Although a contract made by a corporation may be illegal as
ultra vires, an implied contract may exist compelling it
to account for the benefits actually received.
A national bank which guarantees a loan made by another bank in
pursuance of an agreement that it be paid the amount due it by the
borrower out of the proceeds of the loan cannot void its liability
for the amount actually received by it pursuant to the arrangement
on the ground simply of
ultra vires; it may be liable for
money had and received.
190 N.Y. 417 affirmed.
The facts are stated in the opinion.
Page 216 U. S. 200
MR. JUSTICE HARLAN delivered the opinion of the Court.
This action was commenced in the Supreme court of New York by
the receiver of the Cooper Exchange Bank, a New York corporation,
against the Citizens' Central National Bank of New York, a national
bank corporation formed by the consolidation (Rev.Stat. ยงยง 5220 and
5221) of the Central National Bank of the City of New York with the
National Citizens' Bank of the same city. The action was dismissed
on demurrer to the complaint, and that judgment was affirmed in the
appellate division. 116 App.Div. 404. But, on writ of error to the
highest court of New York, the judgment was reversed, 190 N.Y. 417,
and the cause was remitted to the supreme court of that state for
judgment in accordance with the opinion of the former court.
The complaint alleges --
That the defendant, the Citizens' Central National Bank of New
York, by the consolidation referred to, acquired all the assets and
became subject to the liabilities of the Central National Bank of
that city.
That on and prior to January 4th, 1904, one Mikael Samuels was
indebted to the Central National Bank in the sum of $10,000.
That, "at the instance and request of Samuels, trading under the
name of Mikael Samuels & Company,
and the Central National
Bank of the City of New York," the Cooper Exchange Bank loaned
and advanced to the former the sum of $12,000, Samuels executing
his written obligation, dated January 4th,
Page 216 U. S. 201
1904, to return or repay the same on or before four months after
date with interest, and
at the same time, the Central
National Bank of the City of New York, under seal, executed a
written guaranty for the payment of the debt, as follows:
"For and in consideration of one dollar and other good and
valuable considerations, the Central National Bank of the City of
New York hereby guarantees to the Cooper Exchange Bank the payment
at maturity of a loan of $12,000, made this day to Mikael Samuels
& Company by the Cooper Exchange Bank."
That, previous to the obtaining of said loan of $12,000,
Samuels
"agreed with the said Central National Bank to pay to it the
said sum of $10,000
of the said $12,000 so obtained, and
the said loan was obtained by the said Mikael Samuels and was
guaranteed by the said Central National Bank
in order that the
said Central National Bank might obtain the said sum of
$10,000, which it did receive and which was owed to it by the
said Samuels."
That, previous to the maturity of the loan, namely, on January
30th, 1904, only a few weeks after the loan was made, Samuels was
adjudged a bankrupt, and
That no part of said loan had ever been paid, except $1,000,
which was paid April 7th, 1906.
The Court of Appeals of New York -- Cullen, C.J., delivering the
opinion -- held and the counsel for the Cooper Exchange Bank
conceded in that court, that no recovery could be had against the
guaranteeing bank in excess of the amount actually received by it
out of the $12,000 loaned, as above stated. 190 N.Y. 417. The case
being remitted to the inferior state court, judgment was therefor
rendered against the defendant only for $10,000, with interest from
January 4th, 1904, with costs in all courts.
