Messrs. Divet, Shure, Holt, Frame, Murphy, & Thorp, for appellant:

For some purposes and under some circumstances it is difficult to point out the distinctions between a deposit and a loan, but the distinctions exist nevertheless, and when the legislature provided for the deposit of public money it was not providing for a loan; and officers of a county who loaned the public money, taking ordinary evidences of indebtedness instead of depositing the money, would be guilty of a grave breach of official duty.

Lowry v. Polk County, 51 Iowa, 50, 33 Am. Rep. 114, 49 N. W. 1049; Hunt v. Hopley, 120 Iowa, 695, 95 N. W. 205; Nebraska v. First Nat. Bank (C. C.) 88 Fed. 947.

The rights of a receiver representing creditors whose rights are being prejudiced are much more extensive than those of the original institution whose rights alone are involved.

First Nat. Bank v. Davidson, 48 N. D. 944, 188 N. W. 194; Vallely v. Devaney, 49 N. D. 1107, 194 N. W. 903; Lyons v. Benney, 230 Pa. 117, 34 L.R.A. (N.S.) 105, 79 Atl. 250; Franklin Nat. Bank v. Whitehead, 149 Ind. 560, 39 L.R.A. 725, 63 Am. St. Rep. 302, 49 N. E. 592; 23 R. C. L. 116.

Plaintiff should be left to its legal rights to enforce its money judgment against the bank, supplemented by its right to enforce its money judgment against the sureties.

Fletcher, Cyc. Corp. § 1521; Illinois Trust & Sav. Bank v. Pacific R. Co. 117 Cal. 332, 49 Pac. 197; Philadelphia & S. R. Co. v. Lewis, 33 Pa. 33, 75 Am. Dec. 574; Hendee v. Pinkerton, 14 Allen, 381.

Counties in court are subject to all the same equitable rules as other suit

ors.

144 N. Y. 166, 38 N. E. 991; Gause v. Commonwealth Trust Co. 196 N. Y. 134, 24 L.R.A. (N.S.) 967, 89 N. E. 476; 3 R. C. L. 47, p. 420; Wyman v. Wallace, 201 U. S. 230, 50 L. ed. 738, 26 Sup. Ct. Rep. 495; Western Nat. Bank v. Armstrong, 152 U. S. 351, 38 L. ed. 472, 14 Sup. Ct. Rep. 572; Lake County v. Citizens Trust & Sav. Bank, 73 Ind. App. 76, 123 N. E. 133; International Harvester Co. v. State Bank, 38 N. D. 632, 166 N. W. 507; Commercial Bkg. & T. Co. v. Citizens Trust & G. Co. 153 Ky. 566, 45 L.R.A. (N.S.) 950, 156 S. W. 160, Ann. Cas. 1915C, 166.

Messrs. Pierce, Tenneson, Cupler, & Stambaugh, also as amici curiæ. Johnson, J., delivered the opinion of the court:

Plaintiff brings this action to recover the amount of a deposit of county funds in the First State Bank of Wild Rose, and to foreclose a contemporaneous pledge of certain certificates of indebtedness. Judgment was entered in favor of the plaintiff against the defendant Baird, who, as receiver of the First State Bank of Wild Rose, prosecutes this appeal.

In July, 1923, acting under chapter 199, Sess. Laws 1923, the plaintiff proceeded to designate a depository of its funds; the First State Bank of Wild Rose made a bid for the deposit, and the board of county commissioners passed a resolution designating this bank as a depository. The bank furnished a bond in the usual form, signed by the receiver's co-defendants as sureties, dated October 15, 1923. The bond was approved by the county board. About the time the bond was approved and when the county was ready to make the deposit, some negotiations were had, not appearing in the record of the proceedings of the county commissioners, which resulted in the pledging of certain certificates of indebtedness of municipalities within Divide county as collateral security for the deposit. The complaint alleges that the pledge was made October 18, 1923, the date of the deposit, as "collateral security to the bond." The reason for the negotiations which culminated in the

pledging of the securities appears to have been that the board had approved and accepted a personal and not a surety bond. Under the statute, either bond may be sufficient.

