US SUPREME COURT DECISIONS

In an action against a national bank upon a contract, each party relied on section 5136 of the Revised Statutes, by which a national bank, upon filing its articles of association and organization certificate with the Comptroller of the Currency, becomes a corporation, with power "to make contracts" and other corporate powers, but is prohibited to

"transact any business, except such as is incidental and necessarily preliminary to its organization, until it has been authorized by the Comptroller of the Currency to commence the business of banking."

The defendant relied on the prohibition. The plaintiff relied on the exception to the prohibition, and also contended that, under the general power to make contracts, the contract sued on was valid as between the parties, even if contrary to the prohibition. Held that a judgment for the defendant in the highest court of the state might be reviewed by this Court on writ of error. By section 5136 of the Revised Statutes, a contract of lease at a large rent of an office to be occupied "as a banking office, and for no other purpose" for the term of five years, determinable at the end of any year by either party, executed by a national bank as lessee, after having duly filed its articles of association and organization certificate with the Comptroller of the Currency, but not having been authorized by him to commence chanrobles.com-red

Page 165 U. S. 539

the business of banking, is void, cannot be made good by estoppel,

and will not support an action against the bank to recover anything beyond the value of what it has actually received and enjoyed.

This was an action brought July 17, 1895, by McCormick against the Market National Bank of Chicago, Illinois, in the Superior Court of Cook County, in the State of Illinois, and was submitted by the parties, waiving a trial by jury, to that court upon an agreed statement of facts, in substance as follows:

On January 31, 1893, articles of association were signed, and an organization certificate was signed and acknowledged, by nine citizens of Illinois, before a notary public, and both were transmitted to the Comptroller of the Currency, as required by Title 62 of the Revised Statutes of the United States (the material parts of which are copied in the margin *), for the purpose of making them a national banking association at Chicago by the aforesaid name, and were on chanrobles.com-red

Page 165 U. S. 540

February 3, 1893, recorded, and afterwards carefully preserved, in the Comptroller's office.

On January 31, 1893 at a meeting of the directors of the bank, chosen by the stockholders and named in the articles of association, a president and a cashier were duly elected, and the directors caused a seal to be made for the bank. On February 9, 1893, the president, pursuant to a resolution of the directors, signed and sealed with the corporate seal a lease in writing from the plaintiff to the bank of certain offices in Chicago, "to be used and occupied by said Market National Bank as a banking office, and for no other purpose," for the term of five years from May 1, 1893 at a yearly rent of $13,000, payable in equal monthly installments. By an agreement made part of the lease, the plaintiff was to make certain alterations chanrobles.com-red

Page 165 U. S. 541

and repairs at his own expense; either party might cancel the lease on May 1 of any year by giving ninety days' notice in writing, and no rent was to be charged until the bank took possession. On April 12, 1893, the parties made a supplemental agreement, by which the plaintiff was to make further alterations, the bank paying half the cost thereof. All the alterations and repairs were made by the plaintiff as agreed, the cost, paid by him, of the alterations made under the agreement of April 12, 1893, being $2,475.

Upon the completion of the alterations, on June 22, 1893, the president and cashier, in the name of the bank, took possession of the demised premises and put in the fixtures and furniture, blank books and stationery, necessary to carry on a banking business, and they were not removed until April 30, 1895. chanrobles.com-red

Page 165 U. S. 542

Of the whole capital stock of $1,000,000 provided for in the articles of association, no more than the sum of $331,594 was ever paid in, and the bank was never authorized by the Comptroller of the Currency to commence, and never did commence, the business of banking.

The officers of the bank, from time to time, corresponded with the plaintiff, using letterheads with the name, location, and place of business of the bank and the names of its officers printed thereon, and signing in their official capacity.

The plaintiff at the times of the negotiations for the lease and of its execution and of the taking possession of the demised premises by the officers of the bank, understood and believed that it was legally organized as a national bank, and as such was ready to do banking business, and had the power to enter into the lease and agreements aforesaid, and had no knowledge or information to the contrary until August 15, 1893, when the officers of the bank informed him that the bank had never been authorized by the Comptroller of the Currency to commence the business of banking, and had no power to enter into the lease, and had abandoned all further proceedings for carrying on the banking business, and offered to surrender the lease, but he refused to accept the surrender. On September 20, 1893, the president of the bank caused the key of the office to be left on the desk of the plaintiff's agent, he refusing to accept it.

