POWER AS TO CONTRACTS

71. A banking corporation has no power to enter into any contract that is not expressly or impliedly authorized by its charter. But any contract that is reasonably necessary or proper for carrying out the powers expressly conferred is impliedly authorized.

In General

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The principal banking functions of receiving deposits,3 making collections,37 making loans and discounts 38 and issuing circulating notes,39 have already been considered. The power to exercise these functions is usually expressly conferred upon banking corporations, although the power to make collections is usually conferred by implication, as being a proper incident of the business of banking. Certain other dealings and contracts remain to be considered. The questions involved for the most part concern the powers of incorporated banks, for private bankers, unless restrained by statute, have the same right as other individuals to enter into such contracts as they may see fit.

Express and Incidental Powers

A banking corporation, like other corporations, has such powers only as are conferred upon it by its charter or by the law of its incorporation; but powers may be conferred by implication as well as expressly. Certain powers, such as the power to contract for authorized purposes, to sue and be sued, to have a common seal, and to make by-laws, are impliedly conferred as incidental to corporate existence. But, beyond this, corporations have all powers which are reasonably necessary or proper for the execution of the powers expressly granted and which are not expressly or impliedly excluded.11 Most of the powers to be considered in the present chapter are of this character.

BUYING AND SELLING PROPERTY

72. As a rule, a banking corporation has power to purchase such property as is necessary for its accommodation in the conduct of its business, but not to buy and sell property (other than exchange, coin and bullion, and commercial paper), except in so far as the acquisition and sale is incidental to the taking and enforcement of collateral security and to the payment, settlement, and collection of debts previously contracted.

In General

It is not a function of a bank to buy property for the purpose of selling at a profit. The business of banking in this respect is properly confined to buying and selling exchange, coin and bullion, and negotiable paper.2 The acquisition and sale of various kinds of property is, however, a proper incident to the business of banking, when the property is acquired in enforcing and realizing upon collateral security, or in settlement or payment of an existing debt and to save itself from loss, or by levy and sale under a judgment for a debt.45

43

42 Under power to buy and sell negotiable paper, a bank may buy and sell bonds. Mt. Vernon Bank v. Porter, 52 Mo. App. 244. See, also, Newport Nat. Bank v. Board of Education of Newport, 114 Ky. 87, 70 S. W. 186; ante, p. 227. See "Banks and Banking," Dec. Dig. (Key No.) § 86; Cent. Dig. § 218.

43 Bates v. Bank of State, 2 Ala. 451; Commercial Bank of Manchester v. Nolan, 8 Miss. 508; First Nat. Bank of Parker v. Peavy Elevator Co., 10 S. D. 167, 72 N. W. 402; ante, p. 246. See "Banks and Banking," Dec. Dig. (Key No.) §§ 94-96; Cent. Dig. §§ 227-230.

44 Reynolds v. Simpson, 74 Ga. 454; Brown v. Hogg, 14 Ill. 219; First Nat. Bank of Great Bend v. Bannister, 7 Kan. App. 787, 54 Pac. 20; Bank of North America v. Tamblyn, 7 Mo. App. 571; ante. p. 248; post, p. 280. See "Banks and Banking," Dec. Dig. (Key No.. $$ 94-96; Cent. Dig. §§ 227-230.

45 American Nat. Bank v. National Wall Paper Co., 77 Fed. 85, 23 C. C. A. 33; Farmers' & Millers' Bank of Milwaukee v. Detroit & M.

Exchange, Coin, and Bullion

The buying and selling of exchange-that is, bills of exchange is properly incidental to the business of banking, and, it seems, is authorized under a general grant of banking powers. The power of buying and selling exchange, coin, and bullion is expressly conferred upon national banks.**

Stock in Other Corporations

It is generally held in this country that a corporation has no power to subscribe for or to purchase stock in another corporation, unless such power is expressly granted in its charter or is reasonably implied in it. This rule applies to banks.*8 Thus the power to purchase or deal in stock of another corporation is not expressly conferred upon national banks, and it is held that it is not an act which may be exercised as incidental to the powers expressly conferred. As incidental to the power to loan money, however, national banks, and other banking corporations having like powers,50 may accept stock as collateral, and by enforcement of their rights become owner

49

R. Co., 17 Wis. 372; ante, p. 251; post, p. 280. See "Banks and Banking," Dec. Dig. (Key No.) §§ 94-96; Cent. Dig. §§ 227-230.

46 Rev. St. U. S. § 5136 (U. S. Comp. St. 1901, p. 3455). 47 Clark, Corp. (2d Ed.) 145.

48 Preston v. Marquette County Sav. Bank, 122 Mich. 696, 81 N. W. 920; Bank of Commerce v. Hart, 37 Neb. 197, 55 N. W. 631, 20 L. R. A. 780, 40 Am. St. Rep. 479; Talmage v. Pell, 7 N. Y. 328; Nassau Bank v. Jones, 95 N. Y. 115, 47 Am. Rep. 14. But see Latimer v. Citizens' State Bank, 102 Iowa, 162, 71 N. W. 225 (holding a bank authorized under power to "discount bills, notes, and other securities"). See "Banks and Banking," Dec. Dig. (Key No.) § 92; Cent. Dig. § 226; "Corporations," Dec. Dig. (Key No.) § 377; Cent. Dig. §§ 1531-1534.

49 California Nat. Bank v. Kennedy, 167 U. S. 362, 17 Sup. Ct. 831, 42 L. Ed. 198. See "Banks and Banking," Dec. Dig. (Key No.) §§ 260, 261.

