"*» . I A TREATISE ON THE LAW OF National and State Banks INCLUDING THE CLEARING HOUSE AND TRUST COMPANIES WITH AN APPENDIX CONTAINING THE NATIONAL BANK ACT AS AMENDED INSTRUCTIONS RELATIVE ORGANIZATION OF NATIONAL BANKS By H. W. MAGEE, B. L. Member of the Los Angeles Bar, and formerly one of the Board of Bank Commissioners of the State of California ALBANY J. B. LYON COMPANY, PRINTERS 1906 Copyright, 1906 By H. W. MAGEE PREFACE. The aim of the author in writing this book, has been to make it a treatise of special value and practical service to the Banker and Lawyer. With this object in view and to accomplish this end, the laws as found enacted in the statutes, and established by the courts are presented. From this authentic source, the banker, lawyer, and student may be able to obtain the informa- tion desired upon all questions arising in the organization, busi- ness and management of a bank. Banking is a business which, by legislation, is placed under the control and regulation of law ; and at the present time there are but few private banks in existence in the United States. The law in some of the States forbidding the privilege of bank- ing to private persons. Therefore banks are now very largely incorporated associations, deriving their authority from the na- tional banking laws enacted by Congress, and the laws enacted by the States. All banks incorporated under the national banking laws de- rive their authority from the government of the United States, and are, therefore, called national banks. The national banking system originated as a financial measure in the early years of the Civil War. It was urged as a measure of currency reform, and also as a means of replenishing the United States treasury. Its prime object being to stimulate and improve the sale of government bonds, and to provide a national currency which would haye a uniform value. The Supreme Court of the United States in construing the jmrpose and object of national banks has judicially declared that '■' they are institutions designated to be used to aid the govern- ment in the administration of an important branch of the public service." [iii] 20(;3038 iv Preface. Banks which are incorporated under the State laws are desig- nated and called State banks, deriving their power and authority from the laws enacted by the State. All incorporated banks obtain their powers directly from the statute laws authorizing their creation. These powers or rights are denominated and called statutory or expressed powers. They have also inherent, incidental, and implied powers, such as are necessary to carry out and into effect the full purposes of the corporation. The author has endeavored, in the treatment of the subject, to define these various powers, and laws, which control and regu- late the business of banking. An earnest effort has been exerted to present the law and demonstrate what a banking corporation can, or cannot, do. With this object in view all the leading cases reported, involving the rights and powers of a bank, have been reviewed and considered ; and when deemed expedient the opinion of the court, as rendered in the case, has been quoted in full. This plan has been adopted for the reason that an analysis of the cases or opinion of the court frequently fails to correctly exjDress and record the law as rendered by the court. In other instances the law principle is simply and plainly stated, and supported by citation of cases rendered by the court. And as a result, the j)roduction of this work, which may rightfully be called a ready reference or ivorMng hooh on hanking. It is also designed and was originally intended to be a digest of the law and a work for the busy lawyer, to be used in the practice, determination, and settlement of questions arising and growing out of the business of banking and in the trial of bank cases. The author has given unlimited time and care to the selection and compilation of cases directly in point, and the labor thus performed is labor saved to the busy practitioner. All subjects and questions of importance relating to, and af- fecting banks and banking, are presented, including a chapter devoted to (each) The Clearing House and Trust Companies. A chapter has also been added entitled Inspection and Exami- nation of Banks. This chapter is a discussion in a general way of the procedure and mode required to be followed by the examiner in the examination and checking up a bank. The appendix to the work contains all the laws of the ^a- Preface. v tional Banking Act in force at the present time. In addition thereto complete and full instructions are given relative to the organization of national banks. In conclusion this work is respectfully submitted upon its merits, with the hope that it may prove (itself) to be a correct guide to lawful and honest banking, and a text-book invaluable to the banker, lawyer, and student. H. W. Magee. Pasadena, Cal., January 2, 1906. TABLE OF CONTENTS. [References are to pages and sections.] CHAPTER I. Banking a Constitutional and Legislative Privileoe. Section 1. Right of banking controlled by legislation 1 CHAPTER II. State Regulation of Banking after Organization. Section 2. State has power to regulate the business 8 CHAPTER III. Banking Without Authority. Section 3. Unauthorized banking 12 4. A de facto corporation 13 5. Ultra vires acts 13 CHAPTER IV. Banks Classified and Defined. Section 6. Commercial and savings bank 18 7. General definition of banking 19 8. When a broker becomes a banker 19 9. Broker and banker distinguished 22 10. Bank further defined 23 11. Private banker defined 23 12. Trust companies defined , 23 13. Clearing house defined 24 14. Commercial bank further defined 24 15. Mutual savings bank defined 25 16. Capitalized savings bank defined 25 17. National banks further defined 26 18. Enlarged and specific definition under State authority. ... 27 18a. Commercial banks more clearly defined 27 19. Mutual and capitalized savings banks more clearly dis- tinguished 28 CHAPTER V. The Organization of Banks and Proof of Corporate Ekistence. Section 20. Preliminary steps — Organization of national banks 30 21. Who are natural persons 30 22. Who can form a bank 30 23. Married women as incorporators 31 24. Term of existence 33 25. Purpose of corporation 33 26. Location 34 [vii] viii Table of Contents. [References are to pages and sections.] Section 27. Capital required 34 28. Requirements of law essential 34 29. Organization, when complete 35 30. Organization of branch banks 37 31. Proof of corporate existence 49 32. When the life of bank corporation commences 51 CHAPTER VI. By-Laws. Section 33. Power to make, inherent in corporations 52 34. By-law defined 52 35. Power delegated by statvite 52 36. Who has power to make by-laws 52 37. Where statute provides purpose 53 38. By-laws must be reasonable 53 39. When a by-law becomes a law 53 40. By-law must be proved 54 41. Actions upon by-laws 54 42. By-law void which waives liability of stockholder 54 43. Lien created upon shares of stock 55 44. Failure to make by-laws 56 45. Reasonable by-law 56 46. Defining duties of officers 57 47. Amending by-laws 57 48. Provisions and form of by-laws 58 49. Statute prescribing time in which by-laws are to be adopted 58 CHAPTER VII. Stockholders' Rights and Liabilities. Section 50. Who may be a subscriber 59 51. Enfoi-cement of subscription 61 52. What constitutes a stockholder 64 53. Purchase and transfer of stock 66 54. Right of stockholder 67 55. Notice may be waived 68 56. The right to vote 68 57. Right to vote by proxy 69 58. Right of stockholder to inspect records of corporation .... 69 59. Liability of stockholder to creditors of corporation 70 60. Liability cannot be enlarged by a by-law 70 61. When stockholder liable to corporation, liable also to creditors 70 62. Liability beyond subscription 70 63. Fixing date of liability 73 64. Extent of stockholders' statutory liability 73 65. Liability of pledgee or trustee 75 66. An assignment absolute in form may be shown to be only intended as security 76 67. Statute protecting pledgee 77 68. Individual liability of shareholders of national banks.... 77 69. Extent of liability 78 70. Liable for interest 78 71. Representatives of deceased shareholder liable 78 72. Married woman shareholder 78 73. Executors, administrators, guardians, or trustees not per- sonally liable ^0 Table of Ccnte^^ts. IX [References are to pages and sections.] (Section 74. Individual liability of a stockholder in national bank, how enforced 81 75. Creditor may sue stockholder of State bank corporation . . 82 76. Enforcement of individual liability of shareholders under the National Banking Act 82 77. When right of action accrues against stockholder in na- tional bank 82 CHAPTER VIII. Bank Officers axd Agexts. Section 78. Directors — General discussion of duties and responsi- bilities 83 79. Directors of national banks 88 80. Directors of State bank 90 81. Directors' meetings 91 82. Place of meeting and notice 91 83. Xumber necessary to constitute a quorum 92 84. Directors of national banks must act as a unit 92 85. Board electing officers of bank 92 86. Vacancies in the board 92 87. Duties which cannot be delegated 93 88. Cannot delegate authority to make discounts 93 89. Cannot delegate statutory duties 95 90. Powers and limitations 95 91. Limitation of power 90 92. Assessment of shares — National banks 90 93. Directoi»s cannot give away property of bank 06 94. Cannot settle with cashier for his deficits 96 95. Assuming debts of others 96 96. Cannot take advantage of position for profit 97 97. Discretionary power 98 98. Safe rule 98 99. Releasing debt 98 100. Releasing subscriber to capital stock 99 101. Securing preferred creditor 99 102. Removing employees 99 103. Courts declare that directors are trustees 100 104. Misappropriating bank funds 101 105. Rights of directors 101 106. Notice to the board 103 107. When the law imputes knowledge 104 108. Notice to a director 104 109. Director must have actual knowledge 109 110. When director is chargeable with knowledge as against himself 110 111. Directors' liability 110 112. Degree of care Ill 113. Acting in good faith Ill 114. Directors declaring a dividend 112 1 15. Excuses of directors 112 110. Compensation of directors 116 CHAPTER IX. The President. Section 117. General qualifications 117 118. Qualifications necessary to hold office 120 119. The president's powers 121 Table of Contents. [References are to pages and sections.] Section 120. President's powers derived from statute 127 121. Limited and prohibited power of president 127 122. Representations and admissions, effect of 129 123. President liable to bank for acts which amount to breach of trust 130 124. President borrowing from bank 132 125. President's compensation 134 CHAPTER X. The Cashier. Section 126. Cashier, general duties and qualifications 136 127. Cashier executive officer of the bank 138 128. Cashier's inherent powers 140 129. Cashier has inherent power to certify checks 140 130. Cashier cannot certify his own check 146 131. Power to draw checks 147 132. Power to receive offers for the purchase of bank securities. 