*1 DIVIDE v. BAIRD COUNTY 45 OF DIVIDE, Municipal COUNTY Corporation, Respondent, R. L. as Receiver of the Bank BAIRD, Rose, First of Wild State for Bank Said as a A. (Substituted C. Defendant), Appellant. C. H. O. J. Andrew CHRISTIANSON, Trytten, Newhouse, and Urseth, Respondents.
(51 236.) A.L.R. 212 W.N. — Banking By legislature. Banking Business Banks controlled banking legis- 1. The business affected with a interest and may prohibit altogether, may prescribe it lature the conditions under which be conducted. — Banking express powers. Bank has incidental Banks given it; powers expressly express A bank has such as are these are 2. addition, may powers powers. exercise certain which are incidental given; powers expressly but the incidental are such neces- those as are is, carry sary banking, on the business of such as are incidental to expressly powers enumerated. — corporation Banking Banking special purpose created for
Banks more — corporation ordinary wholly than creature statute. special banking corporation A is created for a more limited and 3. charter, organized statutory than is under the business; grantee conducting ordinary it Is the purpose of the exclusive specified do a business a manner circumscribed privilege to definite re- statute; wholly legis- the creature of and it does business strictions. It is grace. lative (1) question right On the engage
Annotation.— individuals to in banking thereof, L.R.A.(N.S.) 874; see annotation in 5 regulation R. business 3 O. L. 816; 170; 380; Supp. Supp. R. L. R. Supp. R. L. 5 C. 6 C..L. 1 C. 175. 419; (2) generally, R. and functions banks see 3 C. L. powers On 1 R. C. L. 822; Supp. L. 3 5 R. C. 72. Supp. (4) deposits' assets to secure power of see On annotation in 45 296; 419; 950;
L.R.A.(N.S.) 3 R. L. R. Supp. 51 A.L.R. C. 1 C. L. depositor
(7) by deposit funds, between bank and Relation created L. 224. 22 C.R. see counties, 926; (9) authority and control over R. L. Legislative see 7 C. 2 R. C. Supp. 475. L. (10) respect right preference fund in subsequent- bank which On insolvent, (N.S.) 886; 918; (N.S.) see annotation in L.R.A. 16 L.R.A. ly becomes 644; 872; L.R.A.l917A, 683; 193; C. L. L. Supp. Supp. 3 R. 1 R. C. 5 O. L. R. Supp. 193. R. L.C. NORTH REPORTS DAKOTA — pledging incidental
Banks to secure of bank. *2 general 4. sustained pledging deposit The of assets to secure a cannot be power, carry the of an to the business of bank- necessary exercise incidental ing. attempt pledge goes beyond powers corporation of An to charter the the general deposits. to privilege and is not an the receive incident to — banking bank of funds deposits public Banks and of to receive power not implied. is incidental or express, legislature prescribed and may 5. The hank receive mode which a public'corporation deposit by per- a make public a of funds. 'That mode a is surety security. bond part corporate sonal This is of the or statute a char- ter, power power as it relates to by insofar the exercise of a bank. is legislative express, implied; prescribes not incidental and when a enactment power implies an exercising express one of privilege, mode an inhibition given power to in any way. other exercise — pledge of bills part bank’s receivable to secure Depositaries deposit not of of contract nor consideration deposit part therefor. pledge a a O. When of bills wholly gratuitous, bank’s receivable is which one make, public require board could or the bank even had the latter been by directors,, part deposit; pledge authorized such is no of the contract of any legal part’ nor it in sense a consideration therefor. — banking- loans public
Banks of io banks law prohibited funds by — by thereof sanctioned law. deposits legislature has at all recognized 7. The times since statehood distinction a deposit money; a and a between loan and in the case of public funds corporations prohibited deposits have been loans while thereof have been sanc- loan, a by may tioned law. From the fact bank secure by pledging its receivable, the is not bills inference warranted that intended give pledge to to banks the their assets 'to either secure a public or a private deposit.. — banking- depositors creditors
Banks insolvent bank are not lawful contract to estopped, assert want under, bank’s pledge public to secure deposit. assets bank parties S. The creditors of a are equities innocent and have superior those seeking are of a which pledge enforce of assets public deposit.when to secure the defense of ultra interposed against vires corporation. As public depositors between the creditors and of an in- bank, whose with relation solvent contractual was created lawfully the plaintiff, vires—and contract of pledge whose —intra ultra preferred, vires be must they former not estopped to power. want of assert the v. BAIRD
DIVIDE COUNTY — only prescribed may con- do business manner counties Counties deposit — may public bank to secure not contract stitutional law bank's bills receivable. state; speak political may and it county is subdivision of the 9.A prescribed legislature manner and in the act masters authority. pursuant A has not enacted to constitutional statutes effect, will, class engagement into create a capacity to enter which legal banks, express law and depositors contrary policy of preferred legislative assembly. deliberate — deposits by pledge not secure Banks — preferred depositor in- funds creditor in case of solvency of bank. 19.9, law, legislation depository Sess. Laws and other Chapter policy respect of this state with
evidences secured; contrary manner in must and it is policy deposits by a bank secure this legislative class of *3 general assets. intended that the public occupy was not should of its creditor, position preferred private depositors, to the detriment in the insolvency brought depository, or that such a result could be event agreement parties. between by secret about — attempt funds of bank to secure and
Banks against public policy. by pledge of is unlawful and opinion, attempted in the agree- stated is held that 11. For reasons it law, express contrary policy to the and consequently ment 5922, 1913; privilege unlawful, Comp. Laws and to receive within § a manner contrary exercised in public policy unlawful, pledge agreement merely state. is not of this sense the bank exceeded their making statutory pow- it charter against public ers, policy. in the sense also but — give any equity impliedly will not relief under contract for- Contracts policy. contrary bidden also equity the contract which a court of asked enforce is not. 12. When forbidden, legislative well contrary policy, but also to a defined impliedly give any thereunder. will refuse to court relief Rehearing February November 1926. denied filed 1927.
