the charter of the bank, it had power to purchase a lot for a banking-house, requisite for the transaction of its business. In an action brought by the receiver of the bank against the trustees for damages caused by alleged improper investment of its funds, held by the court, that the facts justified a finding that the case was not one of mere error or mistake of judgment on the part of the trustees, but an improvident and reckless extravagance, and that they were properly held liable."

A State bank has power to take real estate under foreclosure proceedings. To buy the same to secure a debt simultaneously or previously contracted. To buy at a price over and above the amount necessary to satisfy its claim. To pay off a prior lien in order to secure or save its debt. It also has the right, while holding such lands, to conduct the business of farming the same, and improve the land, if necessary, by building a residence thereon, building fences, dig a well, cutting timber from the land, operate a sawmill and sell the products; and do anything necessary to be done in relation thereto in the interest of the stockholders and the depositors. It has the power to do whatever is necessary to render productive, property that it has taken for debt.

In the further discussion of this subject, the Supreme Court of Georgia, in the case of Reynolds, assignee, v. Simpson and Ledbetter, 74 Ga. 454, the court says:

"Where a banking corporation acquired possession of property, either by a lien thereon, or the purchase of the same, for the payment of the debt due to it, and expends money on it, or furnishes supplies either for its preservation or to carry on the business in which such property is employed, with a view of rendering it productive, in order to satisfy the debt it holds against the former owner of the property, it is not chargeable with exceeding its corporate powers by engaging in a business beyond the scope and purpose of its creation. It is merely exercising a power which is common to all corporations; it can purchase and hold such property, real or personal, as is necessary to the purposes of its organization, and can perform all such acts as are necessary for the legitimate execution of such purposes."

11 Hun v. Cary et al., 82 N. Y. 65.

The Constitution of the State of California, article XII, § 9, provides that a corporation "shall not hold for a longer period than five years any real estate except such as may be necessary for carrying on its business."

A banking corporation (under circumstances which it cannot prevent) may be compelled to purchase real estate at a judicial sale in order to save an advancement made by it as a loan upon the same, and it cannot by law be compelled to dispose of said real estate within a limited time; especially so when, if forced to sell the same, the sacrifice would destroy the solvency of the bank, and cause serious loss to depositors and creditors.

It might be a reasonable construction of this provision of the constitution to say that the lands purchased at a judicial sale by the bank, wherein it was the plaintiff in the foreclosure procedings, and was endeavoring to collect a debt, that the bank, if it became the purchaser at the sale and afterward obtained the title to the property, could hold the same as a necessary asset for carrying out its business, and would not be compelled to sacrifice the same at sale within the five years.

CHAPTER XXXI.

OFFICERS BORROWING FUNDS OF BANK.

§ 242. Prohibited from loaning to themselves.

All banking associations, unless restricted by law, may make loans to their officers and agents; but the incidental powers vested in an officer of a bank, permitting him to loan the funds of the bank to others, does not authorize such officer or agent of the association over which he presides and represents to make a loan of the bank funds to himself. His relationship as an agent of the bank may invest him with incidental power to make loans to others; but his office prohibits him from loaning to himself the funds of the bank. He cannot certify his own check or sign a certificate of deposit made payable to himself. The power to loan the funds of the bank and make discounts is vested by law in the board of directors.

Where an officer of the bank execcutes a note drawn payable to the bank over which he presides, and takes the money represented by the note without first securing authority from the board of directors, his act becomes unlawful and may be treated as a felony.

While acting in an official position and representing the bank, his duties are to preserve its funds and protect it in all of its transactions. He is employed for this purpose, and to execute the orders of the board of directors. To perform all the executive acts necessary to carry on the business of the bank; but he has no power or authority to borrow any of the funds of the bank unless permitted to do so by the board of directors.

The fact that he may have secured his note by ample collateral security does not authorize or legalize the act; but where the board of directors or the financial committee appointed by the board have authorized and approved of a loan to be made to an officer of the bank, he may execute his note to the association and borrow its funds.

§ 243. Restrictions and limitations.

Where the law imposes restrictions as to the amount which may be loaned to any one person, association, or company, the

directors who willfully violate the law by authorizing a loan in excess of the amount specified in the law, and where by such action a loss occurs to the bank, they make themselves civilly and criminally liable.

The National Banking Act, section 5200 Rev. Stat. U. S., provides that:

"The total liabilities to any association, of any person, or of any company, corporation, or firm for money borrowed, including in the liabilities of a company or firm the liabilities of the several members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association actually paid in. But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed."

In discussing the object of this provision, Chief Justice Ruger of the Court of Appeals of New York, in the case of Second National Bank v. Burt, 93 N. Y. 233, says:

"The object of this provision of the Currency Act was to guard national banks from the hazard of loaning money in improvident amounts upon speculative and accommodation. paper, but it contemplated and permitted to an unlimited amount the discount of paper used and required in facilitating the transfer of property and money in the transaction of the legitimate business of the country."

The provisions of this section limit the amount that may be borrowed from the association by any one person, company, corporation, or firm. It is not a restriction prohibiting an officer or director of the bank from borrowing its funds, but limits the amount that may be borrowed. Where a loan is made to an officer or other person in violation of the statute it is not void, but can be collected.

In the State of California, the Legislature has enacted the following law:

"No director or officer of any savings and loan corporation must, directly or indirectly, for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation, nor must he become an indorser or surety for loans to others, nor in any manner be an obligor for moneys

borrowed of or loaned by such corporation. The office of any director or officer who acts in contravention of the provisions of this section immediately thereupon becomes vacant."

The Supreme Court of the State of California, in the case of Brittan v. Oakland Bank of Savings, 124 Cal. 282, in discussing this subject and construing the provisions of said section, says that:

"At the time of the transaction between Bowman and the bank, as already stated, he was a director in the bank. The Civil Code, section 578, declared that no director or officer of any savings and loan corporation must, directly or indirectly, for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation, and declares that the office of any director or officer who acts in contravention of this provision shall immediately thereupon become vacant. This, however, is of no advantage to the appellant, as the violation of the provision in question could only be availed of at the instance of the State sovereign power.1

"Besides, the transaction was executed. In Savings Bank v. Burns, 104 Cal. 473, the court, in answering a similar contention that the transaction was void as being in contravention of the provision of the Code, says:

"We do not think this contention can be sustained. The obvious purpose of the section of the Code invoked and relied upon was to protect savings banks and their depositors. To hold, therefore, that if the deposits or funds of such a bank should be borrowed by any of its officers, directly or indirectly, no action could be maintained by the bank to recover the money, would often work out great injustice and wrong.'

"The bank, therefore, could have sued Bowman to recover back the money loaned, and it can hold the pledged stock or its proceeds in a suit for the recovery of the same until such money lent on the faith of such pledge is repaid."

There is no penalty fixed by the statute laws of the State of California, for a violation of section 578 of the Civil Code, other than that the office of any director or officer who acts in contravention of the provisions of said section shall immediately thereupon become vacant.

1 Jones v. Guaranty, etc., Co., 101 U. S. 628; National Bank r. Matthews, 98 U. S. 621.