Appleton v. Citizens' Cent. Nat. Bank

The complaint alleges that the Cooper Exchange Bank was a domestic corporation; that by the judgment of the Supreme Court it was duly dissolved and the plaintiff appointed the receiver thereof; that the defendant was a banking corporation incorporated under the national banking act of the United States; that “bn or about the 4th day of January, 1904, the Cooper Exchange Bank, at the instance and request of one Mikael Samuels, tradifig under the name of Mikael Samuels & Co., and the Central National Bank of the city of New York, did loan and advance unto the said Mikael Samuels the sum of twelve thousand dollars ($12,000)”; that upon the said loan and advance of money said Samuels executed and delivered an instrument in writing whereby he acknowledged indebtedness to the said Cooper Exchange Bank of the sum of $12,000, and agreed to return or repay the same on or before four months after date, with interest, and the Central National Bank did then and there, in writing promise and agree, on the same day. and year, and guaranty unto the said Cooper Exchange Bank the performance of the obligation before mentioned on the part of the said Samuels, and the said acknowledgment of debt by the said Samuels, and the said guaranty to pay the same by the said Central National Bank (defendant) were upon the loan of the said sum of $12,000 by the Cooper Exchange Bank,, duly delivered and transferred to it, the said Cooper Exchange Bank. Then follows a copy of the guaranty, which is as follows:

“For and in consideration of one dollar and) other good and valuable consideration, the Central National Bank of the City of New York, hereby guarantees to the Cooper Exchange Bank the payment at maturity of a loan of Twelve thousand dollars, made this day to Mikael Samuels & Co., by the Cooper Exchange Bank.

“The Central National Bank of the City of New York,

“By Edwin Langdon, Pres’t.”

It was further alleged that the said Samuels had previous to obtaining the said loan agreed with the defendant to pay to it the sum of $10,-000 of the said sum of $12,000 so obtained, and that the said loan was obtained by the said Samuels and was guarantied by the defendant in

The defendant demurred upon the ground that the complaint failed to state facts sufficient to constitute a cause of action, and seeks to sustain that demurrer upon the claim that this instrument of guaranty was ultra vires a national bank under the national banking act, having no authority to guaranty the debts of others even for a valuable consideration. The Supreme Court of the United States has in a series of cases held that the United States statutes relative to national banks constitute the measure of the authority of such corporations, and that they cannot rightfully exercise any powers except those expressly granted, or which áre incidental to carrying on the business for which they are established. California Bank v. Kennedy, 167 U. S. 362 , 17 Sup. Ct. 831 , 42 L. Ed. 198 ; Concord First Nat. Bank v. Hawkins, 174 U. S. 364 , 19 Sup. Ct. 739 , 43 L. Ed. 1007 . In the first case it was held that:

“The doctrine of ultra vires, by which a contract made by a corporation beyond the scope of its corporate powers is unlawful' and void, and will not support an action, rests, as this court has often recognized and affirmed, upon three distinct grounds: The obligation of any one contracting with a corporation to take notice of the legal limits of its powers; the interest of the stockholders not to be subject to risks which they have never undertaken; and, above all, the interest of the public that the corporation shall not transcend the powers conferred upon it by law.” McCormick v. Market Nat. Bank, 165 U. S. 538 , 17 Sup. Ct 433 , 41 L. Ed. 817 .

It is not claimed that there is any express power give to national banks to guaranty the obligations of others, but .it is claimed that such power is to be implied from the provisions of the national banking act (U. S. Rev. St. p. 993, § 5136 [U. S. Comp. St. 1901, p. 3455]), which gives to every bank created under the act power “to exercise by its board of directors, or duly authorized officers and agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of indebtedness; by receiving deposits,” etc. In the case of People’s Bank v. National Bank, 101 U. S. 181 , 25 U. Ed. 907, the Supreme Court held that, where a national bank was the owner of promissory notes of a third party and procured them to be discounted by another national bank guarantying the payment of the notes, the agreement to be liable was not ultra vires, but was within the power granted to national banks by the foregoing provision. The basis of this decision was that the act in handing over to another bank, with an indorsement of guaranty, a negotiable instrument, was one of the modes of transferring the securities named, and that under the circumstances of that case it was competent for the defendant to give the guaranty in question; and in the case of Cochran v. United States, 157 U. S. 286 , 15 Sup. Ct. 628 , 39 L. Ed. 704 , this decision was followed. In that case the note which was guarantied actually belonged to a national bank, and was transmitted by its president to the cashier of a New York bank by a letter which said, “We inclose a note of five thousand dollars, signed by Sayre & Clark, guarantied by us, which please place to our credit.” Upon the receipt of this letter the note was discounted by the New York bank for account of the

I think, therefore, that this complaint, based, as it is, exclusively upon the guaranty by the defendant of the indebtedness of Samuels, was ultra vires and that no cause of action is alleged.

It follows that the judgment appealed from must be reversed, with costs, and the demurrer sustained, with costs, with leave to the plaintiff to amend the complaint within 20 days on payment of costs in this court and in the court below.

(dissenting). I agree to the proposition that national banks cannot engage in the business of guarantying obligations of third parties, and that such contracts are ultra vires. I think, however, by fair intendment and inference, plaintiff’s complaint alleges that the Cooper Exchange Bank loaned $12,000 to Samuels at the joint request of himself and this defendant, for the purpose of enabling him to pay to defendant $10,000 of such amount on an indebtedness owing by him to defendant, which was done as a part of the agreement of guaranty. The ground of demurrer is that the complaint states no cause of action. I think it states facts sufficient to permit a recovery of the $10,000 which the defendant received. If the note had been for only $10,000 and all of the avails had been paid to the defendant, and defendant had guarantied the payment of the note, the transaction would have been wholly completed, and the defendant would not have been permitted to plead that its contract of guaranty was ultra vires. After perforihance and acceptance of benefits a defendant corporation is estopped from interposing the defense that it had no power to make the contract which it benefited by. Vought v. Eastern Building & Loan Association, 172 N. Y. 509 , 65 N. E. 496 , 92 Am. St. Rep. 761 ; Bowers v. Ocean Accident & Guaranty Company, Ltd., 110 App. Div. 695 , 97 N. Y. Supp. 485 . The fact that the note was for $12,-000 and that judgment is demanded for that sum, less payments made by Samuels, I do not think changes the situation. The defendant cannot keep the fruits of its act and* insist that it had no right to act at all.

The plea of ultra vires is ordinarily a defense. If there be instances in which the plea can be invoked to sustain a demurrer, I do not think this is one of them.

The interlocutory judgment should be affirmed.