Opinion 36; 56, 57; p. p. C. J. 6 n. 10 Banking, § 478 480 n. § 7 213 p. § Banks New; 70; New; 92, 93; p. n. p. 592 n. 68 232 592 p. 231 240 596 n. 22 § § n. § 586 71; n.,58, Contracts, p. New. 543 749 59 13 p. ,p. § C. J. 351 420 § 502 736 § .n. 53; 77; 79; p. p. n. 440 493 n. 18. Corporations, n. 366 429 14a § 421 C. J. p. § n. 76;- Counties, 5; 309 n. 15 p. p. n. 85. C. Ji 1 n. p, § 308 388 51 419 p. § 2157 § 55 NORTH DAKOTA REPORTS 48 98; 45; 581 p. Depositaries, 420 n. 18 C. J. 46 n. n. p. p. n. 53 9. 54 § § § 585 Statutes, 39; Receivers, Cye. n. 1113 p. Cye. p. 41. 34 239 n. 36 p. New; p. 1122 n. 49. n. from Court of District Divide County, J.
Appeal Moellring, and modified. [Reversed, part;
Divet, Holt, & Frame Baird, receiver; as Thorpe, appellant, Pierce, Tenneson, Gupler Burnett, & & Stambwugh Gonmy, Young amici curiae.
“These statutes were intended for the of de- primarily protection has demonstrated [Experience such regula- positors. necessity If a bank measures. of its assets tory may employ purchase real and does will estate, so, be in to nieet its hardly position Smith v. D: depositors.” [Rennix, N. 204 N. obligations 843.W.
“The and incidental of a unexpressed powers are not are limited to indispensably necessary the exercise Whatever incidental granted. specifically are reason- powers powers to its functions ably necessary corporate implied powers being but affirmatively granted, merely convenient or useful powers natpre if not in view of essential implied object the incor- Cause v. Commonwealth Trust Co. 89 N. B. 476. poration.” “A comes within banking corporation the rule severely that all acts its charter under authorized which it was incor- the.law vires. The are ultra of its very nature business porated, requires of the law, enforcement that its strict stockholders may liable become *4 the of earnings savings depositors be safely pre- Banks & 2d 21. Bkg. served.” ed. [Magee, p. Braalelien, Braatelien, State’s and II. W. Attorney Assistant
Olaf and as amicus curias, for Attorney State’s plaintiff respondent; Homnes, P. for defendants and George respondents.
“More ultra vires speaking, properly contracts of a are corporation in as manner any do serve the accomplishment of the pur- for which the is chartered. poses They contracts not forbidden, but forbidden, positively impliedly because not expressly authorized.” D. impliedly Tourtelot 9'N. Whithed, 479. J. Plaintiff this action to brings recover the of amount Johnson, v. BAIRD
DIVIDE COUNTY in State Bank of Wild and to Bose, the First county a of deposit certain of indebted- a of certificates contemporaneous pledge foreclose in was favor of the the defend- ness. entered plaintiff against Judgment Bose, as of First Bank Wild receiver the State of who, ant Baird, this appeal. prosecutes the 199, under Sess. Laws 1923, 1923, plain- July, chapter acting a of First State funds; the
tiff depository proceeded designate county the deposit Bank of Wild Bose made a bid for and the board bank resolution as a depository. commissioners passed designating in usual receiver’s a bond the the form, The bank furnished signed was October The bond ap- as dated sureties, codefendants the the About time bond was approved board. county proved was to make some county ready and when the deposit, negotiations the record had, county were proceedings appearing which resulted of certain certificates commissioners, pledging collateral within Divide as municipalities indebtedness The was deposit. complaint alleges security “collateral the date of the as deposit, made October The for the which culminated the bond.” reason negotiations that the had ap- board the securities been appears pledging and not bond. Under the stat- and acepted surety personal proved sufficient. either bond bemay ute, on October deposited
The court found that $6,500 Bank Wild for which a certificate First Bose, State certificate delivered to the It is this plaintiff. issued and was deposit basis of the claim. which plaintiff’s insolvent made, after bank became
Some time the deposit time of its affairs. due took receiver, charge Baird, appellant failure and, upon made for repayment Demand fore- were commenced to recover the same and to proceedings comply, entered a in favor The court judgment trial close pledge. demand money valid and subsisting established
plaintiff directed valid, defendants, adjudged against be sold securities proceeds applied the hypothecated bank sureties. against of the judgment satisfaction matter inasmuch as the defend- law, concluded, court trial complied with the demand to re- had neither sureties ant and its *5 DAKOTA RETORTS 55 NORTH thereof receiver turn the nor. return j tendered á money deposited sureties, were from estopped questioning regularity pledge. this case is stated the' coun- question by following language
sel for the “The that it was within court'erred appellant: holding a of the defendant' bank to secure the power of the bank as additional pledge statutory security in not bond, and that the holding of assets was ultra attempted pledge and void as vires the creditors of the bank, represented against In receiver.” its narrowest resolves appellant terms, controversy a itself into whether a question state bank has the charter power a its assets as for a of the funds of a pledge deposit As the case sides, has been tried both corporation. and submitted by the broader of a state bank question power its assets to secure order a whether from an individual general deposit, or It is corporation, presented. contended appellant no such exists and that a power conclusion results in contrary the crea- and of- tion of classes preferences establishing depositors wnollv among charter' of state banks. powers beyond - The answers first, that the by insisting, defendants, including receiver, because own their .estopped conduct, contract been no.tender of a return of having fully performed the money from made, been having questioning validity regularity and, second, that if pledge; the defendants be es- there is, fact, was, when the in suit topped, transaction took in state banks their place, general assets as security for deposits. discussion of the question any banking corporation, to bear in
it mind business of important in so .banking connected . interest the. timately legislature may conditions, altogether, may prohibit prescribe under ex be done. State rel. Goodsill v. 1 N. D. Woodmansee, L.R.A. N. 970. The W. position is largely Gause v. Co. Trust 196 N. fiduciary. Commonwealth Y. 134, 24 89 N. 476; and E. see American L.R.A.(N.S.) Exp. Co. 181 Wis. 194 N. W. Citizens State 427. The Bank, has withheld the from natural'persons, privilege but
.DIVIDE
COUNT'S
v. BAIRD
*6
n ’
It
seem follow that
would
to
class
corporations.
designated
.
manner
do business in the
defined. “All
must
acts
corporation
.,
law
.
and the
are ultra'vires.”
authorized
.
