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Commissioners of Rice County v. Citizens' National Bank of Faribault.

of the Constitution, and to this extent they fall within the spirit, though not perhaps the letter, of its provisions. Inasmuch, however, as the agencies created and established by the Federal government, to assist in the execution of its powers, are exempt from State taxation save as allowed by Congress, the State can only exercise its taxing powers over the National banks, and the capital they employ and represent, in the manner and to the extent permitted by Congressional authority. Under this authority it is permitted to the State to tax the real property of the banks as such, and also all the shares of stock, as personal property belonging to the shareholders, provided the rate of valuation and assessment of the latter is no greater than is assessed upon other moneyed capital in the hands of individuals. Within the limits of this authority the State may fully exercise its taxing powers, in strict obedience, however, to the requirements of its own Constitution.

As equality in taxation is the constitutional policy of this State, no scheme of taxation can be presumed to have been intended by the Legislature, which necessarily involves, in its practical results, the imposition of a greater proportionate share of its burdens upon moneyed capital, invested in the business of banking under National laws, than is imposed upon capital similarly employed under State authority. The law under consideration provides for the assessment of the real property of the State banks eo nomine, but does not authorize its assessment in any other form. Capital thus invested is, therefore, subjected to taxation but once for any one object. If a like mode of assessment had been intended in respect to the real property of the National banks, it must be presumed that some provision would have been made for deducting the value of such property from the total value of the shares, in order to fix upon a correct valuation of the latter for the purpose of taxation. The omission of any such provision was manifestly intentional, as the shares are required to be assessed at their true and full value, without any deduction whatever; and in this way the real property belonging to these associations is always subjected to its proper share of taxation.

The decision of the District Court, sustaining the assessment and tax in question, is reversed, and judgment ordered in accordance with the prayer contained in the answer of the bank.

First National Bank of Rochester v. Pierson.

FIRST NATIONAL BANK OF ROCHESTER V. PIERSON.

(18 Albany Law Journal, 319.)

Right of National banks to purchase notes.

The purchase of a promissory note by a National bank for purposes of speculation is ultra vires, and the bank acquires no title to and cannot recover on a note so purchased. (See note, p. 639.)

PPEAL by plaintiff from a judgment in favor of defendant in the District Court of Olmstead county. The action was upon a promissory note made by defendant and held by plaintiff. Such other facts as are material appear in the opinion.

Jones & Gove, for appellant.

Charles C. Wilson, for respondent.

CORNELL, J. It is expressly found as a fact by the District Court, before whom this cause was tried, without a jury, "that the transaction, under which the plaintiff claimed to have acquired the note in question, was a purchase and not a discount, or lending of money on the credit of it;" and we have no hesitation in saying that, upon the evidence, we fully concur with the court that such was undoubtedly the real nature of the transaction as intended by the parties thereto. As a conclusion of law from this finding, the court held that the plaintiff, a National bank corporation, had no authority to purchase or traffic in promissory notes as choses in action, and did not in law acquire, by the supposed purchase, any title to the note in question, and cannot recover upon it in this action."

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Upon the fact as thus found it will be seen that the only question presented is, whether a National bank, created and organized under the act of Congress, "to provide a National currency," etc., is authorized to deal or traffic in promissory notes, as a species of personal property, or to acquire any title to such paper by a purchase, made admittedly not in the way of discount, or by lending money on the credit of it. In the case of the Farmers & Mechanics' Bank v. Baldwin, 23 Minn. 198, it was expressly held that no

First National Bank of Rochester v. Pierson.

power of this character is conferred by a law of the State, which authorizes State banks, organized under its provisions, "to carry on the business of banking by discounting bills, notes and other evidences of debt, by receiving deposits, by buying and selling gold and silver bullion, foreign coin, and foreign and inland bills of exchange, by loaning money on real and personal securities, and by exercising such incidental powers as may be necessary." And that a purchase of such paper, made not in the way of discount, was ultra vires, as outside the legitimate scope and purposes of such institutions.

Under the Congressional enactment, the authority which is given is "to exercise all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of debt, by receiving deposits, by buying and selling exchange, coin and bullion; by loaning money on personal security, and by obtaining, issuing and circulating notes according to the provisions of said title." U. S. Rev. Stats., § 5,136.

This is substantially like the State statute, which was under consideration in the Farmers & Mechanics' Bank v. Baldwin, supra. The word "negotiating," as used in this section, and likewise in section 29 of the same statute, is used in its ordinary and appropriate transitive sense, to indicate, not an act of purchase, but one of transfer, whereby the negotiated paper is passed from the holder or owner and put into circulation. Hence the incidental power to negotiate notes to the extent necessary to carry on the business of banking, simply implies an authority to realize upon such commercial paper as the bank may receive in the lawful conduct of its business, by negotiating, selling and transferring it by means of a rediscount, obtained or otherwise.

It gives no implied authority to speculate or traffic in paper of the character of the note in question, or in financial securities of any description. Morse on Banking, 4 and 5.

The powers, therefore, which are conferred by this section, in respect to the acquisition of commercial or business paper, are in no way affected or enlarged by the use of the term "negotiating."

In the absence of any authoritative exposition of the Federal statute in this regard, the principle settled in the Farmers & Mechanics' Bank v. Baldwin must be regarded as decisive of the present case.

First National Bank of Rochester v. Pierson.

It is suggested by counsel for appellant, that upon the evidence this case is distinguishable from that of the Farmers & Mechanics' Bank v. Baldwin, supra, in that the note sued on here was indorsed by Butler, the holder at the time of the transfer to the plaintiff.

