BAN IS 
 
THE LIBRARY OF THE 
 UNIVERSITY OF 
 NORTH CAROLINA 
 
 the collection of 
 
 NORTH CAROLINIANA 
 ENDOWED BY 
 JOHN SPRUNT HILL 
 CLASS OF 1889 
 
 Cp332.1 
 
 P33b 
 
Pell’s Monographs on the Law of North Carolina 
 
 MONOGRAPH No. 5 
 
 BANKS AND BANKING 
 
 BY 
 
 GEORGE P. PELL, LL.B. 
 
 Late a Judge of the Superior Court, Author of Pell’s Revisal 
 and Pell’s Forms of Pleading and Practice 
 
 1923 
 
Pell’s Monographs on the Law of North Carolina 
 
 MONOGRAPH No. 5 
 
 BANKS AND BANKING 
 
 BY 
 
 GEORGE P. PELL, LL.B. 
 
 > 
 
 Late a Judge of the Superior Court, Author of Pell’s Revisal 
 and Pell’s Forms of Pleading and Practice 
 
 RALEIGH 
 
 Bynum Printing Company 
 1923 
 
Digitized by the Internet Archive 
 in 2019 with funding from 
 University of North Carolina at Chapel Hill 
 
 / 
 
 https://archive.org/details/banksbankingOOpell 
 
BANKS AND BANKING 
 
 Chapter I 
 
 CONTROL AND REGULATION 
 
 In general. Both State and National banks are supervised by 
 officials of the Government clothed with complete and strict powers, 
 the State banks being supervised by the State Corporation Commis¬ 
 sion 1 and the National banks by the Comptroller of the Currency. 
 
 Supervision of State banks. The Corporation Commission is 
 charged with the execution and enforcement of all laws relating to 
 State banks, and for their more complete and thorough enforcement 
 it is given broad power to promulgate such rules, regulations and 
 instructions as may appear necessary to protect depositors, creditors, 
 stockholders and the public in their relations with such banks. 2 The 
 statute prescribes the kind of banks which are within the Commis¬ 
 sion’s supervisory power as being such corporations, partnerships, 
 firms or individuals as receive, solicit or accept money or its 
 equivalent, on deposit as a business, but not building and loan asso¬ 
 ciations, Morris plan companies, industrial banks or trust companies 
 not so receiving money. 3 The law will not allow the‘chartering of 
 any corporation or the advertising of the same with the word “bank,” 
 “banking,” “banker” or “trust” in its name except such as come 
 under the supervision of the Corporation Commission. 1 
 
 Authority for issuing charter. When a copy of the certificate 
 of incorporation of a proposed State bank is submitted by the Sec¬ 
 retary of State to the Corporation Commission it is its duty to ex¬ 
 amine into all the facts connected with the formation of such pro¬ 
 posed corporation, including its location and proposed stockholders, 
 and if it appear that such corporation, if formed, will be lawfully 
 entitled to commence the business of banking, the Corporation Com¬ 
 mission must so certify to the Secretary of State, who must there¬ 
 upon issue and record such certificate of incorporation. But the 
 Corporation Commission may refuse to so certify to the Secretary 
 of State, if upon examination and investigation it has reason to 
 believe that the proposed corporation is formed for any other than 
 legitimate banking business, or that the character, general fitness, 
 
 *1921, chap. 4, sec. 63. 
 2 1921, chap. 4, sec. 63. 
 
 3 1921, chap. 4, sec. 1. 
 4 1921, chap. 4, sec. 81. 
 
252 
 
 Banks and Banking 
 
 and responsibility of the persons proposed as stockholders in such 
 corporation are not such as to command the confidence of the com¬ 
 munity in which said bank is proposed to he located; or that the 
 public convenience and advantage will not he promoted by its estab¬ 
 lishment; or that the name of the proposed corporation is likely to 
 mislead the public as to its character or purpose; or if the proposed 
 name is the same as one already adopted or appropriated by an 
 existing bank in this State or so similar thereto as to be likely, to 
 mislead the public. 1 
 
 Authority to begin business. Before any company shall begin 
 the business of banking, banking and trust, fiduciary, or surety busi¬ 
 ness under a State charter, at least fifty per cent of its capital stock 
 must be paid in in cash, and there must be filed with the Corpora¬ 
 tion Commission a statement under oath by the president or cashier, 
 containing the names of all the directors and officers, with the date 
 of their election or appointment, term of office, residence and post- 
 office address of each, the amount of capital stock of which each is 
 the owner in good faith and the amount of money paid in on account 
 of the capital stock. Nothing can be received in payment of capital 
 stock but money. Upon filing of such statement, the Corporation 
 Commission must examine into its affairs, ascertain especially the 
 amount of money paid in on account of its capital, the name and 
 place of residence of each director, the amount of capital stock of 
 which each is the owner in good faith, and whether such corporation 
 lias complied with all the provisions of law required to entitle it to 
 engage in business. If upon such examination it appears to the 
 Corporation Commission that it is lawfully entitled to commence 
 the business of banking, banking and trust, fiduciary, or surety busi¬ 
 ness, it must give to such corporation a certificate signed by the 
 chairman of the Corporation Commission, attested by the secretary 
 of the Commission, that such corporation has complied with all the 
 provisions of the law required to be complied with, before commenc¬ 
 ing the business of banking, and that such corporation is authorized 
 to commence business. 2 
 
 IIeports of condition. Every State bank is required to make to 
 the Corporation Commission not less than three reports during each 
 year, according to the form which may be prescribed by said Com¬ 
 mission; which report must be verified by the oath or affirmation 
 of the president, vice-president, cashier, secretary, or treasurer of 
 
 1 1921, chap. 4, secs. 4, 5; 1921 (extra 
 session) chap. 56, sec. 1. 
 
 2 1921, chap. 4, secs. 6, 7, and 8. 
 
CoXTBOL AM* EeGULATIOX 
 
 _ 
 
 said bank, and in addition thereto, two of the directors, in the case 
 of incorporated hanks, and in other uses by the oath or affirmat 
 of the partners, members of the him. or individual owner. Each 
 ^uch report must exhibit in detail and under appropriate heads the 
 resources, assets, and liabilities of such bank at the close of business 
 on any past day by ~he Corporation Commission specified, and show 
 the amount of money on deposit in such bank to the credit of the 
 State or of any official thereof, and must be transmitted to the Cor¬ 
 poration Commission within ten days after the receipt of a request 
 or requisition therefor from the Commission, and in a form ] re¬ 
 scribed by the Corporation Commission. A summary of such report 
 mu ; t be published in a newspaper published in the place where the 
 bank is located, or if there is no newspaper in the place, then in 'he 
 nearest one published thereto in the county in which such bank is 
 established. Proof of such publication must be furnished the Cor¬ 
 poration Commission in such form as may be prescribed bv it. 
 
 Every person, firm. poration. or partnership doing a banking 
 bu siness. or a hanking business in connection with anv other busi- 
 
 c 
 
 ness under a State charter, must make to the Corporation Commis¬ 
 sion not less than three reports during each year, on forms pre¬ 
 scribed by the Corporation Commission, which reports must be pub¬ 
 lished a ; are the reports of other banking institutions. If 
 son. firm, corporation, or copartnership shows by said reports, or 
 bv the examination of anv State bank examiner, that such liabilities 
 
 «. c. 
 
 are equal to the amoimt of the capital stock of such bank, the Cor¬ 
 poration Commission has authority and is empowered to make such 
 rules and regulations for the reduction of said liabilities as it mav 
 
 c 
 
 deem necessary for the protection of the creditors and depositors of 
 such banking institution. 
 
 The Corporation Commission may call for special reports when¬ 
 ever in its judgment it is necessary to inform it of the condition of 
 any State bank, or to obtain a full and complete knowledge of its 
 affairs. Said reports shall be in and according to the form pre¬ 
 scribed bv the Corporation Commission, and must be verified in the 
 manner provided by law. and must lie published if required by the 
 Commission so to be. 
 
 Every bank failing to make and transmit an port which the 
 Corporation Commission is authorized to require, and in and accord¬ 
 ing to the form prescribed by said Commission, within ten days after 
 the receipt of a request or requisition therefor, or failing to publish 
 the reports as required, must forthwith be notified by the C orpora- 
 
254 
 
 Banks and Banking 
 
 tion Commission, and if sucli failure continue for live days after 
 the receipt of such notice, such delinquent bank is subject to a pen¬ 
 alty of two hundred dollars. 1 
 
 Communications from Corporation Commission, The Cor¬ 
 poration Commission or any State bank examiner may address com¬ 
 munications to any State bank or officer thereof relating to any ex¬ 
 amination or investigation made of such bank, or containing sug¬ 
 gestions or recommendations as to its conduct, and when the writer 
 of such communications requires it, such communications must be 
 submitted to the executive committee or board of directors of such 
 bank and duly noted in the minutes of such meeting. The submis¬ 
 sion of such communications must be certified to the Corporation 
 Commission by three members of such committee or board. 2 
 
 t 
 
 Manner of keeping accounts. The manner of keeping books, 
 accounts and records of State banks, such as will tend to produce 
 uniformity in the books, accounts and records of banks of the same 
 class, may be prescribed by the Corporation Commission. 3 
 
 Examinations. Every State bank is required to be examined as 
 often as the Commission may deem it necessary, at least once a 
 year, by a duly appointed State bank examiner. 4 Eor the purpose 
 of making such examination the officers of a bank are required to 
 submit and surrender its books, assets, papers and concerns to the 
 examiner, who may retain their possession for such length of time 
 as may be necessary. The examiner may summon any person to 
 appear before him and testify, and may administer an oath thereto. 
 If any officer of a bank refuse to surrender the books, assets, papers, 
 and concerns aforesaid, or shall refuse to be examined under oath 
 touching the affairs of such bank, the examiner may take possession 
 of the property and business of the bank and liquidate its affairs. 5 
 
 Examiners may make arrest. When it shall appear to any ex¬ 
 aminer, by examination or otherwise, that any officer, agent, em¬ 
 ployee, director, stockholder, or owner of any State bank has been 
 guilty of a violation of the criminal laws of this State relating to 
 banks, it is his duty to hold and detain such person or persons until 
 a warrant can be procured for his arrest; and for such purposes such 
 examiner has all the powers of peace officers of such county, and 
 may make arrest without warrant for past offenses. Upon report of 
 his action to the Corporation Commission, it may direct the release 
 
 1 1921, chap. 4, secs. 64-67; 1923, chap. 3 1921, chap. 4, sec. 70.' 
 
 148, sec. 1; 1923, chap. 211, sec. 1. 4 1921, chap. 4. sec. 72. 
 
 2 1921, chap. 4, sec. 69. 5 1921, chap. 4, secs. 73, 75. 
 
Control and Regulation 
 
 255 
 
 of the person or persons so held, or, if in its judgment such person 
 or persons should he prosecuted, the Commission must cause the 
 solicitor of the judicial district in which such detention is had to 
 be promptly notified. 1 
 
 Removal of officers and employees. The Corporation Com¬ 
 mission may require the immediate removal from office of any officer, 
 director, or employee of any State bank who shall he found to he 
 dishonest, incompetent, or reckless in the management of the affairs 
 of the bank, or who persistently violates the laws of this State or 
 the lawful orders, instructions, and regulations issued by the Cor¬ 
 poration Commission. 2 
 
 Limitation on investments. All investments by State banks must 
 be made under such rules and regulations as the board of direc¬ 
 tors may prescribe. A State bank can invest only in such real estate 
 as is necessary for the convenient transaction of its business, includ¬ 
 ing furniture and fixtures, with its banking offices and other apart¬ 
 ments to rent as a source of income, which investment must not exceed 
 fifty per cent of its paid-in capital stock and permanent surplus; 
 also in such as is mortgaged to it in good faith by way of security 
 for loans made or moneys due to such bank; also in such as has been 
 purchased at sales upon foreclosures of mortgages and deeds of trust 
 held or owned by it or on judgments or decrees obtained and rendered 
 for debts due to it, or in settlements affecting security of such debts. 
 All real estate purchased at foreclosure or execution sales must be 
 sold by the bank within one year thereafter, unless, upon applica¬ 
 tion of the board of directors, the Corporation Commission extends 
 the time within which such sale shall be made. 3 
 
 The investment in any bonds or other interest-bearing securities 
 of any one firm, individual or corporation, unless it be the interest- 
 bearing obligations of the United States, State of ATorth Carolina, 
 city, town, township, county, school district, or other political sub¬ 
 division of the State of ATorth Carolina, by any State bank must at 
 no time be more than twenty-five per cent of the capital and perma¬ 
 nent surplus of any bank having a paid-in capital of two hundred 
 and fifty thousand dollars or less; nor more than twenty per cent 
 of the capital and permanent surplus of any bank having a paid-in 
 capital of more than two hundred and fifty thousand dollars but 
 not more than five hundred thousand dollars; nor more than fifteen 
 per cent of the capital and permanent surplus of any bank having 
 
 3 1921, chap. 4, secs. 26, 49; 1923, chap. 
 148, sec. 5. 
 
 1 1921, chap. 4, sec. 76. 
 2 1921, chap. 4, sec. 74. 
 
25G 
 
 Banks and Banking 
 
 a paid-in capital of more than five hundred thousand dollars hut not 
 more than seven hundred and fifty thousand dollars; nor more than 
 ten per cent of the capital and permanent surplus of any bank having 
 a paid-in capital of more than seven hundred and fifty thousand 
 dollars. But if a corporation owns the land, building or buildings 
 occupied by such bank as its banking home, it may invest in its stocks 
 and bonds to the extent of fifty per cent of its capital and permanent 
 surplus. 1 
 
 No State bank is allowed to invest in the capital stock of any 
 other State or National bank. But it can invest in the capital stock 
 of banks organized under that act of Congress commonly known as 
 the “Edge Act,” or central reserve banks having a capital stock of 
 more than one million dollars, upon such terms as may be agreed 
 upon. To constitute a central reserve bank as contemplated by law, 
 at least fifty per cent of the capital stock of such bank must be owned 
 by other banks. The investment of any bank in the capital stock of 
 such central reserve bank or bank organized under that act of Con¬ 
 gress commonly known as the “Edge Act” must at no time exceed 
 ten per cent of the paid-in capital and permanent surplus of the bank 
 making same. 
 
 No State bank is allowed to invest more than fifty per cent of its 
 permanent surplus in the stocks of other corporations, firms, partner¬ 
 ships, or companies, unless such stock is purchased to protect the 
 bank from loss. Any stocks owned or acquired in excess of the limi¬ 
 tations imposed must be disposed of at public or private sale within 
 six months after the date of acquiring same, and, if not so disposed 
 of, they must be charged to profit and loss account and no longer 
 carried on the books as an asset. The Corporation Commission can 
 extend the time of sale and the charging off the books of the bank 
 if, in its judgment, it is for the best interest of the bank. 2 
 
 The board of directors may, by resolution duly passed at a meet¬ 
 ing of the board, request the Corporation Commission to temporarily 
 suspend the limitation on investments as same may apply to any 
 particular investment which said bank desires to make in excess of 
 the limitations as above. Upon receipt of a duly certified copy of 
 such resolution, the Corporation Commission may, in its discretion, 
 suspend the limitation as to such investment. 3 
 
 Limitation on loans. The total direct and indirect liabilities of 
 any person, firm or corporation, other than municipal corporations, 
 
 i 1921, chap. 4, sec. 27. 
 
 2 1921, chap. 4, sec. 28. 
 
 3 1921, chap. 4, sec. 30. 
 
Control and Regulation 
 
 257 
 
 a firm the liabilities of the several members thereof, shall at no time 
 exceed twenty-five per cent of the capital stock and permanent sur¬ 
 plus of any bank having a paid-in capital of two hundred and fifty 
 thousand dollars or less; not more than twenty per cent of the capital 
 and permanent surplus of any bank having a paid-in capital of more 
 than two hundred and fifty thousand dollars but not more than five 
 hundred thousand dollars; not more than fifteen per cent of the capi¬ 
 tal and permanent surplus of any hank having a paid-in capital of 
 more than five hundred thousand dollars but not more than seven 
 hundred and fifty thousand dollars; and not more than ten per cent 
 of the capital and permanent surplus of any bank having a paid-in 
 capital of more than seven hundred and fifty thousand dollars. The 
 discount of bills of exchange drawn in good faith against actually 
 existing values, the discount of trade acceptances or other commer¬ 
 cial or business paper actually owned by the person, firm, or cor¬ 
 poration negotiating the same, and the purchase of any notes secured 
 by not less than a like face amount of bonds of the United States or 
 State of North Carolina, or certificates of indebtedness of the United 
 States, are not to be considered as money borrowed within the mean¬ 
 ing of the above. 1 The words “commercial paper,” also used above, 
 is defined to mean a promissory note. The words “trade accept¬ 
 ances,” used above, mean drafts or bills of exchange issued or drawn 
 for agricultural, industrial or commercial purposes, or the proceeds 
 of which have been used or are to be used for such purposes, but not 
 notes, drafts, or bills of exchange covering merely investments, or 
 
 bonds, or other investment securities, except bonds and notes of the 
 Government of the United States and State of North Carolina. Such 
 notes, drafts, and bills of exchange must have a maturity at the 
 time of discount of not more than ninety days, except when drawn 
 or issued for agricultural purposes, or based on livestock, when such 
 maturities shall not exceed nine months from the date thereof, and 
 must be actually owned by the person, firm or corporation negoti¬ 
 ating the same." 
 
 The board of directors may, by resolution duly passed at a meet¬ 
 ing of the board, request the Corporation Commission to temporarily 
 suspend the limitation on loans as same may apply to any particular 
 loan which said bank desires to make in excess of the limitations as 
 
 sec. 6. 
 
 1 1921, chap. 4, sec. 29; 1923, chap. 148, 
 
 2 1921, chap. 4, sec. 36. 
 3 1923, chap. 148, sec. 6. 
 