50 See Deposit Bank of Owensborough v. Barrett (Ky.) 13 S. W. 337. See "Banks and Banking," Dec. Dig. (Key No.) §§ 92, 260; Cent. Dig. § 226.

of the collateral, or may take stock in payment or compromise of doubtful debts, in order to avoid loss and with a view to converting the stock into money.52

53

While the purchase of stock, not as incidental to the banking business, is ultra vires, so that it would be open to the state to proceed against the bank for violation of its charter, or for stockholders to restrain such violation, it would seem that a purchase is not void. Under the extreme doctrine of ultra vires asserted by the Supreme Court of the United States, however, it is held that such a purchase is void, and consequently cannot be ratified, and that the bank, when sued as a stockholder, is not estopped to deny its liability for the debts of such corporation, though it has received dividends on the stock. Yet it has been held that, while the obligation of an

54

51 Ante, p. 248.

52 First Nat. Bank v. National Exchange Bank, 92 U. S. 122, 23 L. Ed. 679; Westminster National Bank v. New England Electrical Works, 73 N. H. 465, 62 Atl. 971, 3 L. R. A. (N. S.) 551, 111 Am. St. Rep. 637; Tourtelot v. Whithed, 9 N. D. 407, 84 N. W. 8. See, also, California Bank v. Kennedy, 167 U. S. 362, 17 Sup. Ct. 831, 42 L. Ed. 198.

It is ultra vires to take stock in a corporation engaged in the speculative business of buying and selling the shares of an insolvent corporation, with power, but without obligation, to engage, as an independent enterprise, in a manufacturing business, though the shares be taken in exchange for a claim against the corporation. First Nat. Bank v. Converse, 200 U. S. 425, 26 Sup. Ct. 306, 50 L. Ed. 537. See "Banks and Banking," Dec. Dig. (Key No.) §§ 92, 260; Cent. Dig. § 226.

53 See Hunt v. Hauser Malting Co., 90 Minn. 282, 96 N. W. 85; Id., 95 Minn. 206, 103 N. W. 1032. See "Banks and Banking," Dec. Dig. (Key No.) §§ 92, 260; Cent. Dig. § 226.

54 California Nat. Bank v. Kennedy, 167 U. S. 362, 17 Sup. Ct. 831, 42 L. Ed. 198; Shaw v. National German-American Bank, 132 Fed. 658, 65 C, C. A. 620; affirmed 199 U. S. 603, 26 Sup. Ct. 750, 50 L. Ed. 328; Chemical Nat. Bank v. Havermale, 120 Cal. 601, 52 Pac. 1071, 65 Am. St. Rep. 206. See, also, Schofield v. Goodrich Bros. Banking Co., 98 Fed. 271, 39 C. C. A. 76.

A national bank is without power to purchase, as an investment, with its surplus funds, and to hold, shares of another national bank,

ultra vires contract, whether executed or executory, is void, the fact that the purchase of stock was ultra vires does not prevent the bank from getting title to the stock. 55

Bank's Own Stock

56

67

Some state banks are prohibited from purchasing their own stock, while others are not so prohibited. In the absence of restriction, a bank may take its own stock for a past debt,58 and this power is sometimes expressly conferred.59 A national bank is prohibited from becoming a purchaser or holder of the shares of its own capital stock, unless such purchase shall be necessary to prevent loss upon a debt previously contracted in good faith. An unauthorized purchase however, is not void, and its illegality can be attacked only by the government.1

60

and though it has received dividends on such shares, it is not estopped to plead the unlawfulness as a defense in an action by the receiver of the second bank to collect an assessment thereon by the comptroller. First Nat. Bank v. Hawkins, 174 U. S. 364, 19 Sup. Ct. 739, 43 L. Ed. 1007. See "Banks and Banking," Dec. Dig. (Key No.) §§ 101, 261; Cent. Dig. §§ 237, 238.

55 Metropolitan Trust Co. v. McKinnon, 172 Fed. 846, 97 C. C. A. 194. See "Banks and Banking," Dec. Dig. (Key No.) §§ 101, 261; Cent. Dig. §§ 237, 238.

56 See German Sav. Bank v. Wulfekuhler, 19 Kan. 60.

As to the power of corporations in general, see Clark, Corp. (2d Ed.) 148. See "Banks and Banking," Dec. Dig. (Key No.) § 91; Cent. Dig. § 225.

57 See Kassler v. Kyle, 28 Colo. 374, 65 Pac. 34; Robison v. Beall, 26 Ga. 17; Farmers' & Mechanics' Bank v. Champlain Transp. Co., 18 Vt. 131. See “Banks and Banking," Dec. Dig. (Key No.) § 91; Cent. Dig. § 225.

58 Draper v. Blackwell, 138 Ala. 182, 35 South. 110; Taylor v. Miami Exporting Co., 6 Ohio 177. See "Banks and Banking," Dec. Dig. (Key No.) § 91; Cent. Dig. § 225.

59 St. Paul & M. Trust Co. v. Jenks, 57 Minn. 248, 59 N. W. 299. See "Banks and Banking," Dec. Dig. (Key No.) § 91; Cent. Dig. § 225. 60 Ante, p. 249.

61 Lantry v. Wallace, 182 U. S. 536, 21 Sup. Ct. 878, 45 L. Ed. 1218 (holding a subsequent sale by the bank lawful, and the buyer liable as a shareholder); Wallace v. Hood (C. C.) 89 Fed. 11; Id., 97 Fed.