for a bank to purchase a note, or rather whether the negotiation of a note includes the purchase. It is doubtful whether National banks have a right to deal in stocks and bonds, or to act as an agent for the negotiation of stocks and bonds. It is probable that the courts in deciding any point as to the powers of National banks, where the exercise of a power is not clearly forbidden by the Banking laws, would, in case the exercise of such power was not clearly granted, be guided very much by the custom of banks. Every one is aware that business methods change from time to time, and that new methods for accomplishing similar ends are constantly being devised. Banks are intended to meet the wants of the business communities, and to do so must be swayed by business customs. The courts in banking matters have made custom a very important element in reaching their decisions, and they will doubtless continue to do so.

The committal of an act ultra vires by a National bank does not necessarily vitiate that act. The U. S. Supreme Court has held that acts ultra vires can only be taken cognizance of by the Government, whose creature the bank is. Thus, while it is undeniably ultra vires for a National bank to loan money direct on real estate, yet the money can be collected of the borrower, a mortgage taken can be foreclosed, &c. The Government can, however, if it deems best, bring suit as prescribed by law to forfeit the franchises of banks so offending. The most important cases bearing on these points may be found in Thompson's National Bank Cases, 124, 128, 169, 264, 314, 317, 333, 379, 466, 486, 533, 724, 854, 637, 590, 715, 728, 794, 824, 836, 864, 875, 882, 905; Brown's National Bank Cases, (a continuation of Thompson,) pages 13, 99, 238, 264, 296, 319, 337, 373, 375, 462.

16. Limitation as to Real Estate and Mortgages.

SECTION 5137.-A National banking association may purchase, hold, and convey real estate for the following purposes, and for no others:

First. Such as shall be necessary for its immediate accommodation in the transaction of its business.

Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted.

Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings.

Fourth. Such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall purchase to secure debts due to it.

But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years.

In purchasing or conveying real estate, a National bank will, of course, act through its president or cashier, duly authorized by regular action of its board of directors.

Banking house may, perhaps, include portions of building built chiefly for its own use, which the bank rents to others; but it is a question how far a National bank can purchase or improve real estate under color of erecting a banking house. The additions to a building must in some way be necessary to its appearance, safety, or compatibility with its surroundings.

The second, third, and fourth clauses make it plain that real estate other than banking house is to be taken, held, &c., only when the personal security which the bank originally held has in some way become inadequate, either before or after the maturity of the debt.

The United States Supreme Court has, however, held that real estate security directly taken as the primitive security for a loan can be disposed of or transferred by a National bank, the fact of taking such security being ultra vires not vitiating the transaction in any way, or giving any defense to the borrower, seller, or mortgagor. The act on the part of the bank may be in violation of its corporate rights, but this violation of law can only be punished by suit for forfeiture of charter, brought in accordance with law by the Comptroller of the Currency. (See Section 5239, par. 118.)

It has been a criticism upon the National system that the banks could not loan on real estate security. When it is remembered that loans on good real estate security can be readily obtained for longer time and at less rates of interest than is the case in regard to loans on personal security, the hollowness of this criticism at once appears. Any one can obtain a loan of a National bank under ordinary circumstances by presenting a good endorsement, and a good endorser is readily obtained by giving such endorser the real estate security. The bank, in accordance with law, looks to the maker and endorser.

The limitation as to length of time during which mortgages and real estate can be held is a wise one, as it prevents too great a locking-up of the bank's resources. Five years is generally a long enough period during which to dispose of real estate of any description to the best advantage. In case, however, a bank may find it difficult to do so, the Comptroller's office has permitted the placing of property in the hands of trustees for the benefit of the bank, thus removing the items from the balance-sheet, and leaving them in the same condition as bad debts charged off. Real estate is the ultimate security in the case of most loans, but good bankers find no difficulty in complying with the law, by treating it as such; only to be taken when all other means of securing a debt fail. (See Thompson's National Bank Cases, pages 264, 353, 480, 486, 488, 490, 516, 647, 854, 888, 618, 652, 745, 828, 888; Brown's Cases, pages 13, 222, 224, 227, 228, 237, 278, 280, 293, 300, 311, 424, 426.)

17. Minimum Capital Required.

SECTION 5138.-No association shall be organized under this Title with a less capital than one hundred thousand dollars; except that banks with a capital of not less than fifty thousand dollars may, with the approval of the Secretary of the Treasury, be organized in any place the population of which does not exceed six thousand inhabitants. No association shall be organized in a city the population of which exceeds fifty thou

L

sand persons with a less capital than two hundred thousand dollars.

The population of a place in the United States is legally determined by the last previous census. Thus a bank organized at any time between 1880 and 1890 would generally be bound by the census of 1880. Exceptions might of course arise, as, for instance, where new towns are started in the interval, and other proof of population might then be accepted by the Comptroller. Small variations in population between censuses, the only proof of which is found to consist of estimates or partial counts, would not be regarded. A bank organized with $50,000 capital in a small place might continue with that capital if the population should increase to any number. It thus sometimes happens that we find banks in some towns and cities that appear to have less than the minimum capital required by law. They were either organized when the places were smaller, or were organized in villages afterwards absorbed by cities lying near.

When application is made to the Comptroller for a bank with $50,000 capital, he certifies the application, with statement as to population, &c., to the Secretary of the Treasury, who thereupon takes action and approves or not as he deems best. Generally there is no objection, but the Secretary might not give his approval if he thought a bank unnecessary, or if there was a bank already in the place giving sufficient banking facilities.

