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ferred by the National Bank Act, this rule applies to national banks.85 Thus a banking corporation has no implied power to become an accommodation party to negotiable paper,86 to execute a bond or undertaking for another in a judicial proceeding,87 or to guarantee that a draft drawn by a third person on a customer will be paid.s A different case is presented where a bank enters into guaranty for its own advantage as an incident to business in which it is authorized to engage. Thus a bank may incur the ordinary obligation of an indorser incident to the transfer of negotiable paper," and it may expressly guarantee such paper properly issued or transferred by it. So, in conveying real estate, it may enter into the usual covenants of warranty.92

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85 See cases cited in preceding note.

86 National Bank v. Atkinson (C. C.) 55 Fed. 465; Bacon v. Farmers' Bank, 79 Mo. App. 406; Central Bank v. Empire Stone Dressing Co., 26 Barb. (N. Y.) 23; Morford v. Farmers' Bank of Saratoga County, 26 Barb. (N. Y.) 568. See "Banks and Banking," Dec. Dig. (Key No.) § 99; Cent. Dig. § 236.

87 Bailey v. Farmers' Nat. Bank, 97 Ill. App. 66; Sturdevant Bros. & Co. v. Farmers' & Merchants' Bank of Rushville, 62 Neb. 472, 87 N. W. 156; Id., 69 Neb. 220, 95 N. W. 819. See "Banks and Banking," Dec. Dig. (Key No.) §§ 96, 99, 258; Cent. Dig. § 236.

88 National Bank of Brunswick v. Sixth Nat. Bank, 212 Pa. 238, 61 Atl. 889. See "Banks and Banking," Dec. Dig. (Key No.) §§ 99, 260; Cent. Dig. §§ 236, 984.

89 Central R. & Banking Co. of Georgia v. Farmers' Loan & Trust Co., 114 Fed. 263, 52 C. C. A. 149; Talman v. Rochester City Bank, 18 Barb. (N. Y.) 123; Dabney v. Bank of State, 3 S. C. 124. See "Banks and Banking," Dec. Dig. (Key No.) § 99; Cent. Dig. § 236.

90 United States Nat. Bank v. First Nat. Bank, 79 Fed. 296, 24 C. C. A. 597. See "Banks and Banking," Dec. Dig. (Key No.) §§ 99, 109, 260; Cent. Dig. §§ 236, 984.

91 People's Bank v. Manufacturers' Nat. Bank, 101 U. S. 181, 25 L. Ed. 907; Cochran v. United States, 157 U. S. 286, 15 Sup. Ct. 628, 39 L. Ed. 704; Thomas v. City Nat. Bank of Hastings, 40 Neb. 501, 58 N. W. 943, 24 L. R. A. 263. See, also, Appleton v. Citizens' Cent. Nat. Bank of New York, 190 N. Y. 417, 83 N. E. 470, 32 L. R. A. (N. S.) 543. See "Banks and Banking,” Dec. Dig. (Key No.) § 99; Cent. Dig. 236.

92 See Merchants' Bank of Valdosta v. Baird, 160 Fed. 642, 90 C.

It is very generally held, and, this being the doctrine of the Supreme Court of the United States, the rule applies to national banks, that an ultra vires contract of guaranty is void, and that the bank in an action thereon may plead this fact in defense, although the other party has acted upon the faith of the guaranty.93 If, however, the bank has received money or property under the contract, it is held, even where the stricter rule prevails, that the bank may be compelled to refund what it has received, not in an action upon the unlawful contract, but in an action quasi ex contractu. And if the contract is such that it might under certain circumstances properly be entered into, in the absence of evidence to the contrary, the presumption will prevail that it was lawfully entered into.95 A holder can, of course, charge a bank as an accommodation party to a negotiable instrument, if he is a holder in due course and without notice of the accommodation character of the bank's signature."