150 133. Cashier has inherent power to deal in bills of exchange. . 151 134. Cashier has charge of personal property 152 135. Power to indorse negotiable paper 153 136. Indorsement for accommodation 154 137. Cashier's powers and duty Mhen " run on bank." 156 138. Cashier borrowing money — Inherent power 158 139. Inherent power to collect debts 167 140. Liability of cashier 168 141. Cashier responsible for subordinates, when 169 142. Cashier — Penalty — Liable, when . . . ^ 170 143. Notice to cashier of bank — When notice to bank 172 144. Cashier's declaration and admissions 175 145. Cashier's acts away from bank 176 146. Limitation of power 177 CHAPTER XI. Paying axd Receiving Tellers. Section 147. Functions of the paying teller 179 148. Teller's duties . ...'...' 185 149. Teller's torts 189 150. Receiving teller 190 151. Limitation of power 199 152. Rule as between depositor and bank correcting errors. . . 199 153. An act prescribing punishment for mutilating, uttering, or passing United States coins 201 CHAPTER XII. The Note Teller. Section 154. His duties 202 CHAPTER XIII. Bank Powers Defined. Section 155. Statutory and expressed powers 204 CHAPTER XIV. Converting State into Nation.\l Banks. Section 156. Steps to be taken 207 157. Incorporated banks can only be converted 208 158. Corporrte relation to old bank after reorganization 209 159. Liabilities of national bank after conversion 212 Table of Contents. XI [References are to pages and sections.] CHAPTER XV. Amending Bank Charters. Section 160. National bank charter, how amended 215 161. Amending State bank charter 215 CHAPTER XVI. Bank Removing its Place of Business. Section 162. National bank removing its place of business 219 163. State banks removing place of business 219 164. Place of business 222 CHAPTER XVII. Increasing or Reducing Capital Stock. Section 165. Law governing national banks 224 166. Increasing capital stock of State banks 227 167. Reduction of capital stock 229 168. Reducing capital of State banks 231 CHAPTER XVIII. Changing Name of Bank. Section 169. Adopting new name 232 CHAPTER XIX. Deposits. Section 170. Nature of deposits 235 171. Nature of general deposits 236 172. Special deposits 240 173. Deposits of paper 244 174. Liabilities of banks for special deposits 245 175. Negligence in delivery of special deposits 247 176. Bank deposits received 248 177. Kinds of deposits received 251 CHAPTER XX. Deposits Repaid. Section 178. When and how paid 254 179. Bank may refuse payment of deposit, when 257 180. Payment of trust funds 259 CHAPTER XXI. Checks. Section 181. Defined 262 182. A check must be dated 263 183. It must be drawn on bank 264 184. Check must be payable to a person named or to his order or to bearer 265 185. A check must be for the payment of a certain sum of money 265 186. A check must be signed by the drawer 266 187. Davs of grace 266 188. Checks negotiable, when 267 189. Delay in presentment 267 190. What is a reasonable time 267 191. Diligence to bind the indorser 268 xii Table of Co'Ntejstts. [References are to pages and sections.] Section 192. Stale checks 268 193. Holder of check rights against bank 269 194. Certified checks 274 195. Right of holder to look to both the acceptor and the drawer of a certified cheek 277 196. Drawer of certified check, when released 277 197. A bill of exchange may be accepted orally 278 198. Liability of banks — Negligence 279 199. When mistake in certification may be corrected by a bank 279 200. Who may certify checks 279 201. When bank estopped from denying a forged certification. 280 202. Bank can correct mistake, when 280 203. Memorandum checks 280 204. Post-dated checks 281 205. Bank bound to honor checks, when 284 206. Nature and effect of check 285 207. Check as payment 285 208. Revocation of checks 286 209. Presentment for payment 290 210. Mistake of bank in payment of check 292 211. Forged checks, bank paying •296 212. Right of bank against presenter and owner of forged paper 299 213. Alteration after signing and uttering 301 , 214. Right of possession to paid checks 304 215. Present rule 305 216. Equitable and safe rule 305 CHAPTER XXII. Overdrafts. Section 217. When unlawful 308 218. Usage or practice, no authority 308 219. Overdrawing may be legalized 311 220. Officer allowing overdraft, criminal act, when 312 221. Drawer liable to bank for overdrafts 312 CHAPTER XXIII. Certificates of Deposit. Section 222. Defined to be promissory notes 314 223. Statute of limitations 318 224. Interest 320 225. Authority of banks to issue certificates 320 226. Payment of certificate 321 CHAPTER XXIV. Bank Loans. Section 227. Nature of loans 323 228. Liabilities of any person, etc., to national banks 324 229. Restrictions against savings banks 327 230. Power to make loans 328 CHAPTER XXV. Banks Borrowing Money. Section 231. National bank, extent of power 331 232. State banks borrowing money 352 Table of Coxtexts. xiii [References are to pages and sections.] CHAPTER XXVI. Banks Dealing ix Stocks and Bonds. Section 23.3. National banks, power limited 3.55 234. Liability of national banks holding stock as security. . . 3.58 235. Commercial and savings banks dealing in stocks and bonds 359 CHAPTER XXVII. Bank Discounts. Section 236. Power to make, vested in directors 360 CHAPTER XXVIII. Dealing in Commercial Paper. Section 237. Distinction between " discovmt '' and " purchasing " 363 238. State banks, power not limited 369 CHAPTER XXIX. Banks Holding Pl'blic Funt)s. Section 239. National banks depositaries — Public moneys 371 CHAPTER XXX. Banks Dealing in Real Estate. Section 240. Limitations upon national banks 374 241. State banks dealing in real estate ,379 CHAPTER XXXI. Officers Borrowing Funds of Bank. Section 242. Prohibited from loaning to themselves 383 243. Restrictions and limitations 383 CHAPTER XXXIL Employing Counsel. Section 244. Authority in president or cashier 387 CHAPTER XXXIII. Donations by Banks. Section 245. Power A^ested in stockholders 389 CHAPTER XXXIV. Conducting Safe Deposit. Section 246. Incidental power Sgi CHAPTER XXXV. Banking Hours. Section 247. When binding upon the public 3[)5 CHAPTER XXXVI. Banks Lending Credit. Section 248. When prohibited by law .308 249. Where a bank may make a guaranty 399 250. Guaranty of banks — Acts ultra vires 400 XIV Table of Co'Xtexts. [References are to pages and sections.] CHAPTER XXXVII. X^oTES AND Acceptances. Section 251. ^Yhen note made payable at bank — Duty of bank 401 252. Set-off — Estoppel / '. 402 253. Maker's right of set-olf 405 254. Special deposit, when accepted to pay note 405 255. Money deposited with bank to pay note is not payment . . 406 256. Application of deposit on note 406 CHAPTER XXXVIII. Collections by Banks. Section 257. Subject treated — Duty of bank 407 258. Relationship existing between the parties 408 259. Indorsement 409 260. Xature of relationship between the parties 410 261. When a bank becomes bailee 410 262. Paper payable at a specific bank 416 263. Law of place governs relation 417 264. Usage and custom 417 265. General rule as to title of paper 420 266. Form of indorsement controls title to collection 422 267. Blank indorsement 424 268. Power to collect may be revoked 424 269. Bank lien upon collections 425 270. Authority of bank to make collections 426 271. Bank suing in its own name 4.S1 272. When bank may renounce its authority to collect 433 273. Dutv of collecting bank — Care — Diligence 434 274. Duty to present — Collection 436 275. Presentment of checks 437 276. Protest — Bank's duty 438 277. Bank accepting payment for collection 438 278. Duty of bank to collect interest, when 441 279. Collecting bank's liability as indorser 441 280. When bank liable for fraud or mistakes 443 281. Liability of initial bank for default of its agents 445 282. Who are suitable agents 445 283. Banks emploving notaries — Conflict of autliority as to liability . .' '. 447 284. Officers of bank acting as notary 448 285. Initial bank's liability for default of its correspondent — Conflict of authorities 450 286. Review of decisions 466 287. When correspondent bank liable to initial bank 468 288. Where paper total loss 468 289. Right of creditors to proceeds of collection 469 290. Insolvency of initial or corresponding bank affecting pro- ceeds of collection ' 469 291. Collections completed, when 470 292. Bank's liability for negligence in failing to make col- lections 471 CHAPTER XXXIX. Savings Banks. Section 293. General discussion — Xature 473 294. State regulation of business 476 Table of Contents. xv [References are to pages and sections.] Section 295. Depositor in mutual savings bank constitutes the bank. . . 477 296. Depositor has no liability in capitalized savings bank. .. . 479 297. Nature of deposit in a capitalized savings bank 479 298. Trust deposit 479 299. Rules regulating and governing depositors 480 300. Gift — Savings bank deposit in trust 480 301. Amount of deposit received may be governed by statute. . 