18. Stockholders' Rights and Liabilities.

SECTION 5139.-The capital stock of each association shall be divided into shares of one hundred dollars each, and be deemed personal property, and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association. Every person becoming a shareholder* by such transfer shall, in proportion to his shares, succeed to all the rights and liabilities of the prior holder of such shares; and no change shall be made in the articles of association by which the rights, remedies, or security of the existing creditors of the association shall be impaired.

The exception to division into shares of $100 each is in case of State banks converted. (See Section 5154, par. 36.) If a converted bank desires to change the denomination of its shares, the new denomination must be $100. The shares are personal property, transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association. A bank cannot, however, by a provision in its by-laws prevent the transfer of shares of a stockholder who may be indebted to it. It has no prior lien on the shares of any stockholder, but must proceed by such judgment and execution the same as any other creditor. Shares are property entirely distinct from the capital stock. (See remarks under Section 5219, par. 95.) Shares of National bank stock, it must be remembered, not only initiate a right to a certain proportion of the net property and profits of the

*Van Allen v. The Assessors, 3 Wall., 573.

bank, and certain rights in controlling its management, but they also imply liabilities. A transferrer of shares must see that he transfers not only his rights and privileges, but his liabilities. (See remarks under Section 5151, par. 33.) What changes may or may not be made in the articles of association of a National bank depends, 1st, as has already been seen, (Section 5133, par. 12,) upon their being in accordance with law; and, 2d, they must not interfere with the rights of existing creditors-that is, those other than stockholders to whom the bank is indebted.

19. When Capital Stock must be Paid in.

SECTION 5140.-At least fifty per centum of the capital stock of every association shall be paid in before it shall be authorized to commence business; and the remainder of the capital stock of such association shall be paid in installments of at least ten per centum each, on the whole amount of the capital, as frequently as one installment at the end of each succeeding month from the time it shall be authorized by the Comptroller of the Currency to commence business; and the payment of each installment shall be certified to the Comptroller, under oath, by the president or cashier of the association.

The Comptroller's office furnishes blanks upon which to certify payment of capital. Probably the theory of the law is, that each subscriber shall pay half of his subscription down, and the remainder in five equal monthly installments. This is really what a subscriber to National bank stock, who is expected to know the law, agrees to do, and it is only by following this course that the organizers of a National bank can securely hold each subscriber, as will be seen from remarks on next section. But the Comptroller does not usually require a certificate in detail, but only that capital amounting to fifty per cent., or ten per cent., as the case may be, has in the aggregate been paid in. It is sometimes convenient for some subscribers to pay more at once, and this enables the officers to certify the payments necessary to comply with the letter of the law, without waiting for the slower subscribers. The officers certify fifty per cent. paid. This is the certificate of officers required by Section 5168, paragraph 21, post, and is called the first installment. Upon the receipt of this the Comptroller may, if bonds have been deposited, authorize the bank to commence business. The date of the Comptroller's certificate of authority to commence business fixes the date of the payment of the succeeding installments. Thus, if in any case this certificate be dated January 1st, the second, third, fourth, fifth, and sixth installments should be paid by the subscribers on or before the first days of February, March, April, May, and June, respectively. The certificate to the Comptroller of such succeeding payments should be made as soon as practicable in each case; but in this connection bank officers should study Section 5141, paragraph 20, post, and remarks thereon.

20. Failure to Pay Installments on Stock, &c. SECTION 5141.-Whenever any shareholder, or his assignee, fails to pay any installment on the stock when the same is re

quired by the preceding section to be paid, the directors of such association may sell the stock of such delinquent shareholder at public auction, having given three weeks' previous notice thereof in a newspaper published and of general circulation in the city or county where the association is located, or if no newspaper is published in said city or county, then in a newspaper published nearest thereto, to any person who will pay the highest price therefor, to be not less than the amount then due thereon, with the expenses of advertisement and sale; and the excess, if any, shall be paid to the delinquent shareholder. If no bidder can be found who will pay for such stock the amount due thereon to the association, and the cost of advertisement and sale, the amount previously paid shall be forfeited to the association, and such stock shall be sold as the directors may order, within six months from the time of such forfeiture, and if not sold it shall be canceled and deducted from the capital stock of the association. If any such cancellation and reduction shall reduce the capital of the association below the minimum of capital required by law, the capital stock shall, within thirty days from the date of such cancellation, be increased to the required amount; in default of which a receiver may be appointed, according to the provisions of section fifty-two hundred and thirty-four, to close up the business of the association.*

This section is entirely for the direction of bank managers, and points out the proper course to be taken in bringing in the capital of the bank. It must be remembered that from the time of his subscription a person becomes à shareholder, and that all the shareholders have entered into a contract among themselves, and are mutually responsible to each other. If only five persons start the bank, and subscribe for all the stock, with the purpose of afterwards distributing the same among a number of parties, it is well for each of the five associates to have his dis tributees selected and to bind them by a form contract with himself to each take the stock he destines for them. The stock doubtless has a legal standing before a single payment is made, and the association may be legally organized and become a body corporate before a single dollar of the capital is paid in by any one. Thus sales or transfers of stock may take place before any capital is paid in. This is in line with the decision of the United States Supreme Court in Van Allen v. Assessors, 3 Wall., 573, which holds a share of stock to be an entity distinct from capital. The actual holder or subscriber, in whose name the stock stands on the books of the bank at the time the directors call for the payment of the first installment of fifty

*Section 5142, page16.