Shinkle v. The First National Bank of Ripley.

G. Shinkle was $1,400, and it was for the security and payment of that sum, and in fulfillment of said agreement on his part, that the note and mortgage in suit were executed. The portion so assumed and secured by Walter L. Shinkle was $4,400; that assumed and secured by Barton B. Shinkle, $4,000; and that assumed by Michael Shinkle, $4,765.

The notes and mortgages were all executed and delivered according to this agreement, and by the consent of the two banks, and for their use and benefit, were executed and delivered to Stivers, without any consideration moving from Stivers, and were transferred by him to the defendant in error without any new consideration, and by consent of all parties; and by like consent the old notes were canceled and given up.

On this finding of facts, the court rendered a judgment in favor of the defendant in error, for the amount of the note in suit, without interest, but including the usurious interest so incorporated in the note.

White & Waters, for motion.

Baird & Young, contra.

WELCH, J. [After deciding another point.] But the plaintiffs in error insist that, upon the facts found, the bank was entitled to no judgment: (1) because the original notes for which, in part, the note in suit was given, were void for usury; (2) because the bank was not authorized by its charter to take a note and mortgage executed to a third person; and (3) because no consideration was paid by Stivers for the note and mortgage, nor was any paid by the bank to him. They also insist, that if the bank was entitled to any judgment, no interest should have been allowed or recovered upon the note in suit, and that the usurious interest reserved upon the old notes, and incorporated into the note in suit, should have been excluded.

We have already held, in the case of the First National Bank of Columbus v. Garlinghouse, decided at the present term (ante, p. 811) that the reservation of illegal interest by a National bank, organized or acting under the act of 1864, does not render the note or bill discounted void in toto. These old notes were, therefore, at the time of the making and execution of the note and mortgage

Shinkle v. The First National Bank of Ripley.

in suit, valid and subsisting securities, and their surrender was a sufficient consideration to support the note and mortgage in suit. And there is clearly nothing in the objection that the note and mortgage were made to Stivers, and without consideration moving from him, and transferred by him to the bank without any consideration from the bank to him. This was a mere form of executing the new notes and mortgages to the bank. Stivers took them, of course, as mere agent or trustee for the bank. The whole thing was done by the mutual agreement of all parties, and that agreement and its execution on the part of the bank, and by Stivers, was the real consideration for the notes and mortgage executed by the Shinkles.

We are equally clear in the opinion that the bank had power, by its charter, to take notes and mortgages in this way and form, for the purpose of securing its claims. The power to adopt reasonable and necessary measures for the collection and security of debts is necessarily incident to the power of banking.

As we construe section 8 of the act of Congress of 1864, it expressly gives all such necessary incidental powers, without limitation as to the particular modes in which they are to be exercised. The words, "by discounting promissory notes, drafts, bills of exchange," etc., contained in that section, are not to be read as limiting the modes of exercising the incidental powers granted, but as limiting and defining the kind of banking which is authorized by the act. In other words, the association is authorized by section 8 to carry on "banking by discounting and negotiating promissory notes, drafts, bills of exchange," etc., and to exercise "all such incidental powers as shall be necessary" for that purpose.

But did the court err in allowing the bank to recover interest upon the new note, and to recover the illegal interest reserved upon the old notes, or, rather, the pro rata part of such illegal interest incorporated in the new notes? We think not. We regard the transaction of settlement between these parties as an absolute payment of the old notes, and in no sense a renewal or continuance of the indebtedness which they were given to secure. In legal effect the transaction was equivalent to an actual payment of the old debts in money, and the borrowing anew by each party of the amount for which he so executed his new note and mortgage. Viewed in this light, it is undeniable that the new note in suit, not being in itself usurious, would bear interest. It would follow

Allen v. The First National Bank of Xenia,

also that the Shinkles, under the provisions of section 30 of said act, would have the right to recover back from the bank double the amount of the usurious interest so paid. But this right to recover double the amount of interest is limited by the act to two years from the time the interest was paid, and unless it is exercised within that period it is gone. In the present case the period of two years had elapsed long before the commencement of the action. The right to recover the interest being barred, the right to offset the amount against any claim of the bank is also barred. It is unnecessary, therefore, to inquire whether a pro rata, or any other part of the usurious interest so paid upon the old debts, could, in case the right of recovery had not been so barred, be offset against the claim of the bank in the present case. It is enough to say, if the right ever existed, it has been extinguished by lapse of time. Motion overruled.

ALLEN V. THE FIRST NATIONAL BANK OF XENIA.

(23 Ohio State, 97.)

Loans in excess of one-tenth of capital — Usury — Mortgage to bank.

