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within the limits of contribution prescribed by the act, of all deposits in all the banks which are parties to the scheme, nevertheless I am strongly of the opinion that a national bank is without corporate power to expend its moneys for the purpose of providing insurance that its depositors shall be paid in full. It may, of course, insure its own property against loss or destruction; it may insure itself against loss of property through theft or other dishonesty, but the application of its funds for the purpose of securing a collateral guaranty by third parties that it will pay in full its debts to its depositors is, it appears to me, beyond its corporate power.
Such contract would fall within the principles asserted in Commercial National Bank v. Pirie (82 Fed., 799), Bowen v. Needles National Bank (94 Fed., 925), for if, as is well established, a national bank has no power to guarantee the obligation of another, it certainly has no power to employ another to guarantee its own obligation to a third person.
POWER OF NATIONAL BANK TO ENTER INTO A CONTRACT
WITH AN INSURANCE COMPANY GUARANTEEING THE
269. The Attorney General of the United States in an opinion rendered May 7, 1909, said:
Replying to yours of the 29th ultimo, in which, at the request of the Comptroller of the Currency, you ask for an opinion as to the power of a national bank to enter into a contract with an insurance company guaranteeing the solvency of the bank, and transmitting to me a form of policy which is proposed to be issued by an insurance company proposed to be organized, I beg to say that, as a general principle, I have no doubt that it is entirely within the powers of a national bank to contract for the insurance of its assets against loss. The form of the proposed policy submitted in your letter is somewhat peculiar. It purports to insure to the bank the payment of “ a sum of money sufficient to indemnify the bank for any and all losses suffered by it by reason of theft, embezzlement, losses in realizing upon loans and investments, shrinkage in value of assets or otherwise, in an amount equal to but not exceeding the net excess of its obligations, other than by reason of the stock of the bank, over the total aggregate value of the assets of the bank thus reduced by such losses; provided that there shall be included in the assets of the bank all net sums which have been realized by reason of the additional liability of the stockholders of the bank.”
Such contract is, in effect, an agreement to pay to the bank any deficiency in its assets upon ultimate realization necessary to enable it to pay all of its liabilities of every kind. The policy is to run for a period of three months, but to be renewable thereafter for periods of three months each with the consent of the insurance company, and at such premiums as the insurance company may fix at least one month before the expiration of the then current term of the insurance, the premium in every case to be a percentage of the average indebtedness of the bank during the period covered by such renewal, with the provision that, if such rate shall be in excess of one-sixteenth of 1 per cent upon such average indebtedness, then and in such event the insurance company shall be liable to account to the bank for the application of such premium paid by the bank in excess of one-sixteenth of 1 per cent, “which excess shall be applicable only to the payment of actual losses incurred by the company by reason of claims under this and similar policies, and any excess over such extra claims shall be divided pro rata among the banks paying such extra rate of premium as a participation in the profits during which period such extra rate of premium has been paid." It is somewhat uncertain precisely what this paragraph means and what its effect may be. It seems to me to be objectionable as committing the bank to a profit-sharing feature, which might be contended to entail a corresponding liability for losses; and, as the attorney for the promoters of the proposed insurance company informs me that this is not regarded as an essential part of the plan, I should advise that it had better be eliminated from the policy.
Another provision contained in the policy subjects the bank to a periodical examination by the examiners of the insurance company without notice and at such times as the company may elect, one of such examinations to be within each period of six months covered by the policy and all renewals thereof. This period is probably inadvertently placed at six months, as the policy is proposed to be written for periods of three months only. Aside from that, I very much question the legality of this clause, or at least its enforceability. Section 5241 of the Revised Statutes provides that, “No association shall be subject to any visitorial powers other than such as are authorized by this title, or are vested in the courts of justice."