This fact is undoubtedly a distinguishing, though not conclusive test of the character of the transaction, and ordinarily raises a strong presumption denoting the existence of the relation of lender and borrower, between the bank and the party so making the transfer, and thereby indicates that the parties really intended a loan of money upon the credit of the paper so indorsed. And we have no doubt when such is the intention, "a borrower may," as was held in Smith v. Exchange Bank of Pittsburg, cited by appellant, "obtain the discount by a bank of the existing notes and bills of others of which he is the holder, as well as of his own paper made directly to the bank." And that the bank will thereby acquire a valid title to such paper because it makes the purchase by discount or through the exercise of its discounting powers. But where the acts of the parties, and the circumstances surrounding the transaction clearly rebut any presumption arising from the indorsement, and indisputably indicate the real nature of the transaction, intended by the parties to be, in the language of the court below, "an out and out purchase of the note, and not discounting it or lending money on the credit of it," the mere fact of indorsement is not sufficient to warrant the court in treating the transaction as something different from what was intended.

We fully concur with the court below in its conclusion as to the character of the transaction in this case.

It was an ordinary case of note shaving, pure and simple, for purposes of gain alone, outside the circle of any legitimate banking business, and foreign to any purpose for which those institutions are established. No loan was made or intended, nor was there any discount in the ordinary and legal acceptation of that term as applied to the business of banking.

NOTE. As to the power of National Banks to purchase checks, notes, etc., see First National Bank v. Harris, ante, p. 590; Leach v. Hale, ante, p. 466; as to general powers of National banks, see Wiley v. First National Bank, post, and

note.

Judgment affirmed.

The following is the decision in Farmers and Mechanics' Bank v. Baldwin, upon which the foregoing case was decided.

CORNELL, J. It is conceded that plaintiff's only title to the note in question rests upon its absolute purchase, as a

First National Bank of Rochester v. Pierson.

chose in action, from one Patterson, subject to the restrictions and prothe then owner, for a specific sum visions of this chapter." Section 13, agreed upon and paid at the time of which specifically defines the powers the purchase. Patterson did not indorse the note, nor expressly assume any obligation in connection with the transfer. Inasmuch as the ownership of the note by plaintiff is put in issue by the pleadings, the question necessarily arises whether the plaintiff had the corporate power to make the purchase in the manner it did, and whether, by such alleged purchase, it acquired any title which it could enforce against either the maker, or Baldwin, the indorser.

The doctrine that a corporation can only exercise such powers as are expressly granted, or as are incidental to its existence, or necessary to enable it to execute some one or more of its express powers, is too firmly established, both upon principle and authority, to admit of any doubt or discussion. This rule, by which courts must be governed in all inquiries into the existence of any corporate power, is aptly and justly declared to be axiomatic, in the opinion of the court in First National Bank v. Ocean National Bank, 60 N. Y. 278, 294; Dartmouth College v. Woodward, 4 Wheat. 518, 636; 2 Kent, 299; School District v. Thompson, 5 Minn. 280, 286. So, when an express power is granted, and the specific mode or manner of its exercise is prescribed, it can only be exercised in that particular way. Bank of Augusta v. Earle, 13 Pet. 519, 587; 2 Kent, 290, 299.

of such corporations, is as follows: "Such person or association has power to carry on the business of banking, by discounting bills, notes, and other evidences of debt, by receiving deposits, by buying and selling gold and silver bullion, foreign coin, and foreign and inland bills of exchange, by loaning money on real and personal securities. and by exercising such incidental powers, as may be necessary to carry on such business."* Section 33 provides that "such bank or banking association may demand and receive for loans on real and personal security, or for notes, bills, or other evidences of debt discounted, such rate of interest as may be agreed upon by the parties, not exceeding 12 per cent per annum; subject, however, to such general laws regulating and fixing the rate of interest as may hereafter be passed by the Legislature; and it shall be lawful to receive the interest in advance, according to the ordinary usage of banking institutions, and in general to do all things, and have all the privileges, incident to banking associations or corporations." Section 43 prescribes a penalty for any violation of the provisions of the chapter.

These sections contain all the provisions of law having any bearing upon the question under consideration. In construing them, regard must be had to the general nature and purpose of banking institutions, and it must be assumed that the language and terms employed in framing the statute were so used in their then ordinary and appropriate sense- nothing appearing in the enactment itself to show a different meaning

Plaintiff derives its corporate existence and powers from Gen. St., ch. 33, as it existed prior to the amendment in 1876 (Laws 1876, chapter 92); and, if it had the power in question at all, it must be found in some of the provisions of that chapter, which relates to banks and banking. Section 2 provides that Bouvier defines a bank to be "an inany person or association of persons stitution authorized to receive deposits may establish offices of discount, de- of money, to lend money and to isposit, and circulation, and become sue promissory notes." These are its incorporated, upon the terms and con- principal attributes. First Nat. Bank ditions, and subject to the liabilities v. Ocean Nat. Bank, 60 N. Y. 278, 258. prescribed in this chapter." Section 11 Banks are of three kinds, known as prescribes the manner in which such banks of discount, deposit and circulacorporation shall be formed, and tion, though usually in every American declares that upon such its forma- system of banking, all these functions tion as a body politic and corporate are united in the same institution, as is by its assumed name, it shall, by the case under the present law. Gen. such name, have power to con- St., ch. 33, § 10. Their chief purpose and tract and be contracted with, sue design are to furnish safe places of deand be sued, and shall have all other posit for money, to facilitate its pay powers, privileges and immunities in- ment and exchanges between different cident to corporations and applicable persons and places thereby serving to the ends of such establishments, as clearing-houses were located-and

*In this section, as amended by Laws 1869, ch. 85, the last clause of the above quotation reads: "And by exercising all the usual and incidental powers and privileges belonging or pertaining to such business."

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