'Magee,
charter
21.
has
the conduct'of banks
Legislation
Banks & Bkg. p.
regulating
doubtless
out of
for the
solely,
regard
not been enacted
though,
largely,
it rests
banks;
the broader base that the
“upon
interest
depositors
and the
commercial re
welfare
business and
stability
public
to a
and soundness- in the
extent,
lations
great
upon honesty
depend,
business.” Wirtz v.
51 N. D.
wholly by legislative grace. to receive but in deposits, It is what privileged manner is not express exercise the May stated. statutory ly privilege receive de .a manner which it was done in the at ease bar, and invito posit 55 NORTH DAKOTA REPORTS of the bills receiveable the corporation?
Subdivision 7, Laws Comp. reads as follows: “To exercise its board of directors, authorized officers duly incidental agents, subject law, as shall be powers necessary on the business of carry banking, by discounting negotiating bills notes, drafts promissory exchange, and other evidences of debt, coin receiving deposits, by buying selling exchange, bullion, *7 upon real or by or as- loaning money personal security, both; but no sociation shall transact business, such as incidental any except to its necessarily preliminary until has organization, been aiithorized of state to commence the by secretary business banking, state withhold from secretary association may any his certificate the 'commencement of whenever has authorizing business, he reason that the shareholders have formed the for suppose same other any than objects as legitimate contemplated by chapter.”
It is a bank said that may its bills receivable to loans; secure that, secure a by analogy, deposit in like manner exists. It is that there is no urged real strongly difference between a deposit a loan that in in and either case the relation of debtor creditor inasmuch arises, that, as the bank its may pledge secure a loan, like manner hypothecate its bills receivable to a general deposit. secure
The doctrine that there is no difference between a loan and a de- we cannot in all its accept posit implications. It is true that in law two transactions have many characteristics common; but so have business deals other which, are nevertheless, not identical in all their incidents. The fact striking a fact legal remains, which this court can- that a real difference between a ignore, and a loan al- has assumed, been as matter of custom in ways business banking itself, legislation subject dealing since statehood. are warranted in judicial We notice taking the fact business, it been and still is, customary treat loans and distinct and as_ dissimilar deposits essentially transactions. Without details, into this fact is going evidenced methods of bookkeeping, and of of the financial making reports condition of the bank, both individuals, private or through press otherwise, and to the public v. BAIRD
DIVIDE COUNTY re- the main functions of a bank was to one of Originally, examiner. for v. Oulton (see valuables. safe-keeping money deposits, ceive this early Wall. 21 L. ed. 619), & L. Soc. 17 Sav. German been rec- has, measure, office a bank’s primary large concept influenced course and has business, custom ognized subject. legislation all times has at recognized legislation
In this jurisdiction pertinent been Since it has a loan a deposit. between distinction primary an insolvent to receive deposits. offense criminal de- of prospective obviously protection of this provision of au- other hand, weight On the overwhelming positors. to borrow to meet emergency a bank has money thority, See First such as threatened temporary insolvency. or exigency, N. D. 80 N. W. Re- Bank, Bank Michigan City Nat. met to define the the difficulties that may any attempt gardless here existence has been strikingly assumed distinction, demonstrated. of loans by Laws 1913, prohibits 9930, Comp. making
Again, § their viola- funds under and makes a control, officers certain but of such embezzlement; expressly act tion *8 restrictions and safeguards. to certain authorized, subject of a difference between a deposit is a distinct recognition There 6067, terms. of these Section definitions the statutory a loan loan “a which one delivers defines a as contract 1913, Laws Comp. latter at a future to return agrees to another money a sum of 6069, that which he Section to borrowed.” equivalent a sum time loan is made that a 1913, presumptively upon Laws provides Comp. con- Of stipulated. course, otherwise expressly it be unless interest of a deposit. is true trary a deposit a 1913, Laws defines voluntary Comp.
Section his consent, to another with one, posses- “made by giving deposit a for the of the former or of to benefit keep property sion of personal person depositor and is called the person giving third party. for 6012 provides, deposit Section the depositary.” receiving return “a may thing correspond- one which depositary exchange depositary Under to that is deposited.” kind § ing made was the deposit on demand whether the deposit must deliver DAKOTA; REPORTS NORTH.. (cid:127) a lien arisen. a time not-unless The legislature for specified thus the distinction which once-existed lias distinctly recognized at between which still a exists, least,by usage custom, deposit S. Ames, a loan. In Allibone 68 N. W. D. 74, L.R.A. it was held that- a made a treasurer in a deposit bank could not be treated as a loan within a similar statutory provision Comp. Laws 1913, supra. The court referred to statutory a loan similar definitions of in all material deposit, respects our and while not subject, to state statutes undertaking it, court held that-there a-distinction custom was recognized by usage, ; of which the courts must take notice.- The court said that the statutory
definitions indicated a distinction fact based that a deposit made the benefit of primarily while a loan depositor for the benefit of the borrower. The benefit to the resulting depositary was not considered to apparently character impart controlling transaction.
