NATIONAL BANK OF XENIA
v.
STEWART
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A national bank loaned money to a customer using shares of the bank's own stock as security, which was prohibited by federal statute, and upon the customer's death the administrators of his estate sought to recover the proceeds from the sale of those shares. The Supreme Court held that once such a prohibited transaction is executed and the security sold with proceeds applied to the debt, courts will not interfere to unwind the transaction, and the administrators cannot recover because the loan amount offsets any claim to the proceeds.
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Mr. Justice Field delivered the opinion of the court.
. Section 5201 of the Revised Statutes declares that “ no association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith; and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale; or, in default thereof, a receiver may be appointed to close up the business of the association.”
While this section in terms prohibits a banking association from making a loan upon the security of shares of its own stock, it imposes no penalty, either upon the bank or borrower, if a- loan upon sucb security be made. If, therefore, the prohibition can be urged against the' validity of the transaction by any one except the government, it can only be done before the contract is executed, while the security is stilj subsisting in the hands of the bank. It can then, if at all, be invoked to restrain or defeat the enforcement of the security' When the contract has been executed, the security sold, and the proceeds' applied to the payment of the debt, the courts will not interfere with the matter. Both bank and borrower-are..in such case equally the subjects of legal censure, and they will be left by the cburts where they have placed themselves.'
There is another view of this case’.. The deceased authorized the bank, in a certain .contingency, to'sell hig. shares. Supposing it was unlawful for the bank to take those shares us. security for a loan,- it was not unlawful to ahthpiize the bafik to sell them when the contingency occurred. The shares being sold pursuant to the authority, the proceeds would be in the bank as his property. The administrators; indeed, affirm the .validity of that sale by suing for the proceeds. As against the deceased, however, the money loaned was an offset to the proceeds. In either view the administrators cannot recover. The judgment of the court, therefore, must be reversed and the cause remanded for a new trial 3 and it is
So ordered'.^
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Brown v. Marion Mortg. Co., 107 Fla. 727 (Fla. 1932)…e instance of either party, to undo what was originally unlawful, and to the doing of which, so long as the contract to that end remained executory, neither party could have coerced the other. First National Bank of Xenia vs. Stewart, 107 U. S. 676, 27 Law Ed. 592; Long vs. Georgia Pacific Railway Company, 91 Ala. 519, 24 American State Reports 931, 8 So. 706. The appointment of a Receiver of the mortgaged property [*739] was prayed for in the original Bill, and application was made to the Lower Court which…
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PAN Am. Bank OF Tampa v. Eve R. Sullivan, 375 So. 2d 338 (Fla. 4th DCA 1979)…umstances of this case, defendant could not defend the bank’s suit by asserting illegality of the note under the Federal Banking Law and resulting equitable estoppel. Also see First National Bank of Xenia, Ohio v. Stewart, 107 U.S. 676, 2 S.Ct. 778, 27 L.Ed. 592 (1883), and Dorsey v. Reconstruction Finance Corp., 197 F. 2d 468 (7th Cir. 1952). As to failure of consideration, it does not appear this defense was adequately raised by the pleadings. Nevertheless, the trial court apparently dealt with it and th…
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Scott v. Deweese, 181 U.S. 202 (U.S. 1901)…of its purchase, be sold or disposed of at public or private- sale; or, in default thereof, a receiver may be appointed to close up the business of the association.” “While this section,” this court said in National [*212] Bank of Xenia v. Stewart, 107 U. S. 676, 677, “in terms prohibits a banking association from making a loan upon the security of shares of its own stock, it imposes no penalty, either upon the bank or borrower, if a loan upon such security be made. If, therefore, the prohibition can be urg…
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