banks have been prohibited from issuing notes, bills, or other securities, the parties who receive the prohibited securities being permitted to recover the money paid for them.119 A full discussion of the doctrine of ultra vires is beyond the scope of this book. In the cases involving ultra vires acts and contracts by incorporated banks, both views have necessarily prevailed, according to the doctrines prevailing in the different jurisdictions, and illustrations of this divergence of opinion will frequently appear. National Banks It is important to bear in mind that the strict view of the doctrine of ultra vires, which is asserted by the Supreme Court of the United States, governs the contracts of national banks. At the same time, while that rule has sometimes been applied in cases arising under the National Bank Act, 120 it cannot be said to have been consistently applied, and the tendency of the court has been to hold that contracts and transactions unauthorized by the act, and even prohibited, are not void, but that, where no other penalty is imposed, the legislative intention contemplated as the only penalty for a violation of the act a direct proceeding by the government for the forfeiture of the bank's charter.121 Such has been the con 119 See White v. President, etc., of Franklin Bank, 22 Pick. (Mass.) 181; Oneida Bank v. Ontario Bank, 21 N. Y. 490. See "Banks and Banking," Dec. Dig. (Key No.) § 101; Cent. Dig. §§ 237, 238; "Corporations," Dec. Dig. (Key No.) § 487; Cent. Dig. §§ 1893-1898. 120 California Nat. Bank v. Kennedy, 167 U. S. 362, 17 Sup. Ct. 831, 42 L. Ed. 198; ante, p. 285. See "Banks and Banking," Dec. Dig. (Key No.) § 261; Cent. Dig. §§ 991-1000. 121 "It has been held repeatedly by this court that where the provisions of the National Banking Act prohibit certain acts by banks or their officers, without imposing any penalty or forfeiture applicable to particular transactions which have been executed, their validity can be questioned only by the United States, and not by private parties." Thompson v. Saint Nicholas Nat. Bank, 146 U. S. 240, 13 Sup. Ct. 66, 36 L. Ed. 956. See "Banks and Banking," Dec. Dig. (Key No.) § 261; Cent. Dig. 88 991-1000. struction placed upon the provisions of the act limiting the liability of any person to the bank for money borrowed,122 limiting the bank's own indebtedness,123 prohibiting the bank from making any loan or discount on the security of or being a purchaser or holder of its own stock,124 prohibiting the bank from taking real estate mortgages, except by way of security for debts previously contracted, and from purchasing, holding, and conveying real estate except for certain purposes. 125 LIABILITY OF OFFICERS TO BANK 76. AT COMMON LAW-The directors and other officers of a banking corporation are liable to it, at common law, for losses sustained: (1) By reason of a willful abuse of the confidence reposed in them, as by exceeding their authority or the powers of the corporation, or by misapplication of the corporate funds. (2) By reason of negligence and inattention to their duties. Directors are bound to exercise the same diligence and care which ordinarily prudent and diligent men would exercise under similar circumstances. 77. REMEDIES AGAINST OFFICERS-Where a loss results to the corporation by the fraud, wrong, or negligence of its directors or other officers, the corporation may maintain an action at law to recover damages, or, in a proper case, a suit in equity to compel them to account. An individual stockholder cannot as a rule maintain an action, but he may sue when the directors will not 122 Ante, p. 228. 128 Ante, p. 283. 124 Ante, p. 249. institute suit, and relief cannot be obtained by applying to a stockholders' meeting. Creditors of the corporation, in case of its insolvency, may enforce the liability to the corporation. 78. STATUTORY LIABILITY-In many jurisdictions, by statute, the directors and other officers who are guilty of certain acts of official misconduct are made liable to creditors, and for certain acts are liable criminally. Officers and Agents As with other corporations, a majority of the stockholders of a banking corporation can regulate and control the exercise of its powers, and has power by a vote duly taken to bind the minority within the powers of the corporation. The acts of a majority, to be binding on the corporation, must be done at a meeting of the stockholders duly held and conducted, at which each shareholder has a vote, usually one vote for each share. Usually the power to make by-laws regulating the conduct and defining the duties of the members and officers is expressly conferred, but it will otherwise be implied; the power being primarily in the stockholders, although they or the charter may authorize the directors to make them. Generally the charter provides what officers and agents shall manage the affairs of the corporation. Usually the management is vested in a board of directors or trustees, who are elected periodically by the stockholders, and the directors appoint other officers and agents. The charter may or may not provide what qualifications