Int'l Harvester Co. of Am. v. State Bank of Upham

• Decision Date: 29 January 1918
• Citation: 38 N.D. 632,166 N.W. 507
• Parties: INTERNATIONAL HARVESTER CO. OF AMERICA v. STATE BANK OF UPHAM.
• Court: North Dakota Supreme Court

38 N.D. 632

166 N.W. 507

INTERNATIONAL HARVESTER CO. OF AMERICA

v.STATE BANK OF UPHAM.

Supreme Court of North Dakota.

Jan. 29, 1918.

Syllabus by the Court.

Unless its charter or the statute expressly permits it, a bank has not the power to become the obligator of another, except as it is necessary to dispose of its own paper and securities.

Even though a bank which asserts the defense of ultra vires has received benefits, and the plaintiff may be allowed to recover the value thereof, the burden is on the plaintiff to plead and prove the fact.

Appeal from District Court, McHenry County; A. G. Burr, Judge.

Action by the International Harvester Company of America against the State Bank of Upham, N. D. Judgment for defendant, and plaintiff appeals. Affirmed.Greenleaf, Bradford & Nash, of Minot, for appellant. D. J. O'Connell, of Towner, for respondent.

BRUCE, C. J.

This is an action on a promissory note, and is brought against the Upham State Bank as an indorsee. The defense is contained in the paragraph of the answer which alleges:

That it, the State Bank of Upham, “shows to the court that the defendant corporation was not authorized by the law to guarantee the payment of said defendant corporation, or such notes as were legally executed by said defendant corporation, and that, if the said corporation defendant did perform or attempt to perform the acts alleged in paragraph 3 of said complaint, then in that case the said act or acts were and are ultra vires and void; that there was no legal consideration for said guaranty or attempt at guaranty, and the defendant corporation received no consideration or benefits therefrom; that said defendant corporation is prohibited by the laws of the state of North Dakota from performing the acts referred to in paragraph 3, and the performance of the same was and is void as against public policy.”

This defense the trial court held to be conclusive and to have been proved, and, being of this opinion, rendered judgment for the defendant. From this judgment the plaintiff appeals.

[1] The question is: Has a bank power to indorse and guarantee the payment of a note which it does not own? The plaintiff contends that a bank has the power to make contracts and has such incidental power as shall be necessary to carry on its business and to protect its assets. Defendant maintains that a bank has the power to borrow money, and for that purpose to transfer its assets in shape of negotiable papers, and not otherwise.

We are of the opinion that the trial court was correct in its ruling, and that, unless its charter or the statute expressly permits it, a bank has not the power to become the obligator of another, except as it is necessary to dispose of its own paper and securities. See Cottondale State Bank v. Oskamp Nolting Company, 64 Fla. 36, 59 South. 566, Ann. Cas. 1916D, 564; Seligman v. Charlottesville National Bank, 3 Hughes, 647, Fed. Cas. No. 12,642; Thilmany v. Iowa Paper Bag Company, 108 Iowa, 333, 79 N. W. 68;Norton v. Bank, 61 N. H. 589, 6 Am. Rep. 334; 7 C. J. 595; 3 R. C. L. 425. The reason for this rule is:

That a bank is authorized to lend its money, and not its credit, and, “if a bank could lend its credit as well as its money, it might, if it received compensation and was careful to put its name only to solid paper, make a great deal more than any lawful interest on its money would amount to. If not careful, the power would be the mother of panics, and if no compensation was received, there is the additional reason, if any is needed, that such a power is in derogation of the rights and interests of stockholders, and at all events could...