It is also to be noted that the Fund Act assumes a dif- Guaranty between a ference loan and a the latter deposit, transaction within being former is without the provisions guaranty while the. of the law. 'In instant case the parties themselves treated the transaction tried .the case below on that deposit, theory, and the court found that was made. a deposit existence conceded, once
Its to borrow money necessarily be exercised with all imports and usual inci- customary these One of is the dents. practice give for loans. needless to borrow say without the money right would be give- security largely barren prerogative and in- quite in all the effectual transactions of major business: We think conclusion follows that necessarily there is such a dis- between a and a tinction loan of money no helpful analogy drawn, respect can power to pledge paper secure fact that the assets of a bank deposit, bemay to se- pledged *9 lóan. The former is cure a an express power; func- depositary from is, different that historically, tion of discount or exchange. (cid:127) to borrow an money, however, is incidental power as distinguished a from loan express power; made to a in bank is no so far respects, as-the is present subject different from concerned, a loan made one by v. BAIRD
DIVIDE COUNTY n private unless -security, another, expressly prohibited to person to secure for which has the bank it loan, be by-a law, may given in manner as secu the same-extent and the same to contract, power an individual in the same circumstances. or be offered given rity may be offered without express permission security may statutory That such whether subject the bank, to secure deposit in order general seems it question. is a different time, wholly Historically check or on foreign for such was and wholly pledge created; which a bank of deposit “originally the object-for '. .” consisted . business of banking receiving deposits. & L. 17 Wall. 21 L. ed. 619. Sav. Soc. v. German Oulton bills in order exist receivable to secure If the re in all means, circumstances, ordinary deposit, general the other and unsecured would be insured by depositors payment (cid:127) in a sale of the the event pledge, insolvency, manifestly, bank; for, available to assets pay general depositors by reduce the. would would securities. The principle subrogation value of the amount be efficacious to avert this result. if cases few, but any, on which receiver principle to discover any difficult the benefit of the after depositors, surety recover could ’w has been sale of discharged to pay public the obligation first depositor proceeds against case public the pledge; se “the benefit would have bond, surety every on surety Gilbertson v. Northern Trust Co. 53 held principal; curity” W. 42; 207 N. and would be subrogated 42 A.L.R. D.N. in the securities. Laws Comp. the rights In a proper case, indeed, surety.might 1913, §§ first realize whatever security may creditor require Laws 1913. in virtual It follows that 6683, Comp. See been given. where default circumstances, occurs, imaginable ly depositors. This result at the expense would but the statutes, confidently under the suggestion be correct intimated to the deposits it been had made favored be insured patrons, at might the deposits banks, from-, derive no benefit such de depositors of general expense —who in its 'form. Solicit would not have been present law passed posits—the at low rates of amounts'and time large ing *10 DAKOTA REPORTS NORTH (cid:127)56 bank’s thus deposited use the funds with the privilege interest, dis- are not we to the bank that so profitable business, clearly own in the absence of a expressed purpose, clearly infer, posed while the burden general depositors, to throw upon intended corporation. were enjoyed the benefits the forms laws now in force and that the banking obvious It must be reports followed making publishing practice used and De- the State banks, Banking of state approved by condition the con- deceive the as to public, calculated to are as clearly partment, had for that as if been adopted they deliberately dition may if the contention be sound that bills receivable very purpose, If it is with- power exist, to secure general deposit. be pledged statutes; there is no requirement, limit qualification out which removes mantle absolute administrative, secrecy legal bank could—as business man knows transaction. The every occasion—make the the assets keep done on agreement, has been and execute its therefor to in its the favored receipt de- possession, a trace on the all without records corporation showing positor, took The bank continue— place. transaction could actually did in the case at insolvent doubtless bar —to advertise as the a .con- all the indicia of notwith- superficial prosperity, and, dition possessing cream of its assets be with secretly pledged standing, Such a of affairs state would evidence a depositors. favored fraud which we think should not public, sanction gross mere inference or be attributed legislature by implication. has never banking department required report fact that of assets amount to secure pledged deposits, nature or approaches of the statutes interpretation administrative -against existence all the We are more reluctant to hold that banks have power. in view of the incidental power legislative made mani- intention, of the statutes fest on the business of every page governing banking, around throw every possible safeguard and interests of rights Tear by year, experience wis- depositors. increased the lawmaker, these safeguards dom the found their supposed way The amount that the law. loaned to one into any person interest limited, rates and loans to regulated, officers are definitely overdrafts are when restricted; prohibited; receiving deposits insolvent COUNTY v. BAIRD
DIVIDE de- examinations are periodical provided state felony; ais is to enforce All whose the statutes. compliance duty partment *11 intended for legislation the primarily protection this regulatory of the This fact and public. universally known, of depositors Rennix, affirmed this court. See Smith times v. many has been D. 843; 204 N. W. Wald 27 N. N. D. Wheelon, 624, D. 51 N. 200 N. W. Nestos, Wirtz v. 402; N. W. in both the has been the on vigorous phrase
Much said plaintiff, brief, and in the the failure the alleged of respecting oral argument interests of the in state banks'. depositors to protect private legislature the to defend branch of government. Yet, not our province It is point have with had justice been said greater more might which con- sanctioned the for practice lawmaking body respondent the vehemence with which It is to easy imagine legislative tends. would be denounced which banks favor cer- permitted delinquency patrons expense at the of tain, large general perhaps powerful, In of ruinous character of such a light legislative depositors. hurricane have broken of would forth indignation policy have been justified. legis- would wholly clearly contrary every mak- lative of to assert that law subject expression made branch state has not faith ing government good albeit efforts not successful of wholly protect state banks. patrons 1917—the Not ten Fund ago legislature passed years Guaranty —in to insure all intended acclaimed as effica- Act, depositors popularly An ex facto cious’ to end. wisdom, post viewing experience in wherein of this state of discover these efforts retrospect, easily future to forecast the ills guard against the legiskdure anticipated far ideals their fallen short re- promoters. The fact has whose mains, however, sage that the formula offers yet appeared n hope of material improvement. can pre- substantial if interests of which, indulged, may jeopardize scribe practices has but it cannot insure against the conse- done; depositors; fully