First National Bank of Charlotte v. National Exchange Bank of Baltimore.

FIRST NATIONAL BANK OF CHARLOTTE V. NATIONAL EXCHANGE BANK OF BALTIMORE.

National banks may take stock in payment of debts.

(92 U. S. 122.)

A National bank may, in a fair and bona fide compromise of a contested claim against it, growing out of a legitimate banking transaction, pay a larger sum than would have been exacted in satisfaction of the demand so as to obtain by the arrangement a transfer of certain stock in railroad and other corporations, it being honestly believed at the time that by turning the stock into money under more favorable circumstances than then existed, a loss might be averted or diminished.

Although National banks are impliedly prohibited from dealing in stocks, yet they may take stock in payment or compromise of a doubtful debt, in order to avoid loss, and with a view to convert the stock into money.

E

RROR to the Court of Appeals of Maryland.

Action to recover money. The plaintiff, a National bank, doing business at Charlotte, N. C., desiring to deposit with the Treasurer of the United States, fifty thousand dollars in United States bonds, for the purpose of increasing its capital stock, employed Bayne & Co., of Baltimore, to procure such bonds and deliver them at the treasury. Not having the money to pay for them at the time, the plaintiff sent its president, Wilkes, to Baltimore, with a certificate previously prepared in Charlotte, as follows:

"FIRST NATIONAL BANK OF CHARLOTTE, N. C., Į CHARLOTTE, Dec. 15, 1865.

"Received on deposit from Bayne & Co., fifty-five thousand United States 5-20 bonds, third issue, payble to the order of themselves on return of this certificate. "JOHN WILKES,

"President First National Bank, Charlotte, N. C."

This certificate was delivered by Wilkes to Bayne & Co., in Baltimore; and on the 18th of December, 1865, they, having indorsed the same, deposited it, together with other securities, with the National Exchange Bank of Baltimore, as collateral security for a call loan of $80,000 then made by that bank to said firm of Bayne & Co.

A few days after the delivery of said certificate, the plaintiff deposited in New York, to the credit of Bayne & Co., a sum sufficient to pay the same, and received, in January, 1866, oral notice

First National Bank of Charlotte v. National Exchange Bank of Baltimore. from them that the certificate was discharged, and subject to its order. In March, 1866, the plaintiff received a written notice to the same effect, but did not apply for the surrender of said certificate. In April following, Bayne & Co. failed; and the plaintiff was then notified by the defendant that it held the certificate of deposit for value, and demanded the delivery of the bonds therein mentioned.

Wilkes, the president, was sent by the plaintiff to Baltimore to negotiate for the return of said certificate. He informed the defendant that it had been satisfied by the payment to Bayne & Co., and disavowed any legal liability on account of.same to the defendant. To avoid suit, however, Wilkes offered to pay $5,000 upon the delivery of the certificate; which defendant refused, but offered to take $20,000, and threatened suit unless so settled. Wilkes declined to pay this sum, but asked for delay until he could return to Charlotte and consult the directors of his bank. He again returned to Baltimore, and new negotiations for compromise of the controversy between the two banks in regard to their respective rights to the certificate were opened. Wilkes ascertained that the defendant held, among its collaterals from Bayne & Co., a large number of shares of Washington, Alexandria and Georgetown Railroad stocks, the market value of which had been seriously depressed by the failure of Bayne & Co. Having informed himself in regard to the condition of the stock and its supposed value, and after one or two interviews with the president and directors of the defendant, it was finally agreed that the plaintiff should take four hundred shares of the Washington, Alexandria and Georgetown Railroad stock, and one thousand shares of the Maryland Anthracite stock, the same being valued at $40,000, and one hundred and twentyfive shares of the stock of the plaintiff, valued at $15,000,-the latter, inasmuch as he was advised that a National bank could not buy its own stock, to be taken by Wilkes himself; thus making $55,000. Upon the basis of this settlement, the defendant was to deliver to Wilkes the certificate held by it for the $55,000 United States bonds. The plaintiff paid to the defendant the sum of $10,000, according to the terms of the above settlement, and received the certificate for one thousand shares coal stock. The four hundred shares of railroad stock were not then delivered, there being a suit about it at the time of the agreement which prevented all transfers; but it was regarded and treated by both parties as belonging to the plaintiff.

First National Bank of Charlotte v. National Exchange Bank of Baltimore.

In September, 1869, nearly three years after the date of the settlement, suit was brought by the plaintiff in the Superior Court of Baltimore city, to recover the $40,000 paid by it to the defendant in pursuance of the arrangement above stated. At the request of the plaintiff, the court granted the following propositions of law:

First, that if the plaintiff agreed to purchase for $40,000 the railroad and coal stock, and paid that sum, then the court must find for the plaintiff for that amount, provided the court shall find that the defendant knew the plaintiff to be a National bank, and shall further find that the certificate of deposit was delivered up in consequence of said contract, if, by said contract, no part of the $40,000 was to be paid for the certificate.

