exchange, wherein the court used the following comprehensive language: "It seems to be the idea of counsel making the objection, that negotiable paper, perfect and available in the hands of the holder, is not the subject of purchase by a national bank at any rate of discount. This view we think entirely erroneous. We see nothing in the act of congress nor in reason why a borrower may not obtain the discount by a bank, of the existing notes and bills of others of which he is the holder, as well as of his own paper made directly to the bank. It is true that, as between natural persons, the purchase of such paper, when made in good faith, and not as a disguise for a loan, is not subject to the usury laws; but it is otherwise as to a bank. In the business of banking, the purchasing and discounting of paper is only a mode of loaning money.'" 1

6

Power to hold Real Estate.

Ordinarily, it is no part of the banking business to hold or deal in real estate. No general right to do so can be considered to be inherent in a bank. Certain obvious cases, however, in which it is eminently proper, almost even necessary, that a bank should be able to acquire, to hold, and to sell land and interests in land, will suggest themselves at once to every mind. Thus it may often, especially in small towns, be impossible to obtain a building with the suitable appliances for security, unless the corporation can buy land and erect a structure for itself. The mortgage or conveyance of real estate to it may often be the only means by which debts owing to it can be secured or discharged. If a bank should come into possession of land in perfect good faith for either of these purposes, and should hold it or sell it only in due and bona fide prosecution of these objects, it seems unreasonable to imagine that the most rigorous court of justice would declare the transaction illegal. But the necessity of discussing the question of the abstract legality of such proceedings has nearly always been saved by the insertion in charters and organic laws of

1 Smith v. Exchange Bank, 26 Ohio St. 141.

clauses specifically enabling banks to acquire, hold, and sell real estate for these purposes. The legislative expression of this power of course excludes its exercise otherwise than in precise accordance with the statutory provisions. The holding, acquiring, or selling to any greater extent, in any other manner or for any other end than is therein set forth, would be unquestionably illegal.2 The power to purchase land or to take it in mortgage or by absolute conveyance, without the additional expression of the power to sell it or to assign the mortgage, will by necessary implication confer those powers also, and even, it has been held, the power to mortgage it.3 Further, it must be regarded as appurtenant to, or even a part of, the power to take land in mortgage or pledge, that the bank should also be permitted to deal in reference to the land or interest therein, thus acquired, in any manner, as, for example, by buying in any outstanding title or interest, or in any other way whatever, that may prove desirable for rendering the security more perfect or more available. The courts seem generally to have been inclined to construe the privileges. of this nature conferred upon banks in a very liberal way. The foregoing cases and instances certainly do not appear to trespass beyond strict justice; but others can be added where the bounds of reasonable construction have been much more. freely extended. Thus, a bank authorized to hold as much real property as might be necessary for its immediate accommodation, was held to have the right to buy up the land in the neighborhood of its banking-house, to erect fire-proof buildings thereon, and then to sell these out again; the end being of course the greater security of its own building.5 The case of Baird v. Bank of Washington contains a long and interesting dissertation upon the rights which were conferred upon the bank by a clause in the act of incorporation, allowing it to hold" such lands as were bona fide mortgaged or conveyed to

406.

1 Thomaston Bank v. Stimpson, 21 Me. 195.

2 Metropolitan Bank v. Godfrey, 23 Ill. 579.

Jackson v. Brown, 5 Wend. 590; Curtis v. Swartwout, 1 N. Y. Leg. Obs.

Ingraham v. Speed, 3 Miss. 410.

Banks v. Poitiaux, 3 Rand. 136.

6 11 Serg. & R. 411.

it, in satisfaction of debts previously contracted in the course of its dealings." The reasoning and language of the court will apply to a great number of similar clauses in other incorporating acts, in which language essentially identical with this is of frequent occurrence. It was declared that the right to commute debts for lands was general, and was not limited to cases where any doubt existed as to the perfect safety of the debt. The effect of the words employed was simply to prohibit colorable commutation whereby a real purchase might be effected under a technical disguise. Provided the debt was pre-existing, and was a bona fide one, that is to say, not contracted originally with the purpose of being discharged by the conveyance of real estate, the conveyance would be strictly valid; although, without it, the safety of the debt must be unquestionable. The court also added, as a semble, that if the conveyance were made to trustees for the bank, with the intent to raise money by selling it, and not with a view to holding it permanently, neither the letter nor the spirit of the statute would be violated. Further, the opinion was expressed, on the strength of the decision in Leazure v. Hillegas,1 that even if the bank should take from a debtor real estate, which it had no right to hold, the title of the bank therein would be defeasible only at the instance of the State: that, if the title should be set aside in a process thus instituted, the land would not revert to the party granting to the bank, but would, apparently, fall in to the State itself; yet that the debtor would have been fully acquitted and discharged from his indebtedness, and the loss would have to be borne wholly by the bank. This view, though properly only an obiter dictum, was expressed with a good deal of confidence, and apparently upon a mature consideration of the whole subject. It is certainly difficult to see why it is not sound.

