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Shoemaker v. The National Mechanics' Bank.

ited by its charter from making this loan on a pledge of stock, and if so, no title to this stock passed from Bayne & Co. to the defendant. Clearly, if the defendant's title to this stock depended on a purchase as an investment by it, such purchase would be beyond its corporate powers, and void. The learned counsel, however, contended that by the true construction of section 8, this loan was not embraced among the enumerated powers of the bank,-" that no loans are valid except those made on personal security." The language of that section is, "and exercise under this act 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 debt, by receiving deposits, by buying and selling exchange, coin, and bullion, by loaning money on personal security, by obtaining, issuing and circulating notes, according to the provisions of this act.

I understand that the language I have quoted contains five distinct grants of power, and that no one grant is a limitation on any other. By the first the bank is authorized to discount promissory notes, drafts, bills of exchange, and other evidences of debt; second, to receive deposits; third, to buy and sell exchange, coin, and bullion; fourth, to loan money on personal security (I understand by this, on any personal security that is mentioned in the first grant); fifth, to obtain, issue, and circulate the National currency. If I am right in this construction, then the loan to Bayne & Co. was authorized by the said section, as the charge in the bill is that the loans to Bayne & Co. were made upon paper evidences of debt; upon bonds, notes, checks, etc.; and upon collateral security of stocks, etc.; and the answer states that the stock in said railroad was pledged with its cashier as collateral security for its money loaned. If collateral security, then collateral to personal responsi bility of Bayne & Co., on the notes, checks, and bills of exchange, cashed for said firm by this defendant; for, collateral security, in bank phraseology, means some security additional to the personal obligation of the borrower. But admit that this construction is doubtful, it is not so doubtful as that construction which would limit the banks to the power of loaning money only on personal security, and deny to them the power of taking a pledge of stock as collateral security for notes or bills of exchange cashed by them. And, as I said before, a court of equity should never grant a preliminary injunction in a doubtful case.

Stewart v. The National Union Bank of Maryland.

However, I have no doubt that the taking this collateral security from Bayne & Co. was a valid transaction, and whether it will ever avail the defendant any thing, it will depend upon the decisions of those tribunals before whom is now pending the question of the validity of the charter of the said railroad company, and the character of its stock.

The preliminary injunction asked for in this case is refused.

For authorities to sustain the view I have taken of the law governing this case, I refer to the following cases: Bates v. Bank of Alabama, 2 Ala. 462; Magruder v. State Bank, 18 Ark. 9; Bank of Middleburg v. Bingham, 33 Vt. 636; Farmers' Bank v. Buechard, 33 id. 348; and Rock River Bank v. Sherwood, 10 Wis. 230.

Injunction refused.

STEWART V. THE NATIONAL UNION BANK OF MARYLAND.

(2 Abbott, U. S., 424.)

Loans in excess of one-tenth of capital.

Loans by a National bank to an individual or company in excess of one-tenth of its paid-up capital are not void. The loan may be collected though the bank is exposed to forfeiture of its franchise and the officers participating are declared personally liable.*

(Circuit Court, Fourth Circuit, District of Maryland, October, 1869.)

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GILES, J. The complainant in this case filed a general creditor's bill against the defendant, alleging, among other things, that he was and is a creditor of Bayne & Co. to a large amount; that Bayne & Co. are bankrupts; that the National Union Bank, the National Mechanics' Bank, and the National Exchange Bank, are National banks, organized under the act of Congress entitled "An act to provide a National currency," approved June 3, 1864; that section 29 of said act provides "that the total liabilities to any association of any person or of any company, corporation, or firm,

*See Union Gold Hill Mining Co. v. Rocky Mountain National Bank, ante, p. 151; Shoemaker v. National Mechanics' Bank, ante, p. 169.

Stewart v. The National Union Bank of Maryland.

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 ;" that on May 3, 1866, the loans to Bayne & Co. by the National Union Bank amounted to two hundred and eighty-seven thousand six hundred and forty-one dollars and thirty-one cents; by the National Mechanics' Bank, to three hundred and seventy-seven thousand four hundred and fortyfour dollars and seventeen cents; and by the National Exchange Bank, to one hundred and forty thousand four hundred and thirtyone dollars and twenty-nine cents, which loans were made with the knowledge and permission of the directors of said banks, and were not within the reservations or provisos of section 29; that the largest part of the assets of Bayne & Co. are deposited with and held as collateral security by said National banks, defendants, for the illegal loans, so made by them to Bayne & Co.; that of such collaterals, the National Mechanics' Bank held three hundred and eighty-five thousand eight hundred and sixty-four dollars, the National Union Bank, three hundred thousand one hundred and thirty-nine dollars, and the National Exchange Bank, one hundred and sixty-four thousand two hundred and fifty dollars; that the capital stock of the said National Mechanics' Bank is six hundred thousand dollars; of the said National Union Bank is one million two hundred thousand dollars, and of the National Exchange Bank four hundred thousand dollars; that the loans to Bayne & Co. by said banks were, on May 3, 1866, largely in excess of the ten per cent of their respective capitals actually paid in, and therefore contrary, to law, and a fraud on the rights of complainant and other creditors of Bayne & Co. The bill prays for a discovery of the amount and nature of said collaterals, also of all transactions between Bayne & Co. and the banks, and for an order of this court transferring the collaterals so held by the banks to the assignee in bankruptcy of Bayne & Co., for adjustment of rights between their creditors, for a decree in favor of complainant, and for general relief.