While this statute does not prohibit the bank from permitting an examination of its books, in my opinion it does operate to prohibit it from obligating itself to permit such examination; and if the covenant to insure can be considered as in any respect dependent upon this agreement to permit examinations, it might be vitiated by the unlawful provision. I should advise that the clause be reframed so as to make it clear that the agreement to insure is not dependent upon the failure to permit the examination, although it might be stipulated that in case, at any time, the examiner of the company should not be allowed access to the books of the bank for the purpose of making an examination the company should have the option, upon reasonable notice, to terminate the contract.
In my opinion, therefore, it is a matter for the discretion of the directors and officers of a bank to determine whether or not they will enter into any such contract in any given instance, this discretion to be exercised in view of the solvency and general financial condition of the company making the insurance and the reasonableness of the rate of premium; and the form of the policy being modified to conform to the foregoing suggestions, I see no legal reason why a bank may not enter into it.
CODE OF THE DISTRICT OF COLUMBIA.
Subchapter IV.-Manufacturing, Agricultural, Mining, Mechanical, Insurance,
Mercantile, Transportation, Market, and Savings Bank Corporations.
Sec. 605. Certificate.
to be bought.
Sec. 626. Pledges of stock.
stock. Sec. 635. Increase or diminution of
stock. Sec. 636. Increase or diminution of
stock. Sec. 637. Increase or diminution of
stock. Sec. 638. Increase or diminution of
stock. Sec. 639. Increase or diminution of
stock. Sec. 640. Copy of certificate to be evi
Act June 17, 1870, sec. 2; 16 Stat.
Act June 30,
32 Stat. 533.
Sec. 605. CERTIFICATE.—Any three or more persons 1.
, who desire to form a company for the purpose of carryRev. stat. Dis: ing on any enterprise or business which may be lawfully trict of Colum-conducted by an individual, excepting banks of circula
Act Mar. 3, tion or discount, railroads, and such other enterprise or 1901, sec. 605: business as may be otherwise specially provided for in
this Code, may make, sign, and acknowledge, before some 1902, sec. 605'; officer competent to take the acknowledgment of deeds,
L., and file in the office of the recorder of deeds, a certificate
in writing: Provided, That nothing herein contained shall be held to authorize the organization of corporations to buy, sell, or deal in real estate, except corporations to transact the business ordinarily carried on by real estate agents or brokers.
SEC. 606. IN SUCH CERTIFICATE SHALL BE STATED
First. The corporate name of the company and the 153; sec. 553, object for which it is formed.
Second. The term of its existence, which may be perAct Mar. 3, petual.
Third. The amount of the capital stock of the company and the number of shares of which said stock shall consist.
Act June 17, 1870, sec. 2; 16 Stat. L.,
Rev. District of Columbia.
1901, sec. 606;
Fourth. The number of trustees who shall manage the concerns of the company for the first year and their
Fifth. The name of the place in the District in which the operations of the company are to be carried on.
SEC. 607. SIGNERS INCORPORATED.—When the certificate · Act May 5, shall have been filed, in accordance with the provisions of 18 Ostat. . the preceding section, the persons who shall have signed 102; sec. 554 and acknowledged the same and their successors shall be trict of Columa body politic and corporate in fact and in name, by the Act Mar. 3, name stated in such certificate, and by that name have 1901, sec: 607 succession and be capable of suing and being sued in any 1285. court of law or equity in the District; and they and their successors may have a common seal and make and alter the same at pleasure, and they shall by their corporate name be capable in law of purchasing, holding, and conveying any real or personal estate whatever which may be necessary to enable the company to carry on its operations named in such certificate, but shall not mortgage such estate or give any lien thereon, except in pursuance of a vote of the stockholders of the company.
Sec. 608. TRUSTEES.--The stock, property, and concerns Act May 5, of such company shall be managed by not less than three 18+ Ostat. 1.. nor more than fifteen trustees, who shall, respectively, be 102: sec: 555 stockholders, and a majority citizens of the District, and trict of Columshall, except for the first year, be annually elected by the stockholders, at such time and place as shall be determined 1901. sec. 608 by the by-laws of the company.