C. A. 338, 17 L. R. A. (N. S.) 526. See "Banks and Banking," Dec. Dig. (Key No.) §§ 96, 99; Cent. Dig. §§ 230-236.

93 Bowen v. Needles Nat. Bank, 94 Fed. 925, 36 C. C. A. 553; Merchants' Bank of Valdosta v. Baird, 160 Fed. 642, 90 C. C. A. 338, 17 L. R. A. (N. S.) 526; First Nat. Bank v. American Nat. Bank, 173 Mo. 153, 72 S. W. 1059. Contra: Seeber v. Commercial Nat. Bank (C. C.) 77 Fed. 957; Hutchins v. Planters' Nat. Bank, 128 N. C. 72, 38 S. E. 252. See "Banks and Banking," Dec. Dig. (Key No.) §§ 101, 260, 261; Cent. Dig. §§ 237, 238, 991-1000.

94 Citizens' Cent. Nat. Bank of New York v. Appleton, 216 U. S. 196, 30 Sup. Ct. 364, 54 L. Ed. 443; Appleton v. Citizens' Cent. Nat. Bank of New York, 190 N. Y. 417, 83 N. E. 470, 32 L. R. A. (N. S.) 543; Norton v. Derry Nat. Bank, 61 N. H. 589, 60 Am. Rep. 334. See "Banks and Banking," Dec. Dig. (Key No.) § 101; Cent. Dig. § 237, 238.

95 Mine & Smelter Supply Co. v. Stockgrowers' Bank, 173 Fed. 859, 98 C. C. A. 229. Cf. Sturdevant Bros. & Co. v. Farmers' & Merchants' Bank of Rushville, 62 Neb. 472, 87 N. W. 156; Id., 69 Neb. 220, 95 N. W. 819. See "Banks and Banking," Dec. Dig. (Key No.) § 99; Cent. Dig. § 236.

96 In re Troy & Cohoes Shirt Co. (D. C.) 136 Fed. 420. See, also. Bowen v. Needles Nat. Bank, 94 Fed. 925, 36 C. C. A. 553; Clark,

Other Contracts

In general, it may be said that a banking corporation has power to enter into any contract for its own advantage which is incidental to the business in which it is authorized to engage. Thus, a national bank, having power to receive deposits, may give a bond to secure them.98 It is not always easy to draw the line between what is and what is not within the implied powers. It has been held that a national bank may engage in the business of dealing in and exchanging national bonds," but that it may not deal as a broker in buying and selling securities.100 It has been held, however, that the lending of money on deposit for a customer, unless pro

Corp. (2d Ed.) 174. See "Banks and Banking," Dec. Dig. (Key No.) §§ 99, 260; Cent. Dig. §§ 236, 984.

97 McCraith v. National Mohawk Val. Bank, 104 N. Y. 414, 10 N. E. 862. See "Banks and Banking," Dec. Dig. (Key No.) § 96; Cent. Dig. § 230.

98 Interstate Nat. Bank v. Ferguson, 48 Kan. 732, 30 Pac. 237; State v. First Nat. Bank (C. C.) 88 Fed. 947. See "Banks and Banking," Dec. Dig. (Key No.) §§ 96, 99; Cent. Dig. §§ 230-236.

99 Leach v. Hale, 31 Iowa, 69, 7 Am. Rep. 112. See "Banks and Banking," Dec. Dig. (Key No.) §§ 258, 260; Cent. Dig. §§ 977-990.

100 Farmers' & Merchants' Nat. Bank v. Smith, 77 Fed. 129, 23 C. C. A. 80; Weckler v. First Nat. Bank of Hagerstown, 42 Md. 581, 20 Am. Rep. 95; First Nat. Bank of Allentown v. Hock, 89 Pa. 324, 33 Am. Rep. 769. See, also, Logan County Nat. Bank v. Townsend, 139 U. S. 67, 11 Sup. Ct. 496, 35 L. Ed. 107.

It has not power to loan the money of other persons. Cockrill, 63 Ark. 418, 39 S. W. 60, 36 L. R. A. 89.

Grow v.

Dresser v. Trad

An agreement to procure a person applications for insurance if he would procure for it a customer is ultra vires. ers' Nat. Bank, 165 Mass. 120, 42 N. E. 567.

A national bank, which itself purchased notes it had been authorized by the owner to sell to a third party, and which thus became under general principles of law liable for their value as for a conversion, is not protected from such liability by the National Bank Act, though it was not within its powers to act as agent for sale of the notes. First Nat. Bank v. Anderson, 172 U. S. 573, 19 Sup. Ct. 284, 43 L. Ed. 558. See "Banks and Banking," Dec. Dig. (Key No.) §§ 258, 260; Cent. Dig. §§ 277-290.

