Case Name: John A. Ross et al v. Bank of the State of S. Carolina
Court: South Carolina Court of Errors
Jurisdiction: South Carolina
Decision Date: 1849
Citations: 3 Strob. Eq. 245
Docket Number: 
Parties: John A. Ross et al v. Bank of the State of S. Carolina.
Judges: Johnston, Caldwell and Dargan, CC. and O’Neall, Evans, Wardlaw and Frost, JJ. concurred.
Reporter: South Carolina Equity Reports
Volume: 22
Pages: 245–257

Head Matter:
John A. Ross et al v. Bank of the State of S. Carolina.
Mortgages taken by the Bank of the State of South Carolina, for any other indebtedness than that contracted under the loan office department, are not mortgages which, under its charter, “ shall be considered as being recorded from the date thereof,” but they are mortgages taken under the incidental and implied powers of a banking corporation. The Bank of the State stands on the same footing with such mortgagees, and is bound to the same diligence.
Before Dunkin, Ch. at Kershaw, June, 1848.
Dunkin, Ch. — On the 18th of April, 1837, J. W. Cantey executed to the complainants a mortgage of certain real estate in Camden, to secure them for a loan of their two notes of the same date, for six thousand dollars in tin? aggregate, to be discounted in the Branch of the Bank of the State of South Carolina at Camden, and the proceeds to be passed to the credit of J. W. Cantey. This mortgage was duly recorded in the office of the Registrar of Mesne Conveyances for Kershaw district, on the 23d of May, 1837. The same premises had been mortgaged to the defendants (the parent Bank in Charleston) by J. W. Cantey, on the 26th day of July, 1836. The deed was in the usual form taken by the bank, reciting a loan of thirty thousand dollars (30,000) se cured by bond, payable in four equal annual instalments, wjt[1 interest payable annually. This mortgage was not recorded in the Registrar’s office for Kershaw, till the 1st of March, 1841.
Court of Errors.
8 Stat. p. 34.
In February, 1842, the bank was about to sell the premises under their mortgage, when the complainants interfered, and an agreement was made that the sale should proceed, and that the question should be made as to the appropriation of the funds. This bill was thereon filed, in which the complainants, among other things, alleged that they had “ no notice or the slightest suspicion” of the existence of the mortgage to the defendants, until it was placed on record in March, 1841. The defendants, in their answer, contended that, under the provisions of their charter, it was not necessary to record this mortgage. They also suggested that the complainants had actual notice of the mortgage to the defendants, which notice they hoped to establish by proof.
When the cause was originally heard on the circuit, the only question argued was in relation to the form of the instrument executed to the defendants ; which the Chancellor deemed sufficient. One of the grounds of appeal was, that the mortgage was not taken for a loan of money under the special clause of the bank charter, and consequently was not entitled to the peculiar privileges therein provided. The Chancellor, (Johnston,) who originally heard the cause, was of opinion at the hearing of the appeal, that this question should be investigated, and the case was remanded, with 'the concurrence of the Court, for the purpose of inquiry upon this subject, as well as in relation to the question of actual notice to the complainants, and any other grounds of defence.
The Bank of the State was established in 1812. The preamble declares that it was expedient “ to establish a bank on the funds of the State, for the purpose of discounting paper and making loans for longer periods than has heretofore been customary, and on security different from what has hitherto been required.” To accomplish these objects, the Act, after providing a capital for the bank, vests in the institution all the ordinary powers of such corporations, such as the right of receiving moneys on deposite, discounting bills of exchan^, and notes with two good names thereon, or secured by a pledge of stock; and also enables the bank to take and hold real and personal estate. A special provision is then made authorizing loans of a particular character, and to be secured in a different manner. These loans were to be “apportioned among the election districts, throughout the State, in proportion to their representation in the Legislature.” They were “ loans in the nature of discount on real or personal property, secured by mortgage and power of attorney to confess judgment on default of payment.” The Act de- dared that the sums so loaned must never exceed one-third part of the real unincumbered value of the property so mortgaged, and furthermore, that no individual should be permit-1 ted to borrow on his own account, a greater sum than two thousand dollars. The loans were to be called in by annual instalments of one-tenth each year. The fifth clause provided that the mortgage thus taken, “ should be considered as being recorded from the date thereof, and should have priority of any mortgage of the same property not previously recorded in the proper office.”