4S0 I 302. When special deposit preferred 480 303. Notice of withdrawal, when not required 481 304. By-laws of savings banks 481 305. Pass-books 490 306. Savings banks borrowing money 491 307. Investments 491 308. Insolvency of savings banks — Appointment of a re- ceiver 492 309. Rights of depositors 492 310. Depositor denied set-off 492 CHAPTER XL. Liens of Banks. Section 311. General and special liens 490 CHAPTER XLI. Statute of Limitations. Section 312. Runs against checks, when 503 313. Runs against certificates of deposits, when 50.*^ 314. Statute runs against stockholder's liability, when 505 315. When State statute does not govern 506 316. Fraudulent act by officer of bank — Statute runs, when . . 507 CHAPTER XLII. Forfeiture of Bank's Franchise. Section 317. Acts of banks which may forfeit charter 508 318. Acts constitviting liability 508 319. Failure to comply with statutory provisions — Grounds for forfeiture 509 320. Nonuser of charter , 509 321. Willful violation of law or bank's charter cause for forfeiture 510 322. Taking usurious interest held to be a violation of charter. 511 323. Bank may be indicted for taking usurious interest 512 324. Directors embezzling funds of bank — Mismanagement.. 512 325. Wrongful act of a single director 512 326. Bank doing business not authorized 513 327. Directors liable for losses resulting from violation of law. 513 CHAPTER XLIII. Insolvency. Section 328. Insolvency defined 514 329. Means may exist in another State 521 330. Officers taking deposit with knowledge of bank's insolv- ency — Liable, when 522 331. Officer must have actual knowledge of insolvency 522 332. Insolvency — National banks 523 333. Deposits may be recovered, when 523 xvi Table of Contexts. [References are to pages and sections.] Section 334. Special deposits recoverable 525 335. Insolvency demonstrated 52.5 336. Set-off 525 CHAPTEE XLIV. Dissolution. Section 337. Voluntary liquidation 528 338. Authority of officers in charge 528 339. Liquidation does not dissolve corporation 328 340. Liquidation dividends 529 CHAPTER XLV. Extension of Corporate Existence. Section 341. National banks 530 CHAPTER XLVL Clearing House. Section 342. History of the clearing house 532 343. Character and object 533 344. Organization — Not a corporation 536 345. Rules of association 537 346. Xonnieniber bank not affected by clearing house rules. . . . 537 347. Settling daily charges 538 348. Presentment of collection througli clearing lioase 539 349. Effect of clearing house customs between member banks. 540 350. Settlement between bank members of clearing house 540 351. Rules in Massachusetts where check was paid under mis- take of fact 540 352. Forged checks passing through clearing house — Bank's liability — Negligence 541 353. Rights of drawee bank against payee in indorsing forged check 553 354. Clearing house member representing a bank not a member. 555 355. How clearing house may sue and be sued 556 356. General vitility of clearing house and its incidental powers 556 CHAPTER XLVII. Trust Companies. Section 357. Distinguished from a bank 563 358. Trust companies may have banking powers 563 CHAPTER XLVIII. Inspection and Examination of Banks. Section 359. Checking up a bank 572 360. Reports required of banks 572 361. Suggestions to examiners 575 TABLE OF CASES. [References are to pages.] A. Ackenhausen v. People's Sav. Bank. 110 Mich. 175, 68 X. W. 118, 64 Am. St. 338 488, 490 Adams v. Improvement Commission. 44 X. J. L. 638 406 ^tna Ins. Co. v. Alton City Bank. 25 111. 221 453 ^tna Xat. Bank v. Xew York Fourth Xat. Bank 46 X. Y. 82, 7 Am. Rep. 314. . 236 271, 297 Agricultural Bank v. Commercial Bank 7 Sni. & Mar. 592 458 Ainsworth v. Bank of California . . 1 19 Cal. 470 525 Albers v. Commercial Bank 85 Mo. 173. 55 Am. Rep. 355. . 288 Albert v. State 65 Ind. 413 50 Aldrich v. Chemical Xat. Bank. . . . 176 U. S. 618 348 V. Skinner 98 Fed. 375 505 Alexandria Canal Co. v. Swann 5 How. (U. S.) 83 123 V. First Xat. Bank of Xenia . 23 Ohio St. 97 328 Allen V. Culver 3 Den. 284 405 V. Gillette 127 U. S. 589 564 V. Keeves 1 East 435 282 V. Merchants' Bank 22 Wend. 215. . .442, 453, 455. 457 V. Suvdain 20 Wend. 321 430, 431, 462 American Bank v. Baker 4 Met. 164 404 American Exch. Xat. Bank v. First Xat. Bank 82 Fed. 961 91 American Exch. Xat. Bank v. The Loretta Gold & Silver Mining Co. 165 111. 103 525 American Express Co. v. Haire. ... 21 Ind. 4 465 V. Parsons 44 111. 312 468 American Insurance Co. v. Oaklev. . 9 Paige, 496 123 American Rv.-Frog Co. v. Haven .\ . 101 Mass. 398, 3 Am. Rep. 377. 68 Anderson v". Alton Xat. Bank 59 111. App. 587 466 v. Pacific Bank 112 Cal. 598, 44 Pac. 1003 248 Andrew v. Blacklv 11 Ohio (X. S.) 89 282 Andrews v. Suffolk Bank 12 Gray (Mass.) , 461 444 Appleby v. Bank 62 X. Y. 12 489 Armour Packing Co. v. Davis 118 X. C. 548 422 Armstrong v. Am. Exch. Xat. Bank. 133 U. S. 433 151 V. Xational Bank of Bover- town .■. . . 90 Ky. 431 153 V. Second Xat. Bank of Springfield 38 Fed. 883 34. 38, 39 [xvii] XVI 11 Table of Cases. [References are to pages.] Armstrong v. Stanage V. Warren Arnison v. Smith Ashley v. Dickson Aspinwall v. Bntler Athol Music Hall Co. v. Carey. Atlanta Nat. Bank v. Burke . . . Atlantic Cotton Mills v. Indian Orchard Mills Atlantic Nat. Bank v. Nathaniel Harris Atlantic State Bank v. Savery.... Atlas Bank v. Nahant Bank Atlas Nat. Bank v. National Exch. Bank Attorney-General v. N. America Life Ins. Co — — V. Utica Ins. Co Atwater v. American Exch. Bank.. Auburn Savings Bank v. Hayes . . . Aull Sav. Bank v. Lexington Auten V. United States Nat. Bank of New York Ayrault v. Pacific Bank 37 Fed. 508 343 49 Ohio St. 376 526 41 Ch. Div. 348 116 48 N. Y. 430 271 133 U. S. 595 50, 225 116 Mass. 471 62, 64 81 Ga. 507, 7 S. E. 738. 2 L. R. A. 96 297 147 Mass. 268, 17 N. E. 496. . . 175 lis Mass. 147 211, 507 82 N. Y. 291 .• 365 3 Met. (Mass.) 581 249 176 Mass. 300 540 82 N. Y. 172 9 15 Johns. (N. Y.) 357 3 L52 111. 605 514 61 Fed. 911 .527 74 Mo. 104 491 174 U. S. 125 47 N. Y. 570 345 .453, 468 B. B. & B. R. R. Co. V. Buck Bailey v. Mosher Bailie v. Augusta Sav. Bank Baines v. Babcock Baker v. Beach V. Briggs Balfour v. Fresno Canal Co Ballin v. Ferst Ballingalls v. Gloster Ballston Spa Bank v. Marine Bank- et al • Baltimore & Ohio R. R. Co. v. Wortliington Bank Commissioners v. Bank of Buffalo V. Rhode Island Central Bank. Bank v. Buigwvn V. Butler ". V. Collector V. Case V. Dunn — — V. Earp V. CriOin V. Haskell V. Insurance Co V. .Tones V. Lanier V. Leach 68 Me. 81 91 63 Fed. 488, 11 C. C. A. 304.. 115 95 Ga. 277. 21 S. E. 717 405 95 Cal. 581 82, 513 85 Fed. 836 81 8 Pick. (Mass.) 121 404 123 Cal. 395 106 55 Ga. 546 69 3 East, 481 431, 463 10 Wis. 125 '.. 162 21 Md. 275 444 6 Paige Ch. (N. Y.) 497... 94, 103 5 R. I. 12 512 110 N. C. 267 108 41 Ohio St. 519 3 Wall. 495 330 99 U. S. 628 72, 75 Pet. 51 129 4 Rawlc (Pa.). 384 416 168 111. 314, 48 N. E. 154 123 51 N. H. 116 175 104 IT. s. 54 502 8 Pet. 12 120 11 Wall. 369 325 .52 N. Y. 350 271 Table of Cases. XIX [References are to pages.] Bank v. Mclntire V. Matthews V. McCarthy V. Pirie V. Pacific S.S. Co V. Peltz V. Perkins V. Scovell V. Smith V. Wheeler Bank of Allerton v. Hoch Bank of Augusta v. Earle Bank of Bengal v. Radakissen Mit- ter Bank of Commerce v. Hart V. Union Bank Bank of La Grange v. Cotter Bank of Louisville v. First Xat. Bank Bank of Manchester v. Allen Bank of the Metropolis v. Jones. . . ■ V. New England Bank Bank of Mobile v. Brown V. Huggins Bank of ^lontreal v. Ingerson Bank of X. A. v. Rindge Bank of New Haven v. Perkins .... Bank of Orleans v. Smith Bank of Republic v. Millard Bank of St. Marys v. St. John Bank of Shasta v. Boyd Bank of St. Albans v. Farmers & Mechanics' Bank Bank of Utica v. ]\lcKinster V. Smedes & Canfield Bank of Vergennes v. Warren Bank of Washington v. Triplett . . . Barnes v. Ontario Bank V. Trenton Gas Light Co Barnet v. Smith Bartlett v. Drake Bart-emeyer v. Iowa Bashaw v. f nited States Bassett v. Mining Co V. Fairchild V. Brown Batchelor v. Planters' Xat. Bank . . Bates V. First Xat. Bank of Brock- port Bath Sav. Inst. v. Sagadahoc Xat. Bank " Baxter v. Coughlin Beal V. City of Somerville Beardsley v. Johnson Beeman v. Duck Beers v. The Phoenix Glass Co 40 Ohio St. 528 212 98 U. S. 621 377 55 Ark. 473, 18 S. W. 759 91 82 Fed. 799, 27 C. C. A. 171. . . 399 103 Cal. .594 506 176 Pa. St. 513 402 29 N. Y. 554 361 12 Conn. 303 466 77 Fed. 129, 23 C. C. A. 80 361 21 Ind. 90 137, 361 89 Pa. St. 324 116, 355 13 Pet. 519 3, 49, 222 4 Moore P. C. 140 404 37 Xeb. 197 167 3 X. Y. 230 296 101 Ga. 134 502 8 Baxter (Tenn.), 101 453 11 Vt. 302 50 8 Pet. 12 175 I How. 234 420 6 How. 212 500 42 Ala. 108 266 3 Ala. 206 425 105 Iowa, 349 416 57 Fed. 279 70 29 X". Y. 554 r 151 3 Hill, 560 453 10 Wall. 152 236, 270, 404, 424 25 Ala. 566 110 99 Cal. 604 50 10 Vt. 141 546 II Wend. 473 428. 460 3 Cow. (X. Y.) 662 220. 428 7 Hill. 91 138 1 Pet. 25 430. 454, 462 19 X. Y. 152 138. 158, 161, 354 27 X. J. Eq. 33 108 10 Foster (X. H. ) , 256 277 100 Mass. 174 294 IS Wall. 129 3 47 Fed. 40 388 15 Xev. 283 91 132 Cal. 637 116 105 Mass. 551 295 10 Rep. 16 (Ky. 1880) 170 89 X. Y. 286 260 89 Me. 500. 36 Atl. 996 56 70 Minn. 1 523 50 Fed. 647 411 121 X. Y. 224, 24 X. E. 380. . . 92 12 L. J. Exch. 198. 11 M. & W. 251 297 14 Barb. 358 138 XX Table of Cases. [References are to pages.] Belknap v. Davis V. National Bank of North America Bellemire v. Bank of the United States Bellows V. Hallowell, etc., Bank. . . Bellows Falls v. Rutland County Bank Benton v. German-Am. Xat. Bank. . Benbow v. Cook Bernheimer v. Marshall Bickford v. First Nat. Bank of Chicago Bickley v. Commercial Bank Bidwell V. Madison Birch V. Fisher Birmingham Nat. Bank v. Bradley. Bishop V. Globe Co Bissel V. City of Kankakee Bissell V. First Nat. Bank of Franklin Blair v. Bank of Mansfield Blair v. Worley Blaflfer et al. v. Bank Blood V. Northrop & Chick Blue V. Capital Nat. Bank Bodenham v. Purehas Bohmer v. City Bank Borup V. Nininger Born V. First Nat. Bank of In- dianapolis Boston Tailoring House v. Fisher . . Bowling V. Arthur Bowman v. Cecil Bank V. Needles Nat. Bank Bowden v. Johnson Bradford v. Fox Branch v. United States Bradstreet v. Everson Brewster v. Burnett Brewer v. Knapp Brent v. Bank of Washington Briggs V. Spaulding Bridenbecker v. Lowell Brinkerhoff v. Bostwiek Bristol Knife Co. v. Hartford First Nat. Bank BrittdU V. Niccolls Brittan v. Oakland Bank of Savings. Brixen v. Deseret Nat. Bank Brooklyn Trust Co. v. Toler Brown v. Eastern Slate Co V. Finn 19 Me. 455 296 100 Mass. 376, 97 Am. Dec. 105 296, 297, 301 4 Whart. ( Pa. ) 105 448 2 Mason, 31 234 40 Vt. 377 316, 319, 505 26 S. \V. 975 174 115 N. C. 324 68 2 Minn. 61 546 42 111. 