McCormick v. Market Bank, 165 U.S. 538 (1897)

Case details

Full caption

McCORMICK v. MARKET BANK.

Country

United States

Jurisdiction

Federal

Court

Opinions

Decided

1897

Majority

Gray (Justice)

p. 545

Mr. Justice Gray,

after stating the case, delivered the opinion of the court.

By the National Bank Act, a national banking association, “ upon duly making and filing articles of association, and an organization certificate,” with the Comptroller of the Currency, “ shall become, as from the date of the execution of its organization certificate, a body corporate, and as such, and in ■the name designated in the organization certificate, shall have power,” “ to adopt and use a corporate seal,” “ to have succession for the period of twenty years from its organization,” “ to make contracts,!’ “ to sue and be sued, "as fully as natural persons,” to elect and dismiss officers, to make by laws, and to exercise “all such incidental powers as shall.be necessary to carry oh the business of banking.”” “.But no such association shall transact any business, except such as is incidental and necessarily preliminary to its organization, until it has been authorized by the Comptroller of the Currency to commence the business of banking.” Bev. Stat. § 5136.

The question upon which this, case turned was whether a national banking association which, after having duly made and filed its articles of .association and organization certificate with the Comptroller of the Currency, but not having received from him a certificate authorizing it to do banking business, enters with the owner of real estate into a contract of lease, for a term of five years, determinable at the end of any year by either party, of an office to be occupied by the association as a banking office, is bound by the lease, according to its provisions.

This action was brought by the lessor in such a lease against the defendant as lessee! The first question that presents itself, upon the récord is whether this court has jurisdiction of this writ of error.

. The defendant contended, and the highest court of the State of Illinois adjudged, that the contract of lease sued on was not incidental and necessarily preliminary to the organization of the corporation, and therefore, by virtue of the last clause of section 5136 of the National Bank Act, above cited,

p. 546

having been executed by the defendant before being author, ized by the Comptroller of the Currency to commence the business of banking, did not bind the defendant.

If the decision had been the other way, it would, as admitted at the bar, have been a decision against an immunity set up and claimed by' the defendant under a statute of the United States, and therefore reviewable by this court on writ of error. Swope v. Leffingwell, 105 U. S. 3; Logan County Bank v. Townsend, 139 U. S. 67; Metropolitan Bank v. Claggett, 141 U. S. 520; Chemical Bank v. Hartford Deposit Co., 161. U. S. 1.

It does not, however, follow that the plaintiff is not entitled to a review by this court ,of the judgment, so far as it was against him:

The plaintiff, in 'the courts of the State, and by his assignment of errors filed with the writ of. error sued out from this court, specially set up and claimed a right to recover, so far as concerned the construction of that section of .the statute, upon, two grounds.

His first ground was that the execution of the lease by the defendant was “ incidental and necessarily preliminary to its organization,” and therefore within the exception of the last clause of the section in question; As to that ground, the case stands thus: The defendant relied on the prohibition to transact any business until 'it had been authorized by the Comptroller of the Currency to commence the business of banking. The plaintiff relied on the exception but of that prohibition. The decision against the plaintiff, therefore, was a decision against a right claimed by him under a statute of the United Statés.

The case, in this particular, is analogous to those arising under the provision of' the Bankrupt Act, that a bankrupt who had in all things conformed to his duty under the act should receive a. discharge from all his debts, with certain exceptions, among which were debts created by his fraud or embezzlement, or by his defalcation as a public officer, or while acting in a fiduciary character. Kev. Stat. §§ 5114, 5117. In Strader v. Baldwin, 9 How. 261, indeed, under the like pro

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vision of á former bankrupt act, where a bankrupt, being sued upon a debt, pleaded his discharge, and the plaintiff replied that the debt was contracted while acting in a' ñduciary capacity, and the decision of the state court. was in favor of the defendant, this court held that it had no jurisdiction, because the decision-below was in favor of the right set up by the defendant. But the court there failed to notice that the decision, while in favor of the right or immunity, set up by the defendant, of a discharge under the Bankrupt Act,'was also agáinst the right, or immunity, set up by the. plaintiff, under the.clause excepting fiduciary debts -from the effect of that discharge. And the' case has accordingly been overruled in similar cases arising under the recent bankrupt act, in which 'this court' has taken jurisdiction, not only when the writ of error was sued out by the.defendant; Neal v. Clark, 95 U. S. 704; but also when it was sued out by the plaintiff, because, -as was said by Chief Justice Waite in delivering judgment in the'latest casé upon' this point, the plaintiff “ specially set up and claimed an immunity, under § 5117 of the Revised Statutes, from the- operation of the discharge in' bankruptcy, because of the fraudulent and fiduciary character of - his debt, and the decision, was against him.” Hennequin v. Clews, 111 U. S. 676; Palmer v. Hussey, 119 U. S. 96, 98.

