gives it birth. The borrowing must be incidental to the legitimate banking business of the association. Otherwise, the act would be ultra vires; as, if the loan was obtained for use in speculation.1 A banking corporation can engage in no business transaction which is not, properly speaking, of a banking nature, and within the scope of the purposes for which it was permitted to be organized. The powers with which it is invested must be exercised in strict subordination to this purpose, for the prosecution of which alone they were conferred. A transgression, though under color of an act covered by the designated power, will be illegal. It cannot speculate or traffic either in financial securities or in merchandise. It need not be positively prohibited from doing so in the charter or organic law. For it owes its powers as it owes its existence to the terms of that charter or law. It is not restricted like an individual from the exercise of a wide range of other powers which, in the absence of restriction, it would enjoy; but its power to do any act at all is due wholly to the legislation of which it is a creature, and must be either the direct or necessarily incidental gift of that legislation. When, therefore, it is specifically permitted to conduct a banking business, it has no power to do any other species of business; not because it has been stripped in any manner of that power, but because that power has never attached to it. A bank may however do, on isolated and especial occasions, or for certain purposes, what it cannot do generally and for all purposes. It cannot buy and sell merchandise, but it can take merchandise from a debtor, if this is the only way to save the amount of the debt; and of course having taken property of any nature for this proper purpose it may sell it in any manner that will bring the best price. It may purchase public stocks in order to deposit them, under a 1 Curtis v. Leavitt, 15 N. Y. 9; Barnes v. Ontario Bank, 19 id. 152; Leavitt v. Yates, 4 Edw. Ch. 134; Safford v. Wyckoff, 4 Hill, 442; Talman v. Rochester City Bank, 18 Barb. 123. 1 law requiring such stocks to be deposited as a security for circulation, or in order to invest its surplus funds in them; it may loan upon them as security, and sell them if need be to save the debt. But it cannot "traffic" in them; it cannot buy them with the view to sell them shortly at an anticipated advanced price. Such would not fall within any department of the general province of banking, which alone the association can carry on, and which it must carry on only in the manner, with the powers and for the objects, directly set forth or necessarily implied in the law of the corporate existence.1 In a case in Vermont, indeed, it was once said that a clause in a bank charter prohibiting the bank from dealing in any goods, wares, merchandise, or commodities was in derogation of the common and ordinary powers of the corporation. The full breadth of this language would certainly set the doctrine of the case at variance with the views expressed above. But the reasoning in support of that doctrine is too clear, and the authorities are too strong, to be brought within the range of doubt by this solitary adjudication. More especially since the sweeping statement of the legal theory in that opinion was enunciated for the insignificant purpose of protecting the bank in a purchase of shares in its own capital stock, a proceeding which could have been defended at much less expense of questionable generalization.2 Power to hold Real Estate. Ordinarily, it is no part of the banking business to hold or deal in real estate. No general right to do so can be considered to be inherent in a bank. Certain obvious cases, however, in which it is eminently proper, almost even necessary, that a bank should be able to acquire, to hold, and to sell land 1 Comstock v. Willoughby, Hill & Den. 271; Talmage v. Pell, 3 Seld. 328; Leavitt v. Yates, 4 Edw. Ch. 134; Sacket's Harbor Bank v. Pres. of Lewis County Bank, 11 Barb. 213; Portland Bank v. Storer, 7 Mass. 433. See also Curtis v. Leavitt, 15 N. Y. 9, which, properly interpreted, supports the above doctrine. 2 Farmers' & Mechanics' Bank v. Champlain Transportation Co., 18 Vt. 131. and interests in land, will suggest themselves at once to every mind. Thus it may often, especially in small towns, be impossible to obtain a building with the suitable appliances for security, unless the corporation can buy land and erect a structure for itself. The mortgage or conveyance of real estate to it may often be the only means by which debts owing to it can be secured or discharged. If a bank came into possession of land in perfect good faith for either of these purposes, and held it or sold it only in due and bona fide prosecution of these objects, it seems unreasonable to imagine that the most rigorous court of justice would declare it illegal. But the necessity of discussing the question of the abstract legality of such proceedings has been nearly always saved by the insertion in charters and organic laws of clauses specifically enabling banks to acquire, hold, and sell real estate for these purposes. The legislative expression of this power of course excludes its exercise otherwise than in precise accordance