if any, did actually accrue to the bank. The doctrines of this paragraph are equally applicable to sealed and parol, to express and to implied, contracts. The general rule may be stated as follows: In all matters within the scope of the corporate institution, all contracts, sealed or parol, written or verbal, made by its authorized agents within the scope of their real or implied agency, are the express undertakings of the corporation; and all duties imposed on its agents by law, and all benefits conferred at their request, likewise within the scope of their real or implied authority, raise implied promises on the part of the corporation, which may be enforced against it.

The illegality which is set up to defeat a contract on the ground either that the corporation exceeded its powers in making it, or that essential formalities imposed in direct and imperative terms by legislative enactments were disregarded, must go to the validity of the very contract itself, not alone to the written evidence thereof; since otherwise no practical advantage will result to the party setting it up. The matter has been very thoroughly discussed in several important cases in New York, and this doctrine has by no means escaped severe criticism. But in spite of criticism it has been too firmly established to be considered open to doubt. The series of causes known as the "Utica Insurance Company Cases" form the basis of the adjudication, of which the result is, that where certificates of deposit, bonds, or other instruments, expressing contracts, are issued, which the corporation had not power to issue, the holder cannot enforce them and sue upon them as contracts. If he undertakes to do so he will be defeated by their illegality. But he may abandon them and go upon the original cause of action, which was the deposit with, or the loan to, the bank, and then he will be allowed to recover, provided that the bank had the right to receive the deposit or to contract the loan. The document issued cannot itself be sustained; but if it is abandoned altogether, the fact of its wrongful issue will not operate to prevent the success of a suit for money had and received. A fortiori recovery could be had in such a suit,

I Bank of Columbia v. Patterson's Adm'r, 7 Cranch, 299.

2 Utica Insurance Co. v. Scott, 19 Johns. 1; Utica Insurance Co. v. Kip, 8 Cow. 20; Utica Insurance Co. v. Cadwell, 3 Wend. 296; Utica Insurance Co. v.

by virtue of this doctrine, where the instrument issued was no intrinsically illegal, but was only rendered so by reason of its not being executed with precisely the formalities demanded in the incorporating act. But where the instrument is negotiable paper of any description, and perhaps even in other cases, the fact that it has not been signed by the officers of the bank who are designated in the organic law as the persons who shall sign, does not even invalidate the contract itself in the hands of a bona fide holder, unless the same statute expressly and in terms enacts that an instrument not so signed shall be void. The mere declaration that contracts "shall be signed" by certain officials only points out the shape in which, if any contract be executed, it shall be imperatively regarded as sufficiently executed. But it does not necessarily deprive the corporation of the right to delegate to its officers power to make contracts which shall be valid without these specified signatures. If the statute contains no positive prohibition, depriving the association of the right to appoint other agents to contract and sign on its behalf, such deprivation will not follow as an implication from the mere statement that contracts "shall be signed by" designated officers. "Where the associates have not lodged. the power elsewhere; where the matter is to be determined upon the statute alone, without any action of the artificial body, contracts within the scope of its general powers must be signed by [the officials appointed in the statute]. But the statute was not designed as an appointment of particular agents, to the exclusion of all right in the corporate or associate body itself to appoint other agents to do lawful acts and enter into lawful contracts." Such was the language of Judge Comstock in the case of Barnes v. The Ontario Bank,2 following the decision in the earlier case of Safford v. Wyckoff.3 Since these decisions, Kip, id. 369; Utica Insurance Co. v. Bloodgood, 4 id. 652; cited and approved in Curtis v. Leavitt, 15 N. Y. 9; Boisgerard v. New York Banking Co., 2 Sandf. Ch. 23; Philadelphia Loan Co. v. Towner, 13 Conn. 249; Robinson v. Bland, 2 Burr. 1077; Cundy v. Marriott, 1 Barn. & Ad. 696; Wilson v. Wysar, 4 Taunt. 288. By implication, the same doctrine is sustained by Ch. Walworth in Safford v. Wyckoff, 4 Hill, 442, where, upon a written contract improperly executed, he thought plaintiff should not be allowed to recover "without showing that he has paid money thereon, which has been applied to the use of the association, so as to create a contract by operation of law."

1 See Ch. Walworth, in Safford v. Wyckoff, 4 Hill, 442. 2 19 N. Y. 15.

8 4 Hill, 442.

the question seems to have been regarded as laid at rest in New York. But the views of Chancellor Walworth, expressed to a somewhat different effect in the last-named case, though overruled by a majority of the senators, will doubtless suffice with some minds to throw a doubt upon the propriety of this ultimate conclusion. The practical inconveniences which would result from the contrary ruling are forcibly put by Judge Comstock. But it is a fair criticism that these show the imperfection of the enactment and should be cured by legislation; while Chancellor Walworth's simple remark, "When the legislature declare that all contracts made by these associations shall be signed in a particular way, I am not prepared to admit that the court is authorized to say that a valid written contract may be made in a different form," may express a more sound position than that to which Judge Comstock is brought by his ingenious flanking movement.

