Nelson v. Dakota Bankers Trust Co.

• Decision Date: 18 December 1964
• Docket Number: No. 8153,8153
• Parties: Lloyd A. NELSON, Morris F. Nelson and O. K. Anderson, Plaintiffs and Respondents, v. DAKOTA BANKERS TRUST COMPANY, also known as Bankers State Bank and Trust Company of Fargo, North Dakota, a corporation, Defendant and Appellant.
• Court: North Dakota Supreme Court

Page 903

132 N.W.2d 903

Lloyd A. NELSON, Morris F. Nelson and O. K. Anderson, Plaintiffs and Respondents, v. DAKOTA BANKERS TRUST COMPANY, also known as Bankers State

Bank and Trust Company of Fargo, North Dakota, a

corporation, Defendant and Appellant.

No. 8153.

Supreme Court of North Dakota.

Dec. 18, 1964.

Rehearing Denied Feb. 25, 1965.

Syllabus by the Court

1. Section 6-01-02, NDCC, contains definitions of terms used in Title 6. Two of these definitions, 'state banking association' and 'banking institution,' contain important distinctions which must be borne in mind in construing statutes providing for the organization, powers, regulations and limitations of corporations organized and functioning pursuant to the provisions of Chapters 6-02, 6-03, and 6-05, NDCC, as amended by Chapter 93, S.L.N.D.1963.

2. Banking associations organized and qualified pursuant to the provisions of Chapter 6-02, NDCC, prior to the enactment of Chapter 93, S.L.N.D.1963, are empowered to do a general banking business, including the maintenance of demand deposit accounts.

3. Annuity, safe deposit, surety and trust companies organized pursuant to Chapter 6-05, NDCC, are banking institutions which do not possess all the powers of banking associations, and prior to the enactment of Chapter 93, S.L.N.D.1963, were not and could not be empowered to conduct a general banking business.

4. Section 6-02-01, NDCC, as amended by Chapter 93, S.L.N.D.1963, permits a trust company in existence at the time the amendment became effective to obtain a charter to engage in banking business upon compliance with Chapter 6-02, NDCC, and after such charter is obtained, all laws relating to banks in Title 6 are applicable to its powers and the conduct of its banking business.

5. The charter of a corporation includes all statutes which confer, define or limit its powers, and in event of a conflict between the powers conferred by statute and those set forth in articles of incorporation, the statutes prevail.

6. The State Banking Board, not the Secretary of State, determines when a corporation is qualified to do business as a banking association.

7. For reasons stated in the opinion, it is held that the plaintiffs are not estopped from challenging the ultra vires acts of the defendant.

8. In a proper case, including an action for a declaratory judgment, the court may enjoin ultra vires acts of a corporation.

Wattam, Vogel, Vogel, Bright & Peterson, Fargo, attorneys for plaintiffs and respondents.

Cupler, Tenneson, Serkland & Lundberg, Fargo, attorneys for defendant and appellant.

Helgi Johanneson, Atty. Gen., Paul M. Sand, Asst. Atty. Gen., Bismarck, amici curiae.

MORRIS, Chief Justice.

The plaintiffs, Lloyd A. Nelson, Morris F. Nelson and O. K. Anderson are stockholders of the defendant. The two Nelsons each hold a certificate of common stock in the defendant corporation and the plaintiff Anderson is the owner and holder of a subscription contract for stock of the defendant pursuant to which he made a part payment in cash and has during the time material to this action been treated as a stockholder.

The defendant, as Dakota Pankers Trust Company, was incorporated April 20, 1961, as a surety and trust company under the provisions of Chapter 6-05, NCDD, and qualified to conduct the business of a surety and trust company by complying with the requirements of Section 6-05-05, NDCC.

On August 3, 1962, the defendant filed with the State Examiner for the State of North Dakota a document denominated a 'proposal' in which it was stated that the Dakota Bankers Trust Company proposed to expand its power and authority to engage in the general commercial banking business and to exercise all incidental powers necessary to carry on the business of banking in general. The State Examiner caused to be published on September 19, 20, and 21, 1962, a notice of public hearing to be held on October 2, 1962, which notice in part stated:

'The hearing will be on the proposal that the Bankers State Bank and Trust Company, should have banking powers. The community which they propose to serve is the Northport Shopping Center of the City of Fargo. The hearing is to determine if this area is in need of further banking facilities and whether the corporation is possessed of such reputation and financial standing which will be beneficial to the public welfare of the community, and if the corporation meets the statutary requirement of a bank.'

