## Facts

- Henry Picket owed an antecedent debt to Manufacturers’ National Bank of Chicago (the national bank).
- Picket executed ten promissory notes for $5,000 each, payable to his own order, endorsed them to People’s Bank, and delivered them to the national bank to negotiate to People’s Bank.
- The arrangement contemplated that the proceeds from People’s Bank would be used to cancel Picket’s prior indebtedness to the national bank.
- The national bank’s vice-president, a director and active manager, endorsed the notes in the national bank’s name as guarantor of payment at maturity, without formal board authorization.
- The national bank transmitted the notes to People’s Bank, debited People’s Bank’s account $50,000 on its books, and applied the proceeds to discharge Picket’s prior debt to the national bank.
- The notes were dishonored at maturity; they were protested and notice of dishonor was given to the national bank.
- People’s Bank sued the national bank to recover on the guaranty.

## Issues

1. Whether federal banking law prohibited a national bank from guaranteeing payment of a promissory note negotiated by it in the course of a transaction benefiting the bank.
2. Whether the national bank was bound by a guaranty executed in its name by its vice-president, absent express board authorization, where the bank accepted and retained the transaction’s benefits.

## Decision

- The Supreme Court reversed the judgment for the national bank and remanded.
- A national bank was not prohibited from guaranteeing payment of the notes in these circumstances as an incident to its banking business.
- The bank was bound by the vice-president’s guaranty; his authority was presumed as against a good-faith counterparty.
- By retaining and using the proceeds to satisfy its own antecedent debt, the bank was estopped to deny the officer’s authority, making the guaranty binding as if expressly authorized.

## Legal Principles

- A national bank has implied powers to undertake acts incidental to the business of banking, including guaranteeing a negotiable instrument when the guaranty is connected to the bank’s negotiation of the instrument and serves the bank’s legitimate financial interest.
- When a corporation’s senior managing officer executes an obligation in the corporate name within the apparent scope of management functions, and the corporation accepts and retains the benefits of the transaction, the corporation is estopped to deny the officer’s authority as against a party dealing in good faith.
- Retention and enjoyment of transaction proceeds can ratify and bind the corporation to an officer’s act to the same extent as express authorization.

## Conclusion

The Court held that the guaranty was within a national bank’s incidental powers in a transaction serving the bank’s own interest and that, having retained the proceeds, the bank could not avoid liability by denying the vice-president’s authority.


People’s Bank v. Manufacturers’ Nat’l Bank, 101 U.S. 181 (1879)