238 267, 288 39 S. C. 281, 17 S. E. 977. 39 Am. St. 721 249, 251 10 Minn. 1 168 51 Mich. .36 319 103 Ala. 109 299 135 Mass. 132 498 64 111. 249 390 69 Pa. St. 415 176 10 Leg. N. S. 94 132 2 111. 177 31 35 La. Ann. 251 540 1 Kan. 28 316 145 Ind. 518 116 2 B. & Aid. 39 405 77 Va. 445 498 5 Minn. 417 442 123 Ind. 78 277 59 111. App. 400 169 34 Miss. 41 458 3 Grant Cas. 33 38 94 Fed. 925, 87 Fed. 430.. 398, 400 107 U. S. 251, 2 Sup. Ct. 246. . 72 75. 81 38 N. Y. 289 286 1 N. B. C. 363 238, 372 72 Pa. St. 124, 13 Am. Rep. 665 455, 460 125 :Mass. 68- 294 1 Pick. 332 404 10 Pet. 596 497 141 U. S. 132. 11 S. Ct. 924, 35 L. ed. 662 111. 112, 109 32 Barb. 9 68 88 N. Y. .52 513 41 Conn. 421, 19 Am. Rep. 517. 297 104 U. S. 757 447, 44S, 455 124 Cal. 282 102. 385 5 Utah, 504, 18 Pac. 43 297 65 Hun, 187 280 134 Mass. 590 72 34 Fed. 124 65 Table of Cases. XXI [References are to pages.] Brown v. Leckie et al — — V. Menimac River Sav. Bank. V. Republican Mountain Silver Mines V. Valley View Mining Co ... . Brooke v. Tradesman's Nat. Bank . . Brooks V. Bigelow Bruen v. Hone et al Brummagim v. Tallant Bueklin v. Chapin Bullard v. Bank Bull V. Bank of Kasson Bullard v. Randall Bullock V. Boyd et al Bunnell v. Collinsville Bank Bundy v. Town of Monticello V. Cocke Burkhalter v. Second Nat. Bank... Burnell v. N. Y. C. R. R. Co Burmingham Trust Co. v. Louisiana Nat. Bank Burden v. Burden Burgess v. Seligman Burns v. Beck Burton v. Burley Burnett, Admr., v. First Nat. Bank. Burrill v. Dollar Sav. Bank Bu.sh V. Robinson Butler's University v. Scoonover . . . 43 111. 497 288 67 N. H. 549, 47 Am. Rep. 171. 490 17 Colo. 421 116 127 Cal. 630 116 22 N. Y. S. 633, 68 Hun, 129 . . 267 142 Mass. 6 424 2 Barb. 586 272 29 Cal. 503, 89 Am. Dec. 61. . . 504 1 Lans. 443 272 18 Wall. 589 50, 56, 499 123 U. S. 105 267, 269 1 Gray, 605 176 2 Edw. Ch. (N. Y.) 292 272 38 Conn. 203 477 84 Ind. 119 502 128 U. S. 185 59, 79, 80 42 N. Y. 538 268 45 N. Y. 184 392 99 Ala. 379 174 159 N. Y. 287 53 107 U. S. 20 70, 76 83 Ga. 471 116 9 Biss. 253 34, 38 38 Mich. 630 238 92 Pa. St. 134, 37 Am. Rep. 669 490 95 Ky. 492 72 114 Ind. 381, 16 N. E. 642 05 c. Cahil v. Kalamazoo Mut. Ins. Co.. California Bank v. Kennedy Caldwell v. Bates V. Evans V. Cassidy Cambridge First Nat. Bank v. Hall. Camden Nat. Bank v. Green Canal Bank v. Albany Bank Carr v. National Security Bank. . . Carroll v. Exchange Bank of Wheeling Carlinville Nat. Bank v. Wilson... Case v. Bank Castle V. Corn Exch. Bank Casey, Receiver, v. Galli Cati V. Patterson Central Trans. Co. v. Pullman's Palace Car Co Chemical Nat. Bank v. Ivohner . . . v. Armstrong Chicago Life Ins. Co. v. Auditor. . . v. Needles Chrystie v. Foster v. Sherwood 2 Doug. (Mich.) 124 53 167 U. S. 362 16, 357, 536 118 N. C. 323, 24 S. E. 481 .. . 115 5 Bush (Ky.), 380 400 8 Cow. 271 406 119 Ala. 64 259 45 N. J. Eq. 546 526 1 Hill, 287 296, 306 107 Mass. 45 404 30 W. Va. 518, 4 S. E. 440 500 78 111. App. 339, 58 N. E. 250. . 466 100 U. S. 446 390 148 N. Y. 122. 42 N. E. 518. . . 405 94 IT. S. 673 35. 50, 78 25 Mich. 191 316 139 U. S. 24 14. 16, 357 58 How. Pr. 267 188 13 C. C. A. 47, 65 Fed. 573. . . . 165 101 111. 82 9 113 U. S. 574 9 61 Fed. 551 127 113 Cal. 526, 45 Pac. 820 173 xxii Table of Cases. [References are to pages.] Chaflin et al. v. :\reyer 75 X. Y. 260 392 Chaffin V. Cunimings 37 INIe. 70 Go Chicago First Nat. Bank v. North- western Nat. Bank 152 III. 296. 38 N. E. 739, 43 Am. St. 247, 26 L. R. A. 289. 297 Chicago M. & F. Ins. Co. v. Stanford. 28 111. 168 288 Charleston v. People's Nat. Bank. . 5 S. C. 103 225 Charles River Nat. Bank v. Davis. 100 Mass. 413 288 Champion v. Gordon 70 Pa. St. 474 282 Chattahoochee Nat. Bank v. Schley. 58 Ga. 309 242 Chase v. Merrimac Bank 19 Pick. 564, 31 Am. Dec. 163. 65 Cheney v. Libby 134 U. S. 38 416 Chubb V. Upton 95 U. S. 665 225 Cincinnati Volksblatt Co. v. Hoff- nieister : 62 Ohio St. 189. 56 N. E. 1033, 78 Am. St. 707 09 Citizens' Nat. Bank of Kingman v. Berrv 53 Kan. 696. 37 Pac. 131 122 123, 387 Citizens' Nat. Bank v. Doud 35 Fed. 340 524 V. Importers', etc., Bank 119 N. Y. 195. 23 N. E. 540.. 297 V. Brown 45 Ohio St. 39 316 Citizens' Bank of Paris, Ky., v. Houston ' 98 Kv. 139 438 Citizens' Bank v. Howell 8 Md'. 530 466 Citizens' Sav. Bank v. Walden 52 S. \Y. 953 172 City Nat. Bank v. Chemical Nat. Bank 80 Fed. 859 158, 163 Citv Nat. Bank of Fort Worth v. Stout 61 Fed. 567 302 City Nat. Bank of Poughkeepsie v. William Phelps 97 N. Y. 44 212 City of Marietta v. Slocomb 6 Ohio St. 471 295 City Elec. St. Rv. Co. v. First Nat. Exch. Bank .'. 62 Ark. 33 125 Cleveland v. Hampden Sav. Bank. , 182 Mass. 110 479 Cleveland, Brown & Co. v. Shoeman. 40 Ohio St. 176 328 Clemraer v. Drovers' Nat. Bank 157 111. 206. 41 N. E. 728. .237, 502 Close V. Glenwood Cemeterv 107 U. S. 466 50 Clarke Nat. Bank v. Bank of Albion. 52 Barb. 592 147 Clark V. Eastern Bldg., etc., Assn. . 89 Fed. 779 69 V. [Metropolitan Bank 3 Duer, 241 189 V. Warwick, etc 174 [Mass. 434 68 Coats V. Donnell et al 94 N. Y. 168 S53 Cobb V. Becke 6 Ad. & El. 930 455 Cockburn v. Union Bank 13 La. Ann. 289 69 Cochecho Nat. Bank v. Haskell et al. 51 N. H. 116 177 Cockrill V. Abeles 86 Fed. 505 112 Coffey V. National Bank of the State of Missouri 46 Mo. 140 214 Cogswell V. Rockingham Ten Cent Sav. Bank 59 N. H. 43 477, 492 Coite V. Society for Savings 32 Conn. 173 478 Collins V. State 15 So. 214 236 Commonwealth v. Bank of [Mut. Redemntion 4 Allen, 1 354 V. Bank of Pennsylvania 3 Watts & Serg. 184 481 V. Phoenix Iron Co 105 Pa. St. 111. 51 Am. Rop. 184 69 Table of Cases. XXlll [References are to pages.] Commercial Bank v. Red River Val- ley Nat. Bank Commercial Bank v. Union Bank.. Commercial & Farmers' Xat. Bank V. First Xat. Bank of Baltimore. Commercial Bank of Lake Erie v. Norton et al Commercial Bank of Pennsylvania V. Armstrong Commercial Bank v. Hughes V. Cunningham Commercial Xat. Bank v. Hennin- ger V. Pirie Continental Xat. Bank v. X'ational Bank of the Commonwealth Conklin v. Second Xat. Bank Concord X'at. Bank v. Hawkins. . . . Cook v. Cockins , V. Oilman V. State Bank of Boston Cook County X'at. Bank v. U. S. . . . Cooke V. [Marshall Coolidge V. Brigham V. Williams Corcoran v. Batchelder Cork V. Bacon Cordell v. First Xat. Bank of Kan- sas City Corn Exchange Bank v. X'assau Bank Costello V. Portsmouth Brewing Co. Cousins V. Partridge Cowell V. Springs Co Cowing V. Altman Cox V. Elmendorf Cragie v. Hadley Crawford v. West Side Bank Crain et al. v. National Bank .... Crocker v. Whitney Crockett & Harper v. Young et al . . Cromwell v. Lovett Crosby v. Wright Criimp V. U. S. Alining Co Cummings v. Winn V. Webster Cunningliam v. Davenport Curran v. Witter Curtis V. Leavitt 79 X\ W. 859, 8 X. D. 382. .444, 465 1 Kernan (X. Y.I, 203.453, 455, 465 30 Md. 11, 96Am. Dec. 554.296, 541 1 Hill, 501 138 148 U. S. 50 422 17 Wend. 94 405 24 Pick. 270 105 105 Pa. St. 496 403 82 Fed. 799 400 50 X^. Y. 575. . 45 X. Y. 655 . . 174 U. S. 364.. 117 Cal. 140.. 34 N. H. 556.. 52 X. Y. 96 . . . 107 U. S. 445 . . 181 Pa. St. 31.; 1 Met. 547 .. . 4 Mass. 140 . 147 Mass. 541 . 45 Wis. 192 . . . .271, 133, 280 325 16 521 295 361 525 227 295 565 325 285 64 Mo. 600 320 91 X. Y. 74, 43 Am. Rep. 655. .297 69 X. H. 405, 43 Atl. 640 50 79 Cal. 224 504 100 U. S. 01 50 71 X^. Y. 435 285 97 Tenn. 518 80 99 X^. Y. 131 109, 523 2 X^. E. 881, 100 X. Y. 50. .258, 263 114 111. 516 161 71 X. Y. 161 327 1 Sm. & M. (Miss.) 241 154 1 Hall (N. Y.), 56 286 70 Minn. 251 441 7 Gratt. 352 129 89 Mo. 51 522, 523 43 Me. 192 53 147 X. Y. 43 479 68 Wis. 16, 31 X. W. 705 .504 15 X". Y. 9 161, 354 D. Daly. v. Butchers' Bank Danvers First Xat. Bank v. Salem First Xat. Bank Daniels v. Kvle 56 Mo. 94 453, 466 151 IMass. 280, 24 X. E. 44. 21 Am. St. 450 296 1 Kelly, 304 282 xxiv Table of Cases. [References are to pages.] Davis V. First Xat. Bank of Fresno. 118 Cal. GOO 417, 447. 4G5 V. Handy 37 X. H. 65 17(5 V. Memphis City R. Co 22 Fed. 883 lOiJ V. Old Colony Railroad 131 Mass. 2.58 249 V. Stevens " 18 Blatoh. 2.50 G.5 V. Elmira Sav. Bank IGl U. S. 275 V. Knipp 92 Hun, 297 520 V. Weed 44 Conn. 560 78 Dawson v. Real Estate Bank 5 Pike (Ark.), 2S3 502 Deadwood First Xat. Bank v. Gus- tin Minerva Con. Mining Co 42 Minn. .327. 44 X. W. 198. 18 Am. St. 510 70 Dedham Xat. Bank v. Everett Xat. Bank 177 Mass. 392. 59 X. E. 62. 83 Am. St. 286 29G DeFeriet V. Bank of America 23 La. Ann. 310 8 Am. Rep. 597 296 DeHaven v. Kensington Xat. Bank. 81 Pa. St. 95 243 Delano v. Case 121 111. 247, 12 X. E. G7u 115 v. Butler 118 U. S. 634, 7 Sup. Ct. 39. 71, 230 Delafield v. Kinney 24 \Yend. 345 127 Despard v. Walbridge 15 X. Y. 374 7G Dickens v. Beal 10 Pet. 572 151 Dill V. Wareham 7 Met. 438 249 Doctor et al. v. Riedel et al 96 Wis. 158 407 Doe V. Xorthwestern Coal, etc., Co. 78 Fed. 62 169 Dolan v. Provident Sav. Inst 127 Mass. 183, 34 Am. Rep. 358 486, 490 Dorchester Bank v. Xew England Bank 1 Cush. 177 453, 457 Dovle v. Mizner 42 INIich. 332 34 Dew v. United States S2 Fed. 904 312 Driscoll V. West Bradly & C. M. Co. 59 X. Y. 96 499 Drovers' Xat. Bank v. Anglo-Am. P. & P. Co 117 111. 100 278, 44G, 46G V. Potvin 74 X. W. 724 174 Dunavan v. Flinn 118 Mass. 537 279 Duncan v. Jaudon 18 Wall. 165 173 V. Marvland Sav. Inst 10 Gill & J. (Md.) 299 DuQuoin v. Kelly 17G 111. 218 3 Dvkers v. Leather ^Manufacturers' 'Bank 11 Paige. 