258 
 
 Banks and Banking 
 
 above. Upon receipt of a duly certified copy of such resolution, the 
 Corporation Commission may, in its discretion, suspend the limita¬ 
 tion as to such loan. 1 
 
 Reserve; depository for, designated. Every State bank must at 
 all times have on hand or on deposit, with approved reserve deposi¬ 
 tories, instantly available, funds in an amount equal to at least fifteen 
 per cent of the aggregate amount of its demand deposits, and five 
 per cent of the aggregate amount of its time deposits. But no re¬ 
 serve is required on deposits secured by a deposit of United States 
 bonds or the bonds of the State of North Carolina. Any bank that 
 is now or may hereafter become a member of the Federal Reserve 
 Bank must maintain the same reserve with respect to deposits as is 
 required of other members of such Federal Reserve Bank. The 
 reserve shall consist of cash on hand and balances payable on de¬ 
 mand, due from other approved solvent banks, which have been 
 designated depositories. 2 It is the duty of the board of directors 
 to designate depositories or reserve banks in which a part of such 
 bank’s reserve shall be deposited subject to payment on demand. A 
 copy of the resolution designating such depository must be certified 
 to the Corporation Commission, and the depository so designated 
 is subject to the approval of the Corporation Commission, which 
 approval may be withdrawn at any time for cause which said Com¬ 
 mission may deem adequate. 3 
 
 *1921, chap. 4, sec. 30. 
 2 1921, chap. 4. sec. 31, 32. 
 
 3 1921, chap. 4, sec. 55 
 
Chapter II 
 
 BANKING CORPORATIONS AND ASSOCIATIONS 
 
 Incorporation, organization, and incidents of existence. Any 
 
 number of persons, not less than five, who may be desirous of form¬ 
 ing a company under the banking laws of this State and engaging 
 in the business of establishing, maintaining, and operating banks of 
 discount arid deposit to be known as commercial banks, or engaging 
 in the business of establishing, maintaining, and operating offices of 
 loan and deposit to be known as savings banks, or of establishing, 
 maintaining, and operating banks having departments for both classes 
 of business, or operating banks engaged in doing a trust, fiduciary, 
 and surety business, shall be incorporated by filing a certificate of 
 incorporation, under their hands and seals, in the office of the Secre¬ 
 tary of State, whereupon he must forthwith transmit to the Corpora¬ 
 tion Commission a copy thereof, which Commission must thereupon 
 examine into all the facts connected with the matter as set forth in 
 the foregoing chapter, paragraph headed “Authority for issuing char¬ 
 ters,” and refuse or issue its certificate to the Secretary of State that 
 said corporation is entitled to commence the business of banking. 
 If it grants such certificate, then, upon the Secretary of State trans¬ 
 mitting a copy of the certificate of the Corporation Commission, and 
 the recording of same in the office of the clerk of the Superior Court 
 of the county wherein is to be located the principal office of the cor¬ 
 poration, and upon the filing of a copy of said certificate in the office 
 of the Corporation Commission, the said persons become a body poli¬ 
 tic and corporate under the name stated in the certificate. The 
 charter, however, is void unless the organization is completed and 
 bank opened for business in six months from date of filing its cer¬ 
 tificate of incorporation with the Secretary of State, unless the Cor¬ 
 poration Commission for cause extends the time for such organiza¬ 
 tion and beginning of business. 1 
 
 Powers and duties ; general corporation law applicable. 
 In addition to the powers conferred by law upon private corpora¬ 
 tions, a State bank is given the power to exercise by its board of 
 directors, or duly authorized officers and agents, subject to law, all 
 such powers as shall be necessary to carry on the business of banking, 
 by discounting and negotiating promissory notes, drafts, bills of 
 exchange, and other evidences of indebtedness, by receiving deposits, 
 
 1 1921, chap. 4, secs. 2, 4, 5 ; 1921 (extra 
 
 session), chap. 56, sec. 1. 
 
260 
 
 Banks and Banking 
 
 by buying and selling exchange, coin, and bullion, by loaning money 
 on personal security or real and personal property, at the time of 
 making loans or discounts, taking and receiving interest or discounts 
 in advance; to adopt regulations for the government of the corpora¬ 
 tion not inconsistent with the Constitution and laws of this State; 
 to purchase, hold, and convey real estate for the purposes and under 
 the limitations set forth in Chapter I of this monograph. 1 The 
 corporate powers, business, and property of State banks are exer¬ 
 cised, conducted, and controlled by boards of directors. 2 
 
 All provisions of law relating to private corporations, and particu¬ 
 larly those enumerated in the chapter of the Consolidated Statutes 
 entitled “Corporations,” not inconsistent with the State Banking 
 Act or with the business of banking, are applicable to banks. 3 
 
 Transactions preliminary to beginning business. ~No State 
 banking corporation is allowed to transact any business except such 
 as is incidental and necessarily preliminary to its organization until 
 it lias been authorized to do so by the Corporation Commission. 4 
 
 I)e fective organization. The fact that there is a defect in the 
 organization of a bank will not relieve a bank president of his lia¬ 
 bility cast upon him by constructive notice of the management of its 
 affairs by the cashier and other subordinate officers, if he has con¬ 
 tributed the influence of his reputation to give undeserved credit to 
 a spurious corporation. 5 
 
 Br anciies. Any State bank may establish branches in the city 
 
 «-/ «/ 
 
 in which it is located, or elsewhere, after having first obtained the 
 written approval of the Corporation Commission, which approval 
 may be given or withheld by the Corporation Commission, in its 
 discretion, and shall not be given until it shall have ascertained to 
 its satisfaction that the public convenience and advantage will be 
 promoted by the opening of such branch. Such branch banks must 
 be operated as branches of and under the name of the parent bank, 
 and under the control and direction of the board of directors and 
 executive officers of said parent bank. The board of directors of the 
 parent bank must elect a cashier and such other officers as may be 
 required to properly conduct the business of such branch, and a 
 board of managers or loan committee must be responsible for the 
 conduct and management of said branch, but not of the parent bank 
 
 1 1921, chap. 4, sec. 26. 
 
 2 1921, chap. 4, sec. 48. 
 
 3 1921, chap. 4, sec. 87. 
 
 4 1921, chap. 4, sec. 9. 
 3 Hauser v. Tate, 85-82. 
 
Banking Corporations and Associations 
 
 261 
 
 or of any branch save that of which they are officers, managers, or 
 committee. The Corporation Commission is not allowed to authorize 
 the establishment of any branch the paid-in capital stock of whose 
 parent bank is not sufficient in an amount to provide for the capital 
 of at least fifteen thousand dollars for the parent bank, and at least 
 fifteen thousand dollars for each branch which it is proposed to 
 establish in cities or towns of three thousand population or less; nor 
 less than thirty thousand dollars in cities and towns whose popula¬ 
 tion exceeds three thousand but does not exceed ten thousand; nor 
 less than fifty thousand dollars in cities and towns whose population 
 exceeds ten thousand but does not exceed twenty-five thousand; nor 
 
 less than one hundred thousand dollars in cities and towns whose 
 population exceeds twenty-five thousand. 1 The parent bank stands 
 to such branch bank in the relation of principal to agent, and all 
 assets and debts of the branch bank are assets and debts of the prin¬ 
 cipal bank. 2 
 
 The fact that a bank’s charter says that its principal place of busi¬ 
 ness shall be at a certain place does not by implication give it the 
 power to establish branches/’’ 
 
 The weight of authority is that a bank and its branches constitute 
 but one corporation. 4 
 
 Consolidation. A State bank may consolidate with or transfer 
 its assets and liabilities to another bank. Before such consolidation 
 or transfer shall become effective, each bank concerned in such con¬ 
 solidation or transfer must file, or cause to be tiled, with the Corpo¬ 
 ration Commission certified copies of all proceedings had bv its 
 directors and stockholders, which said stockholders’ proceedings must 
 set forth that holders of at least two-thirds of the stock voted in the 
 affirmative on the proposition of consolidation or transfer. Such 
 stockholders’ proceedings must also contain a complete copy of the 
 agreement made and entered into between said banks with reference 
 to such consolidation or transfer. Upon the filing of such stock¬ 
 holders’ and directors’ proceedings as aforesaid, the ( orporation 
 Commission must cause to be made an examination of each bank to 
 determine whether the interests of the depositors, creditors, and stock¬ 
 holders of each bank are protected, and that such consolidation or 
 transfer is made for legitimate purposes, and its consent to or 1 ejec¬ 
 tion of such consolidation or transfer must be based upon such 
 examination. Uo such consolidation or transfer can be made vitli- 
 
 1 1921, chap. 4, sec. 43; 1921 
 sion), chap. 56, sec. 2. 
 
 2 Worth v. Bank, 122-397, 29 
 
 (extra ses- 
 S. E. 775. 
 
 3 Morehead Banking Co. v. Tate 122-313, 
 30 S. E. 341. 
 
 1 Worth v. Bank, 122-397, 29 S. E. 775. 
 
262 
 
 Banks and Banking 
 
 out the consent of the Corporation Commission. The expense of 
 such examinations must be paid by such banks. Notice of such con¬ 
 solidation or transfer must be published for four weeks before or 
 after the same is to become effective, at the discretion of the Corpo¬ 
 ration Commission, in a newspaper published in a city, town, or 
 county in which each of said banks is located, and a certified copy 
 thereof must be filed with the Corporation Commission. In case of 
 either transfer or consolidation the rights of creditors must be pre¬ 
 served unimpaired, and the respective companies deemed to be in 
 existence to preserve such rights for a period of three years. 1 
 
 In case of consolidation, when the agreement of consolidation is 
 made, and a duly certified copy thereof is filed with the Secretary of 
 State, together with a certified copy of the approval of the Corpora¬ 
 tion Commission to such consolidation, the banks, parties thereto, 
 will be held to be one company, possessed of the rights, privileges, 
 powers, and franchises of the several companies, but subject to all 
 the provisions of law under which it is created. The directors and 
 other officers named in the agreement of consolidation are required 
 to serve until the first annual meeting for election of officers and 
 directors, the date for which must be named in the agreement. On 
 filing such agreement, all and singular, the property and rights of 
 every kind of the several companies are thereby transferred and 
 vested in such new company, and are as fully its property as they 
 were of the companies parties to the agreement. 2 
 
 Reorganization. Whenever any National or State bank is 
 authorized to dissolve, and shall have taken the necessary steps to 
 effect dissolution, it shall be lawful for a majority of the directors 
 of such bank, upon authority in writing of the owners of two-thirds 
 of its capital stock, with the approval of the Corporation Commis¬ 
 sion, to execute articles of incorporation as provided by law, which 
 articles, in addition to the requirements of law, must further set 
 forth the authority derived from the stockholders of such National 
 bank or State bank, and upon filing the same as provided for the 
 organization of banks, the same becomes a bank under the laws of 
 this State, and thereupon all assets, real and personal, of the dis¬ 
 solved National or State bank by operation of law is vested in and 
 becomes the property of such State bank, subject to all liabilities of 
 such National or State bank not liquidated under the laws of the 
 United States or this State before such reorganization. 3 
 
 1 1921, chap. 4, sec. 12. 
 
 2 1921, chap. 4, sec. 13. 
 
 3 1921, chap. 4, sec. 14. 
 
Banking Corporations and Associations 
 
 263 
 
 Authority to join Federal Reserve System. Any State bank 
 has the power to subscribe to the capital stock and become a member 
 of a Federal Reserve Bank, and upon becoming a member thereof it 
 ’ is vested with all powers conferred upon member banks of the Fed¬ 
 eral Reserve System by terms of the Federal Reserve Act as fully 
 and completely as if such powers were specifically enumerated and 
 described therein, and such powers must be exercised subject to all 
 restrictions and limitations imposed by the Federal Reserve Act, or 
 by regulations of the Federal Reserve Board made pursuant thereto. 
 The right, however, is expressly reserved to revoke or to amend the 
 powers herein conferred. A compliance on the part of any such 
 bank with the reserve requirements of the Federal Reserve Act is 
 held to be a full compliance with the provisions of the laws of this 
 State which require banks to maintain cash balances in their vaults 
 or with other banks, and no such bank is required to carry or main¬ 
 tain reserve other than such as is required under the terms of the 
 Federal Reserve Act. Any such bank continues to be subject to the 
 supervision and examination required by the laws of this State, 
 except that the Federal Reserve Board has the right, if it deems 
 necessary, to make examinations; and the authorities of this State 
 having supervision over such banks may disclose to the Federal 
 Reserve Board, or to the examiners duly appointed by it, all informa¬ 
 tion in reference to the affairs of any bank which has become, or 
 desires to become, a member of a Federal Reserve Bank. 1 
 
 Capital stock; increase and decrease; penalty for falsely adver¬ 
 tising. No State bank can commence business with less capital 
 stock than fifteen thousand dollars in cities or towns of three thou¬ 
 sand population or less; nor less than thirty thousand dollars in 
 cities and towns whose population exceeds three thousand but does 
 not exceed ten thousand; nor less than fifty thousand dollars in cities 
 and towns whose population exceeds ten thousand but does not 
 exceed twenty-five thousand; nor less than one hundred thousand 
 dollars in cities and towns having a population of more than twenty- 
 five thousand; the population to be ascertained by the last preceding 
 National census. Such stock must be divided into shares of fifty or 
 one hundred dollars eachu 
 
 Fifty per cent of the capital stock of every State bank must be 
 paid in cash before it will be authorized to commence business, and 
 the remainder of the capital stock of such bank must be paid in 
 monthly installments of at least ten per cent in cash of the whole 
 
 2 1921, chap. 4, sec. 2. 
 
 1 1921, chap. 4. sec. 42. 
 
Banks and Banking 
 
 264 
 
 capital, payable at the end of each succeeding month from the time 
 it is authorized by the Corporation Commission to commence busi¬ 
 ness, and the payment of each installment must be certified to the 
 Corporation Commission, under oath, by the president or the cashier 
 of the bank. The stock sold by any bank in process of organization, 
 or for an increase of the capital stock, must be accounted for to the 
 bank in the full amount paid for the same. T[o commission or fee 
 is allowed to be paid to any person, association, or corporation for 
 selling such stock. 1 The Corporation Commission must refuse 
 authority to commence business to any bank if commissions or fees 
 have been paid or have been contracted to be paid by it, or by any 
 one in its behalf, to any person, association, or corporation for secur¬ 
 ing subscriptions for or selling stock in such bank. 
 
 Any State bank may increase or decrease its capital stock in the 
 manner provided for other corporations. But no bank is allowed to 
 reduce its capital stock to an amount less than the minimum required 
 bv law. Such reduction is not valid nor will it warrant the cancella¬ 
 
 tion of stock certificates until it has been approved by the Corpora¬ 
 tion Commission. Such approval must not be given except upon a 
 finding by the Corporation Commission that the security of existing 
 creditors of the corporation will not be impaired. 2 
 
 Should any bank advertise in newspaper, letterhead or any other 
 way a larger capital stock than has been actually paid in in cash, 
 such bank shall be subject to a penalty of five hundred dollars for 
 each and every offense. 3 
 
 Impairment of capital stock ; of State banks made good. 
 As to the impairment of the capital stock of National banks, it is 
 held that the decision of the Comptroller of the Currency is con¬ 
 clusive and final on the stockholders and the courts. 4 As to State 
 banks, the Corporation (Commission must notify every bank whose 
 capital shall have become impaired from losses or any other cause 
 and the surplus and undivided profits of such bank are insuf¬ 
 ficient to make good such impairment, to make the impairment good 
 within sixty days of such notice by an assessment upon the stock¬ 
 holders thereof, and it is the duty of the officers and directors of the 
 bank receiving such notice to immediately call a special meeting of 
 the stockholders for the purpose of making an assessment upon its 
 stockholders sufficient to cover the impairment of the capital, payable 
 
 4 Gurley v. Woodbury, 177-70, 97 S. E. 
 754. 
 
 1 1921, cbap. 4, sec. 6. 
 
 2 1921, chap. 4, secs. 10, 11. 
 
 3 1921, chap. 4, sec. 86. 
 
Banking Corporations and Associations 265 
 
 in cash, at which meeting such assessment must be made. Such 
 bank may reduce its capital to the extent of the impairment, as pro¬ 
 vided by law. 
 
 If any stockholder of such State bank neglects or refuses to pay 
 such assessment as provided, it is the duty of the board of directors 
 to cause a sufficient amount of the capital stock of such stockholder 
 or stockholders to be sold at public auction, upon thirty days notice 
 given by posting such notice of sale in the office of the bank and pub¬ 
 lishing such notice in a newspaper in the place where the bank is 
 located, and, if none, then in a newspaper circulating in the county 
 in which the bank is located, to make good the deficiency, and the 
 balance, if any, shall be returned to the delinquent shareholder or 
 shareholders. If any such bank shall fail to cause to be paid in such 
 deficiency in its capital stock for three months after receiving such 
 notice from the Corporation Commission, the Corporation Commis¬ 
 sion may forthwith take possession of the property and business of 
 such bank until its affairs be finally liquidated as provided by law. 
 A sale of stock as provided effects an absolute cancellation of the 
 outstanding certificate, or certificates, evidencing the stock so sold, 
 and makes the certificate null and void, and a new certificate must 
 be issued by the bank to the purchaser of such stock. 1 
 
 Stockholders’ book. The directors must provide a hook in which 
 must be kept the name and resident address of each stockholder, the 
 number of shares held by each, the time when such person became a 
 stockholder, together with all transfers of stock, stating the time 
 when made, the number of shares and by whom transferred, which 
 book must be subject to the inspection of the directors, officers, and 
 stockholders of the bank at all times during the usual hours for the 
 transaction of business. 2 
 
 Undivided profits; surplus; dividends. The term “undivided 
 profits” means the credit balance of the profit and loss account of 
 any bank. The term “net earnings” means the excess of the gross 
 earnings of any bank over expenses and losses chargeable against 
 such earnings during any dividend period. I he term surplus 
 means a fund created pursuant to the provisions of the State Bank¬ 
 ing Act by a bank from its net earnings or undivided piofits, which, 
 to the amount specified and any additions thereto set apait and 
 designated as such, is not available for the payment of dividends, 
 and cannot be used for the payment of expenses 01 losses so long as 
 
 3 1921 (extra session), chap. 56, sec. 3. 
 
 2 1921, chap. 4, sec. 56. 
 