or of faulty judgment banking officials, dishonesty quences sentient who -are liable both. persons must managed by banks wisdom con- distinctly recognized The legislature but at loan; assets in order to secure a over pledging trol bill assets as session killed a the power the same giving NORTH DAKOTA REPORTS a state for a Sess. Laws deposit. chapter security with except accordance “hypothecate any assets, bank may , . . in this this act.” The borrow is restricted definitely of the bank’s bills for money receivable as act; pledging about intended limitations hedged borrowed clearly depositors corporation. interest of creditors general law seems to have been to object regulate While the principal and the use of the bank’s assets the exercise borrowing power if is debatable therewith, prohibition, quoted connection an express be not to constitute sufficiently legislative supra, sweeping deposit, inhibition assets to secure sort of a against hypothecating 'any which we do not and not decide. We call however, need question, action attention to as evidence a continuous legislative policy the interests every state possible way depositors protect *12 the inference that be- and as did not banks, warranting exist with lieve such to to deposits. respect power therefore, opinion that the are,We assets to secure pledging cannot be sustained as an “incidental” under deposit general power, Laws 5150, Comp. to on'the business of “necessary carry An to charter attempt banking.” pledge goes beyond powers is not an incident to receive privilege general to Of the discussion here course, is confined to a deposits. as general from a “specific or a distinguished “special deposit,” deposit.” in the case before us was of deposit funds.. 'Cogent in addition those reasons, to suggested to the to respect secure a to condemn the transaction hypothecate general deposit, as the charter the bank beyond and of the county. in which The' manner deposit must in public be secured is prescribed Sess. Laws It chapter 199, detail is there all provided that “funds of shall be public corporations” deposited which have “banks been designated depositories funds as duly public provided no shall except this actthat be made, the Bank of North until the “shall Dakota, furnish a ... depository bond in an amount shall at least equal largest deposit, made in may such de- ” that the “board of ; public corporation involved” pository may [the] in- lieu of a bond” personal bond, require, “surety equal funds such bank receive.” “amount of the 'It is made may the duty
DIVIDE COUNTY' BAIRD'. all bonds “at its examine regular to in. meeting Tu-ly board necessary. to new bonds whenever require numbered each odd year,” ' ;pf It 'act is of this explicit. mandatory, duty, The language and of the to an adequate to furnish require depository board the public onq discretion of the before board, surety, or bond, personal in the bank. The be deposited language money dollar of public to protect corporations an eager public of this discloses chapter purpose their At this jtinc depositories. loss due to insolvency against the fact that not be lost of legislative must txire, however, sight the. in banks has depositors the interests of been to general protect purpose first since expressed territory legislated no less unequivocally jStafti of every It would be subject. perversion principle-of gross Laws the purpose chapter construction effectuate Sess. to tory viz.: without funds, equal regard public supra, protect safeguard utmost degree the.rights settled legislative policy, of, informed the all ’major which has portion of general depositors, state, in the on banking territory approximately legislation into the AYeare not read half a law century. disposed depository at patron the interest of of a bank to safeguard public a purpose citizen who his therein. savings the expense private full under the law and require If boards do their duty ade: bond re-examine the surety diligently personal same quate funds would be rendered statute, quite directed s.afe circumstances without detri-» slightest forseeable Substantially depositors. ment to law enacted, when the make depository legislature, *13 a a board to lessen the least the bank or public protec
possible law had to accord always which the intended general depositors; tion or incidental to the the hazard more less deposit or to increase money individuals. in banks by the bank corporations at bar and the public the case attempted which manner the deemed best calculated the
to depart the bills receivable of bank funds,-and the the safety insure . Given an bond,- to secure the deposit. adequate surety- were pledged the the the board bank or-'by district-judge, became a approved'by it, could-not'refuse to recognize a§ board the depository'and qualified - also its .assets- as because it did-not pledge such merely additional REPORTS DAKOTA NORTH . corpora The board supra. 7, 199, Section chapter security. legis a The make such require pledge. or tion without power were receive and a bank in which a mode prescribed lature has That mode is by funds. make part course, is, This statute security. or bond surety personal exercise of relates to the power insofar as it charter, of the corporate or rule incidental The not implied. The is express, a bank. by power ex an one mode of when a law prescribes exercising to be that seems inhibition the given to exercise it implies power privilege, press 2 Cranch, Ins. Co. See Head v. Providence other any way. power 151; v. J.; Bowen, Ch. 87 Ill. Marshall, 2 L. ed. 229, Fridley 127, per 13 Am. 72 Pa. Rep. v. Scully, Fowler required board commissioners Nor does it appear co\mty him- official took it be made. some upon Perhaps aranty pledge bond self demand it. The board furnished approved personal It bank and its minutes so show. was without to impose those with prescribed conditions than statute new other any must before could bank comply qualify depository. which bid other than bond contemplate did the any security Neither with sureties. The resolution form satisfactory adopted acceptable bank bid board directors of authorized conformity Sess. Laws but silent statute, chapter wholly the bond.” clearly “collateral The record subject of that the which the wholly shows one board could gratuitous, even had latter make, or the been authorized require is no the contract of part deposit; directors. the pledge sense a consideration for the any We legal part deposit. fact is think that this of importance legal effect of considering the attempted pledge.
We are next to determine required effect exer- attempted which of a the bank cise" did not possess. here He validity challenged by receiver. more than the bank; insolvent he
represents represents creditors of the bank. 1 Banks & general depositors Michie, Bkg. (3b). 77 The latter are innocent parties equities are superior to those of the whom the defense of ultra plaintiff, against inter vires is posed. Lyons Benney, See 230 Pa. L.R.A.(N.S.) *14 v. BAIRD
DIVIDE COUNTY
61
Atl.
As
tbe creditors
250.
between
of an
depositors
insolvent
relation with the
whose
created
lawfully
was
contractual
ultra
—intra 'vires —and the
whose contract
plaintiff,
of pledge
unlawful,
vires of the
the former
must be preferred,
are not
rule is
to assert the want of
See
estopped
power.
they
v.
Bank of
Bank of
9
v.
408;
Heisk
Vallely
Chattanooga
Memphis,
49 N. D.
194 N. W.
204
1107,
Niblack v.
Devaney,
903;
Feldman,
Ill.
C. J.
34
239
443,;
736;
Cyc.
and 391;
Receivers,
App.
High,
v.
4th
Gen.
Mut. L.
320;
272,
ed.
Guardian
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77 N.
Atty.
Co.
Y.
§
v.
7 N. Y.
It
275;
Pell,
in
Talmage
important, also,
keep
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tional
v. Northern Trust Co. 51 N.
authority.”
D.
