County of Divide, a Municipal Corporation v. Baird

• Decision Date: 15 November 1926
• Citation: 212 N.W. 236,55 N.D. 45
• Court: North Dakota Supreme Court

212 N.W. 236

55 N.D. 45

COUNTY OF DIVIDE, a Municipal Corporation, Respondent, v. L. R. BAIRD, as Receiver of the First State Bank of Wild Rose, (Substituted for Said Bank as a Defendant), Appellant. C. A. CHRISTIANSON, C. O. Trytten, H. J. Newhouse, and Andrew Urseth, Respondents

Supreme Court of North Dakota

November 15, 1926

Rehearing denied February 14, 1927.

Appeal from District Court of Divide County, Moellring, J.

Reversed in part; and modified.

Reversed.

Divet Holt, Frame & Thorpe, for appellant, Baird, as receiver; Pierce, Tenneson, Cupler & Stambaugh and Conmy, Young & Burnett, as amici curiae.

"These statutes were intended primarily for the protection of depositors. Experience has demonstrated the necessity of such regulatory measures. If a bank may employ all of its assets in the purchase of real estate, and does so, it will hardly be in position to meet its obligations to its depositors." Smith v. Rennix, 52 N.D. 938, 204 N.W. 843.

"The unexpressed and incidental powers of a corporation are not limited to such as are indispensably necessary to the exercise of the powers specifically granted. Whatever incidental powers are reasonably necessary to its corporate functions being implied from the powers affirmatively granted, but powers merely convenient or useful are not implied if not essential in view of the nature and object of the incorporation." Gause v. Commonwealth Trust Co. 89 N.E. 476.

"A banking corporation comes severely within the rule that all acts not authorized by its charter and the law under which it was incorporated, are ultra vires. The very nature of its business requires a strict enforcement of the law, that its stockholders may become liable and that the earnings and savings of depositors may be safely preserved." Magee, Banks & Bkg. 2d ed. p. 21.

Olaf Braatelien, State's Attorney and H. W. Braatelien, Assistant State's Attorney and as amicus curiae, for plaintiff and respondent; George P. Homnes, for defendants and respondents.

"More properly speaking, ultra vires contracts of a corporation are such as do not in any manner serve the accomplishment of the purposes for which the corporation is chartered. They are contracts not positively forbidden, but impliedly forbidden, because not expressly or impliedly authorized." Tourtelot v. Whithed, 9 N.D. 479.

JOHNSON, J. CHRISTIANSON, Ch. J., BURKE, J., and BIRDZELL, Ch. J., concurring. JOHNSON, J., does not participate. NUESSLE, J., dissenting.

OPINION

JOHNSON, J.

Plaintiff brings this action to recover the amount of a deposit of county funds in the First State Bank of Wild Rose, and to foreclose a contemporaneous pledge of certain certificates of indebtedness. Judgment was entered in favor of the plaintiff against the defendant Baird, who, as receiver of the First State Bank of Wild Rose, prosecutes this appeal.

In July, 1923, acting under chapter 199, Sess. Laws 1923, the plaintiff proceeded to designate a depository of its funds; the First State Bank of Wild Rose made a bid for the deposit and the board of county commissioners passed a resolution designating this bank as a depository. The bank furnished a bond in the usual form, signed by the receiver's codefendants as sureties, dated October 15, 1923. The bond was approved by the county board. About the time the bond was approved and when the county was ready to make the deposit, some negotiations were had, not appearing in the record of the proceedings of the county commissioners, which resulted in the pledging of certain certificates of indebtedness of municipalities within Divide county as collateral security for the deposit. The complaint alleges that the pledge was made October 18, 1923, the date of the deposit, as "collateral security to the bond." The reason for the negotiations which culminated in the pledging of the securities appears to have been that the board had approved and accepted a personal and not a surety bond. Under the statute, either bond may be sufficient. The court found that on October 18, 1923, the county deposited in the First State Bank of Wild Rose, $ 6,500 for which a certificate of deposit was issued and delivered to the plaintiff. It is this certificate which is the basis of the plaintiff's claim.