Banks and Banking 
 
 200 
 
 such bank lias undivided profits. 1 The primary purpose of a surplus 
 is the accumulation of a sum against which bad debts may be charged, 
 so that at all times the capital may be kept unimpaired. 2 
 
 The board of directors of any State bank may declare a dividend 
 
 « e/ 
 
 of so much of its undivided profits as they may deem expedient, sub¬ 
 ject to the requirements of law. Before such dividend is declared, 
 not less than twenty-five per cent of the undivided profits of any 
 bank, having a capital stock of fifteen thousand dollars or more, must 
 be carried to the surplus of such bank until its surplus amounts to 
 fifty per cent of its paid-in capital stock; and not less than fifty per 
 cent of the undivided profits of any bank having a capital stock of 
 less than fifteen thousand dollars must be carried to the surplus of 
 such bank until its surplus amounts to one hundred per cent of its 
 paid-in capital stock. In order to ascertain the undivided profits 
 from which such dividend may be made, there shall be charged and 
 deducted from the actual profits: 
 
 ( a ) All ordinary and extraordinary expenses, paid or incurred, 
 in managing the affairs and transacting the business of the bank; 
 
 ( b ) Interest paid or then due on debts which it owes; 
 
 (c) All taxes due; 
 
 (cl) All overdrafts which have been standing on the books of the 
 bank for a period of sixty days or longer; 
 
 ( e) All losses sustained by the bank. In computing the losses, 
 debts owing to it which have become due and which are not in process 
 of collection, and on which interest for one year or more is due and 
 unpaid, unless same are well secured, and debts upon which final 
 judgment has been recovered, but has been for more than one year 
 unsatisfied, and on which also for a period of one year no interest 
 has been paid, unless same are well secured, shall be included. 3 
 
 1 he surplus of any State bank must not be used for the purpose 
 of paying expenses or losses until the credit to undivided profits has 
 been exhausted. But any portion of such surplus may be converted 
 into capital stock and distributed as a stock dividend, provided that 
 such surplus shall not thereby be reduced below fifty per cent of the 
 paid-in capital of such bank having a paid-in capital of fifteen thou¬ 
 sand dollars or more. When the surplus of any bank having a capital 
 stock of less than fifteen thousand dollars shall reach an amount 
 equal to one hundred per cent of its paid-in capital, the board of 
 directors of such bank must declare a dividend of fifty per cent of 
 
 1 1921, chap. 4, sec. 1. 
 
 2 Pullen v. Corp. Commission, 152-548, 68 
 
 S. E. 155. 
 
 3 1921, chap. 4, sec. 58. 
 
Banking Corporations and Associations 
 
 267 
 
 said surplus and distribute the same as a stock dividend. Where the 
 distribution of such a stock dividend would increase the capital stock 
 of any hank to an amount greater than fifteen thousand dollars, the 
 board of directors of such bank may, in its discretion, declare a stock 
 dividend of only so much of said surplus as will be necessary to 
 increase the stock of the said bank to fifteen thousand dollars. 1 
 
 Lien of bank on stock or dividends. Where a bank charter pro¬ 
 vides that the bank shall have a lien on the shares of its stockholders 
 to secure any indebtedness by them to the bank, the lien only extends 
 to the indebtedness directly incurred to the bank, not to indebtedness 
 to third persons acquired by it. The lien is not extended to notes of 
 a shareholder to a third person, taken by the bank as collateral from 
 such person, merely by the fact that the stockholder was then presi¬ 
 dent of the bank. The failure of a bank having a provision for such 
 a lien in its charter to organize within two years after it is chartered, 
 which failure the law provides shall forfeit its charter, cannot be 
 urged against the validity of a lien bv the bank on shares of a stock- 
 
 O O e/ 
 
 holder, but the objection can only be raised by the State in a direct 
 proceeding. 2 
 
 Stock sold if subscription unpaid. Whenever any stockholder 
 of a State bank, or his assignee, fails to pay any installment on the 
 stock when the same is required by law to be paid, the directors of 
 the bank must sell the stock of such delinquent stockholder at public 
 or private sale, as they may deem best, having first given the delin¬ 
 quent stockholder twenty days notice, personally or by mail, at his 
 last known address. If no party can be found who will pay for such 
 stock the amount due thereon to the bank, the amount previously 
 paid is forfeited to the bank, and such stock must be sold, as the 
 directors may order, within thirty days of the time of such forfeit¬ 
 ure, and if not sold, it must be canceled and deducted from the 
 capital stock of the bank. 3 
 
 Stockholders. Wiio are, and record of. The term ‘‘stock¬ 
 holders,” when used in the State Banking Act, applies not only to 
 such persons as appear by the books of the corporation to be stock¬ 
 holders, but also to every owner of stock, legal or equitable, although 
 the same may be on such books in the name of another poison, but 
 does not apply to a person who may hold the stock as collateial foi 
 the payment of a debt. 4 Every State bank must at all times keep a 
 
 1 1921, chap. 4, 
 2 Boyd v. Redd, 
 
 sec. 59. 
 
 120-335, 27 S. E. 35. 
 
 3 1921, chap. 4, sec. 25. 
 4 1921, chap. 4, sec. 21. 
 
2GS 
 
 Banks and Banking 
 
 correct record of the names of all its stockholders, and once in each 
 year, or whenever called upon, file in the office of the Corporation 
 Commission a correct list of all its stockholders, the resident address 
 of each, and the number of shares held by each. 1 
 
 Rights of stockholders. A majority of stockholders of a 
 National bank, who enter into an illegal voting trust agreement, 
 may not divert the funds of the bank for the payment of the expenses 
 of preparing the agreement and of defending an action involving its 
 validity. 2 
 
 As a creditor, a stockholder is entitled only to a dividend in pro¬ 
 portion to other creditors. His liability as a contributor for the 
 benefit of creditors must be distinguished from his character as a 
 simple contract debtor to the bank upon ordinary business trans¬ 
 actions. The money arising from unpaid shares is a trust fund for 
 all the creditors and cannot be affected by any individual trans¬ 
 actions of the stockholder to the prejudice of the other stockholders. 3 
 
 Liability for debts and acts of bank ; transferrer of stock. 
 The stockholders of every bank, notwithstanding exemptions con¬ 
 tained in the charter, are individually responsible, equally and 
 ratably, and not one for another, for all contracts, debts, and engage¬ 
 ments of such corporation, to the extent of the amount of their stocks 
 therein at par value thereof, in addition to the amount invested in 
 such shares. The term “stockholders,” when used in the State Bank¬ 
 ing Act, applies not only to such persons as appear by the books of 
 the corporation to be stockholders, but also to every owner of stock, 
 legal or equitable, although the same may be on such books in the 
 name of another person; but shall not apply to a person who may 
 hold the stock as collateral for the payment of a debt. 4 
 
 This double liability of stockholders is in derogation of the com¬ 
 mon law, and the statute imposing it must be strictly construed. 5 
 It is imposed for the benefit of creditors and attaches by virtue of 
 the statute to the owners of the stock, and the receiver of an insolvent 
 bank can enforce it whenever it appears that the other assets of the 
 bank will be insufficient, and he need not wait until other assets are 
 completely exhausted, though he must first resort to the unpaid sub¬ 
 scriptions on stock. It is intended as a trust for the security of 
 creditors, and such liability cannot, as against creditors or other 
 
 ]}921 chap. 4, sec. 68. “1921, chap. 4, secs. 21, 22. 
 
 -Bank v. Holderness, 160-474, 76 S. E. 5 Smathers v. Bank, 135-410, 47 S E 
 „ 62 f. 893. 
 
 ■‘First Nat. Bank v. Riggins, 124-534 32 
 
 S. E. 801. 
 
Banking Corporations and Associations 269 
 
 stockholders, be released by the corporation. 1 Tlie statute runs 
 against the right to enforce tlie double liability from the time of the 
 suspension of specie payment by the bank. 2 
 
 Persons bolding stock as executors, administrators, guardians, or 
 trustees are not personally subject to any liabilities as stockholders, 
 but the estate and funds in their bands are liable in like manner and 
 to the same extent as the testator, intestate, ward, or person inter¬ 
 ested in such trust fund would be if living and competent to bold 
 stock in his own name. 3 If, however, the fiduciary or trustee at a 
 stockholders’ meeting agrees to become liable for a specific amount, 
 this is an individual liability of the fiduciary or trustee and not of 
 the estate. 4 
 
 No person who has, in good faith and without intent to evade bis 
 liability as a stockholder, transferred bis stock in a State bank on 
 the books of the corporation to any person of full age, previous to 
 any default in the payment of any debt or liability of the corpora¬ 
 tion, is subject to any personal liability on account of the nonpay¬ 
 ment of such debt or liability of tlie corporation, but the transferee 
 of any stock so transferred previous to - any default is liable for any 
 such debt or liability of the corporation, to the extent of such stock, 
 in the sam6 manner as if he bad been such owner at the time the 
 corporation contracted such debt or liability. Xo transfer of tlie 
 shares of stock of an insolvent State bank, made within sixty days 
 prior to its suspension, operates to release or discharge the assignor 
 thereof, but is prima facie evidence that such stockholder assigned 
 the same with knowledge of the insolvency of such bank and with an 
 intent to evade the liability thereon. 5 
 
 Individual liability as an asset. The individual liabilitv 
 created by statute of the shareholders in a bank, beyond the amount 
 of the stock for which they have subscribed, is an asset of the corpo¬ 
 ration available only to the creditors and depositors of the bank; 
 and where the directors of a bank have assumed obligation on cer¬ 
 tain of its worthless paper to so relieve the bank that it may con¬ 
 tinue in business with permission of the Corporation Commission, 
 but upon condition that the bank’s assets be found insufficient to pay 
 its liabilities, they may not successfully assert that the individual 
 liability of the stockholders was included within the meaning of the 
 word “assets” so used by them. A receiver is not required to collect 
 
 1 Smathers y. Western Carolina Bank, 155- 4 Bank v. Cocke, 127-467, 37 S. E. 507. 
 
 283, 71 S. E. 345. 5 1921, chap. 4, sec. 24. 
 
 2 Long v. Bank, 90-405. 
 
 3 1921, chap. 4. sec. 23; Smathers v. 
 
 Western Carolina Bank, 155-283, 71 S. E. 
 
 345. 
 
270 
 
 Banks and Banking 
 
 in all the bank's assets before collecting* the obligation assumed by 
 the directors when it then appears that the bank's creditors would 
 not be paid in full. 1 
 
 Officers and agents. Directors. Every director of a State bank 
 chosen after the eighteenth of February, one thousand nine hundred 
 and twenty-one, must be the owner and holder of shares of stock in 
 the bank having a par value of not less than live hundred dollars, if 
 such bank shall have a capital stock of more than fifteen thousand 
 dollars, and not less than tivo hundred dollars if such bank shall have 
 a capital stock of fifteen thousand dollars or less. And every such 
 director must hold such shares in his own name, unpledged and un¬ 
 encumbered in any way. The office of any director at any time 
 holding less stock than above required shall immediately become 
 vacant, and the remaining directors must declare his office vacant 
 
 and proceed to fill such vacancy forthwith. Not less than three- 
 fourths of the directors of every State bank must be residents of the 
 State of North Carolina. 2 Each director must, within thirtv days 
 after his election, take and subscribe, in duplicate, an oath that he 
 will diligently and honestly perform his duties in such office and 
 that he is the owner in good faith of the shares of stock of the bank 
 required to qualify him for such office, standing in his own name on 
 its books. 3 
 
 Committees of directors. The board of directors of a State 
 bank must appoint an executive committee or committees, each of 
 which shall be composed of at least three of its members, with such 
 duties and powers as are defined by the regulations or by-laws, who 
 shall serve until their successors are appointed. Such executive 
 committee or committees must meet as often as the board of directors 
 may require, which shall not be less frequently than once each month, 
 and approve or disapprove all loans and investments. 4 
 
 A committee of at least three directors or stockholders of each 
 State bank must be appointed annually to examine or to superintend 
 the examination of the assets and the liabilities of the bank, and to 
 
 report to the board of directors the result of such examination. The 
 committee, with the approval of the board of directors, may provide 
 tor such examination by a certified public accountant or clearing¬ 
 house examiner in any city where such examination is provided for 
 by the rules of such clearing-house association. A copy of such 
 
 ’Hill v. Smathers, 173-642, 92 S. E. 607. 
 -’1921, chap. 4, sec. 51. 
 
 3 1921, chap. 4, sec. 52. 
 4 1921, chap. 4, sec. 49. 
 
Banking Corporations and Associations 
 
 271 
 
 report of examination, required to be made, attested, and verified 
 under oath by the signature of at least three members of such com¬ 
 mittee, must forthwith be filed with the Corporation Commission. 1 
 
 Officers and employees give bond. The active officers and 
 employees of any State bank, before entering upon their duties, must 
 give bond to the bank in a bonding company authorized to do busi¬ 
 ness in North Carolina, in the amount to be required by the direc¬ 
 tors, in such form as may be prescribed or approved by the Corpora¬ 
 tion Commission. The Corporation Commission, or directors of 
 such bank, may require an increase of the amount of such bond 
 whenever they may deem it necessary. If injured by the breach of 
 any bond given, the bank so injured may put the same in suit and 
 recover such damages as it may have sustained. 2 
 
 Liability of directors as to bank and stockholders. The 
 relation of a director to the depositors and creditors of a bank is that 
 of a trustee to his cestui que trust. 3 Any director of any State bank 
 who shall knowingly violate, or who shall knowingly permit to be 
 violated by any officers, agents or employees of such bank, any of 
 the provisions of the State Banking Act, is liable personally and 
 individually for all damages which the bank, its stockholders or any 
 other person shall have sustained in consequence of such violation. 4 
 Directors, however, of State or National banks are not insurers of 
 the fidelity of the officers or agents whom they appoint, nor are they 
 responsible for losses caused by the wrongful acts of such officers or 
 agents, unless there was gross negligence in making such appoint¬ 
 ment or a lack of proper supervision.' 1 W hile directors are bound 
 to exercise ordinary skill and are liable for losses resulting from 
 mismanagement of the affairs and business of the bank, they are not 
 liable for excusable mistakes concerning the law, and for errors of 
 judgment, either as to the law or the management, when acting in 
 good faith, though good faith will not excuse them when there is 
 lack of the proper care, attention and circumspection in the affairs 
 of the corporation which is exacted of them as trustees. 1 hey must 
 manage the affairs and business of the bank according to the charter 
 and by-laws, and use ordinary diligence to supervise the conduct of 
 their office and to understand the condition of the bank, and if the} 
 do not, and loss ensues, they are liable for all losses their misconduct 
 
 1 1921, chap. 4, sec. 54. 
 
 2 1921, chap. 4, sec. 61; 1921 (extra ses¬ 
 
 sion), chap. i8, sec. 1. 
 
 3 Solomon v. Bates, 118-311, 24 S. E. 478. 
 4 1921, chap. 4, sec. 53. 
 
 5 Solomon v. Bates, 118-311, 24 S. E. 478. 
 
272 
 
 Banks and Banking 
 
 may inflict, either upon stockholders or creditors. A\hat constitutes 
 “ordinary diligence” must be determined in view of all the circum¬ 
 stances. 1 
 
 If the directors shall give authority for the publication of a false 
 statement of the hank’s condition when they know of its falsity, or 
 with reasonable care might have known it, they are personally lia¬ 
 ble. 2 It is not necessary that they should know it, or might have 
 known it, to be such. It is their duty to know it to be true, and 
 they are liable for damages sustained by any one dealing with the 
 corporation, relying upon the truth of such report. 0 And the fact 
 that a director is, by a private arrangement, excused from giving 
 attention to the publication of the statements on account of being a 
 nonresident of the town wherein the bank is located does not relieve 
 him of his liability. 4 Directors are trustees for depositors and can 
 be held liable for injuries resulting from gross negligence on their 
 part in allowing the bank to be held out to the public as solvent when 
 it is in fact insolvent. 5 
 
 Directors who by false and fraudulent statements to the State 
 Treasurer as to the condition of the bank, in order to conceal its 
 insolvency, induce him not only to make new deposits of the State’s 
 money, but also to permit a portion of the money deposited by his 
 predecessor in office to remain, are liable to such Treasurer for any 
 loss either of the old or new deposits. 6 Where a depositor, on going 
 to withdraw his deposit, is told by the vice-president and director 
 that “the bank has plenty of money,” etc., and is thereby induced 
 to allow his deposit to remain when the bank was in fact insolvent, 
 it is held that such vice-president and director is personally liable to 
 the depositor for the money lost by the failure of the bank. 7 
 
 Directors are liable if they declare dividends out of the capital 
 stock or deposits of a bank and not out of earnings. 8 
 
 Liability of president and vice-president. The liability of 
 the president and vice-president to depositors and other creditors 
 for losses sustained by them in dealing with the corporation on the 
 
 Solomon v. Bates, 118-311, 318, 24 S. E. 
 478; Caldwell v. Bates, 118-323, 24 S. E. 
 481. 
 
 2 Townsend v. Williams, 117-330, 23 S. E. 
 461; Solomon v. Bates, 118-311, 24 S. E. 
 478; Houston v. Thornton, 122-365, 29 
 S. E. 827. 
 
 3 Houston y. Thornton, 122-365, 29 S. E. 
 827. See Townsend v. Williams, 117-330, 
 23 S. E. 461; Hauser v. Tate, 85-82; Cald¬ 
 well v. Bates, 118-323. 24 S. E. 481. 
 
 4 Houston v. Thornton, 122-365, 29 S. E. 
 827; Hauser v. Tate, 85-82; Solomon v. 
 Bates, 118-311, 24 S. E. 478. 
 
 5 Solomon v. Bates, 118-311, 318, 24 S. E. 
 478; Houston v. Thornton, 122-365, 29 
 S. E. 827. 
 
 G Tate v. Bates, 118-287, 24 S. E. 482. 
 7 Townsend v. Williams, 117-330, 23 S. E. 
 461. 
 
