in the preceding section necessarily are concerned with banking powers. The subject will be examined at length in a subsequent portion of this work. We mention now that while the powers of discounting and depositing are always conferred upon banks, there has been considerable difference of opinion as to whether the power of discounting included the power of purchasing commercial paper. The better opinion is that it does. § 35. Liability of corporators as partners.- Sometimes it will happen that a number of persons will assume to institute a corporation without having received any charter whatever. If a corporation be afterwards formed and the act be lawfully ratified, either expressly or by receiving a benefit, the corporation may be held upon the act done before the formation of the corporation.' The corporation may claim the benefit of an act done on its behalf before the incorporation. But if there be no ratification, because no corporation results, the promoters or alleged corporators incur the responsibility of partners and may be held liable as such. If a ratification has taken place, it would seem to be true that where the other party has contracted with the corporation he ought not to be permitted to hold the corporators liable as partners. Yet if the act was one incapable of ratification, the corporation afterwards formed cannot be held; as, for instance, where the act was prohibited by an express rule of law. If no corporation be afterwards 3 See § 118 et seq., post. 4 The cases may be found collected in 9 Am. & Eng. Encyc. Law (2d ed.), 471, notes 1 and 2. 11 Thomp. on Corp., sec. 480. 24 Thonip. on Corp., sec. 5321. 3 Kaiser v. Lawrence Sav. Bank, 56 Iowa, 104; Pettis v. Atkins, 60 Ill. 454; Allen v. Pegram, 16 Iowa, 163; McLennan v. Anspaugh, 2 Kan. App. 269; Hauser v. Tate, 85 N. C. 81. 'See Huffcutt, Agency, 44. 5 This statement applies only to those acts which are beyond the scope of the corporate powers because forbidden by law, as explained in § 32, ante. But all torts and contracts merely beyond corporate powers may be ratified. See next note. 6 California Bank v. Kennedy, 167 U. S. 362, 368, contains a correct statement of the rule, but it is wrongly applied in that case. But it is properly applied in Central formed, he may hold the parties liable on the theory of an implied warranty of authority,' under the general principles of the law of agency. 36. Direct liability for unauthorized banking. - We have in the preceding sections noticed the result of acts of unauthorized banking as between other parties than the bank and the state. How far the state may go in forfeiting the charter of the bank for illegal banking in quo warranto or in actions in the nature of quo warranto will be considered later in this work.' The statutes often prescribe a criminal responsibility for illegal acts by the various officers of the bank. This subject will be considered in connection with officers.2 There have been statutes of various states which impose a penalty upon individuals for illegal banking, and in other cases define the conduct as a crime. The cases will be found referred to in the note below.3 Transp. Co. v. Pullman's Car Co., 139 U. S. 24, 59, and in McCormick v. Market Nat. Bank, 165 U. S. 538, 549. In Jacksonville Ry. Co. v. Hooper, 160 U. S. 514, 524, the principle is correctly applied as to an innocent act ultra vires, but put upon a slightly different ground than the one above. 71 Thompson on Corp. 416; Medill v. Collier, 16 Ohio St. 599; Seeberger v. McCormick, 178 Ill. 404, 73 Ill. App. 87, although in the latter case a corporation was formed. 1 See § 319 et seq., post. 3 State v. Williams, 8 Tex. 255; Williams v. State, 23 Tex. 264; State v. Presbury, 13 Mo. 342; Brown v. State, 11 Ohio, 276; Commonwealth v. Scott, 4 Rand. 143; Mills v. State, 23 Tex. 295; Burkett v. Lanata, 15 La. Ann. 337; People v. Bartow, 6 Cow. 290; People v. Brewster, 4 Wend. 498; People v. Doty, 80 N. Y. 225; Commonwealth v. Sponsler, 16 Pa. Co. Ct. R. 116; State v. Scougal, 3 S. Dak. 55. CHAPTER III. LEGISLATIVE REGULATION OF BANKING. § 37. General scope of power. It has already been stated that the state in the exercise of its legislative power can prohibit private banking altogether.1 A very different question would arise if the state should attempt to abolish banking altogether. The question has not presented itself, nor can any one conceive that a legislature would attempt so to do. Such an act would unquestionably be not a valid exercise of the police power. But the state has always the power to regulate the business of banking, and has done so in many ways. How far the state governments can regulate national banks by taxation has been already noticed.3 The purpose of this chapter is to state those regulations that have been made both as to state banks, corporate or private, and to national banks. § 38. License taxes.