McHenry County
We Sess. Laws 199, chapter depository law, other to be later adverted legislation to, must be ex held evidence this state pressly policy respect deposit of public ánd the manner which such deposits must be secured. It to that contrary a bank manifestly policy to secure this class at the expense general depositors. legislative pur is clear beyond was not pose peradventure. intended that should of a occupy position preferred creditor, to detriment in the event of the private depositors, insolvency depository, result could come about secret agreement between the Section R. C. parties. 1899, and R. C. 1905, made certain debts owing corporations claims when preferred a bank was dissolved forfeiture through franchise. corporate This pref was removed amendment in erence Laws (Sess. 1911, chap. to 101), probably suggested senator from Nelson county, who .a author joint bill, the situation disclosed the case of State rel. Miller ex State People’s Bank, N. D. N. W. *15 NORTH DAKOTA REPORTS 55 02 n Comp. has since existed. See 8007, of right proference nosuch § as creditors corporations of The policy preferring Laws n ofinsolvent abandoned in 1911. banks was definitely consciously must look to the of bonds furnished 'Thereafter the n dulydesignated depositories. Prior the abandonment the policy bonds, in funds banks were secured by preference, public inchoate lien all the bank’s assets, and; species in actual at the course,- practice, expense general d°positors State See rel. v. People’s creditors of State ex Miller corporation. where this situation We are of Bank, supra, appears.. opinion attempted was of ex agreement “contrary policy law,” and within Laws consequently “unlawful,” press 5922, Comp. 1913; and that the to receive privilege was, bar, case at in manner exercised contrary public policy this state. Smith v. 52 D. N. 204 W. Rennix, 938, 843; N. Oakes v. Nat. Bank Farmers 52 N. State D. 201 N. Bank, 49, W. 696. See 6 also Dak. 50 Peck v. N. W. 481. Levinger, 54, short, the pledge was agreement unlawful, sense that merely making bank and the exceeded their charter or statutory powers, in the sense but also that was against public policy. need not embark further upon
We that sea of conflict and confusion ultra, in the law under charted title vires.' The contract which a court is here asked to equity enforce was not only impliedly but it also forbidden, to well contrary defined legislative policy. In such circumstances, authorities substantial re unanimity fuse to relief give any thereunder; and such is the result of necessary this court. recent holdings See Oakes Nat. Bank v. Farmers 52 N. D. Bank, State 201 N. 49, W. 696; Smith v. 52 D. Rennix, N. N. W. 938, 204 843; State ex rel. v. Hadley Bankers Trust Co. 157 Mo. 138 S. 557, W. App. 669; West Penn Chemical & Co. Mfg. 150 C. C. A. 236 Prentice, Fed. 153, 14 891; C. J. 309. question
Upon to secure a deposit, much aid can be derived from the authorities. In Richards v. Osceola 45 N. Bank, Iowa, 79 W. 707, 294, McFerson v. National Surety 482, Co. 72 Colo. Pac. exercise of such upheld. however, The holdings, virtually syllabic form, and no indica-
n v: BAIRD . DIVIDE COUNTY the courts were led to what of reasoning process tion appears reached. conclusion & G. & T. v. Citizens Trust Co. Co.
In Commercial Banking Ann. Cas. 1915C, 156 W. S. L.R.A.(N.S.) Ky. statutes Under subject. discussion a well considered we find to sanction refused different from that court ours, material no aspect assets to secure a deposit. reasoning of pledging the practice *16 the sounder view. we reflect, think, court of the Kentucky conclusion Bank, Asso. v. First State Co-op. Creamery Leonard See also W. 632. 209 N. Minn. 28, contract to leave the the illegal that this court must parties
It is said to will not be permitted receiver finds the them, where it where as To be left found precisely securities. recover the obtáined collateral in posr can desire —with the illegally the county al- does not the appear, receiver, clearly way,’ some session. their and it his to duty, the is’ protect he depositors represents though the possession to be estopped is supposed .-recovering interests, received or which the bank the money, “deposit,” he first unless pays unlawful arrange- it and the entered into the when county the time at ment. note fails to take of the stahis me that this of
It to position appears an arm or of the court bank. Ileus officer of an insolvent the receiver the creditors time, represents at the same he him; yet appointing or more than a theoretical merely stockholders his status is such that Viewed from this standpoint, sense. academic protect rights to vindicate depositors. his duty it is demand that the have the right law they legal Under the to secure favored As said depositors. not be bank shall pledged Co. 125 S. C. 118 S. E. “the Mach. Re American Slicing the distribution of the assets of that, corporation, will see court and. equitable- with consideration for the legal it will be effected proper administer the receiver to all concerned.” is the duty rights establish those who a right for the benefit of may ultimately the estate n toshare as well and must assert the distribution; equitable in its he R. C. L. of- the creditors. See pages generally the legal rights cited. and cases of. an the view that the receiver insolvent This court has adopted REPORTS 55 NORTH DAKOTA an creditors court, officer tbe represents addition being distinctly well. We, and courts generally, —'depositors—as character. Nor dual receiver’s are aspect recognized always means any interests of the and of depositors corporation by violation of Here a bank has positive identical. illegally wholly —in statutes banks —induced a intended protect depositors statute —also enacted violate execution another the interests of secured protect depositors —and bills collateral; receivable by delivering quantity seeks to foreclose the a double taint of illegality —with it—after bank has become insolvent hands be wound a receiver to for the benefit of had up its creditors —who to with the consummation of the unlawful do were nothing scheme and it. The basis of rule courts will leave powerless prevent an contract where it illegal them, finds that it will not parties Hqre aid reward wrongdoer. depositors of no guilty for the punished shall wrong; they misdeeds of ? When guilty were done, powerless to wrong they now speak prevent it; of the court is officer charged inter- their duty protecting *17 him Shall we to is say ests. that there no remedy the innocent whereby be from the consequences the unlawful may protected conduct ? others Section of our Constitution the provides that “Courts shall man be for him every every done . open, wrong . . shall have . . .” due law is remedy by process And it said yet that the court can after the injury defunct finding slap and the delin- wrist, say on quent depositors: “We must leave find we we can do you; where because the you nothing transaction was have not returned which not you something illegal you but the banlc from the To state to got plaintiff.” position be to ought sufficient untenable character. demonstrate Such a utterly holding would be a to which this court is judicial impotence confession to prepared would mean a notice to the subscribe. It this people state we to correct the which have wrongs alike been are committed powerless to their repetition prevent future. past Once their unlawful executing purpose, are successful the victims parties are also the beneficiaries of fraud, although of the legal they statutes can and this court do fló>ited, helpless, which been are no more I;! -/IDE COUNTY BAIRD be itself into where convert debating society than theories legal may or useful without A tribunal without results. practical expounded do is a court we justice to but If academy. equity, to effect to the plainly expressed of the powerless give legis- it lature to is to protect depositors, usurpation assume name and of a court semblance of equity. put
It that the has no foreclose plaintiff right follows retain assets which the bank far attempted hypothecate. so below went the receiver fore- as the judgment against authorized of the be reversed. Of closure must conclusion pledge, course this affect the judgment does not sureties from no against appeal is or the taken; follow the into hands rights if the evidence in the receiver, case (which is not before us) such as that the receiver holds justify finding the same or part any thereof as trustee for county. What the plaintiff of a county rights in this be regard cannot determined from may the record presented * on this appeal. follows,
It what has been said, that judgment the trial so far as it decrees or court, authorizes a foreclosure the pledge, must be and is reversed. hereby Ch. J., and Burke, J., concur.
