Story Case

In the state of Arkansas, before the business of banking was in any way regulated or restricted, a charter of incorporation was granted to the Spring River Lumber Company. This corporation cleared several large tracts of land, and accumulated some wealth, the surplus of which it then employed in the purchase of commercial paper and the discount of notes. This part of its business proved very profitable, and was increased by the use of funds taken on deposit, for which certificates or notes of the company were issued. Some of the stockholders objected to this use of money and wished to withdraw the capital which was no longer needed to develop timber lands. They started a suit against the company, in the name of one of them, Luther Eggleston, to prevent the further conduct of this business. Is the company entitled to continue this use of their funds, or shall the stockholders have the aid of the court in stopping it?

Ruling Court Case. People Vs. Utica Insurance Company, Volume 15 Johnson Reports, New York, Page 352; Volume 8 American Decisions, Page 243

The Utica Insurance Company was incorporated by an Act of the New York State Legislature in the year 1816. In the act of incorporation it was stated that this corporation "shall have full power and authority to make contracts of insurance with any person or persons, against losses or damages by fire or otherwise." After incorporation, the Utica Insurance Company engaged also in the banking business, in addition to the business of making insurance contracts. The Attorney General of the state, in the name of the people, brought an action against the Utica Insurance Company for exercising banking privileges without legislative authority. It was contended by the Utica Insurance Company that it was an inherent right of any person or corporation to conduct a banking business.

Decision: Formerly it was the inherent right of any person, organization, or corporation to carry on a banking business, but the state now has the power to regulate and modify this right, or to grant to or withhold it from a corporation upon whatever terms it deems advisable. The Utica Insurance Company, by its charter, was given no power to engage in the banking business.

Mr. Chief Justice Thompson said: "It may safeiy be admitted that formerly the right of banking was a Common Law right belonging to individuals, and to be exercised at their pleasure. It cannot, however, admit of a doubt that the legislature had authority to regulate, modify, or restrain that right. This they have done by the Eestraining Act of 1804 . . . The right of banking, therefore, by any company or association has, since the Restraining Act, become a franchise, or privilege, derived from the grant of the legislature, and subsisting only in such companies or associations as can show such grant." Judgment was held, therefore, that the Utica Insurance Company has no power to engage in the banking business.

Ruling Law. Story Case Answer

Under Common Law, a corporation could not have engaged in the business of banking without special legislative authority, because a corporation is a creature of the legislature, and has no more power than the legislature confers upon him. This authority may also be granted upon such terms as the state deems wise, because the latter may control both the creation of corporations, and regulate the business of banking, as pointed out in the last section.

In the Story Case, the plea of the stockholders should be granted, and judgment entered forbidding and restraining the Spring River Lumber Company from conducting a banking business. In the Ruling Court Case, the decision relies on the fact that banking has been regulated by the state and cannot be conducted without complying with those regulations. But in the Story Case, where no such regulation had ever been adopted, the lack of power in the corporation leads to the same result. Banking is a special and distinct business. Since it is not properly an adjunct or incident of any other business, a corporation which is to carry it on must be empowered in its charter to do banking. Where this power is lacking, as in the Story Case, or where the business is regulated and prohibited, as in the Buling Court Case, the ordinary corporation cannot engage in the business.