the deposit obligation to the plaintiffs.
These facts call to mind the very serious economic conditions that existed just prior to and at the time of the suspension of all banking operations in March, 1933. Many banks were in a serious or desperate position, and all were fearful of excessive demands or runs by the depositors and the disastrous effect of forced liquidation of assets to meet those demands. It became necessary for financial institutions to combine their resources in many ways in order to support the weaker banks and to restore the confidence of depositors. The plan and agreement adopted by the banks involved in the present suit were in line with the efforts made by similar institutions for the same purposes. They were not merely to aid a struggling bank, but were primarily intended to protect the contributing banks so that runs on them might be avoided. Their action was prompted by what appeared to be self-preservation in a period of financial distress and we think the purpose was quite proper. The Farmers National Bank and Trust Company joined with the other banks in assuming a common obligation with the view to serving their mutual and respective purposes. The Shillington Bank and the stockholders performed their obligations imposed by the agreement and actually transferred their stock to the Trustee who later exercised his option to purchase the same. The fact that the stock was ultimately found to have little or no value is unimportant; it was what the parties contracted for at the time of the agreement and it was, in addition to mutual self-preservation, the legal consideration which bound the defendant.
The question as to whether such contract is ultra vires appears to have been adequately passed upon by other Courts which hold that a contract, under which one of a group of banks assumes an obligation to give funds to another bank which is in difficulty, is not ultra vires. A national bank is given, in addition to specific powers, such incidental powers as shall be necessary to carry on the business of banking, and the assumption of an obligation which can be reasonably construed as necessary to serve or preserve the business is therefore within its powers and is not ultra vires. Trust Company of New Jersey v. Jefferson Trust Co., 1936, 186 A. 732, 14 N.J.Misc. 656. Contracts guaranteeing the losses of a struggling bank, made to protect and preserve the banking businesses of the guarantors and to save them from possible loss and financial ruin, are enforceable when properly authorized and adopted. Southern Exchange Bank v. First National Bank of Dublin, 1928, 37 Ga.App. 612, 141 S.E. 323; O'Connor v. Bankers Trust Company, 159 Misc. 920, 289 N.Y.S. 252. We believe that the agreement in question was made primarily for the purpose of serving and protecting the banking business of the Farmers National Bank and Trust Company and the other contributing banks and that it was not ultra vires. The amount represented by the deposit was not out of proportion to the probable damage, nor to the normal responsibility of the banks in question. Having thus determined that the agreement is supported by an adequate consideration and that it was within the powers of Farmers National Bank and Trust Company, it follows that the certificate of the receiver acknowledging the obligation is also valid and binding.
The defendant's requests for findings of fact are, so far as they conform to our recital of facts, affirmed. Our conclusions on the legal issues are as follows:
1. The Farmers National Bank and Trust Company of Reading was on February 28, 1933, indebted to the Shillington Bank in the sum of $12,500 representing a deposit of that sum made in pursuance of the agreement of March 29, 1932.
2. The said agreement was entered into for good and valuable consideration and was not ultra vires as to the Farmers National Bank and Trust Company.
3. Plaintiffs are entitled to the dividends on the deposit of the Shillington Bank in the Farmers National Bank and Trust Company and judgment may be entered for the plaintiffs and against the defendant for $1,187.50 representing dividend declared March 15, 1937, with interest.
4. Judgment may be entered for the plaintiffs and against the defendant on the counter-claim.
© 1992-2004 VersusLaw Inc.