Christianson, J. I am in (concurring). holding entire accord Birdzell, herein opinion there not been principal conferred upon in this state either corporations express or implied 'power their assets as collateral me deposits. seems to results from the necessarily application elementary prin- No such ciples. conferred expressly and, as out pointed not be principal opinion, may held have been conferred unless it be said to implication be an incidental power which *18 on of necessary business carrying banking. is a-matter of common that a institution knowledge subserves the public as a convenience for the place those depositing who money in its sufficient confidence stability depend upon general credit for The a bank depositors-in a repayment.. as whole áre made'up - thus those who their' money, and the' situation is exceptional 55 N. Dak. —5. DAKOTA REPORTS NORTH con- as a collateral exacts security a deposit contemplating
where one in further-: bemay of deposits While the soliciting dition of it. making deposit, of a particular the solicitation of banking, business anee of the a step far being so collateral, is, aby proffer accompanied a harbinger business, on of the banking carrying necessary would it If depositors generally, known to the insolvency. approaching Instead being security. for similar requests in withdrawals result busi- the banking on of to the carrying necessary an. incidental been known to have exercised if which, rather it is ness, confidence in loss-of public result would cases, speedily particular I am the enterprise. certain disaster to would that spell an extent to pledge absence of that, express power clearly opinion o.f as to exist not be said deposit, for a assets as on the business an incidental power necessary carrying banking. reversed, from should be appealed
While the judgment agreeing in such that I have some doubt as whether record here is shape form in the should be entered in the directed principal the judgment raise are in findings as to shape opinion. pleadings . in lieu inference the securities held county strong While or loaned for illegally deposited money particular purpose. I that there should no decree the foreclosure agree authorizing transaction, denial of such regular relief, being favorable well be terms which re- defendant, would -might upon defendant to do As opin- indicated quire equity. principal what are cannot be determined from the ion, rights be said the record is silent as to the record, equally may terms should the defendant a foreclosure equity protect against a surrender of securities. compel J. I cannot concur the result reached John- by Judge Nuersle, in his opinion. son on the roll. The taken judgment findings of the appeal trial
This court,are us and we beyond cannot them. The trial go court before State Bank of First Wild Rose designated found a de that-the Divide September, 1923; .in thereafter positary filed .bond as such personal depositary; bank .procured *19 DIVIDE v. BAIRD COUNTY Divide 18th, deposit here-involved was made October by de- “as a of to the of negotiations use county; part leading up n defendant as as a depositary, agreed fendant bank pledge of-, for the such moneys county as security repayment collateral certificates indebtedness said .bank, deposit following might fore- owned said securities here then by (t-he sought wit: as a which certificates were in addition to said part bond closed), said into transaction; was carried effect agreement the same indebtedness with and-surrendered duly pledged certificates said aforesaid, as collateral as execution security county of said of indebtedness, of said bond and certificates pledging county deposit in said bank 18th, $6,500, on October the sum did the bank and for which sum issued to the its de- certificates of county n which this action is brought).- (on posit” we Of course are bound these So-the findings. conclusion only which we is that the can come was made before was deposit the bond and that effective -the simultaneously bond and filing of the same the bank of Wild part transaction, Rose collateral pledged the certificates indebtedness which the now plaintiff claims, and that as a result these collaterals pledging was-made deposit While the bank. do not so, must findings say we -assume that done reason au- understanding'with proper county thorities. It further appears that -thesecertificates -$6,4Y5. totaled deposited $25 amount or $6,500, more thkn the cer- total -the The bank tificates. received the money; certificates. I read As Johnson’s Judge opinion holds that the be- transaction tween the of-Divide and the Bank of Wild Rose was a deposit transaction and not loan transaction; that there is such a distinction loan, between while a bank a. has either the express implied assets as power for a has no security loan, it such them as for a deposit; that not only such it no but to do so is prohibited contrary express of the law; that policy therefore -transactions are not ultra vires, but are unlawful as well; and that no relief thereunder there- will courts; be awarded that it the law to policy that when protect depositors banking institu- institutions^; a receiver tion becomes insolvent and therefor is consistent appointed, REPORTS NORTH DAKOTA the bank than in a position better such a the receiver stands (cid:127)with policy violate those transactions which with reference to would occupy itself *20 that in view depositors; the having protection statutes and policies 49 N. D. v. Devaney, the amounted the case'of Vallely principle extent instant ease W. the 903, applicable N. is 1107, 194 re the transaction and the the receiver set may up invalidity that under bank received which the and while that it, retaining pudiate back which the that transaction,[secure gave. conclusion reached that
I not the Johnson by Judge challenge do. made its as bank has for a no with but I :do think that this material de it, conclusion It the case. me the transaction termination of seems to that whether here xxltrá it was vires, involved whether merely prohibited with can make xxnlawful, rights no difference reference the respect of Divide with which it received for its the security The fact remains the bank received and retains mon deposit. the the ey; the securities were return for to it in given n To hold that the bank deposit. retain $6,500 which it received and recover back the secxxrities which it for the gave money, is abhorrent to natural justice. fact that it.is the receiver who now asserts his sccxxri-ties-can'make rights no difference. A re ceiver, takes the estate "an insolvent -for the benefit of creditors. is, in He fact, in! stands assignee shoes the insolvent with the same rights latter had at obligations the moment of This rule as insolvency. .well to applies receivers of insolvent banks as to receivers other insolvents. See Gilbertson v. Northern Trust 53 N. 42 502, Co. A.L.R. D. 207 N. 42. W. on the And, other hand,, where transaction is malum prohibitum the law will a. not lend ,aid eitbpr thereto. parties .of It will leave them where foxxnd'them. Neither . law may invoke the to break the law. See Oakes v. Nat. Farmers Bank State 52 N. Bank, D. 201 N. W. 696; Smith v. 52 D. Rennix, N. 204 N. W. 843; Jarski v. M. Farmers’ & N. State D. Bank, N. W. 773; Emanuel v. 54 N. Engst, seeing D. W. N. to me mere fact that the Wild Bose Bank has, since this.transaction.was consummated, become insolvent,,and ixoxv in the hands :©f defendant as Baird, receiver, no in. the* cation >ofthis áppli latter cian>.rnake difference principle. If, v.