 8 Solomon v. Bates, 118-311, 24 S. E. 478. 
 
Banking Corporations and Associations 273 
 
 faitli of misrepresentations by such officers as to its financial con¬ 
 dition or other facts forming a material inducement to the deposit 
 or contract is the same as that of directors. 1 
 
 Cashier s unauthorized act. A cashier has no authority to 
 agree to deposit the bank’s funds to the credit of a depositor in pay¬ 
 ment of his individual debt, this being in effect an unauthorized 
 promise to loan such amount from the bank’s funds without note, 
 security or payment of interest. 2 
 
 Liability of officers paying overdrafts. Any officer (other 
 than a director) or employee of a State bank who permits any cus¬ 
 tomer or other person to overdraw his account, or who pays any 
 check or draft, the paying of which shall overdraw any account, 
 unless the same shall be authorized by the hoard of directors or by 
 a committee of such board authorized to act, is personally and indi¬ 
 vidually liable to such bank for the amount of such overdrafts. 3 
 
 t j 
 
 Embezzlement ; false certification ; insolvent, receiving 
 deposits, etc. Whoever, being an officer, employee, agent, or director 
 of a State bank, embezzles, abstracts, or wilfully misapplies any of 
 the money, funds, credit, or property of such bank, whether owned 
 by it or held in trust, or wilfully and fraudulently issues or puts 
 forth a certificate of deposit, draws an order or bill of exchange, 
 makes an acceptance, assigns a note, bond, draft, bill of exchange, 
 mortgage, judgment, or decree, or makes a false statement or cer¬ 
 tificate as to a trust deposit or contract, for or under which such 
 bank is acting as trustee, or makes a false entry in or conceals the 
 true and correct entry in a book, report, or statement of such bank, 
 or who shall loan the funds or credit of any bank to any company or 
 corporation known to be insolvent, or which has ceased to exist, or to 
 any person upon the collateral security of any stocks or bonds of 
 such company or corporation which is known to he insolvent, or 
 which has ceased to exist, or which never had any existence, or fic¬ 
 titiously borrows or solicits, obtains or receives money for a bank not 
 in good faith, intended to become the property of such bank, with 
 intent to defraud or injure the bank or another person 01 coipoia- 
 tion, or to deceive an officer of the bank or an agent appointed to 
 examine the affairs of such bank, or publishes a false report relating 
 to the financial condition of the bank, with the intent to conceal its 
 
 1 Solomon v. Bates, 118-311, 319, 
 
 S. E. 478; Caldwell v. Bates, 118-323, 
 S. E. 481. 
 
 24 
 
 24 
 
 2 Bank v. West, 184-220, 114 S. E. 178. 
 3 1921, chap. 4, sec. 60. 
 
274 
 
 Banks and Banking 
 
 true financial condition, or to defraud or injure it or another person 
 or corporation, is guilty of a felony, and upon conviction thereof 
 can be fined not more than ten thousand dollars or imprisoned in 
 the State’s Prison not more than thirty years, or both. 1 
 
 Whoever, being an officer, employee, agent, or director of a State 
 bank, certifies a check drawn on such bank, and wilfully fails to 
 forthwith charge the amount thereof against the account of the 
 drawer thereof, or wilfully certifies a check drawn on such bank, 
 unless the drawer of such check has on deposit with the bank an 
 amount of money subject to the payment of such check and equiva¬ 
 lent to the amount therein specified, is guilty of a felony, and upon 
 conviction can be fined not more than five thousand dollars or im¬ 
 prisoned in the State’s Prison for not more than five years, or both. 2 
 
 Any person, being an officer or employee of a State bank, who 
 receives, or being an officer thereof, permits an employee to receive 
 money, checks, drafts, or other property as a deposit therein when 
 he has knowledge that such bank is insolvent, is guilty of a felony, 
 and upon conviction thereof can be fined not more than five thousand 
 dollars or imprisoned in the State’s Prison not more than five years, 
 or both. 3 
 
 Any officer or employee committing any offense against the bank¬ 
 ing laws of the State other than those herein mentioned is guiltv of 
 a misdemeanor and is punishable at the discretion of the court. 4 
 
 Directors and officers accepting fees. 44o gift, fee, permis¬ 
 sion or brokerage charge is allowed to be received, directly or indi¬ 
 rectly, by any officer, director, or employee of any State bank on 
 account of any transaction to which the bank is a party. Any officer, 
 director, employee, or agent who receives any such is guilty of a 
 misdemeanor, and thereafter remains ineligible as an officer, director, 
 or employee of any State bank. This does not prevent the payment 
 of necessary and proper attorney’s fees to any licensed attorney for 
 professional services rendered. 5 
 
 Insolvency and dissolution. Insolvency defined. The term 
 insolvency, 7 as applied to State banks, means: (a) when a bank 
 cannot meet its deposit liabilities as they become due in the regular 
 course of business; (A) when the actual cash market value of its 
 assets is insufficient to pay its liabilities to depositors and other cred¬ 
 itors; (c) when its reserve shall fall under the amount required by 
 
 1 1921, chap. 4, sec. 83. 
 
 2 1921, chap. 4, sec. 84. 
 
 3 1921, chap. 4, sec. 85. 
 
 *1921 (extra session), chap. 56, sec. 4. 
 :, 1921, chap. 4, sec. 57. 
 
Banking Corporations and Associations 
 
 tlie State Banking Act, and it shall fail to make good such reserve 
 within thirty days after being required to do so by the Corporation 
 Commission. 1 
 
 Voluntary liquidation. A State bank may go into voluntary 
 liquidation and be closed, and may surrender its charter 'and fran¬ 
 chise as a corporation of this State by the affirmative vote of its 
 stockholders owning two-thirds of its stock, such vote to be taken at 
 a meeting of the stockholders duly called by resolution of the board 
 of directors, written notice of which, stating the purpose of the 
 meeting, must be mailed to each stockholder, or, in case of his death, 
 to his legal representative or heirs at law, addressed to his last known 
 residence ten days previous to the date of said meeting. Whenever 
 stockholders shall by such vote, at a meeting regularly called for 
 the purpose, notice of which must be given, decide to liquidate such 
 bank, a certified copy of all proceedings of the meeting at which said 
 action shall have been taken, verified by the oath of the president 
 and cashier, must be transmitted to the Corporation Commission for 
 its approval. If the Corporation Commission approves the same, 
 it must issue to the said bank, under its seal, a permit for such pur¬ 
 pose. No. such permit must be issued by the Corporation Commis¬ 
 sion until said Commission shall be satisfied that provision has been 
 made by such bank to satisfy and pay off all depositors and all cred¬ 
 itors of such bank. If not so satisfied, the Corporation Commission 
 must refuse to issue a permit, and is authorized to take possession 
 of said bank and its assets and business, and hold the same and liqui¬ 
 date said bank in the manner provided by law. When the Corpora¬ 
 tion Commission approves the voluntary liquidation of a bank, the 
 directors of said bank must cause to be published in a newspaper in 
 the city, town, or county in which such bank is located, a notice that 
 the bank is closing up its affairs and going into liquidation, and 
 notify its depositors and creditors to present their claims for pay¬ 
 ment. When any bank shall be in process of voluntary liquidation, 
 it is subject to examination by the Corporation Commission, and 
 must furnish such reports from time to time as may be called for by 
 the Corporation Commission. All unclaimed deposits and dividends 
 remaining' in the hands of such bank shall be subject to the provisions 
 of the State Banking Act. 2 
 
 Corporation Commission may take charge, when. The Cor¬ 
 poration Commission may take possession of the business and piop- 
 erty of any State bank whenever it shall appeal that such bank has 
 
 *1921, chap. 4, sec. 1. 
 
 2 1921, chap. 4, sec. 15. 
 
27G 
 
 Banks and Banking 
 
 violated its charter or any laws applicable; is conducting* its business 
 in an unauthorized or unsafe manner; is in an unsafe or unsound 
 condition to transact its business; has an impairment of its capital 
 stock; has refused to pay its depositors in accordance with the terms 
 on which such deposits were received; has become otherwise insol¬ 
 vent ; has neglected or refused to comply with the terms of a duly 
 issued lawful order of the Corporation Commission; has refused, 
 upon proper demand, to submit its records, affairs, and concerns 
 for inspection and examination to a duly appointed or authorized 
 examiner of the Corporation Commission; its officers have refused 
 to be examined upon oath regarding its affairs. Such banks may, 
 with the consent of the Corporation Commission, resume business 
 upon such terms and conditions as may be approved by it. 1 
 
 Enforcing of dissolution by Commission or creditor ; re¬ 
 ceivership. If any State bank neglect or refuse for a period of 
 sixty days to make a report to the Corporation Commission, as it 
 may demand, or fail, neglect or refuse to comply with the provisions 
 of the next preceding paragraph, or if at any time the Corporation 
 Commission find a bank, or other institution subject to its super¬ 
 vision, in an insolvent condition, or if such institution neglect or 
 refuse to correct any irregularities through violation of the State 
 Banking Act, which may be called to the attention of the president, 
 cashier, or board of directors, the Corporation Commission has au¬ 
 thority to take charge of such institution, and if upon investigation 
 it appears to be to the interest of creditors, depositors, and stock¬ 
 holders that a receiver should be appointed, it may apply to the court 
 for the appointment of a competent person as receiver. 2 
 
 The power of the Corporation Commission to ask for a receiver 
 does not preclude a creditor from also exercising the right he has 
 always had to ask for one. 3 
 
 Powers and duties of receivers generally. Any receiver 
 appointed, before entering upon his duties, must execute a good and 
 sufficient bond in some bonding company authorized to do business 
 in A or th Carolina, which bond must be approved by the court. Such 
 receiver, under the direction of the court, must take possession of 
 the books, moneys, records, and assets of every description of such 
 institution, and collect all debts, dues and claims belonging to it, 
 foreclose all mortgages, deeds of trust and other liens executed to 
 the bank, and upon order of the court may sell or compound all bad 
 
 dnol’ c £ ap - h sec - 16 - 3 Worth v. Piedmont Bank, 1921-343, 28 
 
 2 1921, chap. 4, sec. 17. S. E. 488. 
 
Banking Coepokatioxs axd Associatioxs 277 
 
 or doubtful debts, and on like orders may sell all real and personal 
 properties belonging to such bank, and upon such terms as the court 
 may approve or direct, and, if necessary to pay its debts, the receiver 
 may enforce the individual liabilities of its stockholders. A suit 
 for such purpose may be instituted against resident stockholders in 
 the name of such receiver in the Superior Court of the county in 
 which its banking office or home is located, and as to nonresident 
 stockholders, the suit may be brought in any county of the State 
 where such stockholder resides, or where service of process may 
 be had on such stockholder. After payment of all expenses and all 
 claims, the remainder of the proceeds, if any, must he paid to the 
 stockholders of such bank, or their legal representatives, in propor¬ 
 tion to the stock respectively held by them. Any bank which is 
 being operated or liquidated under any receivership provided in the 
 State Banking Act shall remain subject to examination and super¬ 
 vision by the Corporation Commission. 1 
 
 Where there are two or more coreceivers, a majority of them has 
 power to act. 2 If there are any actions pending at the time of the 
 appointment of a receiver in which the hank is plaintiff, the receiver 
 shall, upon application by him, be substituted in place of the bank. 
 In fact, the receiver can do all acts which might be done by the 
 bank, if in being, that are necessary for the final settlement of its 
 unfinished business. 3 Dividends and unclaimed deposits remaining 
 in the hands of the receiver for a period of six months after the 
 order for final distribution by the court must be deposited with the 
 State Treasurer, who shall hold such funds as custodian without the 
 payment of interest, subject to the order of the court appointing the 
 receiver, and without the necessity of appropriation by the General 
 Assembly. Any person entitled to all or any part of such unclaimed 
 dividends or deposits may apply to the court of the county in which 
 the insolvent bank was located, or had its principal office, for an 
 order directing the State Treasurer to pay such dividends or un¬ 
 claimed deposits. Upon satisfactory proof of such claim, it shall 
 be the duty of the court to issue such an order upon the State I reas- 
 urer, directing the payment of said dividend or unclaimed deposit, 
 and the State Treasurer is authorized, empowered, and directed to 
 pay out such moneys, without interest, as stated in the order of the 
 court authorized to issue such orders. 
 
 1 C S., 1209; 1921, chap. 4, sec. 17. 
 2 C. S. t sec. 1208. 
 
 3 C. S, sec. 1209. 
 
 4 1921, chap. 4, sec. 18. 
 
278 
 
 Banks and Banking 
 
 General law applicable to receivers. Article ten of chapter 
 twenty-two of the Consolidated Statutes, relating to receivers, when 
 not inconsistent with the provisions of the banking act of one thou¬ 
 sand nine hundred and twenty-one, applies to receivers of banks. 1 
 
 Deposit of books of defunct bank. All books, papers, and 
 records of a bank which has been finally liquidated must be deposited 
 by the receiver in the office of the clerk of the Superior Court for 
 the county in which the office of such bank is located, or in such 
 other place as in his judgment will provide for the proper safe¬ 
 keeping and protection of such books, papers, and records. The 
 books, papers, and records referred to shall be held subject to the 
 orders of the Corporation Commission and the clerk of the Superior 
 Court for the county in which such bank was located. 2 3 
 
 «y 
 
 Effect of dissolution. When a State bank is dissolved by ex- 
 piration of its charter all debts due the bank are extinguished, and 
 therefore when a note has been given to the cashier as trustee for 
 the bank, although the legal title is in him, equity will restrain its 
 enforcement after the bank has ceased to exist." 
 
 Transfers affected by insolvency. Where a bank has de¬ 
 posited collateral with another bank, from which it secures funds, 
 to secure the payment of certain past debts and any other indebted¬ 
 ness it might owe the lending bank, upon insolvency of the borrowing 
 bank the lending bank can recover for such indebtedness afterward 
 accruing, notwithstanding the cashier and manager of the borrowing 
 bank was the president of the lending bank and at the time of de¬ 
 positing the securities knew that the bank was insolvent. 4 
 
 Who are debtors and creditors. By “debtors to the bank” are 
 meant all those who, at the appointment of the receiver, were liable 
 to the bank for the payment of money (whether their liability had 
 matured or not), and without any regard to the exact nature of the 
 liability (whether as principal or surety). The word “debtor” does 
 not include those who become indebted to the receiver, for the same 
 reason that a person who has become indebted to an administrator 
 of an insolvent estate is not considered a debtor to the intestate, and 
 allowed to set up against that debt a debt due from the deceased to 
 him. He owes the administrator while the estate owes him. 5 INTor 
 
 1 1921, chap. 4, sec. 19; 1923, chap. 148, 
 sec. 4. 
 
 2 1921, chap. 4, sec. 20. 
 
 3 Fox v. Horah, 36-358. 
 
 4 Corp. Com. v. Bank. 164-205, 80 S. E. 
 152; Norfleet v. Pamlico Ins., etc., Co., 
 
 160-327, 330, 75 S. E. 937. 
 
 5 Davis v. Industrial Mfg. Co., 114-321, 
 19 S. E. 371; Pate v. Oliver, 104-458, 10 
 S. E. 709; Rountree v. Britt, 94-i04; 
 Mauney v. Ingram, 78-96. 
 
Banking Corporations and Associations 
 
 279 
 
 is it intended to include stockholders or officers of the corporation 
 against whom the receiver may he directed to bring actions to recover 
 sums due for subscription for stock or other like claims. In all mat¬ 
 ters pertaining to set-off, such indebtedness or liability as that last 
 named is considered as due strictly to the receiver, and not to the 
 corporation. By Creditors of the bank'’ are meant those to whom 
 the bank was indebted at the date of the appointment of the receiver, 
 whether the debts were then due or not. 1 
 
 Rights of set-off. Persons holding the circulating notes of a 
 bank at the time it becomes insolvent may set the same off against 
 their indebtedness to the bank. 2 So also may one to whom the bank 
 is indebted for services before it closed its doors set off his claim 
 against a liability on bills discounted. 3 But a stockholder cannot 
 set off his distributive share in the assets against his liabilitv on his 
 stock. 4 
 
 ‘ Presentation and proof of claims ; claims with collateral. 
 All claims must be presented to the receiver within the time pre¬ 
 scribed and be proven to his satisfaction or adjudicated in a court 
 of competent jurisdiction. 5 A creditor who has no information of 
 the limitation of time in which claims are to be proven, and who is 
 not guilty of laches in presenting his claim, is entitled to prove after 
 the day named. 6 But if he fail to make application to do so until 
 after the fund is distributed, having full knowledge of the proceed¬ 
 ings, he will be barred of his right. 7 A depositor in a bank who 
 recovers a judgment, which is satisfied, against one who held him¬ 
 self out as its president, cannot afterwards prove his debt against the 
 bank’s assets. 8 
 
 Payment of claims; claims with collateral. All expenses 
 on account of any receivership and all wages or salaries due officers 
 or employees must be paid out of the assets of the bank before dis¬ 
 tribution of the proceeds thereof; and the receiver may, on order of 
 the court, make a ratable dividend of the money in his hands on 
 all such claims as may have been proved, and as the proceeds of the 
 assets of such bank are paid to the receiver, he must on like oideis 
 make any further dividends upon all claims previously proved or 
 adjudicated. 9 In the case of a bank having a branch, the creditors 
 
 mavis v. Industrial Mfg. Co., 114-321, 
 
 19 S. E. 371. , 
 
 2 Mann v. Blount, 65-99; Blount v. Wind- 
 
 ley, 68-1. 
 
 mavis v. Industrial Mfg. Co., 114-3H, 
 19 S. E. 371. „ „ _ 
 
 4 Bank v. Riggins, 124-534, 32 S. E. 801. 
 
 5 1921, chap. 4, sec. 17. 
 
 6 Glenn v. Farmers Bank, 80-97; Green v. 
 R. R. Co., 73-524; Wordsworth v. Davis, 
 75-159. 
 
 7 Glenn v. Farmers Bank, 80-97. 
 8 Dobson v. Simonton, 95-312. 
 
 9 1921, chap. 4; sec. 17. 
 