The powers of the National Banking Associations to take and hold real estate in fee and in mortgage are set forth in the act of congress. The interpretation put upon these clauses of the act, in such cases as have come before the courts, will be found in the last chapter of this work, on "The National Banks of the United States."

1 7 Serg. & R. 313.

Contracts of Banking Corporations.

It is primarily essential to the validity of any contract, to which a bank is a party, that the undertaking of the bank therein should be within the scope of its legitimate powers. As it is utterly incompetent to act, so it is equally incompetent to agree or bind itself to act, in any business, for any purpose or in any manner not authorized by the law of its corporate existence. Its assumption or promise to perform any act trespassing beyond these limits is void ab initio, and the fundamental defect can be cured by no subsequent proceeding short of an act of the legislature. There appears to be but one exception to this broad general rule, an exception which has been allowed only in deference to obvious justice. Where the bank issues its promise to pay in a form in which it has a right to issue promises to pay, but under circumstances which render the issue of this especial promise illegal and void as ultra vires, the contract may be enforced against the bank by a bona fide holder for value and without notice. But even in this case a holder with notice, although for value, could not recover. Thus, for example, it is a general rule that a bank has no power to engage as surety for another in a business in which it has no interest and from which it can derive no profit. Therefore it has no right to become an accommodation indorser. If it does so, the indorsement will be utterly void in the hands of any person having notice of the fact that it was made for accommodation. But, inasmuch as a bank may become an indorser for divers legal purposes, and the contract can therefore show upon its face no signs of invalidity, it will be treated as valid in the hands of a holder for value without notice of the facts.2

The old rule requiring the attestation of the corporate seal as essential to the validity of corporate contracts has long since

1 See the "Utica Insurance Co. Cases," post, p. 13; Bank of Chillicothe v. Swayne, 8 Ohio, 257; Bank of Wooster v. Stevens, 1 Ohio St. 233.

* Safford v. Wyckoff, 4 Hill, 442; Vallett v. Parker, 6 Wend. 615; Bank of Genesee v. Patchin Bank, 3 Kern. 309. See also argument and citations per Beardsley, in Leavitt v. Palmer, 3 Comst. 19 (pp. 24, 25).

been superseded by the imperative necessities of business.1 A bank may now be bound by any undertaking entered into on its behalf by any of its officers or agents, provided that they have been thereto duly authorized. The subject of contracts made on behalf of the bank by its various officials is, however, elaborately discussed in the chapter upon the Powers, Duties, and Liabilities of Officers, so that it may be dismissed here with only very brief remarks. The bank will be bound, provided the officer assuming to bind it in any matter was either in fact duly authorized, or was held out to the world as authorized, to deal and undertake on its behalf in that business. Otherwise it will not be bound. But undertakings of any officer beyond this scope may be rendered binding by subsequent ratification, like the undertakings of any other agent, subject to one restriction. If the authority which he assumed was one with which the government of the bank had the power to invest him, the contract made by him will be voidable only, and the ratification will be sufficient. But if the authority assumed was one which no action of the directorial board could delegate to the official who sought to exercise it, then his act is absolutely void, and is beyond the reach of ratification; for that cannot be rendered valid after performance which could not have been rendered valid before performance. Ratification may be by any of the usual methods: either by a direct vote of ratification on the part of the directors; by a silent acquiescence, with knowledge, on the part of any officials competent to ratify; or by the receipt and enjoyment by the bank of the profits or results of the act. Though the agreement be so made that there can be no doubt that the officials are personally bound by it in their individual capacity, still the bank also, additionally to their liability, will be bound, provided that the intention at the inception of the contract was to bind the bank, that the officials had the power to make such a contract on behalf of the bank, and that the use and benefit of the contract,

1 Bank of Columbia v. Patterson's Administrator, 7 Cranch, 299; Fleckner v. Bank of United States, 8 Wheat. 338; Thompson v. Riggs, 5 Wall. 663.

2 United States v. City Bank of Columbus, 21 How. U. S. 356.

3 See post," Powers, Duties, and Liabilities of Officers."

4 Curtis v. Leavitt, 15 N. Y. 9; Medomak Bank v. Curtis, 11 Shep. 36.