are necessary for directors and other officers. When the general management is intrusted to a board of directors or other officers, they have in general, when acting as a board, the power to bind the corporation by any act or contract within the powers conferred upon it. These are all matters of general corporation law, except so far as they involve the terms and construction of particu lar charters, and a consideration of them, except so far as concerns national banks, is beyond the scope of this book.12 Liability of Officers to the Bank In general, as with other corporations, the directors or other officers of a banking corporation, if they act in good faith, within the limits of the corporate powers and within their authority, and use proper prudence and diligence, are not responsible for losses resulting to the corporation from mere mistakes or errors in judgment,1 or for losses from accident, theft, and the like, where they have not been negligent. 128 127 On the other hand, the directors or other officers who willfully abuse their trust, or misapply the funds of the corporation, by which loss is sustained, are personally liable to make good the loss.129 They are bound to observe the limits 126 See Clark, Corp. (2d Ed.) pp. 430-479. 127 Wheeler v. Aiken County Loan & S. Bank (C. C.) 75 Fed. 781; Witters v. Sowles (C. C.) 31 Fed. 1; Jones v. Johnson, 86 Ky. 530, 6 S. W. 582; Cope v. Westbay, 188 Mo. 638, 87 S. W. 504; Second Nat. Bank of Oswego v. Burt, 93 N. Y. 233. See "Banks and Banking," Dec. Dig. (Key No.) § 54; Cent. Dig. §§ 92-107. 128 Batchelor v. Planters' Nat. Bank of Louisville, 78 Ky. 435; Savings Bank of Louisville's Assignees v. Caperton, 87 Ky. 306, 8 S. W. 885, 12 Am. St. Rep. 488. See "Banks and Banking," Dec. Dig. (Key No.) § 54; Cent. Dig. §§ 92-107. 129 Cooper v. Hill, 94 Fed. 582, 36 C. C. A. 402; Oakland Bank of Savings v. Wilcox, 60 Cal. 126 (paying overdraft of one without means); San Joaquin Val. Bank v. Bours, 65 Cal. 247, 3 Pac. 864; First Nat. Bank of Ft. Scott v. Drake, 29 Kan. 311, 44 Am. Rep. 646; Pendleton v. Bank of Kentucky, 1 T. B. Mon. (Ky.) 171; First Nat. Bank of Sturgis v. Reed, 36 Mich. 263; Austin v. Daniels, 4 Denio (N. Y.) 299, 47 Am. Dec. 252; Bank of St. Mary's v. Calder, 3 Strob. (S. C.) 403 (cashier paying overdraft without excuse); Brown v. Farmers' & Merchants' Nat. Bank, 88 Tex. 265, 31 S. W. 285, 33 L. R. A. 359 (loan to infant); First Nat. Bank of Brandon v. Briggs' Estate, 70 Vt. 599, 41 Atl. 586. Cf. McIlroy Banking Co. v. Dickson, 66 Ark. 327, 50 S. W. 868. See, also, Farmers' & Traders' Bank v. Kimball Milling Co., 1 S. D. 388, 47 N. W. 402, 36 Am. St. Rep. 739 (following trust funds fraudulently diverted by officers). Where directors of a national bank engaged in or knowingly per placed upon their powers by the charter and the by-laws, and the rules of the bank, and, if they intentionally or negligently exceed those powers, they are liable for the loss.130 And they are equally liable if they suffer the corporate funds to be wasted by negligence or inattention to their duties, although they do not act in bad faith. Thus a cashier or other officer who is charged with the duty of making loans and discounts, and the like, is liable for losses which result from his failure. to exercise the care and discretion which an ordinarily prudent man would exercise in his own affairs.181 mitted stock speculation by the president and vice president with the bank's funds, such directors were liable for the losses sustained. McKinnon v. Morse (C. C.) 177 Fed. 576. See "Banks and Banking," Dec. Dig. (Key No.) § 54; Cent. Dig. §§ 92-107. 130 Western Bank of Louisville, Ky., v. Coldemey's Ex'x, 120 Ky. 776, 83 S. W. 629; Cooper v. Hill, 94 Fed. 582, 36 C. C. A. 402. Where a national bank acquired certain mill property in satisfaction of a debt, and the directors organized a corporation among themselves for the purpose of operating the mills as the bank's agent, using its funds, and operated them for the bank at a loss of $23,000, the directors of the bank participating are liable to the creditors for the loss. Cockrill v. Abeles, 86 Fed. 505, 30 C. C. A. 223. A cashier, required by the by-laws to consult other officers, or committees, in making discounts, is not responsible by reason of failure so to do, where the committees hold no meetings and the officers systematically absent themselves. Second Nat. Bank of Oswego v. Burt, 93 N. Y. 233. See, also, Wynn v. Tallapoosa County Bank, 158 Ala. 469, 53 South. 228. See "Banks and Banking," Dec. Dig. (Key No.) § 54; Cent. Dig. §§ 92-107. 131 Phryse v. Farmers' Bank of Beattyville (Ky.) 33 S. W. 532; First Nat. Bank v. Reese (Ky.) 76 S. W. 384; Commercial Bank of Bay City v. Chatfield, 121 Mich. 641, 80 N. W. 712; Id., 127 Mich. 407, 86 N. W. 1015. The purchase of a note by the president and managing officer of a bank, for which he paid from its funds over $20,000, with knowledge that it was burdened with a guaranty made by the payee, which might defeat its collection, is such negligence as renders him liable to account to the bank or its creditors for any |