The plaintiff’s second ground likewise' affords ampié'sup-port for the appellate jurisdiction of this court. It- was specially set up and claimed by the plaintiff, that, taking the whole section together, the defendant, from the date of filing with the Comptroller of the Currency its articles of association and its organization certificate, became a corporation empowered to make contracts appropriate to the business of banking; and that any- such contracts were valid as between the parties to them, even if they violated the restriction in the last clause of the section-, and therefore might afford a reason for w-hich the United States could enforce a forfeiture of the ■charter. •. This position of the plaintiff was, iri effect, that, so far as he wás concerned, the bank had power under the statute •of the United- States to make the contract sued-, on; and the •decision of the highest court of the State, that the statute,

p. 548

rightly construed, did not give such power to the bank, was a decision against the right so specially set up and claimed by the plaintiff under a statute of the United States, and is therefore reviewable by this court. Rev. Stat. § 709.

Rut we are of opinion - that there was no error in that decision.

While by the earlier provisions of section 5136 of the Revised Statutes, the association, upon filing its articles of association and its organization certificate with the Comptroller of the Currency, becomes “as from the date, of the execution of the organization certificate,” and “ for the period of twenty years from its organization,” a body corporate, with the usual powers of a banking corporation, yet, by the last clause of-.that section, Congress has enacted that “no such association shall transact any business, except such as is incidental and necessarily preliminary to its organization, until it has been.authorized by the Comptroller of the Currency to commence the business of banking.”

By subsequent sections of the National Bank Act, the Comptroller is required to make a careful examination into the condition of the association; and, taking into consideration a full statement upon the-oaths of the president and cashier, and of a majority of. the directors, and any other facts which may come to his knowledge, by means of a special commission of inquiry, or otherwise, to ascertain and determine that at least fifty per cent of the capital stock has been duly paid in, and that the association has in all other respects complied with the provisions of the National Bank Act, required to be complied with before commencing the business of banking; and thereupon, and not before, to make and to give to the association a certificate, under his hand and official seal, that the association has complied with all those provisions, and is'authorized to commence the business of banking. Rev. Stat. §§ 5168, 5169. The Comptroller, as this court has said, is “ clothed with jurisdiction to decide as to the completeness of the organization.” Casey v. Galli, 94 U. S. 673, 679; Bushnell v. Kneeland, 164 U. S. 684.

■Until the association has been authorized by the Comptroller

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to commence the business of banking, section 5136 peremptorily forbids the corporation to “ transact any business ” -whatever, whether appertaining or not to the business of banking, “ except such as is incidental and necessarily preliminary to its organization.” The only' business which it is permitted to transact is “such as is incidental and necessarily preliminary,” not to carrying on, or even to commencing, the business of banking, but “ to its organization,” that is to say, such as is requisite to complete its organization ás a corporation, which might doubtless include electing directors and officers, receiving subscriptions and payments for shares, procuring a corporate seal, and a book for recording its proceedings, temporarily hiring a room, and contracting any small debts incidental to the completion of its organization. •

To take a lease is certainly to'“transact business,” within the. meaning of the statute; and a lease for a term of years, at a large rent, of offices to be occupied by the bank “ as a banking office, and for no other purpose,” however necessary it might be for the transacting, or even for the commencing, of bahking business by a corporation whose organization had been completed, and which had been lawfully authorized to commence the business of banking, is in no sense incidental or necessarily preliminary to the organization of the corporation.

The provision of section 5190, that “the usual business of each national banking association shall be transacted at an "office or banking house located' in the place specified in its organization certificate,” refers to its “usual business,” after obtaining the certificate from the Comptroller; and to “ the place,” that is, the city or town, in which, after .it has been authorized by the Comptroller’s certificate to commence its business of banking, its “office or banking house” is located. .

The lease sued on, therefore, was clearly prohibited by the very terms of the statute from which the association assumed to derive- its power to execute the lease.

The doctrine of ultra vires, by which a contract made by a corporation beyond the scope of its corporate powers, is unlawful and void, and will not support an action, rests, as this court

p. 550

has often recognized and affirmed, upon three distinct grounds: the obligation of any one contracting with a corporation, to take notice of the legal limits of its powers; the interest of the stockholders, not to be subject to risks which they have never undertaken; and, above all, the interest of the public, that the corporation shall not transcend the powers conferred upon it by law. Pearce v. Madison & Indianapolis Railroad, 21 How. 441; Pittsburgh &c. Railway v. Keokuk & Hamilton Bridge Co., 131 U. S. 371, 384; Central Transportation Co. v. Pullman’s Car Co., 139 U. S. 24, 48.

