## Facts

- A national bank in Charlotte used a Baltimore brokerage firm, Bayne & Co., to procure U.S. bonds needed for a capital-stock increase.
- The Charlotte bank issued a certificate of deposit to Bayne & Co. stating it had received specified U.S. bonds, payable to Bayne & Co.’s order upon return of the certificate.
- Bayne & Co. endorsed and pledged the certificate, along with other securities, to a Baltimore national bank as collateral for an $80,000 call loan.
- After the pledge, the Charlotte bank placed funds in New York to Bayne & Co.’s credit sufficient to pay for the bonds and was orally told the certificate was “discharged and subject” to Bayne & Co.’s order.
- Bayne & Co. later failed, leaving the Baltimore bank holding the pledged certificate as part of its collateral and facing contested and doubtful claims against Bayne & Co.
- To limit expected loss, the Baltimore bank compromised the disputed claims by accepting transfers of railroad and other corporate stocks for later sale or conversion to cash.

## Issues

1. Whether the National Bank Act’s grant of “incidental powers” permits a national bank, in settling contested claims arising from legitimate banking transactions, to accept corporate stock (and to pay more than strict legal liability) to avert or reduce loss.
2. Whether accepting and temporarily holding corporate stock in this context constitutes impermissible “dealing in stocks” beyond a national bank’s powers.
3. Whether the Baltimore bank’s compromise and stock-acceptance arrangement tied to the pledged certificate fell within lawful national-bank authority, barring the Charlotte bank’s challenge.

## Decision

- The Supreme Court affirmed judgment for the Baltimore bank.
- A national bank may, in good faith, compromise contested or doubtful claims growing out of legitimate banking transactions by accepting transfers of corporate stock for later liquidation to reduce anticipated loss.
- Such conduct does not amount to prohibited “dealing in stocks” when undertaken as an incident to collecting, securing, or settling banking claims rather than as a regular stock-trading business.
- The Baltimore bank’s actions in resolving the Bayne & Co. matter through stock transfers were within national-bank powers.

## Legal Principles

- National banks possess enumerated powers plus “all such incidental powers as shall be necessary to carry on the business of banking.”
- In adjusting and compromising contested claims arising from legitimate banking transactions, a national bank may agree to terms exceeding strict legal liability when done in good faith to avert or diminish loss.
- Accepting corporate stock in satisfaction of a doubtful debt, with a view to later sale or conversion to money to reduce an anticipated loss, falls within incidental banking powers.
- Although regular “dealing in stocks” is impliedly unauthorized for national banks, incidental acquisition and temporary holding of stock to protect or realize on banking claims is permissible.

## Conclusion

The Court upheld a national bank’s authority to accept and later liquidate corporate stock as part of a good-faith compromise of contested, loss-producing banking claims, distinguishing such protective settlements from unauthorized stock dealing as a business.


First Nat'l Bank of Charlotte v. Nat'l Exch. Bank of Balt., 92 U.S. 122 (1875)