.

the bond refers only to funds of the bank itself, the sureties will not be held liable beyond the express terms of their bond, upon general principles of suretyship, and will not be responsible for any moneys converted by the officer which were not bank funds. Thus, money left with the bank in bags, as a special deposit, is not money of the bank, and the sureties cannot be held liable for its conversion by the officer. Official bonds nearly always cover misappropriations of the money or property of the bank. Thus, a conversion of collateral given with notes by a borrower will constitute a breach for which sureties will be liable, and a loan of the money of the bank by the officer to himself, or to a corporation for his benefit, is a misappropriation of the funds for which the sureties will be held liable.5

Criminal Liability.

§ 66. False Reports.-The penal statutes provide for the punishment of officers or agents of corporations exhibiting false papers or instruments to public officers or boards authorized by law to examine the organization of the corporation or investigate its affairs. While the code section is in several respects awkwardly worded and the head-line of the section would indicate that it relates to frauds in procuring the organization of a corporation, or increasing of its capital, nevertheless such head-lines are of no value where the language of the act is plain and unambiguous in its meaning. The section therefore plainly covers the case of an officer of a banking corporation who exhibits a false report of the affairs of the

4. Humboldt Sav. & L. Soc. v. Wennerhold, 81 Cal. 528, 22 Pac. 920. See SURETYSHIP.

5. State Loan & Trust Co. V. Cochran, 130 Cal. 245, 62 Pac. 466, 600 (citing Civ. Code, § 578,

pro

hibiting loan by directors and officers to themselves).

6. Pen. Code, § 558. See, also, Pen. Code, § 563a (relating speciff cally to banks).

bank to the bank commissioners with intent to deceive such commissioners with respect to the affairs of the bank. In cases such as this, however, where a specific intent to deceive is an essential ingredient in the offense, the defendant should be allowed to prove any fact tending to show that he had no such intent or that he did not knowingly make a false statement. His own testimony that he believed the report to be true, or that he had no intent to deceive the officials, is admissible, although its weight is for the jury. And where the party making entries in the books was not at the time he made such entries in any way under the control or direction of the defendant, as to the defendant such entries are purely extrajudicial statements, made by a third party, and are hearsay and cannot be used as original evidence as against the defendant of the facts therein stated.

§ 67. Miscellaneous Offenses.-The law imposes numerous criminal liabilities on officers of banks who violate provisions of the regulatory statutes. Thus, the statutes provide for liability of officers making false entries in the books of the bank. Directors likewise may incur certain penal liabilities for the misdirection of the affairs of the bank.10 And for the protection of banks a liability is imposed on any person circulating untrue statements concerning the solvency or integrity of a bank or circulating untrue rumors derogatory to its financial condition.11 Officers and employees of banks generally are subject to numerous criminal liabilities for violation of the other provisions pertaining to banks and banking.12

7. People v. Nash, 15 Cal. App. 320, 114 Pac. 784, per Hall, J.

8. People v. Martel, 21 Cal. App. 573, 132 Pac. 600.

9. Pen. Code, § 563; People v. Leonard, 103 Cal. 200, 37 Pac. 222 (sufficiency of allegations of false entries in haec verba).

10. Pen. Code, § 561b (participation in fraudulent insolvency;

general liability for doing acts forbidden by law or omissions of duty); Pen. Code, 561d (concurring in vote or act making loan to director in amount exceeding that permitted by law).

11. Pen. Code, § 563b.

12. Bank Act, § 39, identical with Pen. Code, § 561 (overdrawing accounts; receiving or soliciting com

VII. POWERS AND FUNCTIONS OF BANKS-ACTIONS.

§ 68. In General-Ultra Vires.-Since a banking corporation is purely a creature of the law, the legislature has the power to limit it as to the business it shall transact, as well as to the manner in which the business shall be transacted.13 The rules of the state and the federal courts differ, however, as to the validity of ultra vires banking transactions. The defense of ultra vires is looked upon by the state courts with disfavor whenever it is presented for the purpose of avoiding an obligation which a corporation has assumed merely in excess of the powers conferred upon it, and not in violation of some express prohibition of the statute. The courts are inclined to treat the corporation as estopped from setting up this defense in all cases where it has received and retains the benefit of the transaction and seeks by this plea to avoid its correlative obligation.14 And a person dealing

