payment of Pelham's debt, The bank permitted -Pelham to rem iv his notes, and gave him time upon the &lit, in consideration that he would secure it by Magruder's mortgage This was a valid, lecal eorisidel ation for the mortgage. 2 Kent's (_lom 465: 1. It is insisted, mor,over, that the mortgage is void, for want of power iii the lank to take it. The hank was anthorized by its charter, to take mortpges as collateral security, sec. 6; and to loan money on mortenevs upon real property, Sec. 20, 21, 23, 24, Acts 1836, p. 17. By the act of 31st January, 1843, (Acts 1842. p. 77), plaeine the bank in lignidati . _on, its corporate existence was Mt 110- stroyed, but its powers were abridged. Its privile g e to discount notes, etc., or to lcon money in any manner, ( see. 1 ) was TP-
14 CASES II\ TILL SUPREME COURT Magruder et al vs The state BanL [July pealed; but its corporate powers to collect in, and pay off its debts, and to liquidate and close up its business, %vele continued (sec. S. Underhill v. Stitt , Bank, 1 Eng: 135.) By the 10th section of the act, debtors, who might come forward within ninet y da y s after their debts were (hie ( sec. 9, ) and pay all arrearages of interest and calls, were allowed to renew their notes for one year, by giving satisfactory security, and paying interest in advance at seven per cent., and the Receivers were required so to regulate the calls on the notes, when theY became due, that the debts would be paid off within ten rears, by regular annual calls. By the 12.th section, the Receivers were required to keep a vigilant eye upon the debtors, and were made liable upon their official bonds, if debts were lost by neglect or carelessness on their part. And it was made their duty, "in all cases where the security was doubtful, to obtain, if possible, additional security: and to this eml. they might, if necessary, extend the time of payment, and take mortgages and deeds of trust: in the name of the bank, upon any propeity, either real or personal." etc And generally, "in all cases of doubtful or insolvent debts," the Receivers were authorized "to pursue such a course, and make such arrangements in regard to them, as their judgment might dictate to Fe most advantageous to the bank of the State:" By the not of January 4th, 1845, (Acts 1844, p: 4, ) the office of Executive Receiver, created by the liquidation act of 184'1, was abolished, and the completion of the process of liquidation was entrusted to a Financial Receiver, and an attorney for the principal bank, and eaeh of the branches By the 3d sec tion of this act, it was made the duty of the attorney to prepare all deeds, mortgages and other instruments of writing, which they or the Receivers, might deem necessary to promote the interest of the Bank, etc. The 6th section provides: "That it shall he the duty of said Receivers and attorneys to keep a-vigilant eye upon all persons indebted to said Bank, and if any debt be lost from the evident neglect and carelessness of said officers, they, or ,E , ach of them shall be held liable on their official bonds: and it shall be the
OF THE STATE OF AELIANSAS. 15 Term, ISF-M] Magrduer et al v The State Bank. duty of said financial reeeivers oud attorrieys, in all cases where tfie security is doubtful, to obtain, if possible, additional security. To this end, they may, if necessary, extend the time of payment not over two yeals, take mortgages and deeds of trust in the name of the bank, upon any property, real ropersonal," etc., etc., " and, generally, in all eases of doubtful or insolvent debtors, said officers may pursue such a course, and make such arrangements in regard to them, as their judgment may dictate to lw most advantageous to the batik." It is manifest from these enactments, that the hank possessed express and direct power to ta L e mortgages for the purpose of securing the payment of debts due to fier, even if this was not a power incident to hi r geneial rights as a creditor to secure and collect her debts by the ordinar y , le o i-, al means allowed to credit- ore wencrally Pint the eourisei fit the appellants takes two specific objections to the validity of the mortgage The first is, that the bank could only take a mortgage where the seeurlty for the debt was doubtful; and it is averred in the answer of Magruder that the securities of Pelham upon the notes for which the mortgage bond was substituted, were good and solv6it, and amply responsible for the debts. His counsel also insists that the depositions read upon the hearing prove tins to be true: and moreover, that the mortgaired propert y taken as a substitute for th-personal security, which the honk had before, was not wortb over $2,400—not near the value of the debt We are not sine that the depositions prove that tfic officers of the bank had no grounds to doubt the sob elle) of Pelham's securities at the time the mort a ive was taken. T. _McGuire ceems to have been reaarded as the most responsible one of the securities, and : ret it ap pears that his imlebtedness, at the time, as principal and eseurity, tunerimted to over $25, 11011 , Tri o4 of which was in suit: and the witnesses do not value his property at so large a slim. Rat let all be conceded that is claimed bv the counsel for the appellants, and the argument amounts to this: the bank had safe and sufficient personal security for Pel-ham's debt, but ber officers unwisely and by mistake, or in ells-
16 CASES IN THE SUPREME COURT Magruder et aL vs. The State Bank. [July regard of the duties imposed on them by law, surrendered the personal securit y , and took Pelham's individual bond for the debt, with Magruder's mortgage upon property not worth half the amount of the debt, therefore the mortgage is null and void, and the bank must lose the only security which she now has— in other words, that by an improvident arrangement of her officers, Ae has lost part of her debt, and therefore she must lo&-: it all! This can be neithei guud laN■, 1101_ Sound lotric the statement of the aigament refutes it. The second specific objection to the validity of the mortgage, taken by the counsel of appellants, is that it extends the time of payment for ten years, when, by the 6th section of the act of January 4th, 1845, above copied, the officers of the bank were not authorized to extend the time of payment, upon mortgage, more than two years, This provision of the Statute must be regarded as directory, and thuie is no good reason, founded in public policy, why a departure from it should make the contract null and void, as ni cases of contracts made in violation of the gaming or usury laws, or other lairs affecting puldic morals. If the officers of the Bank did not strictly follow the directions of the law in taking the mortgage, they are amenable to the appropriate authorities for their ,_onduct, but there is no principle of law, applicable to such ClUnC!n, that would warrant llti in holding the mortgage to be mill and void. The decree of the court below is affirmed and the time fixed_ by the court for the sale of the mortgaged property having-passed, the cause will be remanded, with instructions to the court to make the necessary orders to execute the dceree.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.