In order to insure the utmost caution in making loans of even this limited amount, on such security and on this extended credit, it is specially provided that the value of the property shall be ascertained by assessors, and that the President and Directors “shall be answerable to the State in an action at law or a suit in equity, wherein the damages incurred by taking insufficient security, shall be assessed by the jury or by the decree of the Court, unless the Judges of law or equity, as the case may be, shall be of opinion and certify that every necessary precaution was used, and -no manner of neglect on the part of the President and Directors.” Other special provisions are made to regulate what has, not inappropriately, been termed the loan office department of the institution, a department avowedly established for the purpose of accomodating the citizens generally with loans to a moderate amount, on a long credit, and secured by property of three times the amount in value. The principal inquiry is, whether the transaction with General Cantey was a loan made under this special provision of the bank charter, or whether it was an ordinary arrangement used by all banking institutions, for the purpose of securing a large pre-existing debt, in which operation the Bank of the State has no peculiar privileges, but must exercise the ordinary diligence for the security and protection of its rights, which is required of every other corporation, and of every individual in the community.
On the face of the transaction there is-much to create a doubt whether this was such a loan as is authorized by this special provision of the charter, and to secure which loans the mortgages executed to the bank are placed on a footing so favorable to the bank, and so perilous to others who may have had dealings with the debtor of the bank. This was a loan'to one individual of $30,000, secured by property of not that apparent value, and on a credit of four years. It had no feature of a discount made on property under the loan office department of the bank, and thence the inquiry directed by the Court of Appeals. It was not, nor is it now, intended to be inferred that a departure from these provisions or regulations would, in any manner, invalidate the security taken. This is not the subject of inquiry. But whether ^jg wag¡ jn fact) an original Joan intended by the parties to be made under the special provisions of the charter, and entitled to the special protection therein given, or merely an arrangement by which the bank obtained more ample security for a large existing debt, and the debtor obtained an additional advance in consideration of the new security.
3 Crancli, 385.
It is hardly necessary to premise that a debt due at either of the branches, is an indebtedness to the principal institution. The branches are merely agencies. The directors are appointed by and are under the control of the board in Charleston, which, by the express terms of the charter, “ allots to the branches such portion of the active capital of the bank as may to them seem advantageous.”
Chief Justice Marshall says, in United States v. Fisher, that “where great inconvenience will result from a particular construction of a statute, that construction is to be avoided ; unless the meaning of the Legislature be plain.” And again, “ that consequences are to be considered in expounding laws, where the intent is doubtful, is a principle not to be controverted; where rights are infringed — where the general system of the laws is departed from, the legislative intention must be expressed with irresistable clearness to induce a Court of Justice to suppose a design to effect such objects.”
When it is remembered that the provision in regard to the loan office department, applies to mortgages of personal as well as real estate, and that by subsequent amendments to the charter of 1812, the same power of making such loans is extended to the several branches, the consequences of a loose construction of this provision cannot be disregarded. When no man can safely purchase a negro in Pendleton, or take a mortgage of a tract of land in Newberry, until he has first searched, not only the ordinary offices of record, but has also searched the offices of the parent bank in Charleston, and of the several branches in Columbia, Camden, &c. for incum-brances upon the property, the Court would, very reluctantly give such construction to the statute as would extend the secret lien to any other than the cases specially provided.
At the hearing, the defendants proposed to show notice to the complainants of their mortgage, but the evidence entirely failed, and this was not again urged. Mr. Salmond, the President of the Branch Bank at Camden, was then examined for the defendants, and his testimony accompanies this decree. He said, among other things, that at the same time that the bank took from J. W. Cantey the mortgage of the real estate, they took a mortgage of seventy-ttvo negroes.— This latter was recorded in Charleston, 10th August, 1839. The real estate had been sold for $>5,400, and the negroes for about $>25,000.
