Schuyler National Bank v. Gadsden/Dissent Brown

Mr. Justice Brown, with whom was Mr. Justice Brewer, dissenting:

I am constrained to dissent from the opinion of the court in this case.

The facts, concisely stated, are as follows: George Thrush executed a note to the bank for $5,000, payable in six months. At the same time Thrush and wife executed a collateral note and mortgage for the same amount to Sumner, president of the bank. This note and mortgage, given partly for an antecedent and partly for a contemporaneous debt, were delivered to the bank, and retained by it.

The note made to the bank was renewed from time to time, and various payments of interest and principal were made, and the principal sum thereby reduced, in March, 1894, to $3,000. At that time a new note was executed to the bank for the principal sum due and interest, namely, $3,229. No dealings were had at any time between Thrush and wife and Sumner individually.

Suit having been begun be Gadsden to foreclose a prior mortgage, and Sumner having been made a party as junior encumbrancer, he answered, and by cross petition asserted the lien of the mortgage, which he alleged was made to him as trustee of the bank. The bank being also made defendant, filed an answer and cross petition, claiming the benefit of the mortgage to Sumner.

It is clear that there was but one actual debt. The question is, whether, in asserting its right to foreclose the mortgage made to Sumner individually, it must not submit itself to the laws of the state affecting usury; in other words, whether, in the foreclosure of a mortgage created under the laws of a state, and executed by one citizen of a state to another, its obligations are to be determined by state law or Federal law. Congress forbids such a mortgage; the state permits it. There can be no doubt that the bank caused the mortgage to be given to Sumner on account of the law forbidding national banks from receiving security by way of mortgage upon real estate, and to obviate any difficulties which might be interposed either by the mortgagor or by the government, by taking the mortgage in the name of the bank.

Had the mortgage expressed upon its face the exact truth, namely, that it was given for the benefit of a national bank, and partly, at least, for the security of a contemporaneous debt, it would have fallen within the ban of the Federal statute. It is true the state law permitted it, but accompanied it with a forfeiture of the entire interest if usury were taken. The question is whether, in enforcing this mortgage, which the bank was prohibited from taking in its own name, it may claim an exemption from the usury laws of the state. So long as the dealings were solely between the bank and Thrush, and payments were made upon the bank note in question, the transaction with regard to usury was governed by the Federal law. But in case the bank elected to foreclose the mortgage, I think it took the benefit of it cum onere. He who seeks equity must do equity. It could not take the benefit of the mortgage to Sumner, and claim a right to foreclose for the amount due, without, at the same time, admitting that the payments which had been made were made upon a debt secured by the mortgage, and subject to the disability of the state law. As was justly said by the supreme court of Nebraska: 'It would be highly unconscionable to permit a person to give a contract a false form to evade the burdens which would follow from its true expression, and then permit him to show the truth as against the form to evade the burdens cast by a contract in the form which has been so chosen.' [56 Neb. 565, 76 N. W. 1060.] The bank ought not to be permitted to blow hot and cold in the same transaction. If it claimed the benefit of a mortgage made to an individual, it should take it with such burdens as would rest upon it if the transaction had originally been what it was represented to be upon its face. The opinion of the court suggests an easy method by which the prohibition of the Federal statute against the lending of money upon real estate security may be successfully evaded without the slightest danger to the bank.