with the statutory provisions. The holding, acquiring, or selling to any greater extent, in any other manner or for any other end, than is therein set forth, would be unquestionably illegal. The power to purchase land or to take it in mortgage or by absolute conveyance, without the additional expression of the power to sell it or to assign the mortgage, will by necessary implication confer those powers also, and even, it has been held, the power to mortgage it. Further, it must be regarded as appurtenant to, or even a part of, the power to take land in mortgage or pledge, that the bank should also be permitted to deal in reference to the land or interest therein, thus acquired, in any manner, either by buying in any outstanding title or interest, or in any other way whatever, that may prove desirable for rendering the security more perfect or more available. The courts seem generally to have been in1 Thomaston Bank v. Stimpson, 21 Me. 195. 406. 2 Metropolitan Bank v. Godfrey, 23 Ill. 579. 3 Jackson v. Brown, 5 Wend. 590; Curtis v. Swartwout, 1 N. Y. Leg. Obs. 4 Ingraham v. Speed, 3 Miss. 410. clined to construe the privileges of this nature conferred upon banks in a very liberal way. The foregoing cases and instances certainly do not appear to trespass beyond strict justice; but others can be added where the bounds of reasonable construction have been much more freely extended. Thus, a bank authorized to hold as much real property as might be necessary for its immediate accommodation, was held to have the right to buy up the land in the neighborhood of its banking-house, to erect fire-proof buildings thereon, and then to sell these out again; the end being of course the greater security of its own building. The case of Baird v. Bank of Washington 2 contains a long and interesting dissertation upon the rights which were conferred upon the bank by a clause in the act of incorporation, allowing it to hold "such lands as were bona fide mortgaged or conveyed to it, in satisfaction of debts previously contracted in the course of its dealings." The reasoning and language of the court will apply to a great number of similar clauses in other incorporating acts, in which language essentially identical with this is of frequent occurrence. It was declared that the right to commute debts for lands was general, and was not limited to cases where any doubt existed as to the perfect safety of the debt. The effect of the words employed was simply to prohibit colorable commutation whereby a real purchase might be effected under a technical disguise. Provided the debt was pre-existing, and was a bona fide one, that is to say, not contracted originally with the purpose of being discharged by the conveyance of real estate, the conveyance would be strictly valid; although, without it, the safety of the debt must be unquestionable. The court also added, as a semble, that if the conveyance were made to trustees for the bank, with the intent to raise money by selling it, and not with a view to holding it permanently, neither the letter nor the spirit of the statute would be violated. Further, the opinion was expressed, on the strength of the decision in 2 11 Serg. & R. 411. 1 Banks v. Poitiaux, 3 Rand. 136. 1 Leazure v. Hillegas,1 that even if the bank should take from a debtor real estate, which it had no right to hold, the title of the bank therein would be defeasible only at the instance of the State: that, if the title should be set aside in a process thus iustituted, the land would not revert to the grantor of the bank, but would, apparently, fall in to the State itself; but that the debtor would have been fully acquitted and discharged from his indebtedness, and the loss would have to be borne wholly by the bank. This view, though properly only an obiter dictum, was expressed with a good deal of confidence, and apparently upon a mature consideration of the whole subject. It is certainly difficult to see why it is not sound. The law would hardly help the debtor to avoid the transaction, and obtain a reconveyance of his land, even though the debt should be revived; and if not he, who else could so properly seek to undo the illegality as a public officer on behalf of the State whose statute had been infringed? It would be obviously unjust to punish the debtor who, if guilty at all in the transaction, must doubtless have been the less so of the two parties. So that the infliction of the loss upon the bank is a penalty, great possibly, but unavoidable and not unjust, for a wilful infringement of that law to which it owes its very existence. Contracts of Banking Corporations. It is primarily essential to the validity of any contract, to which a bank is a party that the undertaking of the bank therein should be within the scope of its legitimate powers. As it is utterly incompetent to act, so it is equally incompetent to agree or bind itself to act, in any business, for any purpose or in any manner not authorized by the law of its corporate existence. Its assumption or promise to perform any act trespassing beyond these limits is void ab initio, and the fundamental defect can be cured by no subsequent proceeding short of an act of the legislature. There appears to be but one excep 1 7 Serg. & R. 313. |