When the corporation is created by a .charter granted hy the legislature', any person dealing with it is bound to take notice of the terms of the charter, and of the .general laws restricting or defining the powers of the corporation. Pearce v. Madison & Indianapolis Railroad, above cited; Zabriskie v. Cleveland &c. Railroad, 23 How. 381, 398; Thomas v. Railroad Co., 101 U. S. 71; Pennsylvania Railroad v. St. Louis &c. Railroad, 118 U. S. 290, 630. In like manner, when the' corporation is formed under general laws, by the recording or filing in a -public office of the required articles of association and certificate, any person dealing with the association is-, bound to take notice of the documents recorded or filed, upon which, as authorized -and controlled by the general laws, depend the existence of the corporation, the extent of its corporate powers, and its capacity to act as a corporation. Oregon Railway v. Oregonian Railway, 130 U. S. 1, 25; Central Transportation Co. v. Pullman’s Car Co., above cited.

It is settled. by a long series of decisions of this court, that á lease of a railroad by one railroad corporation tó another,, which is beyond the corporate powers of either, is unlawful and void, and cannot be made good by ratification or estoppel, so as to sustain an action upon the lease; that this is so, not only when the lease is ultra vires of the lessor corporation, and therefore open to the objection of disabling it from performing those duties to the public, its performance of which ■was the' consideration upon which it received its charter from -the State; but even if the lease is ultra vires of the lessee corporation • onlyj ;and therefore not open to that particular

p. 551

objection. Thomas v. Railroad Co., Pennsylvania Railroad v. St. Louis &c. Railroad, Oregon Railway v. Oregonian Railway, and Central Transportation Co. v. Pullman's Car Co., above cited; St: Louis &c. Railroad v. Terre Haute & Indidnapolis Railroad, 145 U. S. 393, 404.

The casé at bar is no less clear tban those just referred to. Congress, indeed, in éstablishing the system of national banks, instead of undertaking to grant special charters of incorpora-: tiori upon its own judgment of the expediency of doing so in e'ach case, has allowed corporations to be organized by voluntary acts of the associates, under the general conditions defined in the statute. But the capacity of these voluntary associations to make contracts and. to transact business has not been left to depend upon their own will, however formally expressed, without any public authority having ever passed upon their responsibility and fitness. On the contrary, Congress has entrusted to the Comptroller of the Currency the. power and the duty of making a careful examination into the condition of the association, including the amount of its' capital stock actually paid in, and its compliance with the requirements of the statute in other respects, and, if the result of his examination is satisfactory, of granting to the association an official certificate that it is authorized to commence the business of banking; and has forbidden the corporation to transact any business whatever, except so far as required to perfect its organization, until it has received the certificate of the Comptroller.

The result of the Comptroller’s examination, and his certificate of that result, and of the authority thereupon granted the corporation to commence the business of banking, of course appear on the records of his office, as do the articles of association and the organization certificate previously transmitted to him. Every one dealing with the corporation is bound to take notice of the facts'thus'appearing on a public record, upon which, by the very terms of the National Bank Act, depend the right of the association to exist as a corporation, and its capacity to transact business.

The Comptroller’s examination and certificate are required,

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not only for the security of those dealing with the bank, but also for the protection of the stockholders, for, without them, stockholders who had paid in the amount of their subscriptions might find themselves held liable for debts contracted by the corporation, without its having obtained the payments due from other stockholders, and otherwise complied with the requirements of the act.

One important object of Congress, imrequiring the fitness of each corporation for carrying on business, with safety , to its stockholders and to all persons dealing with it, to be ascertained and certified by a public officer before the corporation should have power to transact any business whatever, except • to complete its organization as a corporation, doubtless was to create and maintain public confidence in the new system of national banks established by Congress to take the place of the local banks to which the people had been accustomed.

The cases bn which the plaintiff principally relied are distinguishable in essential elements from the case at bar. Whitney v. Wyman, 101 U. S. 392; Harrod v. Hamer, 32 Wisconsin, 162; and Hammond v. Straus, 53 Maryland, 1, depended on provisions of. local statutes, differing from those of the National Bank Act; and in Whitney v. Wyman, the corporation, after being authorized to commence business, had ratified the previous contract. Chubb v. Upton, 95 U. S. 665, was to the familiar point that one who has contracted with a de facto corporation cannot set up irregularity in its organization in defence of a suit upon the contract. Smith v. Sheeley, 12 Wall. 358, merely held that when land had been conveyed for full value to a de facto corporation, the grantor .and those claiming under him could not afterwards deny its capacity to take the title. National Bank v. Matthews, 98 U. S. 621, and National Bank v. Whitney, 103 U. S. 99, depended upon section 5137 of the Revised Statutes, specifying the purposes for which a national bank might purchase, hold and convey real estate, which, as construed by the court, did not make void mortgages taken for other purposes by a banking association authorized to transact business. See also Fritts v. Palmer, 132 U. S. 282, 293, and cases cited ; Thompson v. St. Nicholas Bank, 146 U. S. 240, 251.

p. 553

The present case is not one of irregularity of organization, or of abuse of a legal power, but of an attempt to exercise a power expressly prohibited by statute.