280 
 
 Banks and Banking 
 
 of the principal bank are entitled to have its property of every de¬ 
 scription applied ratably to the payment of their claims, and no 
 estoppel, if there could be one from dealings with its branch bank, 
 could affect the creditors of the principal bank. 1 
 
 The courts declare that equity and justice require that the re¬ 
 ceiver, when he comes to make a settlement with one who is a cred¬ 
 itor of the bank, shall deduct from his credit all those sums for which 
 he is debtor, and when he settles with a debtor to the hank he shall 
 allow him credit for all sums for which he is a creditor of the hank. 2 
 
 Where a claim is secured by collateral, the creditor is entitled to 
 share pro rata in the distribution of the funds of the full amount of 
 the debt as it existed at the time of the declaration of insolvency, 
 without crediting either his collaterals or collections made therefrom 
 after such declaration, subject always to the proviso that dividends 
 must cease when from them and from collaterals realized the claim 
 has been paid in full. 3 
 
 1 Worth v. Bank, 122-397, 29 S. E. 775. 
 
 2 Davis v. Industrial Mfg. Co., 114-321 
 
 19 S. E. 371. 
 
 3 Bank v. Flippen, 158-334, 74 S. E. 100, 
 approving Merrill v. Bank, 173 U. S. 131, 
 which see; Milling Co. v. Stephenson, 161- 
 510, 77 S. E. 676; Winston v. Biggs, 117- 
 206, 23 S. E. 316; Brown v. Bank, 79-244. 
 
Chapter III 
 
 FUNCTIONS AND DEALINGS 
 
 Exercise of banking powers. The powers of a bank are limited 
 to those granted to it in its charter. The purchase by a bank of a 
 draft drawn to the maker’s order and endorsed by another is not 
 foreign to the purposes of its charter authorizing it to accept bills, 
 notes, and other negotiable paper, conceding it not to be within the 
 powers expressly conferred, and the bank is liable thereon to its 
 innocent purchaser for value. A defense of ultra vires, where the 
 draft is sold to an innocent party for value and the bank has retained 
 the purchase-money without offer to restore it, is untenable, there 
 being nothing in the transaction that is either illegal or against public 
 policy. 1 So also is the defense of ultra vires untenable when a 
 National bank consolidates several debts into one and a new note 
 is’ given and a mortgage on real estate executed to secure it. Even 
 if taking a mortgage on real estate by a National bank were ultra 
 vires, the mortgage would not be void, but only an offense against 
 the United States, of which the mortgagor could not avail himself 
 to defeat his own deed. 2 
 
 Exercise outside of banking hours. Nothing in any law of 
 this State in any manner whatsoever affects the validity of, or renders 
 void or voidable, the payment, certification, or acceptance of a check 
 or other negotiable instrument or any other transaction by a bank 
 in this State, because done or performed during any time other than 
 regular banking hours. No bank in this State, which by law or 
 custom is entitled to close at twelve noon on any Saturday, or for 
 the whole or part day of any legal holiday, is compelled to keep 
 open for the transaction of business, or to perform any of the acts 
 or transactions aforesaid, after such hour on any Saturday or on 
 ■any legal holiday, except at its option." 
 
 Rules of bank. Where prior to a certain date one was a regular 
 customer of a bank, and after such date continued as a regular cus¬ 
 tomer, and at such date a new usage and custom with its customers 
 in regard to their deposits was adopted, such usage and custom can¬ 
 not affect the rights of the customer in question unless it can be - 
 shown that he had notice of the change in the ordinary usage and 
 custom of the bank as to general deposits. 4 
 
 1 Sherrill v. Trust Co., 176-591, 97 S. E. 
 471. 
 
 2 01dham v. Bank, 85-241. 
 
 3 1921, chap. 4, sec. 35. 
 4 Boyden v. Bank, 65-13. 
 
282 
 
 Banks and Banking 
 
 Representation of bank by officers or agents. Deposits. In the 
 absence of special authority from the directors, the president cannot 
 authorize the cashier to pay the checks of a person who holds a 
 claim against the president, hut who has no deposit in the hank. 1 
 Nor can a cashier bind the hank by a promise to one holding a per¬ 
 sonal claim against him to deposit funds to his credit to meet a 
 
 check on the bank to be drawn by such creditor." 
 
 «/ 
 
 Biles, notes and securities. It is beyond the scope of the au¬ 
 thority of a cashier to accept a verbal assignment of an interest in a 
 note previously assigned to another bank as collateral security in 
 payment of another note. 3 So also it is beyond his authority to make 
 an executory verbal agreement, without consideration, to take in 
 payment of a note due the bank an interest for the same amount in 
 a note upon a third party which was never assigned to the bank. 4 
 Without special authorization, which must be shown by one claiming 
 it, the cashier cannot, in payment of the debt of another to the bank, 
 accept the note of a company executed by the cashier as officer of 
 it and bearing his personal endorsement as security. 5 Ror has he 
 implied authority by virtue of his office to release without consider¬ 
 ation one of the joint makers from his liability on a note given to 
 the bank; and the bank is not bound when, without consideration, 
 the cashier agrees that if one of the two makers of a partnership 
 note pays a certain amount upon a well secured note given by the 
 other individually to the bank such other maker would be released 
 from all liability on the joint note sued on. G 
 
 A bank cashier, knowing that a partnership exists, is not guilty of 
 negligence because he honors checks against the firm account when 
 he knows that the money of the account so paid out was raised by 
 discounting a personal note of one of the partners, particularly where 
 the negotiations relative to the note and its presentment for discount 
 were carried out by the drawer of the checks as ostensible agent for 
 his partner, with the apparent purpose of raising partnership funds. 7 
 
 Representations. When a surety on a note given to a bank by 
 a third person becomes surety on a renewal note, and the cashier 
 informs him that the bank has sufficient funds of the maker to pay 
 such renewal note, that its execution is a matter of form necessary 
 
 1 Dowd v. Stephenson, 105-467, 10 S. E. B Grady v. Bank and Trust Co., 184-158 
 1101. 113 S. E. 667. 
 
 2 Bank v. West, 184-220, 114 S. E. 178. "Bank v. Lennon, 170-10, 86 S. E. 715. 
 
 3 Piedmont Bank v. Wilson, 124-561, 32 7 Crutchfield v. Rowe et ux„ 184-210 114 
 S. E. 889. S. E. 301. 
 
 <Bank v. Wilson, 124-561, 32 S. E. 889. 
 
Functions and Dealings 
 
 283 
 
 only to keep the bank account straight, and that the hank will not 
 hold him liable thereon, the bank is bound by such representations 
 and promise. 1 
 
 AY songful acts. Where the president of a bank misappropriates 
 funds of a correspondent bank, of which he is cashier, it does not 
 charge such bank with knowledge of the misappropriation so as to 
 preclude recovery of an indebtedness from the correspondent hank, 
 since its president, in misappropriating the funds, acted independ¬ 
 ently and adversely to its interests. 2 A bank is responsible for the 
 conduct of its cashier in having a note signed by a third person as 
 maker, in blank amount, and in wrongfully tilling in the blank for a 
 larger sum than intended and misappropriating the surplus to his 
 own use. 3 
 
 Notice to officer or agent. Where an officer of a bank has a 
 note discounted at such bank for his personal benefit, he being a 
 member of the discount committee, the bank is charged with his 
 knowledge of all defenses to it. 4 This might not be so if his active 
 participation in agreeing to the discounting on the part of the bank 
 is not necessary. 0 Where a defaulting cashier promises to place 
 funds to defendant’s credit to meet a check without defendant’s 
 giving a note or security, knowledge of conniving cashier will not 
 be imputed to the bank. 0 
 
 Deposits. Defined. The term “demand deposits'’ means all de¬ 
 posits the payment of which can be legally required within thirty 
 days. The term “time deposits’ means all deposits the payment of 
 which cannot be legally required within thirty days.' 
 
 Right to receive. Any bank may receive deposits of funds sub¬ 
 ject to withdrawal or to be paid upon the checks of the depositor. 
 All deposits in such banks are payable on demand, without notice, 
 except when the contract of deposit shall otherwise provide. 8 . Any 
 State bank conducting a savings department may receive deposits on 
 such terms as are authorized by its board of directors and agreed 
 to by its depositors. The hoard of directors must prescribe the 
 terms upon which such deposits shall he received and paid out, and 
 a passbook must be issued to each depositor containing the rules and 
 
 mank v. Pegram, 118-671, 24_S. E. 487. 
 Corporation Commission v. Bank, 0 lb i' 
 357, 79 S. E. 308; same, 164-205, 80 b. E. 
 152; Brite v. Penny, 157-110, 11L 7- 
 S E 964; Anniston Nat. Bank v Scnool 
 Committee, 118-383, 24 S. E 792; Bank v. 
 Burgwyn, 110-267, 14 S. E. 623. 
 
 3 Phillips v. Hensley, 175-23. 
 
 4 Le Due y. Moore. 111-516, 15 S. E. 888. 
 5 Bank v. Burgwyn, 110-267, 14 S. E. 
 
 6 Bank v. West, 184-220, 114 S. E. 178. 
 H921, chap. 4, sec. 1. 
 
 8 1921, chap. 4, sec. 46. 
 
284 
 
 Banks and Banking 
 
 regulations adopted by the board of directors governing such deposits, 
 in which must be entered each deposit made, the interest allowed 
 thereon, and each payment made to such depositor. By accepting 
 such book the depositor assents and agrees to the rules and regula¬ 
 tions therein contained. 1 
 
 Relation between bank and depositor in general. The de¬ 
 positor, when and as soon as he makes a deposit, becomes a creditor 
 of the bank, and the bank becomes his debtor for the amount of 
 money deposited, agreeing to discharge the debt so created by honor¬ 
 ing and paying the checks or orders the depositor may, from time 
 to time, draw upon it, when presented, not exceeding the amount 
 deposited. The relation of the bank and depositor is simply that 
 of debtor and creditor, the debt to be discharged punctually, in the 
 way just indicated. The contract between them, whether express 
 or implied, is legal in its nature, and there is no element or quality 
 in it different from the same in ordinary agreements or promises, 
 founded upon a valuable consideration to pay a sum of money, 
 specified or implied, to another party. There are none of the ele¬ 
 ments of a trust in it. The bank does not assume or become a fiduci¬ 
 ary as to the money deposited for the depositor, nor does it agree to 
 hold a like sum in trust for him. Hence, if the bank should fail to 
 pay its depositor, when called upon to do so, the latter would have 
 his remedy by proper action, just as in the ordinary case where the 
 debtor refused to pay his creditor the debt he owed him. 2 
 
 Iitle to deposits. When a bank, in the course of its business, 
 receives deposits of money in the absence of any agreement to the 
 contrary, the money deposited with it at once becomes that of the 
 bank, part of its general funds, impressed with no trust, and can be 
 used by it for any purpose immediately and continuously just as it 
 uses, or may use, its moneys otherwise acquired, which right con¬ 
 stitutes the consideration for the bank’s promise to the depositor. 3 
 
 Repayment in general; interest. Except where the contract 
 of deposit shall otherwise provide, all deposits are payable on de¬ 
 mand without notice, 4 such deposits being deemed general. And the 
 depositor has no right to the particular money deposited, as in the 
 case of a special deposit, but only a sum of money equal to that which 
 he has deposited. 5 Where a deposit is made in certain kind of cur- 
 
 1 1921, chap. 4, sec. 47. 
 
 2 Hawes v. Blackwell, 107-196, 12 S. E. 
 245; Boyden v. Bank, 65-13. 
 
 3 Hawes v. Blackwell, 107-196, 12 S. E. 
 
 245; Perry v. Bank, 131-117, 42 S. E. 
 
 551; Boyden v. Bank, 65-13. 
 
 4 1921, chap. 4, sec. 46. 
 r> Ruffin v. Board, 69-498; Lilly v. Board, 
 69-300. 
 
1 unctions and Dealings 
 
 285 
 
 rency and it is specified that it must be repaid in like currency, 
 which is subject to fluctuation in value, and it is impossible for the 
 bank to repay m the certain currency, the court holds that payment 
 must be made so as to put the loss sustained by the fluctuation in 
 value on the bank and not on the depositor. 1 A general deposit does 
 not bear interest in the absence of a special contract. 2 
 
 Application of deposits to debts due bank; set-off or 
 counterclaim ; partnership. In the absence of an agreement to 
 the contrary, a bank may apply deposits, other than special, to any 
 indebtedness due it in the same right by the depositor, provided 
 such indebtedness has matured, and if the depositor has become in¬ 
 solvent, whether the indebtedness has matured or not, by virtue of 
 the right of equitable set-off. 3 And, in a suit against'it for the de¬ 
 posit, the bank can plead the indebtedness to it as a counterclaim 
 as a bill or action in the nature of a fi. fa. 4 It is only where the 
 depositor stands in the same relation to the bank as the debtor, and 
 deposits funds that belong to him and held by him in the same right 
 as the debtor, that the bank has the right to appropriate and apply 
 the deposits to the payment of a debt due to it. There must be a 
 mutuality between the debt and the fund deposited. 5 If a dealer 
 with a bank has a balance to his credit on a general account, and 
 dies indebted to the bank on a judgment and also on a simple con¬ 
 tract, the bank may, independently of the statute of set-off, apply 
 such balance to whichever debt it may see fit. 6 
 
 A partnership is not liable for the debts of its members, and a 
 bank has no right to apply deposits standing in the name of the firm 
 in payment of the individual indebtedness of any of its members; 7 
 nor can the bank apply individual deposits of a partner to the in¬ 
 debtedness of the firm to the bank. 8 But these strict applications 
 of the principle of set-off, as it prevails at law, may be and are prop¬ 
 erly modified when by reason of the insolvency of the parties the 
 question has been reduced as a matter of fact to one of mutual in¬ 
 debtedness between the bank and the claimant, and it is necessary 
 to allow an appropriation of the debt to prevent a palpable miscar¬ 
 riage of justice. 9 When a bank knows that a party is the only sur¬ 
 viving partner of a firm, and that he is making deposits as such, 
 
 *Fort v. Bank, 61-417, 420. 
 
 2 Boyden v. Bank, 65-13. 
 
 3 Hodgin v. Bank, 124-540, 32 S. E. 887; 
 Moore v. Trust Co., 178-118, 100 S. E. 269. 
 
 4 Moore v. Trust Co., 178-118, 100 S. E. 
 269. 
 
 5 Hodgin v. Bank, 125-503, 34 S. E. 709, 
 712. 
 
 e Bank v. Armstrong, 15-519. 
 
 7 Hodgin v. Bank, 124-540, 32 S. E. 887. 
 8 Hodgin v. Bank, 124-540, 32 S. E. 887; 
 Adams v. Bank, 113-332, 18 S. E. 513. 
 
 9 Moore v. Banking and Trust Co., 173- 
 180, 91 S. E. 793, and cases there cited. 
 
286 
 
 Banks and Banking 
 
 it lias no right to apply them to the payment of a debt created by 
 the partnership before its dissolution; nor has it the power to apply 
 them to the payment of an individual debt of a deceased partner, 
 evidenced by a note endorsed by the survivor, for firm debts. 1 
 
 As to judgment creditor, judgment debtors bank account and 
 notes made by third persons deposited by judgment debtor to secure 
 his notes in favor of the bank are choses in action which the bank 
 may appropriate to claims matured against judgment debtor or as 
 to which it has the right of equitable set-off if judgment debtor is 
 insolvent, or otherwise according to contracts the bank may hold 
 affecting such property. 2 
 
 Where a bank in whose hands is a trust fund participates with 
 the trustee in a misapplication of the fund by applying it on the 
 debt of the trustee, the bank is liable to the cestui que trust* 
 
 Set-off by depositor. When a bank closes its doors and com¬ 
 mits an act of insolvency, its deposits, whether on account or cer¬ 
 tificate, at once become due, without demand or notice, and are to 
 be set off against a depositor’s debt due the bank. 4 But a depositor, 
 when sued by a bank on a note, cannot, after the bank is declared 
 insolvent, maintain a counterclaim for a deposit made before the 
 bank became insolvent and after the suit was commenced. 5 
 
 One of several endorsers on a note to a bank which, with the prin¬ 
 cipal maker, becomes insolvent, is entitled to set off his deposit in 
 the bank as against his contributive share of the note; and, in jus¬ 
 tice and equity, the receiver must adjust such share in view of the 
 solvency vel non of the other endorsers. 
 
 The National Banking Act contains no* express provision as to set¬ 
 off in cases of insolvency of a bank. If the real debtor is unable to 
 pay, and the receiver is compelled to resort to the endorser, who is 
 eventually to be the loser, he has the same equitable claim to set off 
 bills which he had at the time the bank stopped payment. But no 
 such effect should be allowed to an endorser where he is indemnified 
 bv the real debtor, or where the latter can be compelled to pay. 6 
 
 Payment of checks generally ; minors’ deposits. A deposit 
 in a bank creates a debt and the payment of the checks of the cus¬ 
 tomer discharges such debt pro tanto .' A bank assumes the responsi- 
 
 modgin v. Bank, 125-503, 34 S. E. 709, 6 Piedmont Bank v. Wilson, 124-561, 32 
 
 712. S. E. 889. 
 
 2 McIntosh Grocery Co. v. Newman, 184- 6 Davis v. Industrial Mfg. Co., 114-321, 
 
 370, 114 S. E. 535. 19 S. E. 371. 
 
 3 Bank v. Clapp, 76-482. 7 Boyden v. Bank, 65-13. 
 
 4 Davis v. Industrial Mfg. Co., 114-321. 
 
 19 S. E. 371. 
 
1 UNCTIONS AND DEALINGS 
 
 287 
 
 bility for the erroneous payment of checks not drawn or authorized 
 by the depositor. 1 And where a depositor sends money to the bank 
 by another party and the bank agrees with the other party to honor 
 checks drawn in depositor’s name by him, the depositor can hold the 
 bank liable, there being neither express nor implied authority given 
 by the depositor to the person making the deposit to draw checks. 2 
 
 Where a fiduciary deposits funds belonging to the trust in a bank 
 and authorizes the beneficiary to draw on them, and, after the death 
 of the fiduciary, he continues to draw and the bank becomes in¬ 
 solvent, a receiver cannot recover from the beneficiary for the benefit 
 
 of the bank’s creditors the funds drawn after the death of the 
 fiduciary. 3 
 
 If the depositor should draw his check on the bank for some part 
 of his deposit—the debt the bank owed him—the payee, or holder 
 of such check, could not maintain his separate action against the 
 bank for nonpayment of the check, on presentation of the same for 
 payment it could not, until the bank accepted the check, or agreed 
 to pay it. Then, and not till then, would the bank become his debtor 
 in his sole right as against it. The check, however, in the hands of 
 the payee thereon, or the holder thereof, would give an interest in 
 the deposit, as against the drawer, to the amount specified in the 
 check, subject to the right of the bank to pay all outstanding checks 
 of the depositor, and such as he might subsequently draw, and which 
 might be paid before it had notice of the check in question, and 
 subject to the right of the bank to set off debts due which the deposi¬ 
 tor might owe at the time such check should be presented. The 
 check, as to drawer thereof, is, in effect, an assignment to the holder 
 thereof to the amount specified in the check; and under the method 
 of civil procedure in this State, the depositor and the holder of the 
 check might jointly maintain an action against the bank for the 
 deposit, in case it failed to pay the same when called upon, and they 
 might recover, subject to the rights of the bank, as above explained. 
 And so, also, if the depositor had given his check for the whole of 
 his deposit, the holder might maintain his separate action against the 
 bank, if it refused to pay the same, subject to its rights as to checks 
 on the deposit paid before notice of such check, and likewise subject 
 to its rights of set-off. This is so, because the check for the whole 
 deposit would be, in effect, an assignment of the depositor s whole 
 debt against the bank to the holder of such check. He, being the 
 
 1 Bank v. Thompson. 174-349, 93 S. E. 
 
 2 Goodloe v. Bank, 183-315, 111 S. E. 
 
 849; McKaughan v. Trust Co., 182-543, 516. 
 