The hearing was had but no action was ever taken by the State Examiner or the State Banking Board with respect to the matters proposed. In the meantime and before the hearing, the defendant, as Dakota Bankers Trust Company, applied to the Secretary of State to amend its articles of incorporations, changing the name to Bankers State Bank and Trust Company, and enumerating additional purposes which would enable it to engage in the general banking business. A certificate showing the amendment was issued by the Secretary of State on August 27, 1962. In September 1962 the Bankers State Bank and Trust Company began conducting a general banking business and continued to do so without complying with Chapter 6-02 and those sections of Chapter 6-03 applicable to banking associations.

The district court rendered judgment in favor of the plaintiffs and respondents in which it decreed that the defendant is engaging in commercial banking which is unauthorized and ultra vires, that the respondents are not obligated on their subscriptions for shares of stock in the defendant corporation as long as it engages in unauthorized and illegal commercial banking, that there is no provision for the assessment of shareholders of the trust company, that the respondents purchased stock or subscribed for common stock of the defendant as a trust company, and that the defendant is obligated to operate only as a trust company. The judgment further enjoined and restrained the defendant from engaging in commercial banking and directed that its activities be confined to those authorized by Chapter 6-05, NDCC, which is the chapter under which the defendant was originally organized and contains statutes pertaining to the organization and operation of annuity, safe deposit, surety and trust companies, and it was provided that the injunction should remain in effect until such time as the defendant has complied with the applicable provisions of Chapters 6-02 and 6-03, NDCC (which pertain to the organization and qualification of banks, their powers, management and operation), and shall have received a duly authorized certificate of authority or charter to engage in commercial banking.

The defendant appeals from the judgment, demands a trial de novo, and in addition thereto sets forth in its brief 17 specifications of error challenging certain findings of fact and conclusions of law by the trial court. It is also urged that this action being one for a declaratory judgment and the plaintiffs having only nominal interests in the corporation, the court should not have enjoined the general banking activities of the defendant.

Bearing in mind that the defendant corporation was incorporated in 1961 as a surety and trust company, amended its articles of incorporation in 1962 whereby its name was changed to Bankers State Bank and Trust Company and the statement of its purposes enlarged to include a general banking business, and that no certificate has been issued by the State Banking Board approving its organization as a banking association or its conduct of a general banking business, we examine the pertinent statutes to determine whether the defendant is legally authorized to conduct such business or whether the conduct of such business is ultra vires the corporation. The prime question is whether general banking powers are conferred upon a corporation by Chapter 6-05, NDCC, which contains the statutes under which the defendant was organized and began its operations as a surety and trust company.

Chapter 6-01, NDCC, embraces statutes under which the state department of banking exists and operates. Among the definitions set forth in Section 6-01-02 are the following:

'2. 'State banking association,' any corporation organized under the laws of this state covering state banking associations or savings banks, and all corporations, partnerships, firms, or associations whose business in whole or in part consists of the taking of money on deposit, excepting national banks, trust companies, and the Bank of North Dakota;

'3. 'Banking institution,' any bank, trust company, bank and trust company, stock savings bank, or mutual savings bank organized under the laws of this state;

'* * *

'8. 'Banking,' the business of receiving deposits, making loans, discounting commercial paper, or buying and selling exchange;

'9. 'Bank,' any association, firm, or corporation engaged in the business of banking.'

We will bear in mind the distinction between 'association' and 'institution' in our consideration of various statutes. Chapter 6-02, NDCC, deals with the organization and qualification of banks. Section 6-02-02 provides that an association for carrying on the business of banking may be formed by any number of natural persons, not less than three, at least two-thirds of whom shall be residents of the state, and requires that they enter into articles of association which shall specify in general terms the object for which the association is formed.

A banking association in order to qualify as such is required to prepare an organization certificate containing five items of information set forth in Section 6-02-04, which must be transmitted to the State Banking Board with a request for permission to present it to the Secretary of State with an application for the issuance by him of a certificate of authority. The State Banking Board must then give notice of hearing in the official newspaper of the county in which the association is proposed to be established. Section 6-02-05. After a...