No. 499 | 9th Cir. | May 15, 1899
Lead Opinion
after stating the facts as above, delivered Hie opinion of the court.
It may be stated in general that no banking corporation has the power to become a guarantor of the obligation of another, or to lend its credit to any person or corporation, unless its charter or governing-statute expressly permits it. Farmers’ & Mechanics’ Bank v. Butchers’ & Drovers’ Bank, 16 N.Y. 125" court="NY" date_filed="1857-09-05" href="https://app.midpage.ai/document/f-m-b-of-k-v--b-d-bk-3586215?utm_source=webapp" opinion_id="3586215">16 N. Y. 125, Morford v. Bank, 26 Barb. 568" court="N.Y. Sup. Ct." date_filed="1858-02-01" href="https://app.midpage.ai/document/morford-v-farmers-bank-of-saratoga-county-5459406?utm_source=webapp" opinion_id="5459406">26 Barb. 568; Thomp. Corp. § 5721. Under section 5136 of the Revised Statutes, national banking associations are given the power to “make contracts” and “to exercise by its board of directors, or duly authorized
But the present case is complicated by the fact that the plaintiff in error relied upon the guaranty, and cashed the checks on the strength thereof. There is authority for holding that under such circumstances the bank is estopped to deny its liability on the guaranty, notwithstanding that the contract was ultra vires. Thomp. Corp. §§ 6017, 6025; State Board of Agriculture v. Citizens’ St. Ry. Co., 47 Ind. 407" court="Ind." date_filed="1874-11-15" href="https://app.midpage.ai/document/state-board-of-agriculture-v-citizens-street-railway-co-7040239?utm_source=webapp" opinion_id="7040239">47 Ind. 407; Insurance Co. v. McClelland, 9 Colo. 11" court="Colo." date_filed="1885-12-15" href="https://app.midpage.ai/document/denver-fire-insurance-v-mcclelland-6561348?utm_source=webapp" opinion_id="6561348">9 Colo. 11, 9 Pac. 771; Oil Creek & A. R. R. Co. v. Pennsylvania Transp. Co., 83 Pa. St. 160. “The principle, properly understood and applied, extends to every case where the consideration of the contract has passed to the corporation from the other contracting party, which consideration may, on well-understood principles, consist either of a benefit to the corporation or of a prejudice or disadvantage to the other contracting
“But the present is not a case in which the issue of the bonds was prohibited by any statute. At most, the issue was unauthorized. At most, there was a defect'of power. The promise to give bonds to the plaintiffs in payment of what they undertook to do was, therefore, at furthest, only ultra vires; and in such a (‘ase, though specific performance of an engagement to do a thing transgressive of its corporate power may not be enforced, the corporation can be held liable on its contract. Having received benefits at the expense of the other contracting party. H cannot object that it was not empowered to perform what it promised in return.”
And the court quoted with approval from the opinion in State Board of Agriculture v. Citizens’ St. Ry. Co., 47 Ind. 407" court="Ind." date_filed="1874-11-15" href="https://app.midpage.ai/document/state-board-of-agriculture-v-citizens-street-railway-co-7040239?utm_source=webapp" opinion_id="7040239">47 Ind. 407, the following words:
“Although there may be a defect of power in the corporation to make a contract. yet, "if a contract made by it is not in violation of its charter, or of any statute prohibiting it, and the corporation has, by its promise, induced a party relying on the promise, and in execution of the contract, to expend money, and perform his part thereof, the corporation is liable on the contract.”
Also, in Railway Co. v. McCarthy, 96 U.S. 258" court="SCOTUS" date_filed="1878-02-18" href="https://app.midpage.ai/document/railway-co-v-mccarthy-89702?utm_source=webapp" opinion_id="89702">96 U. S. 258, 267, where the court said:
“The doctrine of ultra vires, when invoked for or against a corporation, should not be allowed to prevail where it would defeat the ends of justice, or work a legal wrong.”
While the language of these expressions of the court may he said to be sufficiently broad and inclusive to justify the- contention of the plain!ill! in error, the court, in its adjudications, has limited the application of the principle to cases in which a corporation has, by the plea of ultra vires, sought to retain unjustly the fruits of a contract which 1ms been performed by the other party thereto. In all such cases the action has been maintained, nol upon the contract, nor to enforce its terms, hut upon an implied obligation resting upon the defendant resulting from the fact that it has received money or property which it ought either to return or make compensation for.
In Salt Lake City v. Hollister, 118 U. S. 263, 6 Sup. Ct. 1059, it was said:
“The courts have gone a long way to enable parties who had parted with property or money on the faith of such contracts to obtain justice by recovery of the property or the money specifically, or as money had and received to plaintiff’s use.” '■
In Louisiana v. Wood, 102 U.S. 294" court="SCOTUS" date_filed="1880-11-29" href="https://app.midpage.ai/document/louisiana-v-wood-90244?utm_source=webapp" opinion_id="90244">102 U. S. 294, where a city had received money for bonds issued by it without authority, the court said:
“The only conlract actually entered into is the one the law implies from what was done, to wit, that the city would, on demand, return the money paid to it by mistake.”
“The enforcement of such right is not in affirmance of the illegal contract, but is in disaffirmance of it, and seeks to prevent the city from "retaining the benefit which it has derived from the unlawful act.”