 109 S. E. 355. 
 
 3 Bank v. Waddell, 100-338, 6 S. E. 414. 
 
288 
 
 Banks and Banking 
 
 real owner of the deposit—the debt—might sue for it in his own 
 name. And a holder of a check for a part of the deposit might, in 
 some cases, have appropriate equitable relief, as against the depositor 
 and the bank, if they should seek to impair his rights as the equitable 
 owner, against the drawer of part of the deposit. Such check makes 
 the holder thereof part owner of the deposit, as against the drawer, 
 subject to the rights of the bank. The depositor agrees, in effect, by 
 implication of law, to set apart so much of his deposit as is specified 
 in the check for the holder thereof. As against the drawer, that 
 much of the deposit belongs to the drawee. If, however, it turns 
 out that the check is not paid by the bank on due presentation for 
 payment, the holder of the check will have his remedy against the 
 drawer. The depositor—the drawer—agrees that the check will be 
 paid by the bank when it shall be duly presented to it for payment, 
 and if it shall not be, then there will be a breach of the drawer’s 
 contract with the holder of the check. 1 
 
 Whenever any person who is a minor of the age of fifteen years 
 and upwards makes a deposit in any bank, the same must be held 
 for the exclusive benefit and right of such minor, free from the con¬ 
 trol of all persons whatsoever, and it must be paid, together with 
 the interest, if there be any interest thereon, to the person in whose 
 name the deposit is made, and the receipt, check, or quittance of 
 such minor to the said bank is a valid and sufficient release and dis¬ 
 charge for such deposit, or any part thereof, to the bank in which 
 said deposit was made. 2 
 
 Payment of checks of fiduciaries ; liability of bank. If a 
 fiduciary makes a deposit in a bank to his personal credit of checks 
 drawn by him upon an account in his own name as fiduciary, or of 
 checks payable to him as fiduciary, or of checks drawn by him upon 
 an account in the name of his principal, if he is empowered to draw 
 checks thereon, or of checks payable to his principal and endorsed 
 by him, if he is empowered to endorse such checks, or if he otherwise 
 makes a deposit of funds held by him as fiduciary, the bank receiving 
 such deposit is not bound to inquire whether the fiduciary is com¬ 
 mitting thereby a breach of his obligation as fiduciary; and the bank 
 is authorized to pay the amount of the deposit or any part thereof 
 upon the personal check of the fiduciary without being liable to the 
 principal, unless the bank receives the deposit or pays the check with 
 actual knowledge that the fiduciary is committing a breach of his 
 
 'Hawes v. Blackwell, 107-196, 12 S, E. 2 1921, chap. 4, sec. 38. 
 
 245; Perry v. Bank, 131-117, 42 S. E. 551. 
 
Functions and Dealings 
 
 289 
 
 obligation as fiduciary in making such deposit or in drawing such 
 check, or with knowledge of such facts that its action in receiving 
 the deposit or paying the check amounts to bad faith . 1 2 
 
 If a deposit is made in a bank to the credit of a fiduciary as such, 
 the bank is authorized to pay the amount of the deposit or any part 
 thereof upon the check of the fiduciary, signed with the name in 
 which such deposit is entered, without being liable to the principal, 
 unless the bank pays the check with actual knowledge that the fiduci¬ 
 ary is committing a breach of his obligation as fiduciary in drawing 
 the check or with knowledge of such facts that its action in paying 
 the check amounts to bad faith. If, however, such a check is pay¬ 
 able to the drawee bank and is delivered to it in payment of or as 
 security for a personal debt of the fiduciary to it, the bank is liable 
 to the principal if the fiduciary in fact commits a breach of his obli¬ 
 gation as fiduciary in drawing or delivering the check." 
 
 If a check is drawn upon the account of his principal in a bank 
 by a fiduciary who is empowered to draw checks upon his principal’s 
 account, the bank is authorized to pay such check without being 
 liable to the principal, unless the bank pays the check with actual 
 knowledge that the fiduciary is committing a breach of his obliga¬ 
 tion as fiduciary in drawing such check, or with knowledge of such 
 facts that its action in paying the check amounts to bad faith. If, 
 however, such a check is payable to the drawee bank and is delneied 
 to it in payment of or as security for a personal debt of the fiduciary 
 to it, the bank is liable to the principal if the fiduciary in fact com¬ 
 mits a breach of his obligation as fiduciary in drawing 01 delivering 
 the check . 3 Where a deposit is made in a bank in the name of two 
 or more persons as trustees, and a check is drawn upon the trust 
 account bv any trustee or trustees authorized by the' other trustee 
 or trustees to draw checks upon the trust account, neither the payee 
 nor other holder nor the bank is bound to inquire whether it is a 
 breach of trust to authorize such trustee or trustees to draw checks 
 upon the trust account, and is not liable unless the circumstances 
 be such that the action of the payee or other holder or the bank 
 
 amounts to bad faith . 4 
 
 Liability fob nonpayment through error. No bank is liable 
 o a depositor because of the nonpayment, through mistake or error, 
 aid without malice, of a check which should have been paid had the 
 nistake or error of nonpayment not occurred, except for the actual 
 
 1 1923, chap. 85. sec. 9. 
 
 2 1923, chap. 85. sec. 7. 
 
 3 1923, chap. 85, sec. 8. 
 •*1923, chap. 85, sec. 10. 
 
290 
 
 Banks and Banking 
 
 damage by reason of sucli nonpayment that the depositor proves, 
 and in such event the liability will not exceed the amount of damage 
 so proven . 1 
 
 Payment of forged paper. Banks assume the responsibility for 
 the erroneous payment of checks not drawn or authorized by the 
 depositor . 2 But no bank is liable to a depositor for payment by it 
 of a forged check or other order to pay money, unless within sixty 
 days after the receipt of such voucher by the depositor he notifies 
 the bank that such check or order so paid is forged . 3 A bank is pre¬ 
 sumed to know the signatures of its customers, and if it pays a 
 forged check, it cannot, in the absence of negligence on the part of 
 the depositor whose check it purports to be, charge the amount to 
 his account . 4 When a bank accepts a forged check from another 
 of its depositors and places it to his credit, it is considered as a 
 payment of the check, which, without anything further appearing, 
 cannot be withdrawn; but where such other depositor is aware of 
 the fact of forgery, endorses the check, and it is accordingly credited 
 to him without knowledge of such facts on the part of the bank, 
 the bank may return the check to such depositor arid rightfully 
 charge his account therewith, without reference to any fraudulent 
 intent on his part . 5 
 
 Overdrafts. Any officer (other than a director) or employee of 
 a bank who permits any customer or other person to overdraw his 
 account, or who pays any check or draft, the paying of which shall 
 overdraw any account, unless the same shall be authorized by the 
 board of directors or by a committee of such board authorized to 
 act, is personally and individually liable to such bank for the amount 
 of such overdrafts . 6 
 
 If a cashier of a bank is personally indebted to a depositor and 
 agrees with such depositor that if he will draw a check on the bank 
 overdrawing his account at that time, he, the cashier, will place 
 funds to his credit to make it good, and such depositor draws such 
 check and the cashier fails to deposit the promised funds, but pays 
 the check, thereby creating an overdraft, such promise of the cashier 
 is void, being in effect an unauthorized promise to loan such amount 
 from the bank’s funds without note, security or payment of interest, 
 and the bank can recover of the depositor the overdraft. The knowl- 
 
 *1921, chap. 4, sec. 38. 4 Yarborough v. Trust Co., 142-377, 55 
 
 2 Bank v. Thompson, 174-349, 93 S. E. S. E. 296; Woodward v. Trust Co., 178- 
 
 849. 184. 100 S. E. 304. 
 
 3 1921, chap. 4, sec. 33. Woodward v. Trust Co., 178-184, 100 
 
 S. E. 304. 
 
 e 1921, chap. 4, sec. 60. 
 
Functions and Dealings 
 
 291 
 
 edge of the conniving cashier will not be imputed to the bank. It 
 is not required of the bank to give notice to the depositor of the over¬ 
 draft, as the depositor is fixed with knowledge of the condition of 
 his account.* 
 
 Certificates of deposit. It is unlawful for any bank to issue 
 any certificate of deposit or other negotiable instrument of its in¬ 
 debtedness to the holder thereof except for lawful money of the 
 United States, checks, drafts or bills of exchange which are the actual 
 equivalent of such money; nor is it permissible that such moneys, 
 checks, drafts, or bills of exchange be the proceeds of any note given 
 in payment of the purchase price of any stock. Any officer or em¬ 
 ployee of any bank issuing a certificate of deposit unlawfully is 
 guilty of a misdemeanor, and upon conviction thereof can he fined 
 or imprisoned, or both, in the discretion of the court . 2 
 
 Special deposits. A special deposit is a naked bailment, and on 
 demand of the bailor restitution must be made of the thing' de- 
 posited." And as the bank acquires no property in the thing de¬ 
 posited, and derives no benefit therefrom, it is bound only to keep 
 the deposit with the same care that it keeps its own property of a 
 like description . 4 A special deposit cannot be checked upon, because 
 it does not belong to the bank. It remains the property of the de¬ 
 positor. And if it is lost or stolen without the negligence of the 
 bank, it is the depositor’s loss. But this is not so in case of a general 
 deposit, or in case of a general deposit of a special fund, or of a 
 fund for a special purpose, where the facts are known to the hank." 
 
 Valuables deposited for safe-keeping. A bank has authority 
 to act as agent or bailee of its customers for the safe-keeping of their 
 valuable papers. It receives compensation therefor in the advantage 
 it obtains in attracting and retaining the business of its patrons, and 
 its liability for such deposits for safe-keeping is not that of a gratui¬ 
 tous bailee, responsible only for its gross negligence, but its liability 
 is governed by the rule of the prudent man in the care of papers of 
 such character deposited with him for hire, or commensurate with 
 the value of the property under the particular circumstances . 6 
 
 Collections. Delation between bank and depositor for < ol 
 lection. It is a well-established rule that when negotiable paper 
 
 iBank v. West, 184-220, 114 S. E. 178. 
 2 1921, chap. 4. sec. 44. 
 
 3 Boyden v. Bank, 65-13; State Bank y. 
 Armstrong, 15-519; Hodgin y. Bank, ILj- 
 503 34 S. E. 709, 712; Ruffin v. Orange, 
 69 498; Lilly v. Cumberland, 69-300. 
 
 4 Boyden v. Bank, 65-13. 
 
 5 State Bank v. Armstrong, 15-519; Hodgm 
 v. Bank, 125-503, 34 S. E. 709, 712. 
 
 6 Trustees v. Banking Co., 182-298, 109 
 S. E. 6. 
 
292 
 
 Banks and Banking 
 
 is deposited with a bank for the purpose of collection, the relation 
 of principal and agent is thereby created between the depositor and 
 the bank . 1 And if the bank discounts its depositor’s drafts under 
 an express agreement or one implied from the course of dealings 
 that if they are returned unpaid they shall be charged back to his 
 account and returned to him, the bank is merely an agent for collec¬ 
 tion and not a purchaser of the paper in due course . 2 But if the 
 depositor is in debt to the bank and a draft is discounted by it and 
 the proceeds applied in discharge of such debt, the bank becomes the 
 owner of the draft . 3 
 
 Title to paper received for collection. An endorsement 
 “for collection” of a draft or check does not transfer title to the 
 endorsee, but merely constitutes him the agent of the endorser . 4 If 
 the paper is collected and the proceeds mingled with the general 
 funds of the bank, the endorser occupies the position of a simple 
 contract creditor, with no preference over other creditors . 5 That a 
 check deposited with a bank for collection was unrestrictedly en¬ 
 dorsed to the bank, and credit therefor given the depositor, does not 
 pass the title to the bank, where, on nonpayment of the check, its 
 amount was to be charged up to the depositor, so as to prevent its 
 recovery by the depositor from a receiver appointed for the bank . 6 
 
 Authority and acts in making collections ; subagents. 
 Where a check payable in another place is deposited with a bank for 
 collection, the duty of the bank so receiving the check in the first 
 instance is to seasonablv transmit the same to a suitable bank or 
 
 1/ 
 
 other agent at the place of payment for collection, the bank so 
 selected under such circumstances being the agent of the owner of 
 the check. And as a part of the same doctrine it is well settled that, 
 if the acceptor of a bill or promissory note has his residence in 
 another place, it shall be presumed to have been intended and under¬ 
 stood between the depositor for collection and the bank that it was 
 to be transmitted to the place of residence of the promissor . 7 And 
 any bank so receiving for collection or deposit any check, note, or 
 other negotiable instrument drawn upon or payable at another bank, 
 located in another town or citv, whether within or without this State, 
 
 1 Murchison Nat. Bank v. Dnnn Oil Mills 4 Armour Packing Co. v. Davis, 118-548, 
 Co., 150-718, 64 S. E. 885; Runyon v. 24 S. E. 365; Boykin v. Bank, 118-566, 
 Latham, 27-551. 24 S. E. 357. 
 
 2 W 0 rth Co. v. Feed Co., 172-335, 90 5 Bank v. Davis, 115-226, 20 S. E. 370; 
 S. E. 295; Latham v. Spragins, 162-404, Bank v. Bank, 119-307, 25 S. E. 971. 
 
 78 S. E. 282, and cases cited; Mangum v. 6 Armour Packing Co. v. Davis, 118-548, 
 
 Mutual Grain Co., 184-181, 114 S. E. 2. 24 S. E. 365. 
 
 3 Latliam v. Spragins, 162-404, 78 S. E. 7 Bank v. Floyd, 142-187, 55 S. E. 95; 
 
 282. Bank v. Bank, 75-534. 
 
293 
 
 I UNCTIONS AND DEALINGS 
 
 may forward such instrument for collection, direct to the bank on 
 which it is drawn, or at which it is payable, and such method of for¬ 
 warding direct to the payer bank is deemed due diligence, and the 
 failure of such payer bank, because of its insolvency or other default, 
 to account for the proceeds thereof will not render the forwarding 
 bank liable therefor; but such forwarding bank must have used due 
 diligence in other respects in connection with the collection of such 
 instrument . 1 The employment of a subagent is justifiable, because 
 this manner of conducting business is the usual and known custom, 
 and in a business which requires or justifies the delegation of an 
 agent’s authority to a subagent, who is not his own servant, the 
 original agent is not liable for the errors or misconduct of the sub¬ 
 agent, if he lias exercised due care in the selection . 2 
 
 The endorsement on a draft in course of collection by correspond¬ 
 ing bank, “All prior endorsements guaranteed,” does not give the 
 drawee bank a cause of action against the cashing bank when the 
 name of the drawer has been forged and draft is paid by the cashing 
 bank in good faith, and thereafter the draft is paid by the drawee 
 bank, for the latter is presumed to know the signatures of its deposi¬ 
 tors and detect the forgery; therefore the drawee bank may not 
 recover'from the cashing bank the amount it has thus paid, upon 
 the allegation that the latter has not acted with reasonable precau¬ 
 tion in cashing the draft . 3 
 
 Where the bank of deposit of the maker of a note is the one speci¬ 
 fied as the place of its payment, and also the one to which the note 
 is sent at maturity for collection, the maker’s written order on the 
 note to the bank to pay it from his deposits is sufficient; and where 
 the bank accepts this order and retains the note without entry on its 
 books for some days, then its doors are closed and a receiver ap¬ 
 pointed, the payee of the note is held responsible for the acts of its 
 agency for collection, and a plea of payment is good. 
 
 A note payable at the bank of the maker’s deposit is of itself an 
 order on the bank to pay the note at maturity for the account of the 
 
 maker. u 
 
 Rights and liabilities as to proceeds. A bank acquiring in 
 due course of business a draft for the price of goods, with hill of 
 lading attached, is the owner thereof, and of the proceeds on the 
 draft being paid, but where the bank merely takes the draft and bill 
 of lading as a collecting agent, it acquires no property right in the 
 
 1 1921, chap. 4. sec. 39. 
 
 -Bank v. Floyd, 142-187, 55 
 
 3 Bank v. Trust Co., 168-605, 
 
 S. E. 95. 
 
 85 S. E. 5. 
 
 4 Peaslee v. Dixon, 172-411, 90 S. E. 421. 
 5 Pell’s Revisal, sec. 2237; C. S., 3069. 
 
294 
 
 Banks and Banking 
 
 proceeds . 1 That drafts collected by a bank were for shipments of 
 liquor does not defeat plaintiffs right to recover from the bank the 
 amount collected, since, where an agent receives money to his prin¬ 
 cipal’s use, it is immaterial whether it was paid on a legal or illegal 
 contract . 2 
 
 It is a well known and established custom of banks, when acting 
 as collecting agents, either for banks or indeed for any customer, to 
 put all collections made by them into the general fund of the bank, 
 unless directed to make of them a special deposit, and use them from 
 hour to hour, and from day to day, in the transaction of their current 
 business, and, when the day or the hour arrives for making remit¬ 
 tances, to send to the bank or other customer for whom the collection 
 was made, not the identical currency or money collected, but money 
 or currency taken from the general fund without any reference to 
 its identity, or, as is far oftener done, its cashier’s check on itself 
 or some other bank, or in some way to effect a transfer of the fund 
 by the use of credits of one kind or another without the handling and 
 shipping of any actual money or currency at all . 3 
 
 Where a draft is sent to a bank for collection, and it is so re¬ 
 stricted by endorsement, the bank is authorized to carry the proceeds 
 of the draft, when collected, into its general assets; and when it does 
 so, the relationship between the drawer or forwarder of the draft 
 and the bank becomes that of creditor and debtor, so that, on assign¬ 
 ment of the bank by reason of insolvency, such drawer or forwarder 
 can only share in the assets pro rata with the general creditors . 4 
 
 Under an agreement between two banks that one should collect 
 notes and checks forwarded it by the other for a commission, and 
 remit daily, the relation of principal and agent as/to any paper ceased 
 on collection and the relation of creditor and debtor as to the cash 
 immediately arose. 
 