The plaintiff in error insists that the guaranty given by the
Central National Bank to the Cooper Exchange Bank was beyond its
power, was in violation of the National Banking Act, and therefore
could not be made the foundation of an
Page 216 U. S. 202
action against the guarantor bank. But this action need not be
regarded as one on the written contract of guaranty, but as based
on an implied contract between the Cooper Exchange Bank and the
Central National Bank whereby the latter, under the circumstances
disclosed by the record, came under a duty to account to the former
for the $10,000
of the $12,000 actually paid to Samuels
at its request and on its guaranty. The law would be very
impotent to do justice if it could not, under those circumstances,
and without violating established legal principles, compel the
Central National Bank to recognize and discharge that duty. Samuels
owed the Central National Bank $10,000, and -- with knowledge,
perhaps, of his financial condition -- he was put forward by that
bank to obtain $12,000 from the Cooper Exchange Bank, so that it
could get $10,000
out of that sum for its own use. The
circumstances show that the latter bank would not have loaned the
money to Samuels except at the request and on the guaranty of the
Central National Bank. All this, it may be observed, occurred under
a previous agreement between the Central National Bank and Samuels
that that bank was to have $10,000 of the $12,000 in discharge of
its claim upon him. In short, the Central National Bank, by means
of the device mentioned, got $10,000 of the money of the Cooper
Exchange Bank for its own use, and having used it for its own
benefit, it now seeks to avoid liability therefor upon the ground
that it was not allowed by the law of its creation to execute the
guaranty in question. We know of no adjudged case that stands in
the way of relief being granted as asked by the plaintiff. But
there are many that will authorize such relief.
In
Logan County National Bank v. Townsend, 139 U. S.
67,
139 U. S. 74, it
appears that a national bank purchased at a stipulated price,
certain municipal bonds, which it agreed to return to the seller
upon demand, or replace them at the same or a less price. Demand
was subsequently made on the bank to return or replace the bonds
according to the agreement. But it failed to do either, and, when
sued for the value of the bonds, it
Page 216 U. S. 203
pleaded, as a defense, the absence, under the law of its
creation, of any authority or power on its part to make the above
contract. This Court said:
"If it be assumed, in accordance with the bank's contention,
that it was without power to purchase these bonds, to be replaced
to the plaintiff on demand, the question would still remain
whether, notwithstanding the act of Congress defining and limiting
its powers, it was exempt from liability to the plaintiff for the
value of the bonds if it refused, upon demand, to replace or
surrender them at the same or a less price. . . . And from the time
of such demand and its refusal to return the bonds to the vendor or
owner, it becomes liable for their value upon grounds apart from
the contract under which it obtained them. It could not rightfully
hold them under or by virtue of the contract, and at the same time,
refuse to comply with the terms of purchase. If the bank's want of
power under the statute to make such a contract of purchase may be
pleaded in bar of all claims against it based
upon the
contract -- and we are assuming, for the purposes of this
case, that it may be -- it is bound, upon demand accompanied by a
tender back of the price it paid, to surrender the bonds to its
vendor. The bank, in this case, insisting that it obtained the
bonds of the plaintiff in violation of the act of Congress, is
bound, upon being made whole, to return them to him. No exemption
or immunity from this principle of right and duty is given by the
National Banking Act. 'The obligation to do justice,' this Court
said in
Marsh v. Fulton County, 10
Wall. 676,
77 U. S. 684,"
"rests upon all persons, natural and artificial, and if a county
obtains the money or property of others without authority, the law,
independently of any statute, will compel restitution or
compensation."
The case of
Aldrich v. Chemical National Bank,
176 U. S. 618, is
equally in point. A vice-president of a national bank, without
authority from it, borrowed money from another national bank and
placed the amount in still another bank to the credit of the bank
which he assumed to represent in the transaction. The national bank
in whose name the
Page 216 U. S. 204
money was deposited drew the money out by check and applied it
in discharge of its own valid obligations, and when it was sought
to hold it liable, the defense, in part, was that the original
borrowing was not only unauthorized by it, but was in violation of
the National Banking Act. Upon an extended review of the
authorities, this Court said:
"As the money of the Chemical Bank was obtained under a loan
negotiated by the vice-president of the Fidelity Bank, who assumed
to represent it in the transaction, and, as the Fidelity Bank used
the money so obtained in its banking business and for its own
benefit, the latter bank, having enjoyed the fruits of the
transaction, cannot avoid accountability to the New York bank, even
if it were true, as contended, that the Fidelity Bank could not,
consistently with the law of its creation, have itself borrowed the
money. . . . If the latter bank in this way used the money obtained
from the Chemical Bank, it is under an implied obligation to pay it
back or account for it to the New York bank. It cannot escape
liability on the ground merely that it was not permitted by its
charter to obtain money from another bank. Suppose the Fidelity
Bank, by its check upon the Chemical Bank, had drawn the whole
$300,000 at one time, and now had the money in its possession,
unused? It would not be allowed to hold the money even if it were
without power, under its charter, to have borrowed it from the
Chemical Bank for use in its business. Or suppose a national bank,
in violation of the act of Congress, takes as security for a loan
made by it a deed of trust of real estate, and subsequently causes
the property to be sold and the proceeds applied in payment of its
claim against the borrower, a surplus being left in its hands,
which it uses in its business or in discharge of its obligations.
