ful and void and will not support an action, rests, as this court has often recognized and affirmed, upon three distinct grounds: the obligation of anyone contracting with a corporation to take notice of the legal limits of its powers; the interest of the stock holders not to be subjected to risks which they have never undertaken; and above all, the interests of the public that the corporation shall not transcend the powers conferred upon it. by law." 5 This question is further discussed in the case of California Bank v. Kennedy, 167 U. S. 362; the direct question at issue in this case being whether a national bank could take and hold the stock of another corporation. The court in discussing the question says: "In view of the fact that the defendant was a national bank deriving its powers from the statutes of the United States, the averment of a particular transaction of the one in question if entered into was without authority of law and cannot in reason be construed only to relate to the law controlling and governing the conduct of the corporation, that is, the law of the United States." In this case it was admitted at the trial that the stock of the Savings Bank was not taken as security, or anything of the kind, and it is not disputed in the argument at bar, that the transaction by which this stock was placed in the name of the bank, was one not in the course of the business of banking for which the bank was organized. The court says: "Whenever divergence of opinion might arise on this question from conflicting adjudications in some of the State courts, in this court it is settled in favor of the right of the corporation to plead its want of power. That is to say, to assert the annulity of an act which is an ultra vires act." In the case of Central Transportation Company v. Pullman Palace Car Co., 139 U. S. 24, the court says: "A contract of a corporation which is ultra vires, in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond 5 Concord First Nat. Bank 2. Hawkins, 157 Mass. 548; Prescott Nat. Bank v. Butler, 98 U. S. 621; Hennessy v. City of St. Paul, 54 the powers conferred upon it by the Legislature, is not voidable only, but wholly void, and of no legal effect. The objection to the contract is, not merely that the corporation ought not to have made it, but that it could not make it. The contract cannot be ratified by either party, because it could not have been authorized by either. No performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it." The rule is well established that where a contract is made by a corporation beyond the scope of its corporate powers, it is unlawful and void. Unlawful banking, then, is the conducting of the business of banking by a person, or combination of persons, who have not obtained authority where the law requires that such authority must first be obtained. Unlawful banking may also be the conducting of the business of by a pretended corporation; one which, at the time of entering into transactions and contracts, well knew that it had no power or authority to act. Unlawful banking may also be acts performed by duly incorporated corporations, which acts are either specifically denied the corporation by the charter, or forbidden by the law. 2 CHAPTER IV. BANKS CLASSIFIED AND DEFINED. § 6. Commercial and savings banks. Banks are classified into two divisions, namely, Commercial and Savings Banks. Commercial banks may be divided into three classes, for example, a bank may be incorporated solely for the purpose of receiving money on deposit, retaining the deposit for the depositor and repaying the same back to him upon demand. The business of this kind of a bank is commercial in character, and is called a bank of deposit. Again, a bank may be incorporated to receive money on deposit, and repay the same to the depositor upon demand, and also to discount notes, securities and the like for its customers, and others. The business of this bank is also commercial in its nature, and may be called a bank of deposit and discount. Again, a bank may be incorporated to receive money on deposit, and repay the same to the depositor upon demand, and to issue notes and circulate the same as money, and to loan money, discount notes, securities and the like. The business of this kind of a bank is also commercial, and is called a bank of circulation, deposit, and discount. A commercial bank may therefore have any one or all of these elements and powers; and when endowed with any one of them, it is termed a commercial bank. Banks are again divided into savings banks. Coming under this head there are only two classes; one is called Mutual Savings, which is an institution incorporated without capital stock, and is purely mutual in its nature and its powers, conducting business only for its members, and wholly in their interest. While the other is a savings bank incorporated with a capital stock, and is authorized to receive deposits and repay the same to depositors, loan money, and by special power granted by Statute in some of the States, is authorized to discount notes and issue certificates of deposit. This kind of a bank, although denominated as a savings bank, is stripped of all the elements of such institutions. National banks are commercial in character. They are institutions authorized directly by the Government of the United States, and are empowered to conduct a banking business, and to issue, uunder direction of the Government, their notes, and circulate the same as money. Their powers are strictly commercial. § 7. General definition of banking. A banker as defined by a leading authority, "is one who conducts the business of banking, keeps an establishment for the deposit of money, bills of exchange, etc." This definition may be enlarged upon, but cannot well be improved. A definition which defines a banker to be one who conducts the business of banking is general in its application. The legitimate business of banking demands that a banker shall have a place of business; while a broker, one who buys and sells securities, etc., may not have a place of business, but may, and frequently does, conduct the business of a banker, without having a place of business. § 8. When a broker becomes a banker. A broker becomes a banker subject to taxation, under the revenue law of the United States, when he, as an agent, receives from another for sale or discount bonds, bullion, stocks, bills of exchange, or promissory notes, where he employs capital of his own, with that of another, provided he has a place of business where credits are opened for that purpose.' The court, in the case of Warren v. Shook, says: 1 Having a place of business where deposits are received and paid out on checks, and where money is loaned upon security, is the substance of banking." The court also gives the following illustration: "Thus, if A. B. has $10,000, which he desires to invest, and purchases U. S. stocks, or State stocks, or any other security, he does not thereby become a broker." "It is enly when making sales and purchases in his business, his trade, his profession, his means of getting a living, or of making 1 Warren v. Shook, 91 U. S. 704; Selden v. Equitable Trust Co., 94 U. S. 419. his fortune, that he becomes a broker, within the meaning of the Statute." The court, in the case of Selden v. Equitable Trust Co., says: "The Statute describes three classes of artificial and of natural persons, distinguished by the nature of the business transacted by them, and declares that individuals embraced in either of the classes shall be considered bankers. The first class is composed of those who have a place of business where credits are opened by the deposit or collection of money, or currency, subject to be paid or remitted upon draft, check or order. It is not claimed that the company engaged in that branch of business or that they are included in this first class. The agreed state of facts expressly repels any such claim. "The second class are those who have a place of business where money is advanced or loaned on stocks, bonds, bullion, bills of exchange or promissory notes. It is contended on behalf of the plaintiff in error that the company is included in this class because it advances or loans money on bonds. The case, however, states that all the loans the company makes are investments of its own capital in mortgage securities on real estate. It is true, the bonds of the borrowers are taken with the mortgages, but the bonds are mere evidence of the debt. The money is advanced or loaned on the security of the real estate mortgage, and not on the security of the bond. We think Congress, in the cause of the Act we are now considering, intended reference to transactions entirely different from loans or advances made on the personal promise or undertaking of the borrower. The words used are not technical. They are, therefore, to be understood in their common and popular sense. Dwarris, Stat. 573. And that in common understanding, an advance or loan of money on stocks, bonds, bullion, bills of exchange, or promissory notes, is an advance or loan where those species of property are pledged as collaterals, or are hypothecated to secure the return of the advance, or the payment of the sum lent, is unquestionably true. It can be nothing else where the money is advanced or lent on stocks or bullion; and, by the Statute, bonds, bills of exchange and promissory notes are placed in the same catalogue with stocks and bullion. |