 A collecting bank is not chargeable as for a conversion for funds 
 collected for a correspondent which it mingled with its own funds 
 previous to its failure, in the absence of knowledge by its cashier 
 of its insolvency . 5 
 
 Where a collecting bank credits the account of the sending bank 
 with the proceeds of a draft endorsed over to the sending bank “for 
 collection,” whose agency was afterwards revoked, it does not dis¬ 
 charge liability to the drawer, unless the money was actually trans- 
 
 1 Elm City Lumber Co. v. Childerhose, Corporation Comm. v. Bank, 137-697. 
 
 167-34, 83 S. E. 22. 50 S. E. 308; Bank v. Davis, 115-226, 20 
 
 2 Arey Distilling: Co. v. Mutual Aid Bkg. S. E. 370. 
 
 Co.. 163-66, 79 S. E. 287. 5 Bank v. Davis, 114-343, 19 S. E. 280. 
 
 3 Bank v. Davis, 114-343, 19 S. E. 280. 
 
Functions and Dealings 
 
 295 
 
 mitted to the sending hank before notice of the revocation of its 
 agency . 1 Wherever it appears on the face of a paper that it was in 
 the possession of a hank for collection, the proceeds of the paper 
 are the property of the owner, and the actual collecting hank is liable 
 to the owner in case of the insolvencv of any intermediary hank 
 which has received it for collection, unless the collecting hank has 
 remitted the proceeds, or its equivalent, to the transmitting hank 
 before it had knowledge of such transmitting bank’s insolvency . 2 
 
 Where one hank, as the agent of a customer, sends a draft for 
 collection to another hank between which and the former the business 
 arrangement is that each shall daily remit for the items sent by and 
 collected for the other, the collecting bank is not a purchaser for 
 value by reason of the fact that it has a balance against the forward¬ 
 ing hank, and has no right, as against the owner of the paper, to 
 apply the proceeds to the credit of the account of the forwarding 
 bank, especially when, before the paper is collected, the latter hank 
 fails and suspends business . 3 
 
 Right to compensation. All banks and trust companies in this 
 State have authority to charge a fee on remittances covering checks 
 of not in. excess of one-eighth of one per cent, the minimum fee being 
 ten cents. But this provision does not apply to checks drawn in 
 payment of obligations due the State or Federal Government. 
 
 Payment by drawee bank. Whenever a check is presented to 
 the drawee bank for payment by or through any Federal Reset \e 
 Bank, postoffice or express company, or any respective agents thereof, 
 unless specified on the face thereof to the contrary by the makei 01 
 makers thereof, such check is payable at the option of the drawee 
 bank, in exchange drawn on the reserve deposits of said drawee 
 bank . 5 This does not apply, however, to checks drawn in payment 
 of obligations due the State or Federal Government . 6 
 
 O 
 
 Certain notations on checks prohibited. It is declared un¬ 
 lawful for any person or persons, other than the maker thereof, to 
 make, by rubber stamp or otherwise, any notation on any cheek- 
 drawn on any bank or trust company chartered in this State, the 
 effect of which notation shall change or affect any condition or pro¬ 
 vision thereof, as created by law, with reference to the amount to 
 
 1 Boykin, etc., Co., v. Bank, 118-566, 24 
 S. E. 357; Bank v. Bank, 119-30/, 
 
 J Bank v. Bank, 119-307, 25 S. E. J><1, 
 
 3 Stevenson v 
 4 1921, chap. 
 5 1921, chap. 
 G 1921, chap. 
 
 Bank, 113-485. 
 20, secs. 1, 4. 
 20, sec. 2. 
 
 20, sec. 4. 
 
296 
 
 Banks and Banking 
 
 be charged for its collection, liow remittance for it is to be made by 
 drawee to collecting bank, and its protest when based alone on the 
 ground of refusal to pay exchange or collection charges. Any person 
 or persons violating this provision is guilty of a misdemeanor, and 
 upon conviction must pay a fine of not more than two hundred dol¬ 
 lars or be imprisoned not more than thirty days . 1 
 
 Failure to collect. A bank must use due diligence to collect, 
 else its failure to collect when paper is presented may subject it to 
 liability for the amount of it . 2 When commercial paper is sent to 
 a bank for collection, it is the duty of the bank to make presentment 
 for payment at maturity. If it is not then paid, the hank must fix 
 the liability of the drawer by protest and notice of dishonor; and 
 if it fails in any of these duties it becomes liable in damages. It 
 is no excuse that if the paper had been presented for payment it 
 would not have been paid. The failure of the bank to present for 
 acceptance and payment makes the paper its own; and it is liable 
 for the amount thereof . 3 
 
 Where a bank receives a check on itself from a depositor for col¬ 
 lection, and fails without excuse to notify such depositor of its non¬ 
 payment, it is chargeable with negligence . 4 
 
 Failure to fix liability. Where a bank receiving paper for 
 collection unreasonably delays in fixing liability, the bank will be 
 chargeable with the amount of the payment . 5 
 
 Refusing payment when refusal to pay exchange; no pro¬ 
 test allowed. Ho officer in this State is allowed to protest for non¬ 
 payment any check or checks drawn on any bank or trust company 
 chartered by this State when payment is refused by the drawee bank 
 solely on account of failure or refusal of the holder or owner thereof 
 to pay exchange charges authorized; and there is no right of action, 
 either in law or equity, against any bank or trust company chartered 
 by this State, for refusal to pay any such check when such action is 
 based alone on the ground of refusal to pay exchange or collection 
 charges herein authorized . 6 
 
 Loans and discounts. Powers and restrictions. The charter 
 of the bank, when it attempts to state to what classes of people loans 
 can be made, is controlling. It has been held that where the charter 
 
 1 1921, chap. 20, sec. 3. 4 Bank v. Kenan, 76-340. 
 
 2 Bank v. Greensboro Loan and Trust Co., 5 Bank v. Kenan, 76-340. 
 
 159-85, 74 S. E. 747. 6 1921, chap. 20, sec. 5. 
 
 3 Bank v. Greensboro Loan, etc., Co., 159- 
 
 85, 74 S. E. 747. 
 
297 
 
 Functions and Dealings 
 
 authorized loans to any “planter, farmer, miner, manufacturer, or 
 other person, it did not authorize loans to merchants, as it was the 
 evident intent ot the Legislature to benefit only the producing class . 1 
 Nor can any State bank lend to an officer who is actively en<xaa’ed in 
 its management, or to any of its employees, any amount whatever, 
 except upon good collateral or other ample security or endorsement, 
 and no such loan can he made until after it has been approved by a 
 majority of the directors or a committee of the hoard of directors 
 authorized to act . 2 
 
 When the reserve of any bank falls below the amount required by 
 law, it cannot make new loans or discounts otherwise than by dis¬ 
 counting or purchasing bills of exchange, payable at sight or on 
 demand, nor make dividends of its profits until the reserve required 
 by law is restored. The Corporation Commission must require any 
 bank whose reserve falls below the amount herein required immedi¬ 
 ately to make good such reserve. In case the bank fails for thirty 
 days thereafter to make good its reserve, the Corporation Commis¬ 
 sion may forthwith take possession of the property and business of 
 such bank until its affairs be adjusted or finally liquidated as pro¬ 
 vided for by law . 3 
 
 Collateral security. State banks can make loans on any good 
 collateral that is marketable, but it is unlawful for any bank to make 
 any loan secured by the pledge of its own shares of stock, nor can 
 any bank be the holder as pledgee, or as purchaser, of any portion of 
 its capital stock unless such stock is purchased or pledged to it to 
 prevent loss upon a debt previously contracted in good faith . 4 
 
 Where a bank charter stated that “advancements may be made," 
 etc., “taking liens/' it is held that the charter contemplated that the 
 two should be contemporaneous acts, and not that the bank, at any 
 time after making an advancement, could take a lien on all future 
 purchases of the mortgagor for a general balance due on such ad¬ 
 vancements . 0 
 
 Interest ; rates of discount ; usury. The legffi rate of interest 
 is six per cent and no more . 6 All bonds, bills, notes, and bills of 
 exchange bear interest from the maturity thereof unless otherwise 
 specified. All such payable on demand bear interest from the date 
 demandable unless otherwise specified. Bills of exchange drawn or 
 endorsed in this State and which have been protested bear interest, 
 
 iBank v. Williams, etc., Co., 79-129. 
 U921, chap. 4, sec. 62. 
 
 3 1921, chap 4, sec. 71. 
 
 4 1921, chap. 4, sec. 45. 
 
 5 Bank v. Williams, etc., Co., 79-129. 
 6 C. S., 2305. 
 
298 
 
 Banks and Banking 
 
 not from the date thereof, hut from the time of payment therein 
 mentioned . 1 The provision in a bank charter that it can “lend money 
 upon such terms and rates of interest as may he agreed upon ’ 7 does 
 not authorize such hank to charge more than the legal rate . 2 The 
 taking, receiving, reserving or charging a greater rate of interest than 
 six per cent per annum, either before or after the interest may accrue, 
 when knowingly done, works a forfeiture of the entire interest which 
 the note or other evidence of debt carries with it, or which has been 
 agreed to be paid thereon. And in case a greater rate of interest 
 has been paid, the person, or his legal representatives, .or corporation 
 by whom it has been paid may recover back twice the amount of 
 interest paid . 3 A note tainted with usury retains the taint in the 
 hands of a subsequent holder ; 4 therefore, a note embracing usurious 
 stipulation is void as against the maker in the hands of a purchaser 
 before maturity for value and without notice to the extent to which 
 the contract is usurious . 5 A provision in a charter allowing a bank 
 to lend money at a usurious rate does not confer power upon it to do 
 so, but a provision to borrow money at such rate is not objection¬ 
 able . 5 The custom of merchants will not be allowed to modify the 
 usury laws . 7 An agreement to pay interest on a note “at the rate of 
 six per cent per annum, to be compounded annually , 77 renders a con¬ 
 tract usurious , 8 but interest upon interest due at a specified time and 
 unpaid is not usury . 9 
 
 Bank acceptances. Any State bank may accept for payment 
 at a future date drafts or bills of exchange having not more than 
 six months sight to run, drawn upon it by its customers under accept¬ 
 ance agreements, and which grow out of transactions involving the 
 importation or exportation of goods, and issue letters of credit 
 authorizing the holders thereof to draw upon it or its correspondents, 
 provided that there is a definite bona fide contract for the shipment 
 of goods within a specified reasonable time, and the existence of such 
 contract is certified in the acceptance agreement, or which grow out 
 of transactions involving the domestic shipment of goods, provided 
 that shipping documents, conveying or securing to the accepting bank 
 title to readily marketable goods, are attached or in the hands of an 
 agent of the accepting bank, independent of the drawer, for his 
 account, at the time of acceptance, or which are secured at the time 
 
 1 C. S., 2307. 6 Bank v. Mfg. Co., 96-298. 
 
 ^Simonton v. Lanier, 71-498. 7 Gore v. Lewis, 109-539, 13 S. E. 909. 
 
 C. S., sec. 2306. 8 Cox v. Brookshire, 76-314. 
 
 “Faison v. Grandy, 126-827. 9 Crowell v. Jones. 167-386, 83 S E. 
 
 5 Ward v. Sugg, 113-489, 18 S. E. 717, 551; Scott v. Fisher, 110-311, 14 S. E. 799. 
 
 overruling Coor v. Spicer, 65-401. 
 
Functions and Dealings 
 
 299 
 
 of acceptance by warehouse receipts or other documents conveying 
 or securing to the accepting bank title to readily marketable goods 
 fully covered by insurance, the warehouse receipts or other docu¬ 
 ments to be those of a responsible warehouse, independent of the 
 drawer, the acceptance to remain secured during the life of the 
 acceptance unless suitable security of same character, or cash, be sub¬ 
 stituted. No State bank, however, can accept drafts or bills of 
 exchange to an aggregate amount at any time more than equal to the 
 sum of its capital and permanent surplus. Nor can a bank accept, 
 whether in a foreign or domestic transaction, for any one person, 
 firm, or corporation, to any amount at any time equal to more than 
 twenty-five per cent of its capital and permanent surplus, unless the 
 accepting bank is secured either by attached documents or those held 
 by its account by its agent, independent of the drawer, or by some 
 other actual security of the same character. Should the accepting 
 bank purchase or discount its own acceptances, such acceptances will 
 be considered as a direct loan to the drawer, and be subject to the 
 limitation on loans heretofore stated. The Corporation Commission 
 may issue such further regulations as to such acceptances as it may 
 deem necessary in conformity with law. As used herein, the word 
 “goods” must be construed to mean and include goods, wares, mer¬ 
 chandise, or agricultural products, including livestock . 1 
 
 Repayment of loans. A borrower cannot take advantage of a 
 cashier’s mistake in cancelling his note, and claim that his loan has 
 been paid. A case in point is where a borrower gave to the lender 
 bank a draft in payment of his note, with the understanding that 
 when the draft was collected the note would be canceled. The 
 cashier, through error, canceled the note and sent it to the borrower. 
 The draft went to protest. The court held that there was no pay¬ 
 ment of the note . 2 
 
 1 1921, chap. 6, sec. 37. 
 
 2 Dewey v. Bowers, 26-538. 
 
AN ACT TO PROVIDE FOR THE SUPERVISION AND EX¬ 
 AMINATION OF INDUSTRIAL BANKS BY THE COR¬ 
 
 PORATION COMMISSION. 
 
 (This act is designated as Chapter 225 of the Laws of 1923. Up to 
 this date none of its provisions have been construed by the Supreme 
 Court.) 
 
 Section 1 . Industrial bank defined. The term “Industrial 
 Bank,” as used in this act, shall he construed to mean any corpora¬ 
 tion organized or which may hereafter be organized under the gen¬ 
 eral corporation laws of this State, which is engaged in lending 
 money to be repaid in weekly or monthly or other periodical install¬ 
 ments, or principal sums, as a business: Provided, however, this 
 definition shall not be construed to include building and loan associa¬ 
 tions or commercial or savings banks. 
 
 o 
 
 Sec. 2. Manner of organization. Corporations may be organ¬ 
 ized under this act in the same manner as provided for corporations 
 authorized under the chapter on Corporations. 
 
 Sec. 3. Corporate title. Every corporation incorporated or re¬ 
 organized pursuant to the provisions of this act shall be known as an 
 industrial bank, and may use the word “bank” as part of its corpo¬ 
 rate title. 
 
 Sec. 4. Capital stock. The amount of capital stock with which 
 any industrial bank shall commence business shall not be less than 
 twenty-five thousand dollars ($25,000) in cities or towns of fifteen 
 thousand population or less; nor less than fifty thousand dollars 
 ($50,000) in cities or towns whose population exceeds fifteen thou¬ 
 sand but does not exceed twenty-five thousand; nor less than one 
 hundred thousand dollars ($100,000) in cities or towns whose popu¬ 
 lation exceeds twenty-five thousand; the population to be ascertained 
 by the last preceding National census: Provided, that this section 
 shall not apply to industrial banks organized and doing business 
 prior to its adoption. 
 
 Sec. 5. No commissions for sale of stock. The capital stock 
 sold by any industrial bank in process of organization, or for an 
 increase of the capital stock, shall be accounted for to the bank in 
 the full amount paid for the same. No commission or fee shall be 
 
301 
 
 Industrial Banks 
 
 paid to any person, association, or corporation for selling sncli stock. 
 The Corporation Commission shall refuse authority to commence 
 business to any industrial bank if commissions or fees have been 
 paid, or have been contracted to be paid by it, or by any one in its 
 behalf, to any person, association, or corporation for securing sub¬ 
 scriptions for or selling stock in such bank. 
 
 Sec. 6 . Powers. In addition to the general powers conferred 
 upon corporations formed under the chapter on Corporations, every 
 industrial bank shall have the following powers: 
 
 1. To loan money on real or personal security, and reserve lawful 
 interest in advance upon such loans, and to discount or purchase 
 notes, bills of exchange, acceptances or other choses in action. 
 
 2. To sell or offer for sale its secured or unsecured evidences or 
 certificates of indebtedness or investment, and to receive from in¬ 
 vestors therein or purchasers thereof payments therefor in install¬ 
 ments or otherwise, with or without an allowance of interest upon 
 such payments, whether such evidence or certificates of indebtedness 
 or of investment be hypothecated for a loan or not, and to enter into 
 contracts in the nature of a pledge or otherwise with sncli investors 
 or purchasers with regard to such evidences or certificates of in¬ 
 debtedness or of investment, and no such transaction shall in any 
 way be construed to affect the rate of interest on such loans. 
 
 3. To charge for a loan made pursuant to this section one dollar 
 for each fifty dollars or a fraction thereof loaned,-up to and including 
 loans of two hundred and fifty dollars, and for loans in excess of two 
 hundred and fifty dollars, one dollar for each two hundred and fifty 
 dollars excess or fraction thereof, to cover expenses, including any 
 examination or investigation of the character and circumstances of 
 the borrower, comaker, or surety. An additional fee of five dollars 
 may be charged on such loans where same are secured by mortgage 
 on real estate. Ho charge shall be collected unless a loan shall have 
 been made. 
 
