Hartford Credit Union borrowed from the Ohio Central Credit Union, Inc. (OCCU),

Question

Hartford Credit Union borrowed from the Ohio Central Credit Union, Inc. (OCCU), in a series of loans, a total of $550,000. This amount exceeded 25 percent of Hartford's capital and surplus, which was in violation of Ohio state law. The state statute provided that a credit union could exceed this amount if it received prior specific authorization by a supervisor named by the state. Hartford did not receive this prior authorization. When Hartford became insolvent, Ted Wagner was appointed as the liquidator to wind up the affairs of the dissolved corporation. Wagner refused to pay the full amount of the debt owed to OCCU, claiming that the loans were made in violation of state law and that therefore OCCU had committed an ultra vires act when it loaned Hartford the money. OCCU brought a lawsuit against Wagner seeking to compel him to repay the loan. How would a court most likely rule in regard to the loans?

a. The loans were an ultra vires act, because they were beyond the scope of Hartford's authority.

b. The loans were not an ultra vires act, because the corporation was dissolved.

c. The loans were an ultra vires act, because they were prohibited by law.

d. The loans have to be repaid, because only Hartford's officers, directors, and shareholders have standing to make the claim of ultra vires; the liquidator does not.

Explanation / Answer

a. The loans were an ultra vires act, because they were beyond the scope of Hartford's authority

Yes, the loan made was ultra vires because the state law was violated and there was no precaution taken to restrict or prevent the same in this context as well.

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