These citations sufficiently illustrate the ground, and the only ground, on which the supreme court has held that corporations may be liable to the payment of money on account of contracts which they have entered into ultra vires of their charter, and which have been performed by the other party to the contract. The right to relief in such cases rests upon.the fact that the defendant corporation has obtained an advantage which it cannot justly retain. The general doctrine by which the present case may be ruled is thus stated in the language of the court in Central Transp. Co. v. Pullman’s Palace-Car Co., 139 U.S. 24" court="SCOTUS" date_filed="1891-03-02" href="https://app.midpage.ai/document/central-transportation-co-v-pullmans-palace-car-co-92993?utm_source=webapp" opinion_id="92993">139 U. S. 24, 59, 11 Sup. Ct. 478, 488:
“A contract of a corporation, which is ultra Vires in the proper sense, — that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the legislature,— is not voidable only, but wholly void, and of no legal effect. The objection to the contract is not merely that the corporation ought not to have made it, but that it could not make it. The contract cannot be ratified by either party, because it could not have been authorized by either. No performance, on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it.”
In the same case it was said (139 U. S. 54, 11 Sup. Ct. 486):
“It was argued in behalf of the plaintiff that, even if the contract sued on was void, because ultra vires and against public policy, yet that, having been fully performed on the part of the plaintiff, and the benefits of it received by the defendant, for the period covered by the declaration, the defendant was estopped to set up the invalidity of the contract .as a defense to this action to recover the compensation agreed on for that period. But this argument, though sustained by decisions 'in some of the states, finds no support in the judgments of this court.” 1
Later decisions of the supreme court have emphasized the views expressed in the foregoing quotations. Navigation Co. v. Hooper, 160 U.S. 514" court="SCOTUS" date_filed="1896-01-13" href="https://app.midpage.ai/document/jacksonville-mayport-pablo-railway--navigation-co-v-hooper-94341?utm_source=webapp" opinion_id="94341">160 U. S. 514, 16 Sup. Ct. 379; Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., 163 U.S. 564" court="SCOTUS" date_filed="1896-05-25" href="https://app.midpage.ai/document/union-pacific-railway-co-v-chicago-rock-island--pacific-railway-co-94509?utm_source=webapp" opinion_id="94509">163 U. S. 564, 16 Sup. Ct. 1173; McCormick v. Bank, 165 U.S. 538" court="SCOTUS" date_filed="1897-03-01" href="https://app.midpage.ai/document/mccormick-v-market-bank-94628?utm_source=webapp" opinion_id="94628">165 U. S. 538, 17 Sup. Ct. 433; Bank v. Kennedy, 167 U.S. 362" court="SCOTUS" date_filed="1897-05-24" href="https://app.midpage.ai/document/california-bank-v-kennedy-94719?utm_source=webapp" opinion_id="94719">167 U. S. 362, 17 Sup. Ct. 831.
In Union Pac. Ry. Co. v. Chicago, R. I. & P. Ry. Co., Mr. Chief Justice Fuller said:
“A contract made by a corporation beyond the scope of its powers, express or implied, on a proper construction of its charter, cannot be enforced or rendered enforceable by the application of the doctrine of estoppel.”
In McCormick v. Bank, Mr. Justice Cray, speaking for the court, said:
“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 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.”
“It would be a contradiction In terms to assert that there was a total want of power by any act to assume the liability, and yet to say that by a particular act the liability resulted. The transaction, being absolutely void, could not be confirmed or ratified.”
In tbe case at bar the defendant bank is not in the position of having received the fruits of the unlawful contract. The plaintiff’s money was paid, not to the bank, but to Blake. It is not shown that the bank received any benefit whatever from the payment. There is no ground, therefore, upon which it can be adjudged that the bank shall make restitution. The judgment will be affirmed.
Dissenting Opinion
(dissenting). I agree, and so held in the case of Flannagan v. Bank, 56 F. 959" court="None" date_filed="1893-06-19" href="https://app.midpage.ai/document/flannagan-v-california-nat-bank-9306627?utm_source=webapp" opinion_id="9306627">56 Fed. 959, that a national bank has not the power to guaranty the debt or obligation of a third party; but, in my opinion, the findings of fact of the court below, upon which the present writ of error must be determined, do not present any such case. The complaint in the case counts upon four separate causes of action, each of the firs! three of which is upon a certain draft drawn by the defendant Needles Bank on the Chase National Bank, of New York, in favor of the plaintiff, doing business under tbe name of Bowen & Co., and delivered to the plaintiff, according to the findings, in exchange for a check of Blake drawn on the defendant bank, and discounted by Bowen & Co. The checks of Blake on the defendant Needles Bank in favor of Bowen & Co. were ilius honored by the defendant bank, and the amounts thereof necessarily entered upon its books on tbe debit side of Blake’s account. When the plaintiff presented and delivered those checks of Blake to the defendant: Needles Bank, and received from the latter, in exchange therefor, its own drafts in the plaintiff's favor on the Chase National Bank, of New York, the plaintiff manifestly parted with all of its interest in those checks of Blake, holding in exchange therefor the obligations of the defendant bank. Tn respect to the first three causes of action, therefore, I am unable to see how, in view of the findings of fact, it can be properly held I hat the action is upon any guaranty of the debt or obligation of Blake. On the contrary, in respect to each of these three causes of action the defendant bank honored the checks of Blake drawn upon if, and in exchange for them issued its own obligations, upon which the first three causes of action rest. There is nothing in the findings of fact to the effect or tending to show — what seems to be assumed in the prevailing opinion — that Bowen & Co. knew that the drafts drawn in its favor by the defendant bajik, and issued in exchange for Blake’s checks upon the defendant bank, were only to be paid by means of drafts drawn by the defendant bank on Blake and in favor of the Chase National Bank, of New York. It seems to me that: the effect of the decision here is to attach a condition to the drafts of the defendant bank sued upon, which is altogether unauthorized by any fact made to appear in the findings of the court below. According to the complaint as it appears in the record, the fourth cause of action is upon a check drawn by Blake "upon the plaintiff, A. T. Bowen & Co.,” which, it is alleged, the defendant bank guaran