Source: https://supreme.justia.com/cases/federal/us/216/196/
Timestamp: 2019-04-22 20:46:07+00:00

Document:
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.
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. §§ 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.
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.
"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."
"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 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.
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.
"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."
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."
"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."
"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."
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.
* 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.

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