C. M. Furman, the cashier of the parent bank in Charleston, was examined by commission. It seems that he absent from Charleston during a part of the summer of 1836, and that he has no recollection of the negotiation with General Cantey, but that he finds on the minutes of the Board, 12th September, 1836, the following entry: “ Gen. Cantey’s proposition for a loan of thirty thousand dollars, agreed to.” The money was placed to his credit, and appropriated in a manner hereafter to be noticed. This is very unsatisfactory. The proposition of General Cantey, thus agreed to by the Board, is precisely the subject of inquiry ; doubtless it was in writing, was entered on the previous minutes, or the original is in possession of the bank. If the proposition was for an original loan of money under the special provisions of the charter, which has been recited, much other evidence would appear. Any person applying for a loan under these provisions, must produce a just and true account of “ the property proposed to be mortgaged, which said property shall be valued on oath by Commissioners appointed by the Board for that purpose,” and who receive a compensation for their services. The applicant must also submit his titles to the lands intended to be mortgaged to the inspection of the said Board of Directors, “ before the obtaining of such loan.” It has been before stated that the President and Directors were liable in an action at law or in equity, for making a loan under this special provision without taking sufficient security, unless the Judge certifies that there was no manner of neglect, &c.
If the loan to Gen. Cantey was made under the special provisions of the charter, it was no ordinary transaction, and involved no ordinary responsibility. The President and Directors would have omitted no precaution to preserve the testimony of their justification, and that if the loan was large, it did not, in the language of the Act, exceed one-third part of the real unincumbered value of the security taken. The absence of any such testimony induces an impression that the proposition of Gen. Cantey was not addressed to the loan office department of the institution.
The subsequent testimony of Mr. Furman confirms the inference that this was not a loan made by the bank under this special provision of the charter, but that it was, on the contrary, an arrangement made to secure a large pre-existing debt of Gen. Cantey to that institution. He says that at the time of the loan to Gen. C. in September, 1836, he owed the bank in Columbia a debt of ten thousand dollars, which had been contracted in February, 1836, and that he was, at the same time, (September, 1836,) indebted to the Camden Branch, on sundry notes, to the amount of five thousand and seventy dollars. Mr. Furman further says that General Cantey drew a check in his favor, individually, for the $30,- 000, that he had remitted him a draft on the Camden Branch for ^10^00, and on the Columbia Branch for $14,000. That General Cantey may have paid “ his indebtedness above mentioned, out of that loan so made to him, and probably did so.” He repeats afterwards that out of the $30,000, Gen. Cantey “ may have taken up his indebtedness at the branches, and he presumes he did.” It is true he adds that so far as he is informed, “ it does not appear that this was a condition annexed to the loan.” This may very well have happened. In reply to the third interrogatory in chief, he says he was “ absent during part of the summer of 1836he has no recollection of the negotiation of the loan to General Cantey, and he furnishes no evidence whatever of the propo'-sition of Gen. Cantey, which the Board agreed to on the 12th September, 1836. The evidence of Mr. Furman even leaves it uncertain whether the indebtedness at the Branches was actually paid out of the loan. But any doubt on either point is removed by the consideration that Mr. Furman was a witness introduced by the defendants, and it was perfectly in their power to have shown by other evidence what was the character of the negotiation with General Cantey, and what were the conditions, if any, of the loan in September, 1836. It was not less in their power to have shown, if such was the fact, that.the indebtedness at the Columbia and Camden Branches was not paid out of this loan to General Cantey. The proposition of General Cantey was agreed to on the 12th of September, but the money was not advanced to him, says Mr. Furman, until the 28th of October, and the debt to the Columbia Branch of $10,000, was certainly paid off on the 1st November.
All the circumstances lead to the conclusion, that this was not a transaction under the special provision of the charter, authorizing a loan not exceeding two thousand dollars to any individual on mortgage of property of at least three times the value of the amount loaned ; but that it was not an uncommon, but very judicious arrangement of 'the bank to secure a large debt of more than fifteen thousand dollars, ten thousand dollars of which had been contracted at Columbia in February previous, and five thousand and seventy dollars of which was due on “ sundry notes” in the Branch at Camden. The event proved the wisdom of the arrangement, and that the security was ample; not indeed under the loan office provision, but to secure the sum of thirty thousand dollars. The only neglect was the omission to record the mortgage of real estate until 1st March, 1841, and the mortgage of ne-groes till August 10th, 1839. They may have recorded both so soon as they apprehended any difficulty or danger of the debt, and in case of the negroes the delay wrought no injury. But in the mean time their debtor had executed another mortgage of the real estate, to indemnify a bona fide surety; which mortgage was promptly recorded in the proper and to which the general law of the land accords a preference over all prior unrecorded mortgages. The Court is of opinion that the mortgage to the bank falls within the latter category, and must be postponed to the lien of the complainants. It is ordered and decreed that from the proceeds of the sale of the real estate, the balance due on the notes of complainants be first paid, and that they be refunded any sums which they may have hitherto paid to the bank on account of said notes, with interest thereon ; and that the surplus, if any, be appropriated towards the payment of the balance due on the debt of J. W. Cantey to the defendants.