Second, that if the plaintiff agreed to purchase the said stock for $40,000, and Wilkes also agreed to purchase for $15,000 one hundred and twenty-five shares of plaintiff's stock, and the inducement to both agreements was Wilkes' desire to obtain the certificate of deposit, and he did so obtain it, that does not inure to make the first contract valid, provided the court shall find, that, by the first-mentioned contract, the consideration for which the sum of $40,000 was to be paid was the railroad and coal stock, and that no part of said sum was to be paid for the certificate of deposit.

Third, that if the plaintiff, in order to compromise the certificate of deposit, agreed to purchase it and the railroad and coal stock for $40,000, and paid the money, then the plaintiff is entitled to recover so much of said sum as the court shall find was paid for said stock.

The court found for the defendant, and rendered a judgment in its favor, which the Court of Appeals affirmed, whereupon the case was brought here by writ of error.

J. Upshur Dennis and John Scott, Jr., for plaintiff in error. The determination of the validity of the transaction involved in this case must necessarily depend upon the construction of the National Banking Law.

The eighth section of that law enumerates the powers which a National bank can exercise. Every other power is as much withheld as if it was in express terms prohibited. Pearce v. Mad. & Ind. R. R., 21 How. 442; Bank of Agusta v. Earle, 13 Pet. 587; Perrine v. Ches. & Del. Canal Co., 9 How. 184; Penn., Del. & Md. Steam Nav. Co. v. Dandridge, 8 G. & J. 319.

First National Bank of Charlotte v. National Exchange Bank of Baltimore. No clause gives it power to purchase stocks; on the contrary, the authority specifically conferred on it to buy exchange, coin and bullion, raises the conclusive presumption that the omission of that power was intentional. Expressio unius exclusio alterius.

Conceding that the two agreements - the one for the abandonment of the claim, and the other for the purchase of stock - may be inseparably united, it is insisted that the court below erred in holding that a power to acquire stocks is incidental to that of providing for the discharge of a disputed claim by way of compromise. Taking any thing from the defendant but a release or a discharge, transcends the limits of necessary powers, and enables a corporation to accomplish indirectly that which was intended to be prohibited. Upon the principle which underlies the opinion of the Court of Appeals, it may be said that a corporation has, as an incident to the power to discharge its indebtedness, that of acquiring the requisite funds; and, as a legitimate means of so doing, the privilege of engaging in business of any kind, provided its real and bona fide object is to meet outstanding demands against it, this line of argument would give these creatures of the statute every power, the exercise of which is not in positive terms forbidden.

The true doctrine is, that an implied or incidental power must be deducible from the grant, and fairly within its scope; partake of the same character as the specifically granted powers, but not enlarge them; and tend naturally to secure the same result. power to discharge may embrace that of making a payment of any kind whatever, but not that of purchasing or acquiring. That is a distinct and substantive power of an entirely different nature. Pearce v. Mad. & Ind. R. R., supra; East Anglican R'y v. Eastern Counties R'y, 7 Eng. Law & Eq. 508; Hood v. N. Y. & N. H. R. R., 22 Conn. 1; id. 502; Russell v. Topping, 5 McLean, 197; Clark v. Farrington, 11 Wis. 323; Beatty v. Knowles, 4 Pet. 167.

The precise proposition involved in this controversy has been decided in Talmage v. Pell, 3 Seld. 328. See, also, Fowler v. Scully, 72 Penn. St. 461 (post); Shoemaker v. National Mechanics' Bank, 2 Abb. C. C. 422 (see post); Shinkle v. First National Bank of Ripley, 22 Ohio St. 516 (see post); Wiley v. First National Bank of Brattleboro, 47 Vt. 552 (see post); First National Bank of Lyons v. Ocean National Bank, 60 N. Y. 278 (see post).

William F. Frick, contra.

First National Bank of Charlotte v. National Exchange Bank of Baltimore.

Mr. Chief Justice WAITE delivered the opinion of the court. The question presented for our consideration in this case is, whether a National bank, organized under the National Banking Act, may, in a fair and bona fide compromise of a contested claim against it growing out of a legitimate banking transaction, pay a larger sum than would have been exacted in satisfaction of the demand, so as to obtain by the arrangement a transfer of certain stocks in railroad and other corporations; it being honestly believed at the time that, by turning the stocks into money under more favorable circumstances than then existed, a loss, which would otherwise accrue from the transaction, might be averted or diminished. Such, according to the finding below, was the state of facts out of which this suit has arisen. That finding is conclusive upon us.

A National bank can "exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing and circulating notes." R. S., § 5136, par. 7; 15 Stat. 101, § 8.

Authority is thus given to transact such a banking business as is specified, and all incidental powers necessary to carry it on are granted. These powers are such as are required to meet all the legitimate demands of the authorized business, and to enable a bank to conduct its affairs, within the general scope of its charter, safely and prudently. This necessarily implies the right of a bank to incur liabilities in the regular course of its business, as well as to become the creditor of others. Its own obligations must be met, and debts due to it collected or secured. The power to adopt reasonable and appropriate measures for these purposes is an incident to the power to incur the liability or become the creditor. Obligations may be assumed that result unfortunately. Loans or discounts may be made that cannot be met at maturity. Compromises to avoid or reduce losses are oftentimes the necessary results of this condition of things. These compromises come within the general scope of the powers committed to the board of directors and the officers and agents of the bank, and are submitted to their