612 281, 286 Dyer v. Sebrell 135 Cal. 597 526 E. Eagle Ins. Co. v. Ohio 153 U. S. 446 9 Eans' Administrator v. Exchange Bank of Jefferson Citv 79 ^ilo. 182 212 East River Xat. Bank v. Gove 57 X. Y. 597 249, 251 East Haddam Bank v. Scovil 12 Conn. 303 453 Eaves v. People's Sav. Bank 27 Conn. 228, 71 Am. Dec. 59, 480, 481 Edwards v. Kearzev 96 L^. S. 595 4 Eidman v. Bowman 58 111. 444 96 Table of Cases. XXV [References Ellis V. Woonsocket First Nat. Bank Ellsworth V. Dorwart Ellis V. Turner V. Ohio Life Ins., etc., Co Ellerbe v. National Exch. Bank. . . . Essex County Bank v. Bank of ^Montreal Estabrook v. Sweet Espy V. Bank of Cincinnati Evansville Bank v. German-Am. Bank Evans v. Gale Exchange Bank v. Bank of North America V. Gardner V. Rice Exchange Nat. Bank of Pittsburg v. Third Nat. Bank of New York.. are to pages.] 22 R. I. 565 259 95 Iowa, 108, 03 N. W. 588, 58 Am. St. 427 0!) 8 T. R. 531 428, 460 4 Ohio St. 628, 64 Am. Dec. 610 296, 301 109 Mo. 445 249 7 Biss. 193, Fed. Cas. No. 4532. 438 116 :Mas.s. 303 295 18 Wall. 604 175,271,278 155 U. S. 556 423 21 N. H. 240 295 132 Mass. 147 537 73 N. W. 591 168 98 Mass. 288 279 112 U. S. 276 450.467, 468 F. Fabeus v. Mercantile Bank Fairfax v. N. Y. C. & H. R. R. R. Co Fairfield Sav. Bank v. Chase Fall, etc.. Bank v. Sturtevant Famous Shoe Co. v. Crosswhite. . . . Farleigh v. Cadman Farrar v. Walker Farmers' Bank v. Butchers' Bank. . Farmers & Mechanics" Bank v. Butchers & Drovers' Bank Farmers & ^Merchants' Nat. Bank v. Butchers and Drovers' Bank .... Farmers & ^lerchants" Nat. Bank of Los Angeles v. Downey Farmers' Nat. Bank v. Templeton . . V. Iglehart F. & M. Bank v. Baldwin V. Jenks Farmers & ^Mechanics' Bank v. Champlain Trans. Co Farmers & Merchants' Bank of Eant Birmingham v. Third Nat. Bank of Pittsburg Farmers', etc.. Bank v. Wasson . . . Farmers' Bank v. ^McKee Farmers' Bank & Trust Co. v. New- land Fawsett v. National Life Ins. Co. of U. S Fay V. Strawn Fergiison v. Staples Ferrv v. Home Sav. Bank 23 Pick. 330 453, 466 67 N. Y^ 11 392 72 Me. 226 100 G6 Mass. 372 100 51 Mo. App. 55 288 159 N. Y. 169 480 Fed. Cas. No. 4.679 05 69 Am. Dec. 678 185 14 N. Y. 624 138 16 N. Y. 125 280, 308 53 Cal. 466 101 40 S. W. 412 123, 130 6 Gill (Md.) 50 4as 23 Minn. 198 364 9 Ind. 551, 7 Met. 592 13 Vt. 131 359 165 Pa. St. .500 555 48 Iowa, 336, 30 Am. Rep. 398. 50 2 Pa. St. 318 128 97 Ky. 464 460 5 111. App. 272 154, 424 32 111. 295 4.34, 406 82 Me. 1.59 441 114 Mich. 321 502 xxvi Table of Cases. [References are to pages.] Field V. Holland 6 Cranch, 8 404 Fifth Ward Sav. Bank v. First Nat. Bank 48 X. J. L. 513 491 Finn v. Brown 142 U. S. 56 SO Finch V. Karste et al 50 X. W. 123 443, 472 First Xat. Bank of Lyons v. Ocean Xat. Bank .' GO X. Y. 278 177. 178, 242. 245 First Xat. Bank of Fort Worth, Tex., V. Payne 42 S. W. 736 421, 427 First Xat. Bank of Rochester v. Pierson 24 :\linn. 140 First Xat. Bank of Charlotte v. Xat. Exch. Bank of Baltimore 92 U. S. 122 338. 341, 345, 355 V. Alexander 84 X. C. 30 291 First Xat. Bank of Pawnee City v. Sprague 34 Xeb. 318, 51 X. W. 846 466 First Xat. Bank of Greenville v. Sherburne 14 111. App. 5GG 364 First Xat. Bank of Xenia, Ohio, v. Stewart 1 14 U. S. 224 150 V. 107 U. S. 676 329 First Xat. Bank of Concord v. Hawkins 79 Fed. 51. 33 U. S. App. 747 . . 77 First Xat. Bank of Sturgess v. Bennett 33 Mich. 520 129 First Xat. Bank of Crown Point v. First Xat. Bank of Richmond. ... 76 Ind. 561 153 First Xat. Bank of Central City \. Lucas 21 Xeb. 281 131 First Xat. Bank of Washington v. Whitman ' 94 U. S. 343 240 First Xat. Bank of Carlisle v. Graham 79 Pa. St. 106 178, 243 First Xat. Bank of Youngstown v. Hughes 6 Fed. 737 10 First Xat. Bank of La con v. :Myers. 83 111. 507 321 First Xat. Bank of Clarion v. Gregg & Co 79 Pa. St. 384 501 First Xat. Bank of Skowhegan v. Maxfield 83 Me. 576 327 First Xat. Bank of Evansville v. Tourth Xat. Bank of Louisville. . 56 Fed. 967 432 First Xat. Bank of Rochester v. Harris 108 Mass. 514 366 First Xat. Bank of Quincy v. Bicker 71 111. 439 301 First Xat. Bank of Monmouth v. Dunbar 118 HI. 625 108 First Xat. Bank of Mason v. Led- better 34 S. W. 1042 172 First Xat. Bank of Planning v. Ger- man Bank of Carroll Co 107 Iowa. 543 448 First Xat. Bank v. Pease 68 111. App. 562 284 V. Hughes 46 Pac. 272 427 v. Shreincr 110 Pa. St. 188 403 v. Leach 52 X. Y. 350 278 V. Pierson 24 :Minn. 140 363, 364, 367 V. Kidd 20 Minn. 212 37f) V. Mann ". 27 S. W. 1015 329 Table of Cases. XXVI I [References are to pages.] Fisher v. Beckwith Fitzgerald v. State Bank Fitzgerald, etc., Cons. Co. v. Fitz- gerald Flannigan v. California Xat. Bank et al Fleckner v. United States Bank. . . Flint V. Pierce Florence IMining Co. v. Brown Foley V. Hill Fort Dearborn Xat. Bank v. Sey- mour Poster V. White V. Essex Bank Fowler v. Scully Frankfort Bank v. Johnson — — V. Steward Franklin Xat. Bank v. Xewcombe. Franklin Bank v. Byrani Franklin v. Vanderpool Francis v. Evans Fresno Canal & Irri. Co. v. Warner. Freeman v. Cnrran Freeman's Bank v. Xational Tube Works Freeman v. Savannah Bank, etc., Co. French v. Banking Co French v. Tescheraaker Freund v. Importers, etc.. Bank .... Fridley v. Bowen Fulton Bank v. Benedict V. Xew York & Sharon Canal Co 19 Vt. 31 279 04 Minn. 469 502 137 U. S. 98 IIG o6 Fed. 959 177 8 Wheat. 338.151,330.356,301, 300 99 Mass. 68, 90 Am. Dec. 691. 52 70 124 U. S. 385 274 1 Phillips, 397, 2 H. L. Cas: 28. 404 73 X. W. 724 SO Ala. 407 17 Mass. 479, 9 Am. Dec. 168. . 22 P. F. Smith ( Penn. ) . 456 . . 24 Me. 490 96, 37 Me. 519 37 X. Y. St. 271 39 Me. 489 1 Hall (X. Y.), 78 69 Wis. 115 72 Cal. 379 1 Minn. 169 172 69 251 355 98 153 329 312 312 440 50 400 151 Mass. 413 420 88 Ga. 252, 14 S. E. 577 297 91 Me. 485 240 24 Cal. 518 35, 72 76 X'. Y. 352 278 87 HI. 151 377 1 Hall (X. Y.), 480 105 4 Paige, 127 129 G. Gabriel v. Bank of Suisun Gale v. Chase Xat. Bank Gauley v. Troy City Xat. Bank . . . Gardner v. Butler Gashwiler v. Willis Gatch V. Fitch Gehardt v. Boatman's Sav. Inst. . . German Xat. Bank of Denver v. Burns V. Foreman V. Farmers' Dep. Xat. Bank. . German Sav. Bank v. Citizens' Xat. Bank V. Wulfekuhler Germania Bank v. Boutell Gibson v. Peters V. City of Erie 145 Cal. 266 99 104 Fed. 214 177 98 X. Y. 487 248 36 X. J. Eq. 702 110 33 Cal. 11 90 34 Fed. 566 82 38 Mo. 60 450 12 Colo. 539 446. 465 138 Pa. St. 474 403 118 Pa. St. 294 288 101 Iowa. 530. 70 X. W. 760, 63 Am. St. 399 297 19 Kan. 60 112 60 Minn. 189. 62 X. W. 327. 51 Am. St. 519, 27 L. R. A. 635. 296 150 U. S. 342 388 196 ?a. St. 7 422 xxviii Table of Cases. [References are to pages.] Gibbins v. Hecox 63 N. W. 519, 105 Mich. 509. . 425 497 Gill V. Cubitt 3 Barn. & Cress. 466 551 Girard Bank v. Bank of Pcnn. Township 39 Pa. St. 92 278, 503 Giselnian v. Starr 106 Cal. 651 432 Givan v. Bank of Alexandria 52 S. W. 923 466 Glazier v. Douglas 32 Conn. 393 404 Gloucester Bank v. Salem Bank. . . 17 Mass. 33 296, 301 Godfrey v. Terrj^ 97 U. S. 171 505 Godin V. Bank of the Common- wealth 6 Duer, 76 264 Goddard v. Merchants' Bank 4 X. Y. 147 296 Gold Alining Co. v. Rockv Moun- tain Xat. Bank ". 96 U. S. 640 133, 325, 328 Goldrick v. Bank 123 Mass. 320 483, 486, 487, 489 Goodvear's India Rubber Co. v. Goodvear Rubber Co 128 U. S. 598 233 GoodbaV v. National Bank 78 Tex. 461, 14 S. W. 851 175 Goodloe V. Godley 21 Miss. 233 109 Goodman v. Harvey 4 Adol. & Ellis, 870 551 Goodall V. Dollev ' 1 T. R. 712 431. 462 Gorman v. Guardian Sav. Bank. . . 4 Mo. App. 180 492 Goshen Nat. Bank v. Bingham 118 N. Y. 349 278 Grand Rapids Sav. Bank v. Warren. 52 Mich. 557 73 Granger's Business Assn. v. Clark: . 67 Cal. 634 13 Grant v. Cropsev 8 Neb. 205 176 Gray et'al v. Merriam 148 111. 179 391 Graves v. American Exch. Bank 17 N. Y. 205 297 Graham v. Oviatt 58 Cal. 428 69 Green v. Jackson 15 Me. 136 151 Greene v. Dennis 16 Am. Dec. 58 36 Griffin v. Kemp 46 Ind. 172 26S Grissom v. Bank 87 Tenn. 350 402 Gubbins v. Bank of Commerce.... 79 111. App. 150 169 Guelich v. National State Bank 56 Iowa, 434, 9 N. W. 328.. 453, 466 Guernsey v. Black Diamond Coal Co 99 Iowa, 471 123 H. Iladden v. Dooley 92 Fed. 274 176 Hager v. National German Ameri- can Bank 31 S. E. 141 172 Hall v. Paris 59 N. H. 71 493 V. ;Marston 17 Mass. 575 406 Kale V. Walker 31 Iowa. 344 70 Hammond v. Hastings 134 U. S. 401 564 Hamilton v. Lumber Co 95 Mich. 436 268 Hanna v. International Petroleum Co 23 Ohio St. 622 51, 91 Hannon v. Williams 34 N. J. Eq. 255 527 Handley v. Stutz 139 U. S. 417 68 Hartford Bank v. Hartford Ins. Co. 45 Conn. 22 498 v. Hart 3 Day ( Conn. ) , 491 105 HarrisburiT Bank v. T\'ler 3 W.* & S. 373 129 y. Forster 8 Watts ( Pa. ) , 12 178 Harris v. McGregor ." 29 Cal. 125 36 Table of Cases. XXIX [References are to pages.] Hatch V. Dexter First Nat. Bank . . V. Johnson Loan & Trust Co. . Hatton V. Holmes Haven v. New Hampshire Insane Asylum Hawkins v. Fourth Xat. Bank.... V. Glenn Hayden v. Bank of Syracuse et al . . Hayes v. Shoemaker Hay^vard v. Pilgrim Society Hazlett V. Commercial Xat. Bank . . Heath v. Portsmouth Sav'. Bank... Heath et al v. Second Xat. Bank of Lafayette Hehvege v. Hibernia Xat. Bank . . . Hennessy v. City of St. Paul Henry v. Xorthern Bank of Ala- bama Henniker v. Wigg Henderson Trust Co. v. Ragan .... Heintzelman v. Druids' Relief Assn. Heironimus v. Sweeney Higgins Co. v. Higgins Soap Co . . . Higgins V. Hayden Hindman v. First Xational Bank of Louisville Hill V. Pine River Bank v. Trust Co Hills V. Place Hodge V. Bank Hodgin V. Bank Holmes v. Holmes, etc.. Co Holly Springs Bank v. Pinson.... Holt et al. v. Bacon et al Homer v. Xational Bank Hoover v. Wise Hotehkiss v. Artisans' Bank Houghton v. First Xat. Bank of Elkhorn Houston V. Thornton et al Houston Grocerv Co. v. Farmers' Bank ' Howard v. Walker V. Roeben Howard Xat. Bank v. Loomis Howe V. Hartness Hovt V. Thompson's Executor Hulitt V. Bell Hun V. Cary et al Hunt, Appellant Hunt V. Ward Huse V. Hamblin Hyde v. Larkin Hvgeia, etc., Co. v. Xew York, etc., Co 94 Me. 348 316 79 Fed. 828 2.59 97 Cal. 208, 31 Pac. 1131 297 13 X. H. 5.32, 38 Am. Dec. 512, 54 49 X'. E. 957 152 131 U. S. 319 .. 75 15 X. Y. Supp. 48 213 39 Fed. 319 80 21 Pick. 270 106 132 Pa. St. 118 466 46 X. H. 78, 88 Am. Dec. 194 . . 