- A preliminary question as to a license fee by a municipality will always be whether the power to license has been granted. This is simply a question of statutory construction. When a national or state license is in question the sole inquiry is whether the person, natural or artificial, falls within the terms of the act. This is also a question of statutory construction. As to licenses 1 See § 9, ante, and § 45, post. 2 Blaker v. Hood, 53 Kan. 499; Cummings v. Spannhorst, 5 Mo. App. 21. La. Ann. 1029; City of New Orleans v. New Orleans Sav. Inst., 32 La. Ann. 527; State v. Southern Bank, 31 La. Ann. 519; State v. Columbia, 3 See 25, ante, and see further 6 Rich. 495; City of New Orleans § 44, post. 1 Macon v. Macon Sav. Bank, 60 Ga. 133; Hinckley v. Belleville, 43 Ill. 483. 2 State v. Bank of Mansfield, 48 v. New Orleans Banking Co., 32 La. Ann. 104; Warren v. Shook, 91 U. S. 704; Selden v. Equitable Trust Co., 94 U. S. 419. granted by cities, towns or counties, the implied limitation is that they shall be reasonable,3 in view of the fact that the power to license does not in such a case include the power to tax for revenue, unless expressly granted. The limitation on state licenses or taxation is that they may tax national banks only to the extent permitted by the national government, and foreign corporations, if they are not engaged in foreign or interstate commerce." The rule as to banks would be the same as to other corporations, but it is difficult to see how a bank could be engaged in interstate commerce. § 39. Limitations on indebtedness.- Various laws provide limitations as to the indebtedness of banks, both state and national, and limitations upon the indebtedness of individuals toward the bank. These regulations are no doubt perfectly legal. The effect of them, when violated, upon contracts has been shown, and their effect as fixing a civil responsibility upon the officers, as well as exposing the charter to forfeiture, will be later examined.3 § 40. Safety funds and deposits.-The questions that arose under the state laws in the days of "wild-cat" banking as to the funds deposited to secure circulation are now obsolete. A reference to cases will be found in the notes.' The requirement was made as to banks engaged both in issu. ing notes and in receiving deposits, and the state was merely 3 See the next note. obsolete law: Young v. Hughes, 12 41 Dillon on Mun. Corp. (4th ed.), Smedes & M. 93; Townsend v. sec. 357. 5 See § 25, ante. 6 See 6 Thompson on Corp., sec. 8108 et seq. 1 See §§ 32, 33, ante. Smith, 12 N. J. Eq. 350; Bank v. Downer, 28 Vt. 635; Commissioners v. Walker, 6 How. 143; In re Dyott, 2 Watts & S. 463; Flagg v. Munger, 9 N. Y. 483; People v. Holmes, 3 2 See § 81, post, et seq., § 89, post, Mich. 544; Willard v. Dubois, 29 et seq., and § 355, post. 3 See § 319, post. 1A curious attempt to prevent redemption of notes will be found in case of People v. Whittemore. 4 Mich. 27. See for various phases of Ill. 48. 2 Marion Sav. Bank v. Dunkin, 54 Ala. 471; Marine Bank v. State Auditor, 14 Ill. 185; Ewing v. Robeson, 15 Ind. 26. But in other cases the security was for the depositors the custodian of the fund and not a guarantor against loss by the note-holders. The fund seems to have been in some cases a general fund contributed by all the banks, and the whole fund was liable for the notes of each bank. The idea that underlay all these provisions has been incorporated into the national banking law, by providing for a deposit of bonds to secure circulation. The government is a trustee of this deposit, not only for the note-holders, but for all the creditors, in the sense that after payment of the notes the surplus must be restored to the creditors of the bank. The government can claim no priority for its own debts. § 41. Requirement of reports.- Under the national banking act those banking institutions therein provided for are required to make five reports each year, at times to be designated by the comptroller, and special reports as may be called for. The penalty provided is a fine for each day's failure to report. State laws require reports from banking institutions organized under state laws. They may also be required from private bankers. The penalty provided in some of the states is a prohibition against bringing a suit in the state courts. This prohibition the state courts will enforce against a foreign corporation, but the United States courts will not. The state courts require a strict compliance with the law.* § 42. Bank examiners.- State statutes provide for public bank examiners, who may be given a right of visitation and as well. People v. Walker, 17 N. Y. 1 Sec. 5211, Rev. Stat. U. S. 502; s. C., 21 Barb. 630; Medill v. Collier, 16 Ohio St. 599. 3 Clark v. State, 7 Cold. 306; State v. Rusk, 21 Wis. 212; Citizens' Bank v. Gay, 47 La. Ann. 551. 4 Elwood v. State Treasurer, 23 Vt. 701; Receiver of Danby Bank v. State Treasurer, 39 Vt. 92. 5 Cook Co. Nat. Bank v. United States, 107 U. S. 445. 6 United States v. Cook Co. Nat. Bank, 9 Biss. 55, was reversed by the above case. 2 Bank of British N. A. v. Alaska Imp. Co., 97 Cal. 28. 3 Barling v. Bank of British N. A., 50 Fed. R. 260, 1 C. C. A. 510; s. C., 44 Fed. R. 641. 4 Bank of British N. A. v. Alaska Imp. Co., 97 Cal. 28; People v. Campbell, 14 Ill. 400. See also Bank of British N. A. v. Madison, 99 Cal. 125; State v. Union Bank, 4 Robt. 499; Boisregard v. New York Banking Co., 2 Sandf. Ch. 23. |