The court found that on October 18, 1923, the county deposited, in the First State Bank of Wild Rose, $6,500, for which a certificate of deposit was issued and delivered to the plaintiff. It is this certificate which is the basis of the plaintiff's claim.

Some time after the deposit was made, the bank became insolvent, and appellant Baird, as receiver, in due time, took charge of its affairs. Demand was made for repayment of the deposit, and, upon failure to comply, proceedings were commenced to recover the same and to foreclose the pledge. The trial court entered a judgment in favor of the plaintiff, which established a valid and subsisting money demand against all the defendants, adjudged the pledge to be valid, and directed that the hypothecated securities be sold and the proceeds applied in satisfaction of the judgment against the bank and the sureties. The trial court concluded, as a matter of law, that, inasmuch as the defendant bank and its sureties had neither complied with the demand to return the money deposited nor tendered a return thereof, the receiver and the sureties were estopped from questioning the regularity of the pledge.

The question in this case is stated in the following language by counsel for the appellant: "The court erred in holding that it was within the power of the defendant bank to secure the county deposits by a pledge of the assets of the bank as additional security to the statutory bond, and in not holding that the attempted pledge of assets was ultra vires and void as against the creditors of the bank, represented by the appellant receiver."

In its narrowest terms, the controversy resolves itself into a question whether a state bank has the charter power to pledge its assets

as a security for a deposit of the funds of a public corporation. As the case has been tried and submitted by both sides, the broader question of the power of a state bank to pledge its assets in order to secure a general deposit, whether from an individual or a public corporation, is presented. It is contended by the appellant that no such power exists, and that a contrary conclusion results in the creation of preferences and of establishing classes among depositors wholly beyond the charter powers of state banks.

The county answers by insisting, first, that the defendants, including the receiver, are estopped because of their own conduct, the contract having been fully performed and no tender of a return of the money having been made, from questioning the validity or regularity of the deposit and the pledge; and, second, that if the defendants be not estopped, there is, in fact, and was, when the transaction in suit took place, a power in state banks to pledge their general assets as security for deposits.

prohibit.

In any discussion of the question of power of a banking corporation, it is important to bear in mind that Banks-right to the business of banking is so intimately connected with the public interest that the legislature may prohibit it altogether, or may prescribe the conditions under which it may be done. State ex rel. Goodsill v. Woodmansee, 1 N. D. 246, 11 L.R.A. 420, 46 N. W. 970. The position of such a corporation is largely fiduciary. Gause v. Commonwealth Trust Co. 196 N. E. 476. Y. 134, 24 L.R.A. (N.S.) 967, 89 N. And see American Exp. Co. v. Citizens State Bank, 181 Wis. 172, 194 N. W. 427. The legislature has withheld the privilege from natural persons and from all but a designated class of corporations. It would seem to follow that the cor

poration must do business in the

manner defined. "All acts not authorized by its charter and the law

are ultra vires." Magee, Banks & Bkg. page 21.

Legislation regulating the conduct of banks has not been enacted solely, though, doubtless, largely, out of regard for the interest of depositors in banks; it rests "upon the broader base that the public welfare and the stability of public business and commercial relations depend, to a great extent, upon honesty and soundness in the banking business." Wirtz v. Nestos, 51 N. D. 615, 200 N. W. 524.

The statutes, prescribing the conditions under which banks are privileged to function and the manner in which they shall do business, must be construed with reference to the purpose underlying all regulatory measures and the public nature of the business regulated. Undoubtedly they should be fairly construed so as to permit an effectuation of the purpose the legislature had in view, to wit, to permit this specific kind of corporation, and no other person, to carry on the banking business in a manner consistent with the interests of general creditors, depositors, and the public.