57 4S1, 490 70 Ind. 106 377 28 La. Ann. 520 279 55 ilinn. 219 16 63 Ala. 527 130 4 Q. B. 792 405 21 Kv. L. Rep. 601, 52 S. W. 848' 297 38 Minn. 138 52 55 Am. St. 333 481 144 X'. Y. 462 234 53 Xeb. 61 .524, 525 112 Fed. 931 .'. . 178 45 N. H. 300 108 Pa. St. 1 186 48 X. Y. 520 400, 417 22 Gratt. 51 129 124 X. C. 540 502 37 Conn. 278 233 58 Miss. 421, 38 Am. Rep. 330. 50 25 Miss. 567 154 140 Mo. 225. 41 S. W. 790 497 91 U. S. 308 454 2 Abb. Dec. (X. Y. ) 403, 2 Keyes (X'. Y.) , 564 251 26 Wis. 663 177 29 S. E. 287 113 71 Mo. App. 132 297 92 Tenn. 452, 21 S. W. 897 419 33 Cal. 399 253 51 Vt. 349 327 11 Ohio St. 449 316 19 X. Y. 207 92 85 Fed. 98 96 82 X\ Y. 65 381 141 Mass. 515 321 99 Cal. 612. 37 Am. St. 87 506 29 Iowa, 501 316 35 Mo. App. 365 125, 126 140 X'. Y. 94 234 XXX Table of Cases. [References are to pages.] 73 Iowa, 58 411 26 Mo. App. 129 251 140 111. 423 234 Ide, Executrix, v. Bremer County Bank Ihl V. St. Joseph Bank Illinois Watch Case Co. v. Pearson. Indian Head Nat. Bank v. Clark. . In re Brown International T. Co. v. International Loan & Trust Co International Fair & Exposition Assn. of Detroit v. Hiram Walker. Irving Bank v. Wetherald Ireland v. Globe, etc., Co Israel v. Bowery Sav. Bank 9 Dalv ( X. Y. ) , 507 Isham V. Post 141 X. Y. 100 43 X. E. 912 . 2 Story, 502 . 153 Mass. 271 174 282 234 83 Mich. 386 62 .36 X. Y. 335 278, 280 19 R. I. ISO 53 . .489, 490 448 J. Jackson v. McMinnville Xat. Bank V. Meek V. Union Bank V. Sill . James' Administrator v. Rogers . . Jarvis v. Wilson .Jemison et al. v. C. S. Bank Jenkins v. Xeff Jennings v. Bank of California... V. Xational Village Bank of Bowdoinham Jefferson County Sav. Bank v. Com- mercial Xat. Bank Jefferson v. Hewitt Jochumsen v. Suffolk Sav. Bank . . . Jones V. Hawkins V. .Johnson V. Kilbreth V. Morrison V. Guarantv Co V. Xicholl : -Jourdaine v. Lefevere et al Juker v. Commonwealth Jumper v. Conunereial Bank Judy V. Farmers & Traders' Bank., 92 Tenn. 154, 20 S. W. 802, 36 Am. St. SI, 18 L. R. A. 663. . 297 87 Tenn. 69. 9 S. W. 225, 10 Am. St. 620 70 6 Harr. & J. 146 453 11 Johns. (X. Y.) 201 285 23 Ind. 451 353 46 Conn. 90 278 122 X. Y. 135 491 186 U. S. 230 560 79 Cal. 323. 21 Pac. 852, 12 Am. St. 145, 5 L. R. A. 233. 56 330 58 Me. 275 329 39 S. W. 338 417 103 Cal. 624 228 3 Allen, 87 482, 486, 487 17 Ind. 550 152 86 Kv. 530 98 49 Ohio St. 413 415 31 Minn. 140 389 101 U. S. 628 3S5 82 Cal. 32 504 1 Esp. Rep. 66 502 20 Pa. St. 484 52 26 S. E. 725, .39 S. C. 296, 17 S. E. 980, 48 S. C. 4.30 251 81 Mo. 404 502 K. Kahn v. Walton Kearney v. Andrews Kent v. Bornstein Kennedy Southern Ry. v. Gtebhard. 46 Ohio St. 195, 20 X. E. 203. . 288 10 X. J. Eq. 70 .52 12 Allen. 342 294 109 U. S. 527 222 Table O'F Cases. XXXI [References are to pages.] Kentucky Flour Co. v. Merchants' Nat. Bank Kermever v. New by Keyser v. Hitz Kilgore v. Bulkley '. . Kiiuins v. Boston Five Cent Sav. Bank Kinkier v. .Junica Kingsley v. \Yhitman Sav. Bank. . . Kinnan v. Sullivan County Club . . . Kirkham v. Bank of America Klauber v. Biggerstaff . . Kleekamp v. Mever Knight V. Old Nat. Bank Koontz v. Central Nat. Bank Kummel v. G. S. Bank Kux v. Savings Bank 9G Kv. 225 526 U Kan. 104 285 133 U. S. 138 50, 59. 77, 80 14 Conn. 302 310 141 Mass. 33 483. 84 Tex. lie, 19 S. W. 359 182 Mass. 252 26 X. Y. App. Div. 213 105 N. Y. 132, 58 N. E. 753. . . 465, 47 Wis. 551 5 Mo. App. 444 3 Cliff. 429. 14 Fed. Cas. No. 7,885 51 Mo. 275 127 N. Y. 488, 28 N. E. 398.. 487 116 487 69 434 471 316 539 93 Mich. 511 56 306 57 490 490 Ladies, etc., Assn., Limited, v. Pul- brook Laing v. Burley Lakeside Ditch Co. v. Crane Lake Erie & Western R. R. Co. v. Indianapolis Nat. Bank Lamb v. Camden & Ambov R. &. T. Co ' Lanier v. Nash Lanterman v. Travous Latimer v. Bard Laughlin v. ^Marshall Lawrence et al. v. The Stouin^ton Bank \ . .. Lawson v. Richards Lazear v. Union Bank of ^Maryland. Lead Co. v. Reinhard Leander J. McCormick v. Market Nat. Bank of Chicago Leach V. Hale Leavenworth First Nat. Bank v. Tappan Lebanon v. Mangan Legendre v. New Orleans Brewing Assn Lenox v. Cook Levy V. Bank of America v. Franklin Sav. Bank V. United States Bank Lewis V. Lynn Inst, for Savings. . . 81 L. T. 300. 2 Q. B. 376 (1900) 23 101 111. 591 80 80 Cal. 181 13 65 Fed. 690 524 46 N. Y. 271 392 121 U. S. 404 4.32 174 111. 459 .524 76 Fed. 536 225 19 III. 390, 18 111. 563 316 6 Conn. 521 453. 466. .501 6 Pa. Rep. 179 284 52 Md. 78 363, 364. 366 114 Mo. 218, 21 S. W. 488 91 « 162 111. 100 31 Iowa, 69 242, 358 6 Kan. 456. 7 Am. Rep. 568 . . 296 28 Pa. St. 452 316 45 La. Ann. 669, 12 So. 837. 40 Am. St. 243 69 8 Mass. 460 431. 463 24 La. Ann. 220, 13 Am. Reo. 124 296 117 Mass. 448..57. 482. 483.4SG. 487 4 Dall. 234. 1 L. ed. 814. 1 Binn. (Pa.) 27 290.545 148 Mass. 235 492 xxxii Table of Cases. [References are to pages.] V. Switz 74 Fed. 381 80 V. Peek 10 Ala. 142 455 L'Herbette v. Pittstield Nat. Bank. 162 Mass. 137, 38 N. E. 368... 24it Library v. Association 173 Pa. St. 30 91 Life & Fire Ins. Co. v. The Mechanic Fire Co. of New York 7 Wend. 31 12.1 Lindsborg Bank v. Ober 31 Kan. 599, 3 Pac. 324 4()(J Little V. Bank 2 Hill, 425 2(i7 Livingston v. Bank of New York. .. 26 Barb. 305 515 Lockwood V. Mechanics' Nat. Bank. 9 R. I. 308, 11 Am. Rep. 253.. 56 Logan County Xat. Bank v. Town- send 139 U. S. 67 205, 329, 357 Loring v. Brodie 134 Mass. 453 173 Louden Sav. Fund Soc. v. Hagers- town Sav. Bank 36 Pa. St. 498 310 Louisville Third Xat. Bank v. Vicksburg Bank 61 Miss. 1 12 466 Lowrv V. Inman 46 X. Y^ 119 60 Lovd" V. Osborne 92 Wis. 93 437 Lynch v. Goldsmith 64 Ga. 42 316 V. First Xat. Bank of Jersey Citv .-....'. 107 X. Y\ 179 278 Lvon"v. American Screw Co 16 R. I. 472, 17 Atl. 61 69 -^ — v. .Jerome 26 Wend. (X. Y.) 484 93 Lucas V. Government Xat. Bank of Pottsville 1 X. B. C. 872 506 V. San Francisco 7 Cal. 463 54 V. Coe 86 Fed. 972 81 Lunt V. Bank of Xorth America ... 49 Barb. 221 288 M. ]\Iackersy v. Ramsays 9 CI. & Fin. 818 454, 455 Mahaiwe Bank v. Douglas 3 Conn. 170 301 Mann v. Second Xat. Bank of Springfield 34 Kan. 746 109 Manufacturers' Xat. Bank v. Thomp.son 129 Mass. 438 537 Mapes v. Scott et al 94 111. 379 379 Martin v. Deetz 102 Cal. 55, 41 Am. St. 151 . 13, 35 V. Webb 110 U. S. 7 104 V. Mechanics" Bank 6 Harr. & J. 235 405 Marysville Elec. Light & Power Co. v.".Iohnson " 93 Cal. 538, 109 Cal. 192 . . .61, 64 Marshall v. American Express Co. . 73 Am. Dec. 381 395 Market St. Rv. Co. v. Hellman. ... 109 Cal. 571, 42 Pac. 225. . . . 69 :\Iassey v. Fisher 62 Fed. 958 524 jNIatthews v. Massachusetts Xat. Bank . .• 1 Holmes, 396 168 Mathews v. McClaughrv 83 111. App. 224 69 May V. Jones ^ 88 Ga. 308 448 Mavnard v. Firemans' Fund Ins. Co 34 Cal. 48 03 Mever & Lowenstein v. Chatta- hoochee Xat. Bank .^1 Ga. 325 244 IMcCarthv v. Provident Institution for Savings 159 :\Iass. .527 487 Table of Cases. XXXlll [References are to pages.] McCagg V. Woodman McCallian v. Hibernia Sav. Loan Society McCami v. First Xat. Bank of Jef- fersonville — — V. State McCormick v. Market Nat. Bank. . McCullough V. Wainright V. Moss McCulloch V. Maryland McCraith v. National Mohawk Val- ley Bank McDonough v. First Nat. Bank of Houston McDonald v. Randall McEwen v. Davis McFarlin v. National Bank of Kansas City McGliee v. Importers & Traders' Nat. Bank McKinster v. Bank of Utica ]\lc'Klervy v. Southern Bank McMahon v. ^Nlacy McNulta V, Corn Belt Bank ilead V. Young Meads v. Merchants' Bank of Al- bany ^Mechanics' Bank v. Bank of Co- lumbia V. Merchants' Bank V. Schaumburg V. Seitz Merchants' Nat. Bank of Phila- delphia V. Goodman et al Merchants' Nat. Bank v. National Eagle Bank V. Tracy V. National Bank of Common- Avealth V. McNulty V. Glendon V. State Nat. Bank ^Merchants' Bank v. Rudolf V. Marine Bank V. New York R. R. Co Merchants' Bank of Baltimore v. Bank of Commerce ^Mercantile Bank v. New York .... ^Merchants' Nat. Bank v. Hanson. . Merchants & Planters' Bank v. Penland Mercer v. Dyer Merrill v. .Jacksonville Nat. Bank. Mervvin v. Butler Metropolitan Nat. Bank v. Loyd. . . 28 111. 84 405 70 Cal. 1G3 50 112 Ind. .3.54 22D 4 Neb. 324 251 105 U. S. 538, 162 111. 100... 15 50, 357, 375 14 Pa. St. 171 285 5 Den. 507 125 4 Wheat. 316 61, 79 104 N. Y. 414 378 34 Tex. 310 58 139 Cal. 246 107 39 Ind. 109 259 68 Fed. 868 225 93 Ala. 192 400 9 Wend. 46 428. 459 14 La. Ann. 458, 74 Am. Dec. 438 296 51 N. Y. 155 76. 80 164 111. 427 99 4 T. R. 28, 2 Rev. Rep. 314. . . 297 25 N. Y. 143 185, 271 5 Wheat. 326 148 45 Mo. 513, 100 Am. Dec. 388.. 56 38 Mo. 228 109 150 Pa. St. 632 403 109 Pa. St. 422 446 101 Mass. 281 295, 540 29 N. Y. Supp. 77 172 1.39 Mass. 513 295, 540 36 Iowa, 229 421 120 Mass. 97 51 10 Wall. 604. ..34, 38, 4T), 145. 220 249, 271, 308, 361 5 Neb. 527 176 3 Gill, 96 129 13 N. Y. 599 228 24 Md. 12 468 121 LT. S. 138 563 33 Minn. 40 366 1 B. C. 25 173 15 Mont. 317 526 173 r. S. 131 527 17 Conn. 138 397 90 N. Y. 530 424 XXXIV Tabli: of Cases. [References are to pages.] Michigan Ins. Bank v. Eldred ]\lid(lleto\vn Bank v. Morris Miller v. Hackley V. Austen Millard v. National Bank of liepub- lic Minor v. Bank Mining Co. v. Anglo-Californian Bank Ll'Neely v. Woodruff" Missouri Lead, etc. v. Reinhard. . . Mitchell V. Easton V. Rubber Reclaiming Co.... V. Home Sav. Bank ]\lix V. National Bank of Blooming- ton Mobile Branch ]5ank v.. Collins.... Mokelumne Hill ^lin. Co. v. Wood- bury Mohawk Bank v. Broderick Monsseaux v. Urquhart Montgomery County Bank v. Al- bany City Bank IMontelius v. Charles ]\Iorton, etc., Co. v. Wysong JMorford v. Bank ^Morgan v. State Bank Morville v. American Tract Soc... Morris v. St. Paul. etc.. Ry. Co. . . . Morrill v. Little Falls Mfg. Co ]\Iorse V. ^Massachusetts Nat. Bank. Alovius V. Lee jNIt. Sterling Nat. Bank v. Green.. IMuench v. Bank ]\Iunger v. Albany City Bank Mutual Sav. Institution v. Enslin.. Myer v. Bishop 143 U. S. 293 210 28 Barb. 010 268 r> Johns. 375 208 13 How. 218 31G 3 McA. 54 297 1 Pet. 46 129, 308, 390 104 U. S. 192 166 13 N. J. L. 352 68 114 Mo. 218 222 37 Minn. 335 319, 503 24 Atl. 407 6!> 38 Hun, 255 490 91 111. 20 51 7 Ala. 95 116 73 Am. Dec. 658 35, 37 10 Wend. 304 264, 268, 28D 19 La. Ann. 482 68 3 Seld. 4,J9 453, 76 111. 