Some time after the deposit was made, the bank became insolvent and appellant Baird, as receiver, in due time took charge of its affairs. Demand was made for repayment of the deposit and, upon failure to comply, proceedings were commenced to recover the same and to foreclose the pledge. The trial court entered a judgment in favor of the plaintiff which established a valid and subsisting money demand against all the defendants, adjudged the pledge to be valid, and directed that the hypothecated securities be sold and the proceeds applied in satisfaction of the judgment against the bank and the sureties. The trial court concluded, as a matter of law, that inasmuch as the defendant bank and its sureties had neither complied with the demand to return the money deposited nor tendered a return thereof, the receiver and the sureties were estopped from questioning the regularity of the pledge.

The question in this case is stated in the following language by counsel for the appellant: "The court erred in holding that it was within the power of the defendant bank to secure the county deposits by a pledge of the assets of the bank as additional security to the statutory bond, and in not holding that the attempted pledge of assets was ultra vires and void as against the creditors of the bank, represented by the appellant receiver." In its narrowest terms, the controversy resolves itself into a question whether a state bank has the charter power to pledge its assets as a security for a deposit of the funds of a public corporation. As the case has been tried and submitted by both sides, the broader question of the power of a state bank to pledge its assets in order to secure a general deposit, whether from an individual or a public corporation, is presented. It is contended by the appellant that no such power exists and that a contrary conclusion results in the creation of preferences and of establishing classes among depositors wholly beyond the charter powers of state banks.

The county answers by insisting, first, that the defendants, including the receiver, are estopped because of their own conduct, the contract having been fully performed and no tender of a return of the money having been made, from questioning the validity or regularity of the deposit and the pledge; and, second, that if the defendants be not estopped, there is, in fact, and was, when the transaction in suit took place, a power in state banks to pledge their general assets as security for deposits.

In any discussion of the question of power of a banking corporation, it is important to bear in mind that the business of banking is so intimately connected with the public interest that the legislature may prohibit it altogether, or may prescribe the conditions under which it may be done. State ex rel. Goodsill v. Woodmanse, 1 N.D. 246, 11 L.R.A. 420, 46 N.W. 970. The position of such a corporation is largely fiduciary. Gause v. Commonwealth Trust Co. 196 N.Y. 134, 24 L.R.A. (N.S.) 967, 89 N.E. 476; and see American Exp. Co. v. Citizens State Bank, 181 Wis. 172, 194 N.W. 427. The legislature has withheld the privilege from natural persons, and from all but a designated class of corporations. It would seem to follow that the corporation must do business in the manner defined. "All acts not authorized by its charter and the law . . . are ultra vires." Magee, Banks & Bkg. p. 21. Legislation regulating the conduct of banks has not been enacted solely, though, doubtless largely, out of regard for the interest of depositors in banks; it rests "upon the broader base that the public welfare and the stability of public business and commercial relations depend, to a great extent, upon honesty and soundness in the banking business." Wirtz v. Nestos, 51 N.D. 603 at 615, 200 N.W. 524.

The statutes prescribing the conditions under which banks are privileged to function and the manner in which they shall do business, must be construed with reference to the purpose underlying all regulatory measures and the public nature of the business regulated. Undoubtedly they should be fairly construed so as to permit an effectuation of the purpose the legislature had in view, to wit: to permit this specific kind of corporation, and no other person, to carry on the banking business in a manner consistent with the interests of general creditors, depositors and the public. A bank, of course, has such powers as are expressly given it; these are express powers. In addition, it may exercise certain powers which are incidental to those expressly given. The range of such powers is generally stated in the statute and is limited by fairly well defined principles. Only such incidental powers exist as are "necessary to carry on the business of banking;" § 5150, subdivision 7 Comp. Laws 1913; that is, such as are incidental to the powers expressly enumerated. See First Nat. Bank v. National Exch Bank, 92 U.S. 122, 127, 23 L.Ed. 679, 681; Talmage v. Pell, 7 N.Y. 328, 340. Clearly, this kind of corporation is created for a more limited and special purpose than is a corporation organized under the general statutory charter, for the purpose of conducting ordinary business. To it has been granted the exclusive privilege to do a specified business in a manner circumscribed by definite restrictions. It is wholly the creature of statute; and it does business by legislative grace. It is privileged to receive deposits, but in what manner is not expressly stated. May a bank exercise the statutory privilege to receive a deposit in...