The' lease sued on having been executed by the defendant, contrary to the express prohibition of the statute, which peremptorily forbade the corporation to transact any business, unless to perfect its organization, and thus denied it the capacity of entering into any contract whatever, except in perfecting its organization, the lease is void, cannot be made good by estoppel, and will not support an action to recover anything beyond -the value of what the defendant has actually received and enjoyed. Central Transportation Co. v. Pullman's Car Co., 139 U. S. 24, 54-61; Logan County Bank v. Townsend, 139 U. S. 67.

The plaintiff, who by the judgment below has recovered rent at the rate stipulated in the lease for all the time of the defendant’s occupation, as well as all that the defendant had agreed to pay towards the repairs, has certainly no ground of complaint; and the defendant, not having sued out a writ of error, is in no position to object to the amount recovered.

Judgment affirmed.

Sec. 5133. Associations for carrying on the business of banking under this Title may be formed by any number of natural persons, not less in any case than five. They shall enter into articles of association, which shall specify in general terms the object for which the association is formed. These articles shall be signed by the persons uniting to form the association, and a copy of them shall be forwarded to the Comptroller of the Currency, to be filed and preserved in his office. Sec. 5134. The persons uniting to form such an-association shall, under their hands, make an organization certificate, which shall specifically state : First. The name assumed by such association. Second. The place where its operations of discount and deposit are to be carried on. Third. The amount of capital stock and the number of shares into which the same is to be divided. Fourth. The names and places of residence of the shareholders, and the number of shares held by each of them. Fifth. The fact that the certificate is made to enable such persons to avail themselves of the advantages of this Title. Sec. 5135. The organization certificate shall be acknowledged before a judge of some court of record, or notary public, and shall be, together with the acknowledgment thereof, authenticated by- the seal of such court or notary, transmitted to the Comptroller of the-Currency, who shall record and carefully preserve’the same in his office. Sec. 5136. Upon duiy making and filing articles of association and an organization certificate, the association shall become, as from the date of the execution of its organization certificate, a body corporate, and as such, *540and in the name designated in the organization certificate, it shall have power: ", First. To adopt ándense a corporate seal. Second. To have succession for the period of twenty years from its organization, unless sooner dissolved or its franchise becomes forfeited. Third. To make contracts. Fourth. To sue and be sued, complain and defend, in any court of law ' and equity, as fully as natural persons. Fifth. To elect or appoint directors, and by its board of directors to-Appoint a president, vice-president, cashier and other officers, define their duties, require bonds of them and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places. Sixth.. To prescribe, by its board of directors, by-laws not inconsistent with law. Seventh. To 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 their business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debts; •by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security; and by obtaining, issuing and circulating .notes, according to the provisions of this Title. But no such association shall transact any business, except such as is incidental and necessarily preliminary to its organization, until it hás been authorized by the Comptroller of the-Currency to commence the business of banking. Sec. 5168. Whenever a certificate is transmitted'to the Comptroller of the Currency as provided in this Title, and the association transmitting the same notifies' the Comptroller that at least flfty p’er centum of its capital stock has been duly paid in, arid that such association has complied with *541all the provisions of this Title required to be complied with before an association shall be authorized to commence the business of banking, the Comptroller shall examine into the condition of such association, ascertain especially the amount of money paid in on account of its capital, the name and place of residence of each of its directors, and the amount of capital stock of which each is the owner in good faith, and generally whether such association has complied with all the provisions of this title required to entitle it to engage in the business of banking; and shall cause to be made and attested by the oaths of a majority of the directors, and by the president or cashier of the.association, a statement of all the facts necessary to enable the Comptroller to determine whether the association is lawfully entitled to commence the business of banking. Sec. 51G9. If, upon a careful examination of the facts so reported, and of any other facts which may come to the knowledge of the Comptroller, whether by means of a special commission appointed by him for the purpose of inquiring into the condition of such association, or otherwise, it appears that such association is lawfully entitled to commence the business of banking, the Comptroller shall give to such association a certificate, under his hand and official seal, that such association has complied with all the provisions required to be .complied with before commencing the .business of banking, and that such association is authorized to commence such business. Sec. 5170. The association shall cause the certificate issued under the preceding section' to.be published, in some newspaper printed in the city or county where the association is located, for at least sixty days next after .the issuing thereof, ■ Sec. 5190. ' The usual business ,of each national banking association shall be transacted at an office or.banking house located in the place specified in its organization certificate.