A bank, of course, has such powers as are expressly given it; these are express powers. In addition, it may exercise certain

-incidental powers.

powers which are incidental to those expressly given. The range of such powers is generally stated in the statute and is limited by fairly welldefined principles. Only such incidental powers exist as are "necessary to carry on the business of banking" (Comp. Laws 1913, § 5150, subd. 7); that is, such as are incidental to the powers expressly enumerated. See First Nat. Bank v. National Exch. Bank, 92 U. S. 122, 127, 23 L. ed. 679, 681; Talmage v. Pell, 7 N. Y. 328, 340.

Clearly, this kind of corporation is created for a more limited and special purpose than is a corporation organized un-privileges of. der the general statutory charter, for the purpose of conducting ordinary business. To

it has been granted the exclusive privilege to do a specified business in a manner circumscribed by definite restrictions. It is wholly the creature of statute, and it does business by legislative grace. It is privileged to receive deposits, but in what manner is not expressly stated. May a bank exercise the statutory privilege to receive a deposit in the manner in which it was done in the case at bar, and invite the public to deposit funds upon the security of the bills receivable of the corporation?

Subdivision 7, § 5150, Comp. Laws 1913, reads as follows: "To exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, bills of exchange, drafts and other evidences of debt, by receiving deposits, by buying and selling exchange, coin and bullion, by loaning money upon real or personal security, or both; but no association shall transact any business, except such as incidental and necessarily preliminary to its organization, until it has been authorized by the secretary of state to commence the business of banking, and the secretary of state may withhold from any association his certificate authorizing the commencement of business, whenever he has reason to suppose that the shareholders have formed the same for any other than legitimate objects as contemplated by this chapter."

It is said that a bank may pledge its bills receivable to secure loans; that, by analogy, the power to secure a deposit in like manner exists. It is strongly urged that there is no real difference between a deposit in and a loan to a bank, that in either case the relation of debtor and creditor arises, and that, inasmuch as the bank may pledge its assets to secure a loan, it may in like manner hypothecate its bills receivable to secure a general deposit. The doctrine that there is no dif

ference between a loan and a deposit we cannot accept in all its implications. It is true that in law the two transactions have many characteristics in common; but so have other business deals which, nevertheless, are not identical in all their legal incidents. The striking fact remains, a fact which this court cannot ignore, that a real difference between a deposit and a loan has always been assumed, as a matter of custom, in the banking business itself, and in all legislation dealing with the subject since statehood.

We are warranted in taking judicial notice of the fact that, in the banking business, it has been and still is customary to treat loans and deposits as distinct and essentially dissimilar transactions. Without going into details, this fact is evidenced by methods of bookkeeping and of making reports of the financial condition of the bank, both to private individuals, through the press or otherwise, and to the public examiner. Originally, one of the main functions of a bank was to receive money deposits or valuables for safe-keeping (see Oulton v. German Sav. & L. Soc. 17 Wall. 117, 21 L. ed. 619), and this early concept of a bank's primary office has, in a large measure, been recognized by custom in the business and has influenced the course of legislation upon the subject.

In this jurisdiction pertinent legislation has, at all times, recognized a distinction between a loan and a deposit. Since 1879, cure deposit. it has been a crim

-pledge to se

inal offense for an insolvent bank to receive deposits. The primary purpose of this provision is obviously the protection of prospective depositors. On the other hand, by the overwhelming weight of authority, a bank has the power to borrow money to meet an emergency or exigency, such as threatened or temporary insolvency. See First Nat. Bank v. Michigan City Bank, 8 N. D. 608, 80 N. W. 766. Regardless of the difficulties

that may be met in any attempt to define the distinction, that its existence has been assumed is here strikingly demonstrated.

Again, § 9930, Comp. Laws 1913, prohibits the making of loans by certain officers of public funds under their control, and makes a violation of the act embezzlement, but deposits of such funds are expressly authorized, subject to certain restrictions and safeguards.

There is a distinct recognition of a difference between a deposit and a loan in the statutory definitions. of these terms. Section 6067, Comp. Laws 1913, defines a loan as "a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which he borrowed." Section 6069, Comp. Laws 1913, provides that a loan is presumptively made upon interest, unless it be otherwise expressly stipulated. Of course, the contrary is true of a deposit.