If sued by the borrower for the amount of such surplus, could the
bank successfully resist payment upon the ground that the statute
forbade it to make a loan of money on real estate security? Common
honesty requires this question to be answered in the negative. But
it could not be so answered if it be true that the Fidelity Bank
could
Page 216 U. S. 205
use in its business and for its benefit money obtained by one of
its officers from another bank, under the pretense of a loan, and
be discharged from liability therefor upon the ground that it could
not itself have directly borrowed from the other bank the money so
obtained and used. There is nothing in the acts of Congress
authorizing or permitting a national bank to appropriate and use
the money or property of others for its benefit without liability
for so doing."
These views are supported by many other adjudged cases. In
Central Transportation Co. v. Pullman's Car Co.,
139 U. S. 24,
139 U. S. 60,
the Court, speaking by Mr. Justice Gray, said:
"A contract
ultra vires being unlawful and void not
because it is, in itself, immoral, but because the corporation, by
the law of its creation, is incapable of making it, the courts,
while refusing to maintain any action upon the unlawful contract,
have always striven to do justice between the parties, so far as
could be done consistently with adherence to law, by permitting
property or money, parted with on the faith of the unlawful
contract, to be recovered back, or compensation to be made for it.
In such case, however, the action is not maintained upon the
unlawful contract, nor according to its terms, but on an implied
contract of the defendant to return, or, failing to do that, to
make compensation for, property or money which it has no right to
retain. To maintain such an action is not to affirm, but to
disaffirm, the unlawful contract."
So, in
Pullman's Car Co. v. Central Transportation Co.,
171 U. S. 138,
171 U. S. 151,
the Court, speaking by Mr. Justice Peckham, said:
"The right to a recovery of the property transferred under an
illegal contract is founded upon the implied promise to return or
to make compensation for it."
Other cases are cited in the margin.
*
Page 216 U. S. 206
We need not go farther. It is entirely clear that the judgment
against the defendant bank -- which came into the possession of the
property and was subject to the liabilities of the Central National
Bank -- was consistent with sound legal principles and was
intrinsically right, even if the guaranty in question was beyond
the power of the guaranteeing bank under the national banking
statutes. Whatever may be said as to the validity of the written
guaranty, now alleged to be illegal, the judgment can be supported
as based wholly on the implied contract, which made it the duty of
the Central National Bank, under the facts disclosed, to account to
the Cooper Exchange Bank for the money obtained from the latter in
execution of the agreement made by the former with the
borrower.
The judgment must be affirmed.
It is so ordered.
*
Merchants' Bank v. State
Bank, 10 Wall 604,
77 U. S. 644;
United States v. State Bank, 96 U. S.
30,
96 U. S. 36;
Louisiana v. Wood, 102 U. S. 294;
Parkersburg v. Brown, 106 U. S. 487,
106 U. S. 503;
Read v. Plattsmouth, 107 U. S. 568;
Ditty v. Dominion National Bank of Bristol, 43 U.S.App.
613, 615;
Atlantic Cotton Mills v. Indian Orchard Mills,
147 Mass. 268;
Perkins v. Boothby, 71 Me. 94, 97;
Bank
of Lakin v. National Bank, 57 Kan. 183.