DIVIDE COUNTY . BAIRD land instance, Case, Jarski the bank had supra, bought Jarski and had to him consideration therefor given securities and thereafter bank bank, owned had insolvent become compel had return the receiver sought thereof,'certainly.this court the,-transaction would not have said that because was.-unlawful and - ,the must be retain securities returned' to the permitted to and Jarski -to file claim land, rateably his and share compelled the other a case creditors. Such would-be to- the.-instant parallel case. reasons instant Judge Johnson, however, that-because in- thei case" the bank is insolvent, Baird, banky receiver- Rose Wild- this does not He bases" securities, claims principle apply. dis- the, rule laid down in the tinction case Vallely Devaney, I--think, however, this distinction supra. exception, justi- ijile in the case. latter fied case Yallely gave Devaney *21 ,to without his note the hank consideration and with the understanding it. that he should not He did this for the required be pay purpose,: ¡the himto and to the known the of swelling apparent-assets,-of (cid:127) the This in- bank and examiner. note- remained thá deceiving posses- of the hank there bank sion was when the insolvent and' became and. took this as receiver sued the note-and -Vallely charge. Vallely upon lack of held that to set consideration Devaney estopped court up the bank.' collateral that he have had -with might or any agreement bank the note with the known the When he gave purpose deceiving and-upon'the he knew that it was a fraud that official upon examiner who and who make and. might, did, generally keep- condition.;. the bank the of its sound That case apparent strength have different from the .one-we here. Here the bank; through, is far back; seeks to that' which it received and it©recover receiver, its keep which it It does not that bank or de- either the its gave. appear were the least the transaction. On con- positors prejudiced the does both were for bank the it benefited the appear that had trary where before had the certificates. the money, Unquestionably, the even have sold certificates at a- pit .discount might might shme certificates for- a- loan identical these in the amount pledged n - In other done deposit.- words, might particular lawfully have' same that were for done; is, things exchange certificates in case of sale it money, would have: except given‘no-evidence REPORTS DAKOTA 55 NORTH -70 a certificate instead of of loan a note in case' indebtedness, a loan between distinction however, the I not am questioning, deposit. nor the Johnson’s opinion; iii Judge that is elaborated and a deposit former transac- securities existence of charter assets these latter. But effect pledging tion and its absence because bank examiner, the' to deceive for could tend There of Divide to the county. certificates were transferred possession for the amount of assets pledged banks to report is no statute requiring for deposits the amount and the examiner can determine loans, pledged loans. he can the amount for simply readily pledged cases. on the both There no-intention matter of examination officer or to induce Divide to deceive' any examining part county believe the bank was sound when it was or that not, the public from what in fact were. Had its assets were different they county, them back the bank with the certificates, after turned receiving the should remain idea that they among- apparent examiner, principle case Vallely of deceiving might of how far be bound waiving question county might applicable, fraudixlent acts on the its officers. But that is by any part here. case The of Divide the certificates. They payable The received them in holders. under con- good faith, though the law. sanctioned The maker of tract not certificates cannot holder to collect them. right Baird challenge defendant conclusions as do if above set so, correct, cannot out are my since he contract and refused to return that which bank re- rcpiidiated *22 for them. of Therefore, judgment ceived the trial court, though it affirmative relief affords of apparently way foreclosure, was and should be affirmed. right effect
On Petition for Rehearing. In for 'counsel petition again urge rehearing Curiam. Per that a bank view whether may lawfully to secure deposit, bte funds. Further private consideration of this of the has not question light resulted the altera-' petition tion of the views of the court. previously expressed by majority v. MANTHEY
SORLIE it should further that not be precluded urges petitioner had the bank in view of the that fact collateral pledge foreclosing In the offered do or otherwise equity. the deposit returned no facts there are which consists of the judgment roll, us, record before below of the court judgment in our opinion support found in the original was held a foreclosure pledge, authorizing reversed, must therefore be judgment portion that opinion defendant might believing judge, however, one concurring as a condition to do required equity entry well have been it. In the it was favorable to principal opinion specifically thus decree should portion the reversal of this the judgment stated, however, follow hands of the funds into the “the county not affect rights in the case is such if the evidence as to justify finding the receiver the same thereof as trustee part holds for any that the receiver recognized and was that what the rights county,” expressly plaintiff be be determined from the of the could not record before might "Whatever difference of there opinion on us appeal. we are substantial decree,
form agreed rights trust cestui Grand Forks que preserved (see County 209 W. 54 N. D. N. Baird, 782) re petition ordered. should be denied. It is so hearing member ceased to be does not
Johnson, J., having court, participate. Ch. J., concur. Christianson JJ., Burke,
Birdzell, v. G. A. O. J. MANTHEY and SORLIE, Appellant, Leo Norenberg,
Respondents.
(212 400.) N. W. — personal possession property Replevin plaintiff recover can strength own his title. possession personal property,- to recover the In an action on the claim (1) replevin, plaintiff action in strength must Annotation.— recover on of own 922; title, R. Supp. L. C. L. C. see 23 R.