303 51 Ind. 14 26 Barb. 568 11 N. Y. 404 123 Mass. 129 19 Minn. 459 53 Minn. 371. 55 N. W. 547.67, I Holmes. 209 30 Fed. 298 35 S. W. 911 II Mo. App. 144 425, 85 N. Y. 580 316, 319, 46 Mo. 200 129 Cal. 204 455 437 52 .398 297 249 234 68 146 169 239. 496 505 29.-) 13 'N. Xance v. Llemphill Naser v. First Nat. Bank National Bank of Commerce v. At* kinson V. National Bank of Missouri. National Bank of Virginia v. Nolt- ing National Butchers & Drovers' Bank V. Hubbell National Bank of Xenia v. Stewart. National Bank of North America v. Bangs National Park Bank v. Seaboard Bank — — v. New York Ninth Nat. Bank. National Mahaime Bank v. Peck. . . 1 Ala. 551 2, 3 110 N. Y. 492 465 55 Fed. 465 124, 125, 126, 398 Fed. Cas. No. 18,310 331 26 S. E. 826 301 117 N. Y. 384 422 107 U. S. 676 275, 276 106 Mass. 441, 8 Am. Rep. 349 296, 301, 553 114 N. Y. 28, 20 N. E. 632 443 46 N. Y. 77. 7 Am. Rep. 310.. 296 127 Mass. 298 404 Table of Cases. xxxv [References are to pages.] National Exch. Bank v. Bank of North America 132 Mass. 147 539 National Bank of Newburgh v. Smith GG N. Y. 271 240 National Bank of Bedford v. Stever. 169 Pa. St. 574 174 National Revere Bank v. National Bank of Republic 172 N. Y. 102 465 National Pahquioque Bank v. First Nat. Bank of Bethel 36 Conn. 325 468 National Security Bank v. Cush- man 121 Mass. 490 109 National Bank v. Graham 100 U. S. 699 242, 416 V. Insurarce Co 104 U. S. .54 502, 528 - V. Johnson 104 U. S. 271 365, 366 V. Matthews 98 U. S. 621 275, 276, 326, 367 379, 385 V. Norton 1 Hill, 572 105 V. Phelps 97 N. Y. 44 214 V. Whitney 103 U. S. 99 275, 270, 367 V. Watson'town Bank 105 U. S. 217 497 V. Case 99 U. S. 628 . . 75, 328, 344, 357, 358 V. City Bank 103 U. S. 668 431 Neal V. Coburn 92 Me. 139. 42 Atl. 348, 69 Am. St. 495 296 Neely v. Rood 54 Mich. 134 236 Neflf"v. Green County Nat. Bank. . 89 Mo. 581 259 Newburgh Bank v. Smith G6 N. Y. 271 405 Newby v. Oregon Central Ry. Co. . . 18 Fed. Cas. 38 233 New Orleans Nat. Banking Assn. v. Wiltz 10 Fed. 330 217 New Hope, etc., Co. v. Phenix Bank. 3 X. Y. 156 109 Niblack v. Cosier 74 Fed. 1000 174 Nichols V. State ( Neb. ) 65 N. W. 774 238 Nicollet Nat. Bank v. City Bank . . 38 Minn. 85 50 Norton v. Bank 61 N. H. 589 399 North River Bank v. Aymar 3 Hill. 262 138 Northampton Nat. Bank v. Smith. 169 Mass. 281 294 Northern Nat. Bank v. Lewis , 78 Wis. 475, 47 N. W. 834 125 Northwestern College v. Schwagler. 37 Iowa, 577 234 Northwestern Nat. Bank v. J. Thompson & Sons Mfg. Co 71 Fed. 113 330 Northwestern Coal Co. v. Bowman & Co 69 Iowa, 150 268 North Milwaukee, etc., Co. v. Bishop 103 Wis. 492 52 o. Oakland Bank of Savings v. Wilcox. 60 Cal. 126, 93 Cal. 17 97, 130 Oakland Gas Light Co. v. Dameron. 67 Cal. 663 50 Oakdale Mfg. Co. v. Garst 18 R. I. 484 223 O'Brien et al. v. Grant 146 N. Y. 163. . . .24, 537, 540, 555 Olney v. Chadsey 7 R. I. 224 128 Omaha First Nat. Bank v. Molinc Nat. Bank 55 Neb. 303 466 Omaha Nat. Bank v. Kiper 82 N. W. 102 468 xxxvi Table of Cases. [References are to pages.] Onondaga County Sav. Bank v. U. S .' 12 C. C. A. 407. 64 Fed. 703 .. . 443 Oregon Ry. & Navigation Co. v. Oregonian Ry. Co 130 U. S. 1 357 Osborn v. Byrne 43 Conn. 15.5 477 Otisfield V. Mayberry 63 Me. 197 295 Oyerman y. Ho'boken City Bank. ... 2 Vr. 563 537 Owen y. Bowen '. 4 C. & P. 93 244 Pacific Nat. Bank v. Eaton 141 U. S. 227 64, 226 Pacific Bank y. Stone 121 Cal. 202 122 Pacific Trust Co. y. Dorsey 72 Cal. 55 Paint Co. v. National Bank 4 Utah, 353 433 Panhandle Nat. Bank y. Emery 78 Tex. 498, 15 S. W. 23 129 Pape y. Capitol Bank 20 Kan. 440, 27 Am. Rep. 183. 491 Park V. McDaniels 37 Vt. 594 295 Parker y. Carolina Say. Bank 53 S. C. 583 99 Pardee y. Fish 60 N. Y. 265 319 Parsons v. Dickinson 23 Mich. 56 268 Pattison y. Syracuse Nat. Bank. . . 80 N. Y. 82 242, 246 Patterson y. Wade 115 Fed. 770 112 y. Poindexter 40 Am. Dec. 554 1, 316 Pauly y. State Loan & Trust Co. . . 165 U. S. 606, 17 Sup. Ct. 465. 72 75 Pease y. Hirst 10 B. & C. 122, S. C. 5 Man. & Ryl. 88 405 People y. Bendit Ill Cal. 274 299 y. Cole 130 Cal. 13 299 - y. Crockett 9 Cal. 113 56 y. Crossley 09 111. 195 52 y. Deyin ' 17 111. 84 68 y. Doty SO N. Y. 225 23 y. Fidelity, etc., Co 153 111. 25 223 y. :\[ontecito Water Co 97 Cal. 276 513 y. Nassau Ferry Co 86 Hun. 128. 33 N. Y. S. 244, 66 N. Y. St. 801 69 y. National Say. Bank 129 111. 618, 11 N. E. 170 512 y. Oakland County Bank 1 Dous. (Mich.) 282.. 48, 221. 510 y. Peck . ." 11 Wend. 604 68 y. Robinson 64 Cal. 373, 1 Pac. 156 68 y. Sterlino: ^Ifg. Co 82 111. 457 53 y. St. Nicholas' Bank 77 Hun. 159 538 y. Throop 12 Wend. 183 103 y. Utica Ins. Co 15 .Johns. 357 1, 513 y. Bank of Hudson 6 Cow. 216 510 People's Bank y. National Bank. . . 101 U. S. 181 399 y. Legra.id 103 Pa. St. 309 403 People's Sav. Bank y. Cupps 91 Pa. St. 315 481 Pemberton v. Oakes 4 Russ. 154 405 Pennington v. Baehr 48 Cal. 565 266 Pennsylvania R. R. Co. v. St. Louis, Alton, etc.. R. R. Co 118 U. S. 290 3£7 Pennsylvania Bank v. Farmers' De- posit Nat. Bank 130 Pa. St. 209 499 Pendergast v. Stockton Bank 19 Fed. Cas. No, 10.918, 2 Sa\yy, 108 56 Table ot Cases. XXX VI 1 [References are to pages.] Perkins v. Smith et al Percy v. ^Millandon Peterson v. Union Nat. liank . Philler et al. v. Jewett & Co. . V. Patterson Phoenix Bank v. Hussey Pickle V. Muse Pickard v. Sears Piedmont Bank v. Wilson Pierce v. Boston Five Cent Sav. Bank Pittsburgh Bank v. \Yhitehead, Sproul & Co Pittsburgh, Cincinnati, etc., Ry. Co. V. Keokuk & Hamilton Bridge Co Pittsburgh Locomotive & Car Works V. State Xat. Bank of Keokuk Piatt V. Hibbard Planters', etc., Ins. Co. v. Selma Sav. Bank Planters & Farmers' Xat. Bank of Baltimore v. First Nat. Bank of Wilmington Poorman v. Mills & Co Potts V. Wallace Potter V. Merchants' Bank Power V. First Nat. Bank of Fort Benton Pratt V. Eaton Preston v. Prather Preston et al. v. Canadian Bank of Commerce Prescott Nat. Bank v. Butler Prescott v. Haughey Presbyterian Congregation v. Car- lisle Bank Prewitt, Trustee, v. Trimble Price V. Holcomb V. Riverside L. & I. Co Priet V. Reis Pullman v. Upton IIG N. Y. 441 23 3 La. Rep. 568 101 52 Pa. St. 206 811 166 Pa. St. 456 556 168 Pa. St. 468, 47 Am. St. 896 533, 537, 556 12 Pick. 483 151 88 Tenn. 380, 12 S. Vi. 919. 17 Am. St. 900, 7 L. R. A. 93 . . 297 33 Eng. C. L. Rep. 469 176 124 N. C. 561, 32 S. E. 889. . . 167 129 Mass. 425 491 10 Watts (Pa.), 397 103 131 U. S. 371 357 2 Cent. L. J. 692 328 7 Cow. 497 392, 393 63 Ala. 585 55 75 N. C. 534 466 35 Cal. 118 316 32 Fed. 272 70 28 N. Y. 641 180, 189 6 Mont. 251 416, 465 79 N. Y. 449 491 137 U. S. 604 391, 502 23 Fed. 179 537 157 Mass. 548 16 65 Fed. 653 115 5 Pa. St. 345 498 92 Ky. 176 131 89 Iowa, 123, 56 X. W. 407 .. . 69 56 Cal. 431 509 93 Cal. 85 509 96 U. S. 328 75 Queenan et al. v. Palmer et al . . . Quincy First Nat. Bank v. Ricker. Quin V. Earle Q. 117 111. 619 74 22 Am. Rep. 104, 71 111. 439.. 296 95 Fed. 728 239 R. Ragsdale v. Franklin Ranger v. Champion Cotton Press . Co 25 Miss. 143 151 51 Fed. 61 69 XXXVlll Table o1'~ Cases. [References are to pages.] Rankin v. Fidelity Ins. Co Redington v. Woods Reeves v. State Bank Reese v. Bank of Commerce Reed v. Home Sav. Bank V. Boston jMachine Co Reid V. Eatonton Mfg. Co Republican Mountain Silver Mines V. Brown et al Reynolds v. Simpson & Ledbetter.. — — V, Crawfordsville Bank Rice V. Citizens' Nat. Bank Richardson v. Denegre V. Irons Richmond v. Blake V. Irons Rich V. Niagara County Sav. Bank. Ridgely Bank v. Patton & Hamil- ton Riley v. Albany Sav. Bank Riverside Bank v. First Nat. Bank of Shenandoah Robertson v. Bufi'alo County Nat. Bank ' Robinson v. Ames V. Bidwell V. Hall V. Turrentine Robarts v. Tucker Roberts a-. Hill Roeblings Sons' Co. v. First Nat. Bank of Richmond, Va Rogers v. Huntington Bank Rome Sav. Bank v. Kramer Root V. Oleott Rouvant v. San Antonio Nat. Bank. Runyan v. Lessee of John G. Coster, etc Runner v. Dwiggins Ryan v. Dunlap V. ^Manufacturers & Merchants' Bank 189 U. S. 242 75 45 Cal. 406 292 8 Ohio St. 406. . .453, 455, 405, 471 14 Md. 271 498 130 :\Iass. 443. 39 Am. Rep. 468. 492 141 Mass. 454 294 40 Ga. 98, 2 Am. Rep. 563 70 58 Fed. 044 53 74 Ga. 454 381 112 U. S. 405 379 21 Ky. L. Rep. 340, 51 S. W. 454 297 93 Fed. 572 239 121 U. S. 27 526 132 U. S. 592 • 22 121 U. S. 27 78, SO, 528 5 T. & C. (N. Y.) 589 251 109 111. 479 401, 471 36 Hun, 513 259 74 Fed. 270 278 58 N. W. 715 128 20 Johns. 140 431, 403 22 Cal. 379 63 Fed. 222 59 Fed. 554 60, 16 Q. B. 500, 15 Jur. 987, 20 L. J. Q. B. 270, 71 E. C. L. 500 23 Blatchf. 312 72 98 79 297 525 30 Fed. 744 378 12 S. & R. 77 497 32 Hun, 270 491 42 Hun, 536 107 63 Tex. 610 290, 301 14 Pet. 122 219 147 Ind. 238 82 17 111. 40 152, 108 9 Dalv. 308 129 s. Sacry v. Lobree Saginaw Bank v. Western Pa. Title, etc., Co Salilien et al. v. Bank of Lonoke. . . St. Albans Bank v. Farmers', etc., Bank St. Louis, etc., R. R. Co. v. Terre Haute & Indianapolis R. R. Co.. 84 Cal. 41 518 105 Fed. 491 316 10 S. W. 373, 90 Tenn. 221.. 419 472 1.0 Vt. 141. 33 Am. Dec. 188.. 296 145 U. S. 393 357 Table of Cases. xxxix [References are to pages.] St. Nicholas Bank v. State Nat. Bank 128 X. Y. 26, 27 N. E. 849 . . 417 405 Salter v. Burt 20 Wend. 205 282 Salem Bank v. Glouster Bank 17 Mass. 1 390 Savings Institution v. Nat. Bank. . 89 Me. 500 529 Samuel v. Holladay 8. C. 21 Red. Ca.s. 30G 52 Savinss Bank v. Burns 104 Cal. 473 134, 385 Sawyer v. Hoag 17 Wall. GIO 493 Savior V. Bushong 100 Pa. St. 23, 45 Am. Rep. 353 2SS Schmidt v. Blood 9 Wend. 268 392 Sehneitman v. Noble 75 Iowa, 120, 39 N. W. 224 . . . Schneider v. Irving Bank 30 How. Pr. 190. 1 Dalv, 500. . 288 Schoenwald v. Bank 57 N. Y. 418 ' 489 School District v. First Nat. Bank. 102 Mass. 174 237 Schrader v. Manufacturers" Nat. Bank 133 U. S. 67 78, 528 Schrick v. St. Louis Mutual House Bldg. Co 34 Mo. 423 54 Schumacher v. Trent 18 Tex. Civ. App. 17, 44 S. W. 460 465 Scovill V. Thayer 105 U. S. 143 225, 227 Scott v. National Bank 72 Pa. St. 471 246 V. Gilkey 153 111. 168, 39 N. E. 265 470 v. Ocean Bank in the Citv of New York '. . . . 