102

hibited, is within the powers of a state bank. 10: A bank, state or national,103 has no power to enter into a partnership. And ordinarily an incorporated bank is without power to devote money gratuitously to manufacturing corporations, exhibitions, and the like. 104

101 Bobb v. Savings Bank (Ky.) 64 S. W. 494. See, also, New Hope & D. Bridge Co. v. Phenix Bank, 3 N. Y. 156.

The bank must use ordinary care. Watson v. Roth, 191 Ill. 382, 61 N. E. 65; Wykoff v. Irvine, 6 Minn. 496 (Gil. 344), 80 Am. Dec. 461; Larson v. Utah Loan & Trust Co., 23 Utah, 449, 65 Pac. 208. Even if it acts gratuitously. Watson v. Fagner, 208 Ill. 136, 70 N. E. 23; Clinton Nat. Bank v. National Park Bank of New York, 37 App. Div. 601, 56 N. Y. Supp. 244. See “Banks and Banking," Dec. Dig. (Key No.) §§ 96, 195; Cent. Dig. § 728.

102 Interstate Trust & Banking Co. v. Reynolds, 127 La. 193, 53 South. 520. See "Banks and Banking," Dec. Dig. (Key No.) §§ 101, 261; Cent. Dig. §§ 237, 238, 991-1000.

103 A national bank may not become the absolute owner, in satisfaction of a debt, of shares represented by transferable certificates in a partnership formed to purchase, improve, and sell a leasehold, and such want of authority is a defense to an action against it upon liability for the partnership debts. Merchants' Nat. Bank v. Wehrmann, 202 U. S. 295, 26 Sup. Ct. 613, 50 L. Ed. 1036.

A national bank, having joined in a partnership, cannot be prevented from recovering moneys loaned to the firm on the ground that it had no power to become a partner. Cameron v. First Nat. Bank of Decatur (Tex. Civ. App.) 34 S. W. 178. See "Banks and Banking," Dec. Dig. (Key No.) §§ 101, 261; Cent. Dig. §§ 237, 238, 992. 104 McCoy v. World's Columbian Exhibition, 186 Ill. 356, 57 N. E. 1043, 78 Am. St. Rep. 288; McCrory v. Chambers, 48 Ill. App. 445; Robertson v. Buffalo County Nat. Bank, 40 Neb. 235, 58 N. W. 715; Arkansas Valley & W. Ry. Co. v. Farmers' & Merchants' Bank, 21 Okl. 322, 96 Pac. 765, 129 Am. St. Rep. 782 (subscription to secure construction of railroad). See "Banks and Banking," Dec. Dig. (Key No. 88 96-98; Cent. Dig. §§ 230–235.

ULTRA VIRES ACTS AND CONTRACTS

75. An act is said to be ultra vires when it is beyond the powers expressly or impliedly conferred upon a corporation. When a corporation performs an ultra vires act, the state may maintain proceedings against it to forfeit its charter for misuser, and this is usually the only penalty when a banking corporation takes an unauthorized conveyance, the conveyance vesting title in the bank. On the question whether, and under what circumstances, an action will lie on an ultra vires contract, the authorities are in conflict, and there is much confusion in the cases. Some courts hold that an unauthorized contract is void, as being beyond the powers conferred, and that, as a rule, no action can be maintained upon it; while other courts hold that the plea of ultra vires should not prevail, whether interposed for or against the corporation, when it would be inequitable and unjust to allow it, as where the party seeking to enforce the contract has performed it on his or its part, and the other has received the benefit of performance. All courts agree that

(1) If the contract has been fully executed on both sides, the courts will not interfere at the instance of either party to undo what has been done.

(2) If the contract is executory on both sides, neither party can maintain an action upon it.

(3) When the contract is one within the general power of the corporation, but is unauthorized only under the particular circumstances of which the party seeking to enforce it had not notice, an action thereon can be maintained by such party against the corporation.

(4) When either party has received benefits unTIFF.BKS.& B.-19

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