 4. To establish branch offices or places of business within the 
 county in which its principal office is located, and elsewhere in the 
 State, after having first obtained the written approval of the ( oi- 
 poration Commission, which approval may be given or withheld 1>\ 
 the Corporation Commission in its discretion: 1 rovided, that the 
 Corporation Commission shall not authorize the establishment ot an\ 
 branch the paid-in capital of whose parent bank is not sufficient in 
 an amount to provide for the capital of at least twenty-five thousand 
 
302 
 
 Banks and Banking 
 
 dollars ($25,000) for the parent bank and at least twenty-five thou¬ 
 sand dollars ($25,000) for each branch which it is proposed to he 
 established in cities or towns of fifteen thousand population or less; 
 nor less than fifty thousand dollars ($50,000) in cities or towns 
 whose population exceeds fifteen thousand hut does not exceed twenty- 
 five thousand; nor less than one hundred thousand dollars ($100,000) 
 in towns whose population exceeds twenty-five thousand. 
 
 Sec. 7. Restriction on powers. dSTo industrial bank shall— 
 
 1. Make any loan under the provisions of this article for a longer 
 period than one year from the date thereof: Provided, however, that 
 loans upon real estate security may be made for a period not exceed¬ 
 ing two years. 
 
 2. Deposit any of its funds in any banking corporation unless such 
 corporation has been designated as such depositary by a vote of a 
 majority of the directors, or of the executive committee, exclusive of 
 any director who is an officer, director, or trustee of the depositary so 
 designated, present at any meeting duly called at which a quorum is 
 in attendance, and approved by the Corporation Commission. 
 
 Sec. 8. Limit of loans. The total liability to any industrial 
 bank of any person, corporation, company or firm, for money bor¬ 
 rowed, including in the liabilities of the company or firm the liabili¬ 
 ties of the several members thereof, shall at no time exceed ten per 
 cent of the actually paid-up capital and surplus of such industrial 
 bank, but the discount of bona fide bills of exchange or acceptances 
 drawn against actually existing values, and the discount of commer¬ 
 cial or business paper actually owned by the person or persons, cor¬ 
 poration, company or firm negotiating the same shall not be con¬ 
 sidered money so borrowed. 
 
 Sec. 9. Directors. At least three-fourths of the number of di¬ 
 rectors of any industrial bank shall be residents of the State of North 
 Carolina. 
 
 Sec. 10. Officers and employees shall give bond. The active 
 officers and employees of any industrial bank, before entering upon 
 their duties, shall give bond to the bank in a bonding company au¬ 
 thorized to do business in North Carolina in the amount to be re¬ 
 quired by the directors, and in such form as may be prescribed or 
 approved by the Corporation Commission. The Corporation Com¬ 
 mission, or directors of such bank, may require an increase of the 
 amount of such bond whenever they may deem it necessary. If in- 
 
Industrial Banks 
 
 303 
 
 jured by the breach of any bond given hereunder, the bank so injured 
 
 may put the same in suit and recover such damage as it may have 
 sustained. 
 
 * II* Supervision and examination. Every industrial bank 
 now or hereafter transacting the business of an industrial hank, as 
 defined by this act, whether as a separate business or in connection 
 with any other business under the laws of and within this State, shall 
 be subject to the provisions of this act, and shall be under the super¬ 
 vision of the Corporation Commission. The Corporation Commis¬ 
 sion shall exercise control of and supervision over the industrial 
 banks doing business under this act, and it shall be its duty to execute 
 and enforce, through the Chief State Bank Examiner and the State 
 bank examiners and such other agents as are now or may hereafter 
 be created or appointed, all laws which are now or may hereafter be 
 enacted relating to industrial banks as defined in this act. For the 
 more complete and thorough enforcement of the provisions of this act 
 the Corporation Commission is hereby empowered to promulgate 
 such rules, regulations and instructions, not inconsistent with the pro¬ 
 visions of this act, as may, in its opinion, be necessary to carry out 
 the provisions of the laws relating to industrial banks as herein de¬ 
 fined, and as may be further necessary to insure such safe and con¬ 
 servative management of industrial banks under its supervision as 
 may provide adequate protection for the interest of creditors, stock¬ 
 holders, and the public in their relations with such institutions. All 
 industrial banks doing business under the provisions of this act shall 
 conduct their business in a manner consistent with all laws relating 
 to industrial banks, and all rules, regulations and instructions that 
 may be promulgated or issued by the Corporation Commission. 
 
 Sec. 12. Corporation Commission may take charge, when. The 
 
 Corporation Commission may forthwith take possession of the busi¬ 
 ness and property of any industrial bank to which this act is appli¬ 
 cable whenever it shall appear that such industrial bank: 
 
 1. Has violated its charter or any laws applicable thereto; 
 
 2. Is conducting its business in an unauthorized or unsafe manner; 
 
 3. Is in an unsafe or unusual condition to transact its business; 
 
 4. Has an impairment of its capital stock; 
 
 5. Has refused to pay its holders of certificates of indebtedness or 
 investment in accordance with the terms upon which such ceitificates 
 of indebtedness or investment were sold; 
 
304 
 
 Banks and Banking 
 
 6. Has become otherwise insolvent; 
 
 7. H as neglected or refused to comply with the terms of a duly 
 issued lawful order of the Corporation Commission; 
 
 8. Has refused, upon proper demand, to submit its records, affairs, 
 and concerns for inspection and examination to a duly appointed or 
 authorized examiner of the Corporation Commission; 
 
 9. Its officers have refused to be examined upon oath regarding its 
 affairs. 
 
 Such banks may, with the consent of the Corporation Commis¬ 
 sion, resume business upon such terms and conditions as may be 
 approved by it. 
 
 Sec. 13. Sections of general banking act apply. That sections 
 seven, eight, nine, sixty-four, sixtv-six, sixty-seven, sixty-nine, 
 seventy-two, seventy-three, seventy-four, seventy-five, seventy-six, 
 seventy-seven, seventy-eight, seventy-nine, and eighty, of chapter four 
 of the Public Laws of North Carolina of one thousand nine hundred 
 twenty-one, relating to the supervision and examination of commer¬ 
 cial banks, shall be construed to be applicable to industrial banks, 
 in so far as they are not inconsistent with the provisions of this act. 
 
 Sec. 14. Directors, officers, etc., accepting fees, etc. Ho gift, 
 fee, commission, or brokerage charge shall be received, directly or 
 indirectly, by any officer, director, or employee of any industrial 
 bank doing business under this act, on account of any transaction to 
 which such industrial bank is a party. Any officer, director, em¬ 
 ployee, or agent who shall violate the provisions of this section shall 
 be guilty of a misdemeanor and shall be and thereafter remain in¬ 
 eligible as an officer, director, or employee of any industrial bank 
 doing business under this act. Nothing in this section shall be con- 
 strued to prevent the payment of necessary and proper attorney’s 
 fees to any licensed attorney for professional services rendered. 
 
 Sec. 15. Conflicting laws repealed. That all laws and clauses 
 of laws in conflict with this act and the provisions of this act be and 
 the same are hereby repealed. 
 
 Sec. 16. In force, when. This act shall be in force from and 
 after its ratification. 
 
INDEX 
 
 Acceptances by bank, 297. 
 
 Accounts; manner of keeping, prescribed, 254. 
 
 Assets; individual liability of stockholders as, 269. 
 
 Bank; word defined, 251. 
 
 Bank acceptances, 297. 
 
 Banking Act; certain sections apply to industrial banks, 304. 
 
 Banking hours; exercise of banking powers outside of, 281. 
 
 Bills of exchange discounted, 257. 
 
 Board of directors. See Directors. 
 
 Branch banks, 260. . 
 
 Building and loan associations not under Corporation Commission, _o . 
 
 Capital stock. See also Stock, 
 amount required, 263. 
 
 amount of. paid, necessary to begin business, 252, 263. 
 falsely advertising amount of, penalty for, 264. 
 impairment of, made good, how, 264. 
 increase and decrease of, 263. 
 of industrial banks, 300. 
 
 Cashier; authority to represent bank, 282. See Offieeis, e c. 
 liability of, for allowing overdrafts, 290. 
 unauthorized act, 273. 
 
 Certificates of deposit; issued only for money, l. 1. 
 
 falsely issuing, penalty, 273. 
 
 Charter of bank; authority for issuing, 251. 
 
 Check ■ certain notations on, prohibited, -95. 
 
 liability for erroneous payment of, 287, 290. 
 
 nonpayment through error, -8, . 
 
 no assignment of deposit, 289. 
 payment of, generally, 286. 
 
 fiduciaries’, liability, 288. 
 
 minor’s, 288. 
 
 Collections; authority and acts in making, 292. 
 certain notations on checks prohibited, -9o. 
 compensation for making, -9->. ^ 
 
 depositor's note an order to pay, 293. 
 failure of bank to fix liability, 296. 
 effect of endorsements guaranteed, -do. 
 endorsement for, 292, 29->. 
 failure to make, 296. 
 payment of, by drawee bank. 29o. 
 
 protest not allowed, when, 296. collection 291. 
 
 relation between bank and depositor foi collect 
 
 subagents making, ^ 
 
 title to papers received as, 21 * . 
 
 Commercial paper defined, 257. 
 
 Consolidation of banks, 261. 
 
 Control of banks, 251-258. 
 
306 
 
 Index 
 
 Corporation Commission; authorizes bank to open, when, 252, 260. 
 bond of bank officers increased by, 271. 
 branch banks, duties as to, 260. 
 cannot authorize bank to open, when, 301. 
 communications from, to State banks, 254. 
 duties as to consolidation of banks, 261. 
 
 respecting reorganization of banks, 262. 
 when capital impaired, 264. 
 liquidation of banks approved by, 275. 
 may refuse permission to charter, 251. 
 passes on charter, 251. 
 power to require removal of officers, 255. 
 
 suspend limitations on loans, 257. 
 
 investments, 256. 
 
 prescribes manner of keeping accounts, 254. 
 
 receiver of bank appointed at instance of, 276. 
 
 reports to, of condition of banks, 252. 
 
 refuses permission for bank to open, when, 264, 252, 260. 
 
 supervises State banks, 251-258. 
 
 takes charge of State bank, when, 275. 
 
 industrial bank, when, 303. 
 
 Corporation law applicable to banks, 260. 
 
 Creditors; who are, 278. 
 
 Debtors; who are, 278. 
 
 Depositor; note of, an order to bank to pay, 293. 
 relation between bank and, 284, 291. 
 set-off, by, 286. 
 
 Depositories designated for reserve, 258. 
 
 Deposits; application of, to debts due bank, 285. 
 
 application of partnership, to debts of partners, 285. 
 
 partners, to debts of partnership, 285. 
 
 defined, 283. 
 fiduciaries’, 2SS. 
 
 general, do not bear interest, 285. 
 minors, 286. 
 
 officer’s duties as to, representing bank, 283. 
 
 repayment of, 284. 
 
 right of bank to receive, 283. 
 
 title to, 284. 
 
 valuables, for safe-keeping, 291. 
 
 Directors*; accepting fee or gift liable, 274, 304. 
 committees of, 270. 
 declare dividends, how, 266. 
 
 stock dividend out of surplus, when, 266. 
 depository for reserve designated by, 258. 
 direct branch banks, 263. 
 dividend declared by, 266. 
 exercise powers of bank, 259. 
 impairment of capital, duties as to, 264. 
 
IxDEX 
 
 30 
 
 Directors— continued. 
 
 investment limitation, suspension requested by, 250. 
 letters from Corporation Commission seen by, 254. 
 loan limitation, suspension requested by, 257. 
 liability of, 271., 
 
 for misfeasance, 273. 
 
 publishing false reports, 273. 
 oath of, 270. 
 of industrial banks, 302. 
 prescribe terms as to deposits, 283. 
 qualifications of, 270. 
 stock book provided by, 265. 
 
 Discounts; powers and restrictions in making, 297-299. 
 rate of, 297. 
 rules as to, 297-299. 
 
 Dissolution of corporation, 276-280. 
 effect of, 278. 
 
 enforced by Corporation Commission or creditors, 276. 
 
 Dividends; declared, how, 266. 
 lien of bank on, 267. 
 
 Embezzlement by officers, employees, etc., 273. 
 
 Examinations; made by bank examiner, 254, 303. 
 committee of directors make, 270. 
 examiner may arrest officer, 254. 
 of industrial banks, 303. 
 powers of examiner in making, 254. 
 
 Exchange, rates of, 295. 
 
 Executive committee of directors, 270. 
 
 False certification by officer, penalty for, 273. 
 
 False entries made by officer, employee, etc., liability, 273. 
 
 Federal Reserve System ; State banks may join, 263. 
 
 Forged paper, liability for payment of, 290. 
 
 Formation of State banks, 259. 
 
 Function and dealings of bank, 281-299. 
 
 Incorporation of State banks, 259. 
 
 Industrial banks, 300-304. 
 
 Insolvency; defined, 274. 
 
 transfers affected by, 27S. 
 
 Insolvent bank receiving deposits; liability, 273. 
 
 Interest, 297. 
 
 Investments; limitation on, 255. 
 
 limitation suspended, when, 256. 
 
 Lien of bank on stock or dividends, 267. 
 
 Limitations; on loans, 256. 
 on investments, 255. 
 
 Liquidation of corporation, 275-2S0. 
 
 Loans, 296-299. 
 
 collateral security to, 297. 
 defined, 256, 257. 
 
308 
 
 IXDEX 
 
 Loans —contin ucd. 
 
 limitation on State commercial banks, 256. 
 
 industrial banks, 302. 
 suspended, when, 257. 
 mistake in cancelling, 299. 
 powers and restrictions in making, 296. 
 
 Morris Plan Banks: certain, not supervised, 251. 
 
 Net earnings defined, 265. 
 
 Officers, agents, employees. See also Directors, 
 accepting gift or fee, liable, 274, 304. 
 allowing overdrafts, liable, 290. 
 authority in dealing in bills, notes, etc., 282. 
 bond given by, 271. 302. 
 
 certifying check without charging it; liability, 274. 
 cannot pay personal debts from bank’s funds, 282. 
 committing offense against banking laws, liable, 274. 
 embezzling funds ; liability, 273. 
 
 fictitiously borrowing money to defraud bank or other person, 273. 
 
 liability for allowing overdrafts, 273. 
 
 lending money to insolvent or fictitious corporation, 273. 
 
 making false certification, liable, 273. 
 
 notice to, effect on bank, 283. 
 
 of insolvent bank receiving deposits, 273. 
 
 removal of, on demand of Commission, 255. 
 
 representation of bank by officers, etc., 282. 
 
 representation by, bank bound by, 283. 
 
 wrongful acts of, 283. 
 
 Organization of State commercial banks, 259. 
 
 industrial banks, 300. 
 
 defective, does not excuse president, when, 260. 
 
 Overdrafts; liability for allowing, 290. 
 
 Par clearance; law against requiring, 295, 296. 
 
 Powers and duties of State banks, 259, 301, 302. 
 before beginning business, 260. 
 liow exercised and limited, 281. 
 exercised outside of banking hours, 2S1. 
 
 President; liability of, 272. See also Officers, etc. 
 
 Protest not allowed, when, 296. 
 
 Receivership; bank under, still supervised by Commission, 277. 
 books of defunct bank deposited, where, 278. 
 claims; payment of, 279. 
 presentation of, 279. 
 proof of, 279. 
 
 debtor and creditor defined, 27S. 
 general law of, applicable, 278. 
 receiver’s powers and duties, 276. 
 rights of debtor to set-off, 279. 
 
 Regulation of State banks, 251-258. ■ 
 
 Reorganization of State banks, 262. 
 
Index 
 
 309 
 
 Reports of condition of State banks, 252. 
 
 Representations by bank officers, 282. 
 
 Reserve depositories designated by Corporation Commission, 258. 
 
 Resumption of business after being closed, 276. 
 
 Rules of bank, change of, 281. 
 
 Secretary of State; duties of, as to charter, 251. 
 
 Set-off or counterclaim, 279, 285. 
 
 Stock. See also Capital Stock. 
 
 assessments upon, to make good capital impairment, 264. 
 
 stock sold if assessment unpaid, 265. 
 book for transfer of, provided, 265. 
 commission or fee for sale of, not allowed, 264, 300. 
 sold if subscription unpaid, 267. 
 transferer of, liable when, 269. 
 
 Stockholder; defined, 267. 
 liability of, 268, 269. 
 
 an asset, 268. 
 rights of, 268. 
 
 Stockholder’s book, 265. 
 
 Supervision of State banks, 251-258, 303. 
 
 Surplus; defined, 265. 
 purpose of, 265. 
 used, how, 266. 
 
 Trade acceptances; defined, 257. 
 discounted, 257. 
 
 Transfer book, 265. 
 
 Undivided profits defined, 265. 
 
 Ultra vires acts, 281. 
 
 Usury, 297. 
 
 Vice President, liability of, 272. 
 

 
 
 
 / 
 
 


mmtm 
 
 . 
 
 ^ ' ' A.. Y : . eJ 
 
 •V.YY^.vV , 
 
 > ) $ fvl'-' Tf. ■'N 5 ' ; . 
 
 ' ’* . '* A ; • t '- 
 
 . 
 
 v ^-Y Y "; , v' , 
 
 . 
 
 .-.'i - .j .. J A - - ; .. :: . . U . •>'. 
 
 *.4> ‘V, r - • ? /*' . .’•jA-.--'' 
 
 ■ 
 
 ■ 
 
 ■ 
 
 ' 
 
 ■,;■ C-YVYTvH■•■■ AO :. ; ' ■ :A 
 
 Co.. Tv Co-•• \ v - r Y 
 
 t •) ■••• • ■■■• 
 
 h . V., *.- - ... - , ., - •.. .. 
 
 . 
 
 ■ 
 
 t 
 
 8 gKSu<v- 
 
 ...X 
 
 '■ 
 
 ' 
 
 . : 4^// V : . ,•'■;•■ : 
 
 A'-r,.-: v ":Y' : KYV 
 
 
 . 
 
 ’ . 
 
 
 
 . 1 * ' • .• ••. • 
 
 UNIVERSITY OF N.C. AT CHAPEL HILL 
 
 * 
 
 - 
 
 . ' y.-yy 
 
 933 
 
 
 
 0003958 
 
 FOR USE ONLY IN 
 
 THE NORTH CAROLINA COLLECTION 
 
 a I s.v- 
 
 IINCPS S 1499 
 
 sBWV 
 
^Vr'***® 
 
 
 
 
 
 SI 1 
 
 'V 
 
 » 1 ym 
 Kj//^