Any positive words in the statute, declaring that contracts, executed otherwise than as provided, shall not be binding, of course, avoid the entire controversy. But where such words do occur, or where the courts are unwilling to adopt the subtlety of Judge Comstock for the purpose of evading their meaning, the further question arises: to what contracts does the regulation apply? The technical language of the law might make the word "contract" cover every indorsement, every bill of exchange, and possibly even every check or draft which the cashier might be obliged to make or sign in the ordinary course of business. Every petty agreement occurring in the daily routine might come within its scope. The machinery of banking business, in its simplest parts, would become intolerably cumbrous. It is obvious that this could not have been the intent of the framers of such statutes. The courts have accordingly given a reasonable construction, and one somewhat more narrow than the ordinary broad one of the common law, to the word "contract," when thus used. It has been held not to restrict the power of the cashier to draw, sign, and indorse bills of exchange, drafts, checks, and the like instruments, since the power to do so is by the usage of business universally understood to be inherent in his office, and has

often been so declared by the courts. Chancellor Walworth, in his opinion before referred to,2 also says, this phrase, “contract," does not," of course, include a class of contracts that are never in fact made by the association, but which arise by operation of law merely; as, in the ordinary case of an implied assumpsit to repay moneys deposited by dealers with the bank. In such case, the certificate of the cashier or teller, or the entry in the pass-book of the customer, is not a contract; it is only evidence of a fact, which might be proved by parol, to raise an implied promise by operation of law."

One who has borrowed money from the bank cannot, after he has thus received the benefit of the contract, repudiate the obligation which it imposes upon himself, on the ground that the bank in making the loan exceeded its corporate powers, or acted otherwise improperly or illegally; neither on the ground of any original informality or irregularity in the formation of the company under the law of its corporate existence. Efforts of this nature to avoid the performance of their undertakings are usually based by debtors upon the infringement of clauses in the charter or organic law, which are so phrased or relate to such matters that the courts regard them as directory merely. These usually relate to the number of directors who shall have authority to make the loan; to the absolute amount, or the proportion of the capital stock, which shall not be exceeded in any individual loan; to the amount or kind of the security to be taken, or to the manner in which it shall be taken; and other like concerns. The breach of these and similar provisions may subject the corporation to penalties at the process of the

1 Angell & Ames on Corporations, § 300; Merchants' Bank v. Central Bank, 1 Kelly, 418; Carey v. McDougald, 7 Geo. 84; Mechanics' Bank of Alexandria v. Bank of Columbia, 5 Wheat. 326; Northern Bank of Kentucky v. Johnson, 5 Coldw. 88; Jones v. Hawkins, 17 Ind. 550; Allison v. Hubbell, id. 559.

2 Safford v. Wyckoff, 4 Hill, 442.

8 Parish v. Wheeler, 22 N. Y. 494; Smith v. Bank of the State, 18 Ind. 327 ; Bradley v. Same, 20 id. 528; Bank of Middlebury v. Bingham, 33 Vt. 621; Planters' Bank v. Sharp, 4 Sm. & Mar. 75; Shoemaker v. National Mechanics' Bank, 2 Abb. U. S. 416; Stewart v. National Union Bank, id. 424; Elder v. First National Bank of Ottawa, 12 Kan. 238. See Allen v. First National Bank of Xenia, 23 Ohio St. 97.

4 Allison v. Hubbell, 17 Ind. 559; Southern Bank v. Williams, 25 Geo. 534.

State authorities, but it does not avoid the contract which it affects.1

Discounting and Usury.

[Usury under the acts of congress instituting the national banking system is discussed in the last chapter of this book, "The National Banks of the United States."]

Banks are no more exempt than individuals from the operation of the usury laws. The solitary exception lies in the familiar fact, that in discounting they are permitted, by virtue of a long established and universal custom, to receive the amount of interest in advance, by holding it back at the time when they make the loan. Discounting is a part of the general business of banking, and could be done even without specific authority conferred in the incorporating act.2 The holding back of interest in advance is implied in the phrase itself; it is part of the definition of the word. But the bank, though it can thus secure a slight increase in the actual amount of money which it receives in payment for the use of its funds, can do it in no other shape and to no greater extent than precisely this. It may take not one particle more than the legal rate of interest, but it may discount, that is to say " count off," and keep this out of its payment at the time when it hands over the balance of the loan to the borrower. This is the meaning and the only meaning of the words "upon banking principles," or "according to banking principles and usages," sometimes appended to the word "discount" in charters and organic laws. The addition signifies nothing more than the word "discount" would alone imply, and is in fact mere surplusage. It will not support the reservation of more than the legal rate of interest, upon the ground that this excessive rate is customarily reserved by all the banks in the neighborhood.4

See the cases cited in next two preceding notes; also Moreland v. State Bank, 1 Breese, 203; Bond v. Bank of Georgia, 2 Kelly, 92; Bates v. State Bank, 2 Ala. 451; also the same subject in the chapter on National Banks. 2 Fleckner v. Bank of the United States, 8 Wheat. 338.

3 Ibid.; McLean v. Lafayette Bank, 3 McLean, 587; Creed v. Commercial Bank, 11 Ohio, 489.

4 Niagara County Bank v. Baker, 15 Ohio St. 68; New York Firemen's Ins. Co. v. Ely, 2 Cow. at p. 707; Dunham v. Gould, 16 Johns. 367.