Divide Cnty. v. Baird, 5063.

• Decision Date: 14 February 1927
• Docket Number: No. 5063.,5063.
• Citation: 212 N.W. 236,55 N.D. 45
• Parties: DIVIDE COUNTY v. BAIRD et al.
• Court: North Dakota Supreme Court

55 N.D. 45

212 N.W. 236

DIVIDE COUNTY

v.BAIRD et al.

No. 5063.

Supreme Court of North Dakota.

Nov. 15, 1926.

Rehearing Denied Feb. 14, 1927.

Syllabus by the Court.

The business of banking is affected with a public interest, and the Legislature may prohibit it altogether, or may prescribe the conditions under which it may be conducted.

A bank 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, but the incidental powers are such only as are necessary to carry on the business of banking; that is, such as are incidental to the powers expressly enumerated.

A “banking 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; it is the grantee of 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.

The pledging of assets to secure a general deposit cannot be sustained as the exercise of an incidental power, necessary to carry on the business of banking. An attempt to pledge goes beyond the charter powers of the corporation and is not an incident to the privilege to receive general deposits.

The Legislature has prescribed the mode in which a bank may receive and a public corporation make a deposit of public funds. That mode is by a personal or surety bond as security. This statute is a part of the corporate charter, in so far as it relates to the exercise of power by a bank. The power is express, not incidental or implied; and when a legislative enactment prescribes one mode of exercising an express power or privilege, it implies an inhibition to exercise the given power in any other way.

When a pledge of a bank's bills receivable is wholly gratuitous, one which the public board could not require or the bank make, even had the latter been authorized by the directors, such pledge is no part of the contract of deposit, nor is it, in any legal sense, a part of the consideration therefor.

The Legislature has at all times since statehood recognized a distinction between a loan and a deposit of money; and in the case of the funds of public corporations loans have been prohibited, while deposits thereof have been sanctioned by law. From the fact that a bank may secure a loan by pledging its bills receivable, the inference is not warranted that the Legislature intended to give banks the power to pledge their assets to secure either a public or a private deposit.

The general creditors of a bank are innocent parties and have equities which are superior to those of a county seeking to enforce a pledge of assets to secure a public deposit, when the defense of ultra vires is interposed against the public corporation. As between the creditors and depositors of an insolvent bank, whose contractual relation with the corporation was created lawfully-intra vires-and the plaintiff, whose contract of pledge was ultra vires of the bank, the former must be preferred, and they are not estopped to assert the want of power.

A county is a political subdivision of the state, and it may speak and act only in the manner and in the matters prescribed by the Legislature in statutes enacted pursuant to constitutional authority. A county has not the legal capacity to enter into an engagement which will, in effect, create a class of preferred depositors in banks, contrary to the policy of express law and the deliberate purpose of the Legislative Assembly.

Chapter 199, S. L. 1923, the depository law, and other legislation evidence the policy of this state with respect to the deposit of public funds and the manner in which such deposits must be secured; and it is contrary to that legislative policy for a bank to secure this class of deposits by a pledge of its general assets. It was not intended that the public should occupy the position of a preferred creditor, to the detriment of private depositors, in the event of the insolvency of the depository, or that such a result could be brought about by secret agreement between the parties.

For reasons stated in the opinion, it is held that the attempted agreement of pledge was contrary to the policy of express law, and consequently unlawful, within section 5922, C. L. 1913, and that the privilege to receive deposits of public funds was exercised in a manner contrary to the public policy of this state. The pledge agreement is unlawful, not merely in the sense that in making it the bank and the county exceeded their charter or statutory powers, but also in the sense that it is against public policy.

When the contract which a court of equity is asked to enforce is not only impliedly forbidden, but is also contrary to a well-defined legislative policy, the court will refuse to give any relief thereunder.

Appeal from District Court, Divide County; Geo. H Moellring, Judge.

Action by the County of Divide against L. R. Baird, as receiver of the First State Bank of Wild Rose, substituted for such bank as defendant, and others. From a judgment for plaintiff against defendant Baird, he appeals. Reversed in part.

Nuessle, J., dissenting.

Divet, Holt, Frame & Thorp, of Fargo, for appellant.

Olaf Braatelien, State's Atty., and H. W. Braatelien, Asst. State's Atty., both of Crosby, for respondent Divide County.

George P. Homnes, of Crosby, for other respondents.

Pierce, Tenneson, Cupler & Stambaugh and Conmy, Young & Burnett, all of Fargo, amici curiæ.

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, S. L. 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.

[1] In any discussion of the question of power of a banking corporation, it is important to bear in mind that the...