mission for procuring loan or discount); Pen. Code, § 561a (misapplication of funds or property); Pen. Code, § 561d (concealing from directors discounts or loans made between regular meetings of board); Pen. Code, § 563a (false entries or reports with intent to deceive officer of bank or public officers); Pen. Code, § 562 (receipt of deposits after insolvency); Bank Act, § 38 (false entries or omissions in books or false reports); Pen. Code, § 561c (making guaranty on behalf of bank in sum beyond amount of loans and discounts bank may legally make); Bank Act, § 52 (wrongfully certifying checks); Bank Act, § 65 (procuring loans to officers or employees of savings banks in violation of law); Bank Act, 83 (procuring loans to officers or employees of commercial

banks in violation of law); Bank Act, §9 (maintaining unauthorized branches of bank); Bank Act, § 32 (mingling trust funds).

13. Laidlaw v. Pacific Bank, 137 Cal. 392, 70 Pac. 277. National banks have no powers beyond those specified in the act under which they exist, and such other powers as are necessarily incidental to those expressly given. McBoyle v. Union Nat. Bank, 162 Cal. 277, 122 Pac. 458; S. C., 168 Cal. 263, 142 Pac. 837; S. C., Union Nat. Bank v. McBoyle, 243 U. S. 26, 61 L. Ed. 570, 37 Sup. Ct. Rep. 370.

14. Kennedy V. California Sav. Bank, 101 Cal. 495, 40 Am. St. Rep. 69, 35 Pac. 1039. This case was reversed by the United States supreme court upon the federal doctrine of ultra vires. California Nat. Bank v. Kennedy, 167 U. S.

with the bank is estopped to question the bank's powers when he has dealt with the corporation as one having that power.15 But where the statute expressly declares a transaction unlawful, the state courts have held the defense of ultra vires available.16 The federal courts, however, have ruled that an ultra vires transaction is absolutely void and that the rule of estoppel does not apply as to transactions involving the powers of national banks.17

§ 69. Powers as to Real Estate.-An incorporated bank has power to purchase land for its banking house.17a A banking corporation also has power under its charter and under the provisions of the Bank Act to take and hold

leases of real property; hence such a transaction is not ultra vires. The fact that it proceeds to devote the premises to uses to which it is not entitled to put the same will not render its act in acquiring the leasehold interest ultra vires. The lessor has the right to presume that the bank in taking over the lease acquires it for purposes authorized by its charter and by the Bank Act, and that whatever improper uses the property was put to under the former ownership will be presently discontinued.17b

A corporation is forbidden by the constitution to hold for a longer period than five years any real estate, except such as is necessary for carrying on its business.18 The further declaration of the constitution that its provisions are mandatory and prohibitory,19 however, does not accomplish the escheat of land so held by a savings bank at the end of the five-year period. The provision wholly fails to declare what results follow if it is violated, and for this reason, the legislature has power to prescribe penalties for its violation, and there is nothing in the provision so self-executing as to deny that power. The legislature, therefore, may provide that the bank must sell the land, and if it does not sell, as commanded by the provision, may provide penalties for its failure so to do, or possibly some judicial procedure might be invoked, compelling a sale of the land or a forfeiture of the corporate franchise.20 The Bank Act provides that the property must be sold or exchanged for other real estate within five years after title vests in the bank by purchase or otherwise. No exchange may be made, however, without the previous consent of the superintendent of banks, and real estate taken in exchange may be held only for such period as he may fix, not to exceed five years. For real estate not sold or exchanged within the five-year period, the statute pro

17b. Chambers v. Sec. Com, etc. Bank, 34 Cal. App. Dec. 388 (leasehold of motion-picture house). 18. Const., art. XII, § 9.

19. Const., art. I, § 22.

20. People v. Stockton Sav. & Loan Soc., 133 Cal. 611, 85 Am. St. Rep. 225, 65 Pac. 1078.