Section 6008, Comp. Laws 1913, defines a voluntary deposit as a deposit "made by one giving to another with his consent the possession of personal property to keep for the benefit of the former or of a third party. The person giving is called the depositor and the person receiving the depositary." Section 6012 provides that deposit for exchange is one in which the depositary may return "a thing corresponding in kind to that which is deposited." Under § 6013, the depositary must deliver the deposit on demand, whether the deposit was made for a specified time or not unless a lien has arisen. The Legislature has thus distinctly recognized the distinction which once existed and which still exists, at least by usage and custom, between a deposit and a loan. In Allibone v. Ames, 9 S. D. 74, 33 L.R.A. 585, 68 N. W. 165, it was held that a general deposit, made by a county treasurer in a bank, could not be treated as a loan within a statutory provision similar to § 9930, Comp. Laws 1913, supra. The court referred to statutory defi

nitions of a loan and a deposit, similar in all material respects to our statutes on the subject, and, while not undertaking to state it, the court held that there was a distinction recognized by custom and usage, of which the courts must take notice. The court said that the statutory definitions indicated a distinction based upon the fact that a deposit was made primarily for the benefit of the depositor, while a loan was for the benefit of the borrower. The benefit resulting to the depositary apparently was not considered to impart a controlling character to the transaction.

It is also to be noted that the Guaranty Fund Act assumes a difference between a loan and a deposit, the latter transaction being within, while the former is without, the guaranty provisions of the law.

In the instant case the parties themselves treated the transaction as a deposit, tried the case below on that theory, and the court found that a deposit was made.

Its existence once conceded, the power to borrow money necessarily imports that it may be exercised with all its customary and usual incidents. One of these is the practice to give security for loans. It is needless to say that the power to borrow money without the right to give security would be largely a barren prerogative and quite ineffectual in all the major transactions of business.

We think the conclusion necessarily follows that there is such a distinction between a deposit and a loan of money that no helpful analogy can be drawn, with respect to the power to pledge paper to secure a deposit, from the fact that the assets of a bank may be pledged to secure a loan. The former is an express power; the depositary function is, historically, different from that of discount or exchange. The power to borrow money, however, is an incidental as distinguished from an express power; a loan made to a bank is in no respect, as far as the pres

ent subject is concerned, different from a loan made by one private person to another, and security, unless expressly prohibited by law, may be given by a bank to secure a loan, for which it has the power to contract, to the same extent and in the same manner as security may be offered or given by an individual in the same circumstances. That such security may be offered without express statutory permission in order to secure a general deposit in the bank, whether subject to check or on time, is a wholly different question. Historically, it seems that the power to pledge for such a purpose was and is wholly foreign to the object for which a bank of deposit was created; and “originally, the business of banking consisted only in receiving deposits." Oulton v. German Sav. & L. Soc. 17 Wall. 118, 21 L. ed. 620.

the

If the power exist to pledge bills receivable in order to secure a general deposit, it means, in all ordinary circumstances, that its repayment would be insured by the other and unsecured depositors of the bank, for, manifestly, a sale of the pledge, in the event of insolvency, would reduce the assets available to pay general depositors by amount or value of the securities. The principle of subrogation would in but few, if any, cases be efficacious to avert this result. It is difficult to discover any principle on which the receiver of the bank could recover from the surety for the benefit of the depositors, after the obligation to pay the public deposit has been discharged by a sale of the pledge; and in case the public depositor proceeds first against the surety on the bond, the surety would have "the benefit of every security" held by the principal (Gilbertson v. Northern Trust Co. 53 N. D. 502, 42 A.L.R. 1353, 207 N. W. 42), and it would be subrogated to the rights of the public corporation in the securities (Comp. Laws 1913, §§ 6686 and 6687). În a proper case, indeed, the surety might require the creditor to first realize upon what