On July 15, 1893, the nine persons who had signed the aforesaid articles of association and organization certificate signed and transmitted to the Comptroller of the Currency a certificate revoking them, and he placed it on file in his office. On the same day, five of those persons and seven others signed and acknowledged, and forwarded to the Comptroller, other articles of association and organization certificate for the purpose of making them a national bank by the same name, with a capital of $500,000, and they were forthwith recorded in the Comptroller's office. On July 25, 1893, the persons signing the latter articles of association and organization certificate abandoned all further proceedings with regard to the organization of the bank as therein chanrobles.com-red

Page 165 U. S. 543

provided, and with regard to its commencing the business of banking.

On October 4, 1893, the parties agreed in writing that, without prejudice to the rights of either, the plaintiff should take possession of the premises, and endeavor to lease them and to collect the rent thereof. The plaintiff made every effort to obtain a tenant accordingly, but was unable to do so.

On January 3, 1895, the plaintiff gave written notice to the president of the bank of his intention to terminate the lease on May 1, 1895, in accordance with its terms.

The cashier paid the rent, according to the lease, until July 22, 1893. But the bank refused to pay any rent subsequently accruing, and never paid its half of the cost of the alterations made under the agreement of April 12, 1893.

If, upon the facts stated, without regard to the form of the pleadings, the court should be of opinion that the plaintiff was entitled to recover, judgment was to be rendered for him for such sum as he was entitled to, with costs; otherwise judgment for the defendant, with costs.

The plaintiff asked the court to find, as matter of law, the following propositions:

"1st. That the execution of the lease in question by the defendant was incidental and necessarily preliminary to its organization, and to its entering upon a banking business."

"2d. That the execution of the lease in question was a proper exercise of the powers possessed by such defendant to make contracts under paragraph 3 of section 5136 of the Revised Statutes of the United States."

"3d. That the limitation or last clause of paragraph 7 of said section does not apply to the powers conferred by paragraphs 1 to 6 in said section; that the Market National Bank of Chicago had the power to enter into said lease, and to legally bind itself thereby."

"4th. That there was no want of power on the part of said defendant to execute said lease, but merely a defective organization, and said bank cannot plead such defective organization to defeat a recovery."

"5th. That said contract of lease has been fully executed. "

Page 165 U. S. 544

"6th. That the said plaintiff was not bound to ascertain whether or not the said defendant was properly and legally organized, and that if the plaintiff relied upon the representations and statements of the proper officers of said defendant that the bank was properly and legally organized and empowered to make and enter into said lease, he is entitled to recover the stipulated rental named therein, and the defendant is estopped to deny its liability."

"7th. That the said defendant, by its acts, conduct, and declarations, as shown by the agreed statement of facts in this case, is estopped from alleging that it was not fully organized as a banking corporation under the laws of the United States, and from alleging that it did not have the power to execute the lease in question."

"8th. That the plaintiff, under the facts in this case as agreed upon, is entitled to recover judgment at the rate agreed upon in said lease, from July 22, 1893, up to May 1, 1895, and also to recover one-half of the expenses of repairing and changing the said premises, according to the stipulation, with interest upon each installment as it became due at the rate of five percent per annum."

The court refused to find the foregoing propositions of law, or any of them, and the plaintiff duly excepted to the refusal.

The court found for the plaintiff, and gave judgment in his favor for the rent from July 22 to August 15, 1893, and for half the cost of the alterations made by the plaintiff under the agreement of April 12, 1893, with interest, amounting in all to the sum of $2,548.85.

The judgment was affirmed, on successive appeals of the plaintiff, by the appellate court and by the Supreme Court of Illinois. 61 Ill.App. 33, 162 Ill. 100. The plaintiff thereupon sued out this writ of error. The assignments of error upon each appeal, as well as upon the writ of error, were based upon the propositions of law above stated. chanrobles.com-red

Page 165 U. S. 545