The defendants moved the Court of Appeals to reverse the decree, on the following grounds:
1. Because the mortgage executed by J. W. Cantey to defendants, was taken by them in pursuance of the charter of the bank, and as such is entitled to be considered as recorded from its date, without actual registration, by virtue of the fifth clause of the charter.
2. Because the conditions upon which the directors of the bank were authorized to loan money on bond and mortgage, are instructions to them from the owners of the bank, upon the violation’of which no third person can predicate a right.
Such instructions are immaterial to third persons.
3. Because all mortgages taken by the bank are recorded from their date, by virtue of the 5th section of the charter.
4. Because the sum of money mentioned in the bond and mortgage, was actually paid to J. W. Cantey, and agreed to ■ be so paid without any condition annexed, other than the repayment of the same.
5. Because the mortgage was executed to defendants for money loaned and advanced at the time of its execution, and upon no other consideration.
J. M. DeSaussure, defendants’ solicitor.
J. Gregg, contra.

Opinion:
Ordered up to the Court of Errors, for the adjudication of the question made by the 3d ground of appeal.
Curia, per
DunkiN, Ch.
The testimony seems to the Court to establish very satisfactorily that the loan to Geni. Cantey, in October, Í836, was not an original transaction, but that it was also to secure payment of an existing indebtedness to the institution, amounting to more than fifteen thousand dollars. In the argument here it was not questioned that this indebtedness was satisfied or extinguished from the proceeds of the loan made in October, 1836.. Yielding this conclusion the appeal rests on the 3d ground, to wit, that "ail mortgages taken by the Bank are recorded from their date, by virtue of the 5th section of the charter."
Oil this point it is proposed to add very little to tlie observations made in the decree. Having power, under the other sections of the charter, to discount notes and bills of exchange and to transact other banking business, and also to take and hold real and personal estate, it would seem difficult to deny the power to this institution, which is exercised by all other banks, of taking a mortgage or assignment of property, real or personal, to secure an existing or contemplated indebtedness. But, although this power would seem to result from other powers expressly granted, as well as from the 16th clause of the 1st section authorising the President aud Directors generally todo and execute all such acts as it may appertain to them to do, subject to the rules, &c. prescribed in the Act, yet no power is expressly vested in the bank to take a mortgage, except in those sections which establish and regulate the loan office department. Mortgages taken by the bank for any other indebtedness than that contracted under the loan office department are not mortgages taken "for loans of money under this Act," (expressions which clearly point to some foregoing and express authority to take a mortgage) but they are mortgages taken under the incidental and implied powers of a banking corporation. The Bank of the State stands on the same footing with such mortgagees, and are bound to the same diligence. It may be added that, throughout the Act, the term ' loan' is used in contradistinction to ' discounting paper,' and is uniformly applied to the special accommodations to be made to the citizens to a limited amount, on a single name, but on collateral security to three times the amount loaned, and the mortgage expressly authorized to be taken is always to secure the loans thus authorized to be made.
There is no doubt of the power of the Legislature. They may give a priority to public securities, as in the case of the paper medium loan office; or they may prefer debts due to the public, as in the administration of the assets of a deceased person. In the same manner it would be competent for that body, however invidious the enactment, to give a preference to all mortgages taken by the Bank of the State, apd, indeed, to all debts, of whatever kind, contracted with that institution. They might place all notes discounted at the Bank of the State on the same footing with debts due to the public in the administration of assets. But such preference should be clearly given, and would not, and ought not to, be left to doubtful interpretation, or inference. It is believed that no such priority has ever been claimed by the Bank, as representing the State; certainly none such has ever been recognized by any judicial tribunal. But, if the Bank be nothing else, than the Treasury of the State, a note discounted at that institution is a debt due to the public, and the inference would be too palpable to be evaded, that the bills of the Bank are emitted in violation of the constitution of the United States. The appellants have not, however, assumed this position. They rely on the specific preference accorded by charter of incorporation. In the judgment of the Court this does not extend to the mortgage described in the pleadings, and the appeal is therefore dismissed.
Johnston, Caldwell and Dargan, CC. and O'Neall, Evans, Wardlaw and Frost, JJ. concurred.