SEC. 609. ELECTIONS.Public notice of the time and Act May 5. place of holding such election shall be published not less 18 than thirty days previous thereto in some newspaper Rev. stat. Dis: printed and published in the District, and the election trict of Columshall be made by such of the stockholders as shall attend for that purpose, either in person or by proxy. All the 1901, slec: 609 elections shall be by ballot, and each stockholder shall be 1285. entitled to as many votes as he owns shares of stock in the company, and the persons receiving the greatest number of votes shall be trustees; and when any vacancy shall happen among the trustees it shall be filled for the remainder of the year in such manner as may be provided by the by-laws of the company.
Sec. 610.—In case it shall happen at any time that an election of trustees shall not be made on the day desig- Rev.' stat. Dis: nated by the by-laws of said company when it ought to trict of Columhave been made, the company shall not for that reason be dissolved, but it shall be lawful on any other day to 3901, stat. 610. hold an election for trustees, in such manner as shall be 1285. provided by the by-laws, and all acts of trustees shall be valid and binding as against said company until their successors shall be elected.
Act Mar. 3,
. L., 1285. 1870, sec. 4;
Stat. 103; sec. 556,
Act Mar. 3,
Act May 5,
Act Mar. 3,
, Act May 5, 1870, sec. 558,
trict of Columbia.
1901, sec. 613; 31 Stat. 1286.
Sec. 611. OFFICERS.—There shall be a president of the Rev. Stat. Dis- company, who shall be designated from the trustees; and
also such subordinate officers as may be elected or apAct Mar: 3: pointed, and who may be required to give security for 31. stat. L.; the faithful performance of the duties of their office, as
the company by its by-laws may require. Act May 5, SEC. 612. BY-LAWS.—The trustees shall have power to Rev. Stat. Dis: make such prudential by-laws as they deem proper for trict of Colum- the management and disposal of the stock and business
Act Mar. 3; affairs of such company, not inconsistent with the laws 31. stat. L, of the District and the Constitution of the United States,
and prescribing the duties of officers, artificers, and servants that may be employed, for the appointment of all officers, and for carrying on all kinds of business within
the objects and purposes of such company. Act May 5, Sec. 613. Calls.—No company incorporated under this Rev. stat. Dis- subchapter shall be authorized to transact any business trict of Colum- until ten per centum of the capital stock shall have been Act Mar. 3; actually paid in, either in money or in property at its
L., actual value; and it shall be lawful for the trustees to
call in and demand from the stockholders the residue of their subscriptions in money or property at such times and in such installments as the trustees shall deem proper, under the penalty of forfeiting the shares of stock subscribed for and all previous payments made thereon, if payment shall not be made by the stockholder within sixty days after a personal demand or a notice requiring such payment shall have been published for six successive weeks in a newspaper in the District.
Sec. 614. STOCK.—The stock of such company shall be Rev. stat. Dis- deemed personal estate and shall be transferable in such
manner as shall be prescribed by the by-laws of the com1901, sec. 614 pany; but no shares shall be transferable until all pre
L., vious calls thereon shall have been fully paid in or the
shares shall have been declared forfeited for nonpay
ment. Act May 5, SEC. 615. LIABILITY OF STOCKHOLDERS.—All the stock
, sec. , Rev."stat. Dis holders of every company incorporated under this subtrict of Colum- chapter shall be severally individually liable to the cred
Acts Mar 13 itors of the company in which they are stockholders for 31. stat. L.; the unpaid amount due upon the shares of stock held by
them, respectively, for all debts and contracts made by such company, until the whole amount of capital stock, fixed and limited by such company, shall have been paid in, and a certificate thereof shall have been made and recorded, as prescribed in the following section.
Sec. 616. PAYMENTS ON CAPITAL STOCK.—The president Rev. stat
: and a majority of the trustees, within thirty days after trict of Colum- the payment of the last installment of the capital stock Act Mar. 3, so fixed and limited, shall make a certificate stating the
L' amount of the capital so fixed and paid in, which certifi
cate shall be signed and sworn to by the president and a
Act May 5, 1870, sec. 561,
trict of Columbia.
31 Stat. 1286.
Act May 5,
1901, sec. 616;