To all that part of the bill which attacks these loans made by the banks on the ground that they are void by section 29 of the act of 1864, and prays for a decree of this court ordering them to be transferred to the assignee of Bayne & Co., the banks demur; and for cause of demurrer show "that according to the true con

Stewart v. The National Union Bank of Maryland.

struction of the act of 1864, the complainant has no right to call upon this court to examine into and decide upon the matters above demurred to, but the same are examinable only at the instance and suit of the government of the United States and its authorized officer, and in conformity with the provisions of said act." "And that the said matters, as alleged, do not affect the validity of the said loan by these defendants to the said Bayne & Co., nor do they destroy, invalidate, or affect the title of these defendants to the said collaterals and securities."

The issues raised by this demurrer are two. First, the right of complainant to the relief sought in his bill against the banks; and second, the validity under the act of Congress of the loans so as aforesaid made by the said banks to Bayne & Co.

[The first issue was decided against the complainant on the ground that if the securities did not vest in the bank they belonged to the general assignee of Bayne & Co.]

This disposes of that part of the case now submitted to me, and I might rest my decision here; but as the second issue raised by the demurrer has been argued at length and with great ability by the complainant and the learned counsel engaged in the cause, and as I have carefully examined all the authorities referred to, I shall state briefly the conclusions to which I have arrived as to the true construction of section 29, and of the rights of the parties to such loans as are here alleged. Now, it is observable that this section only 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 actually paid in." It contains no penalty, and no provision "that such loans shall be void."

In the very next section (§ 30), which regulates the rate of interest, it is provided that "the knowingly taking, receiving, reserving, or charging a rate of interest greater than aforesaid, shall be held and adjudged a forfeiture of the entire interest," etc. And in case a greater rate of interest has been paid, the person or persons paying the same, or their legal representatives, may recover back, in any action of debt, twice the amount of the interest thus paid, from the association taking or receiving the same.

So in section 31 it is enacted that every association in certain cities "shall always keep on hand, in lawful money, twenty-five

Stewart v. The National Union Bank of Maryland.

per centum of the aggregate amount of its notes in circulation and its deposits. And if any association, whose lawful money shall fall below the amount aforesaid required to be kept on hand, shall fail, for thirty days after notice, to make good such reserve, the Comptroller of the Currency, with the concurrence of the Secretary of the Treasury, may appoint a receiver to wind up the business of such association."

See, also, section 52, in which all transfers of the notes, bonds, and other evidences of debt owing to any association, and of any and all property belonging to the association, made after the commission of an act of bankruptcy, etc., are declared null and void.

Now, when you read these sections and find no such provision of forfeiture in section 29, but find that in section 53 provision is made, that if the directors of any association shall knowingly violate any of the provisions of this act, all the rights, privileges, and franchises of the association, derived from this act, shall be thereby forfeited-such violation shall, however, be determined and adjudged by a proper District or Circuit Court, in a suit brought for that purpose by the Comptroller of the Currency, in his own. name, before the association shall be declared dissolved"- the conclusion seems to be irresistible, that Congress never intended by section 29 to forfeit all loans made in excess of the amount specified in section 29, no matter whether they were made through inadvertence or by mistake, for the forfeiture provided for in section 53 depends upon the guilty knowledge of officers making it.

The general banking powers are granted by section 8 of the act in the following terms: "And exercise under this act 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 debt, by receiving deposits, by buying and selling exchange, coin, and bullion, by loaning money on personal security, and by obtaining, issuing, and circulating notes according to the provisions of this act." The granting of banking powers is full and ample in this section, and in view of the whole act it appears to me that section 29, like many other sections of the act, is directory only, and for its violation there is no forfeiture but the one provided for in section 53. That section, it is admitted, applies to all violations of section 29, with guilty knowledge, and there can be no clearer rule for the interpretation of statutes than to hold that, where Congress has expressly provided

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