Where a National bank, organized from a State bank under the provisions of the National Currency Act, at the time of its organization took from such State bank, among the discounted notes, one for a larger amount than the National bank was authorized to loan to a single borrower, such note is not, nor is any note subsequently given in renewal thereof, to be regarded, within the meaning of section 29 of said act, as given for money borrowed of the National bank.

In an action brought by a National bank on a note given by way of renewal for a balance due on a previous loan, which had been reduced by renewals and payments below the maximum sum which it was authorized to loan to a single borrower, it is no defense that the original loan was for a larger sum than the bank was, by its charter, authorized to make. National banks are authorized to take mortgages on real estate in good faith to secure debts previously contracted. A National bank extended the time of payment of indebtedness at a usurious rate of interest, and took therefor notes and a mortgage made by the debtor to a third person, the notes being indorsed by the latter. Held, that the usury only avoided the interest, and

Allen v. The First National Bank of Xenia.

that to the extent the debt was valid the mortgage was a bona fide security and that the bank, by becoming the owner of the notes, acquired the equity in the mortgage.

E

RROR to the District Court of Green county.

The original suit was brought by the defendant in error against the plaintiff in error, Allen, upon four promissory notes and upon a mortgage executed to secure their payment. The notes were dated July 13, 1866, each being for $5,000, and payable one year after date to the order of C. R. Merrick, and were signed by Allen, as sole maker, and indorsed by Merrick. The mortgage was also executed by Allen to Merrick, and was duly recorded.

These notes and mortgage were delivered by Allen to the bank to pay the balance due on two other promissory notes then held by the bank against him. In addition to the amount of such indebtedness, there was included in said notes interest at the rate of nine per cent per annum from their date to maturity.

The two notes held by the bank, in satisfaction of which said four notes were given, had been, at the time of giving said last-named notes, some time overdue, and were as follows: One dated December 16, 1865, for $16,000, payable four months after date to the order of the bank, and signed by said Allen and by Merrick, McClure & Co., and Henry Neville, as makers. The other dated January 30, 1866, for $10,000, payable four months after date to the order of said bank, and signed by Henry Neville, said Allen, and G. Snyder as makers.

The note of $16,000 was for the balance of a loan of $26,000, which had been made to Allen by the Xenia Branch of the State Bank of Ohio before that bank had been organized into the First National Bank of Xenia, the present defendant in error, under and by virtue of section 44 of the act of Congress known as the National Currency Act, approved June 3, 1864, and by the transfer of the assets of the said Xenia Branch of the State Bank of Ohio to the defendant in error, became the property of the latter. The original loan had been reduced by payments, and the time extended by renewals subsequent to the transfer.

The note of $10,000 was given for the balance due on two loans originally made by the defendant in error, in 1864, to Merrick, McClure & Co., to secure which to the bank, Allen was one of their sureties. By an arrangement between Allen and Merrick,

Allen v. The First National Bank of Xenia.

McClure & Co., Allen subsequently assumed to pay $14,000 of their indebtedness to the bank. To carry out his arrangement with Merrick, McClure & Co., Allen gave to the bank his note, on which Merrick, McClure & Co. were sureties. This note was from time to time renewed and reduced by payments, until finally the note above named of $10,000 was given.

The paid-up capital of the defendant in error at no time exceeded $120,000.

The balance due from Allen to the defendant in error, on the 13th of July, 1866, the date of the four notes sued on, was $18,351.77, for which judgment was rendered, and on default of payment the mortgaged premises were ordered to be sold. The District Court on error affirmed this judgment. The present petition in error is prosecuted in this court to obtain the reversal of these judgments.

Goode & Bowman, for plaintiff in error.

B. Nesbitt, for defendant in error.

WHITE, C. J. One of the assignments in error in this case has already been decided, at the present term, adversely to the plaintiff in error. The First National Bank of Columbus v. Garlinghouse et al., 22 O. S. 493.

In considering that case, we had before us the argument in this case of the counsel of the present plaintiff in error on the question then decided; and it is sufficient now to say, that we are satisfied with that decision.

2. Another ground of error assigned is, that the notes sued on were taken by the defendant in error in violation of section 30 of the National Currency Act of June 3, 1864. That section provides as follows:

"That the total liabilities to any association of any person, or of any company, corporation, or firm, for money borrowed, including in the liabilities of a company or firm the liabilities of the several members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association actually paid in: Provided, that the bona fide bills of exchange drawn against actually existing values, and the discount of commercial or business paper actually owned by the person or persons, corporation or firm negotiating the same, shall not be considered as money borrowed."

We are not called on by the facts of this case to determine what