23 N. Y. 289 412 V. Latimer 89 Fed. 843 71 Second Nat. Bank v. Burt 93 N. Y. 233, 244 324, 384 • V. Cvmunings S9 Tenn. 609, 35 Am. Rep. 691. 466 Second Nat. Bank of Lafavette v. Hill ' 75 Ind. 223 401 Second Nat. Bank of Baltimore v. T. S. Wrightson. Exr. of S. Stine. 63 Md. 81 322 Security Bank v. National Bank of the Republic 23 Am. Rep. 129 185 Seeber v. Commercial Nat. Bank ... 77 Fed. 957 399 Seeberger v. McCormick 178 111. 404 97 Seligman v. Bank 3 Hughes, 647 3D0 Selma & T. R. R. Co. v. Tipton 39 Ind. 344 36 Selden v. Equitable Trust Co 94 U. S. 419 19 Selz V. Collins 55 Ind. App. 55 445 Seneca County Bank v. Neass 5 Den. 329 : 109 Sewall V. Lancaster Bank 17 S. & R. 285 497, 498 Sharp V. National Bank of Birming- ham 87 Ala. 644 329 Shinkle et ux. v. First Nat. Bank of Ripley 22 Ohio St. 516 377 Shipman v. State Bank 126 N. Y. 318, 27 N. E. 371. 37 N. Y. St. 376, 12 L. R. A. 791, 22 Am. St. 821 . . .' 297 Shute V. Pacific Nat. Bank 136 Mass. 487 316, 504 Simons v. Fisher 55 Fed. 905 127 Simpson v. Ingham 2 B. & C. 6.5, S. C. 3 D. & R. 249 405 V. Savings Bank 56 N. H. 466 477 V. Wald-by 63 Mich. 439, 30 N. W. 199. . . 465 467, 468 xl Table of Cases. [References are to pages.] Sistare v. Best SS X. Y. 527 402 Skillnian v. Titus 3 Vr. 90 281 Slaughter House Cases IG Wall. 36 3 Slee V. Bloom 10 Am. Dec. 273 55 Smedes v. Bank of Utica 20 Johns. 371, 3 Cow. 662 459 Smith V. Board, etc 38 Conn. 208 109 V. Brooklyn Sav. Bank 101 N. Y. 58, 54 Am. Rep. 653. 490 V. First Nat. Bank 45 Neb. 444 325 V. Janes 20 Wend. 192 268 V. Lawson IS W. Va. 212 49, 330 V. Londoner 5 Colo. 365 70 V. Miller 43 N. Y. 171 267 V. Mechanics', etc., Bank .... 6 La. Ann. 610 290 V. North America Mining Co. 1 Nev. 357 228 Snow V. Alley 144 Mass. 546 294 Solomon v. Bates 118 N. C. 321. 24 S. E. 746, 118 N. C. 311, 24 S. E. 478.. 110, 115 Southerland y. Olcott 95 N. Y. 93 229 Southern R. R. Co. y. Stevens' Executors 87 Pa. St. 190 218 Spafford y. Fir.st Nat. Bank of Tama City 37 Iowa. 181 328 Spaulding y. Andrews 48 Pa. St. 411 279 Spense v. Iowa, etc.. Cons. Co 36 Iowa, 407 70 Spring Valley W. W. v. San Fran- cisco 22 Cal. 4.34 37 Spurlock y. Pacific R. R. Co 61 Mo. 319 56 Spyker v. Spence 8 Ala. 333 128 Stacy y. Dane County Bank 12 Wis. 629 453, 460 Stanley y. Stanley .' 26 Me. 191 66 V. Lincoln trust Co 144 Mo. 562 565 Star Fire Ins. Co. y. New Hamp- shire Nat. Bank 60 N. H. 442 296, 299, 306 Star y. Stiles 19 Pac. 225 503 State y. Bienyille Oil Works 28 La. Ann. 204 69 y. Bonnell 35 Ohio St. 10 67 y. Fields 62 N. W. 653 523 y. First Nat. Bank of Clark. . 51 N. W. 587 512 y. Oyerton 24 N. J. L. 435 53 y. Pacific Brewing, etc., Co.. 21 Wash. 451. 58 Pac. 584, 47 L. R. A. 208 69 y. Scougal 3 S. Dak. 55 2, 3 y. Sportsman Park Assn 29 :Mo. App. 326 69 y. St. Louis, etc., Ry. Co 29 Mo. App. 301 69 y. Woodmansee . . .'. IN. Dak. 246 2 y. Warner 60 Kan. 94 523 State ex rel. Attorney-General y. Seneca County Bank 5 Ohio St. 170 511 State Nat. Bank of Fort Worth y. Thomas Mfg. Co 17 Tex. Ciy. App. 214, 42 S. W. 1016 465 V. Newton Nat. Bank 66 Fed. 691 177 • y. James Reilly 124 111. 464 260 State Trust Co. y. Sheldon 68 Vt. 259 318 State Bank v. Armstrong 4 Dey. 519 405 State of Iowa y. Eifert 102 Iowa, 188 522 State of Nebraska y. First Nat. Bank of Orleans 88 Fed. 947 239, 372 Table of Cases. xli [References are to pages.] Stearns v. Lawrence S3 Fed. 738 131 Stebbins v. Lardner 48 N. W. 847 406 Stephens v. Overstolz 43 Fed. 46.5 513 Stephens v. Schuchmann 32 Mo. App. 333 525 Stewart v. National Union Bank of Maryland 2 Abb. (U. S.) 424 325 Steers v. Liverpool Steamship Co. . 57 N. Y. 1 392 Steger v. Davis 8 Tex. Civ. App. 23, 27 S. W. 1068 56 Stein V. Howard et al 65 Cal. 616 228 Stevens v. Hill 29 Me. 133 99 Stewart v. Huntingdon Bank 11 S. & R. (Pa.) 267 106 Stockton V. Mechanics', etc., Sav. Bank 32 X. J. Eq. 163 492 Storts V. George 150 :\lo. 1 526 Streissguth v. National German- American Bank 43 Minn. 50 465, 468 Strong V. Brooklvn Cross-Town R. R. Co ."^ 03 N. Y. 426 231 Strong V. Foster 17 C. B. 201 405 Sturges V. Bank of Circleville 11 Ohio St. 153 158, 175 Stuart v. Havden 169 U. S. 1 75 Sturtevant v.'sturtevant 20 N. Y. 39 76 Stutz V. Handlev 41 Fed. 531 68 Suit V. Woodhail 113 Mass. 391 105 Sullivan v. LeAviston Institution.. . 56 Me. 507, 96 Am. Dec. 500.. 489 490 Surtees v. Hubbard 4 Esp. 243 244 Sweenv v. Easter 1 Wall. 166 443 Sweet'v. Stevens 7 R. I. 375 285 V. Barney 23 N. Y. 335 251 Svkes V. First National Bank 2 S. Dak. 242 237 V. People 132 111. Taber v. Perrot 2 Gall. 565 4.54 Talladega Ins. Co. v. Woodward 44 Ala. 287 316 Taplev v. Martin 116 Mass. 275 50 Taylor v. Hutton 43 Barb. 195 100, 135 V. Empire State Bank 66 Hvm. 538 480 Ten Evck v. Pontiac, etc., Co 74 Mich. 226, 41 N. W. 905. . . 92 Thatcher v. Bank of the State of New York 5 Sandf. 121, 10 Mich. 196. .36, 187 Third Nat. Bank of St. Louis v. Allen et al 59 Mo. 310 306 Thomas v. Bank 82 N. Y. 1 278 V. Railroad Co 101 U. S. 71 356, 565 V. International Bank 46 111. App. 461 313 Thompson v. Bank of British North America 82 N. Y. 1 297 V. Co 58 Miss. 423 91 V. St. Nicholas Nat. Bank 146 U. S. 240, 113 N. Y. 325 . . 275 V. German Ins. Co 77 Fed. 258 505 Tiernan v. Commercial Bank 7 How. 648 457 Tift V. Quaker City Nat. Bank 141 Pa. St. 550 110 xlii Table of Cases. [References are to pages.] Tishimingo Sav. Inst. v. Buclianan. 00 Miss. 496 491 Titus V. Mechanics' Xat. Bank .35 X. J. L. 588 453, 465. 468 V. Railroad Co 37 X. J. L. 98 125 Toner v. Fulkerson 125 Ind. 224, 25 X. E. 218 70 Toof V. Martin 13 Wall. 40 519 Townslev v. Sumirall 2 Pet. 170 430, 402 Townsend v. Williams 23 S. E. 461 238 Trenholm, Comptroller of the Cur- rency, V. Commercial Xat. Bank of Dubuque 38 Fed. 323 508 Tremont Bank v. Paine 28 Vt. 24 124 Tripp V. Curtenius 36 Mich. 494 316, 504 True V. Thomas 16 Me. 36 312 Tyler v. Smith 18 B. Mon. 793 295 Tyson v. State Bank G Blackf. 225 453, 465 u. Underhill v. Santa Barbara Land Co 93 Cal. 300 8 Union Xat. Bank v. Hunt 7 Mo. App. 42 330. 500 V. Rowan 23 S. C. 339 366 V. Oceana Co. Bank SO 111. 212 288 Union Bank v. Laird 2 Wheat. 390 497 Union vSavings Assn. v. Selignian.. 92 ^Mo. 035. 15 S. W. 630... 70, 76 Union Pacific Railway v. Chicago, etc., Ry 103 U. S. 564 357 L'nion Sav. Bank of San Jose v. Leiter 145 Cal. 696 495 United States v. American Exch. Xat. Bank 70 Fed. 232 442 V. Britton 107 U. S. 655 189 V. Barrv 36 Fed. 246 69 V. First Xat. Bank of Coflfev- ville 82 Fed. 410 285 V. Knox 102 U. S. 422 78 V. Mann 95 U. S. 580 10 V. Xational Bank of Ashville. 73 Fed. 379 200, 372 V. Xew York Xat. Park Bank. Fed. 852 296 V. X'^ational Exchange Bank. . 45 Fed. 103 297 V. Stanford 161 U. S. 412 72 United States Bank v. Stearns 15 Wend. 314 50 V. Bank of Georgia 10 Wheat. 333. 6 L. ed. 334 . . 296 545 United States Xat. Bank v. First Xat. Bank of Little Rock 79 Fed. 296 124, 127, 128, 361 United German Bank v. Katz 57 :\Id. 128 491 Upham V. Lefavour 11 :\Iet. 174 404 Upton V. Tribilcock 91 U. S. 45 225 V. Xational Bank of South Reading 120 Mass. 153 379 Y. Vail V. Xewmarks Sav. Inst :!2 X. .7. Eq. 031 52.5 y-.xn Louven v. First Xat. Bank of Kingston 54 X. Y. 071 124, 358 Table of Cases. xliii Vance v. Lowther . . Van Wart v. Wooley [References are to pages.] Vance v. Mottley Vansands v. Middlesex County Bank Veeder v. Miidp;ett Ventura & Ojai Ry. Co. v. Hartraan. Vercoutere v. Golden State L. Co . . . Vilas Nat. Bank v. Strait Voss V. German American Bank . . . 1 Exch. Div. 176 264 3 B. & C. 439, S. C. 5 D. & R. 374 430. 454, 461 92 Tenn. 310, 21 S. W. 593. 26 Conn. 95 N. Y. 116 Cal. 116 Cal. 58 Vt 83 111 144. 295. 260. 410. 448. 599. 170 56 225 64 112 124 405 w. Wager v. Hall . Wait V. Nashua Armory Assn Walker v. Bank of the State of New York V. Walker Wall V. Provident Savings Inst. . . . Wallace v. Exchange Bank of Spencer Walter v. Merced Academy Assn . . . Walworth Co. Bank v. Farmers' Loan, etc., Co Vv'arner v. Mower Warren Bank v. Suffolk Ward V. Allen — — ■ V. Farwell V. Johnson V. Smith Warhus v. Bowery Sav. Bank Warner v. Mower Warren et al. v. Shook Washington Bank v. Lewis Washington Nat. Bank v. Pierce.:. Washington First Nat. Bank v. Whitman Washington. Libby, et al. v. Union Nat. Bank .. .'. Washburn v. Huntington Waterloo Mining Co. v. Kuenster. . Watkins v. National Bank Watson V. Phoenix Bank , Watts V. Christie Way V. Butterwortli Welch V. Goodwin Weirner v. Second Ward Sav. Bank. Weils v. Black Wells, Fargo & Co. v. L'nited States, — — V. Enright et al Welles V. Graves Wellfley v. Shenandoah, etc., Co... Werk V. Mad River Valley Bank.. Westminster Bank v. Wheaton .... Western Nat. Bank v. Armstrong.. 16 Wall. 584 23 Atl. 77 125 5 Seld. 582 430, 431, 462, 46", 5 Heisk. 425 419 6 Allen, 320, 3 Allen, .96. .481, 483 126 Ind. 2G5 169 126 Cal. 582 64 14 Wis. 325 125 11 Vt. 385 67 10 Cush. 582 466 2 Met. 53 279 97 111. 593 9 5 111. App. 30 491 7 Wall. 447 406, 416 21 N. Y. 543 490 11 Vt. 385 67 91 U. S. 704 19, 22 22 Pick. 24 105 6 Wash. 491, 33 Pac. 972 130 94 U. S. 343, 24 L. ed. 229 297 99 111. 622 78 Cal. 573 158 111. 259, 41 N. E. 906 51 Kan. 254 8 Met. 217 1 1 Beav. 546 106 Mass. 75 123 Mass. 71. 25 Am. Rep. 24. . 76 Wis. 242, 44 N. W. 1096. . . 117 Cal. 157 55, 72, 45 Fed. 337 127 Cal. 669 41 Fed. 4.59 83 Va. 768 8 Ohio St. 302 4 R. I. 30 152 U. S. 346, 14 Sup. Ct. 572 159, 165, 338, 378 521 466 528 284 259 3 296 490 506 443 318 508 234 268 282 348 xliv Table of Cases. [References are to pages.] Wharton v. Walker Whetstone v. Ottawa University. . . Wheeler v. Aiken Co. Loan & Sav. Bank Wlieelock v. Kost et al Whitney Arms Co. v. Barlow et al. Whitney y. Butler y.' First Nat. Bank of Brattle- boro White V. National Bank V. Franklin Bank y. Wood Whiteliead y. Walker Wickham y. Hull Wickersham y. Chicago Zinc Co... y. Crittenden Wiggins V. Free Will Baptist Church Wiley y. First Xat. Bank of Brat- tleboro Willets y. Pha?nix Bank Williams y. Union Bank v. Drexel y. ^IcKay Wilson et al. y. Tolson . Wild y. Bank of Pasamaquoddy . . . Winslow V. Harriman Iron Co Winter y. Baldwin y. Muscogee R. R. Co Wingate v. ]Mechanics' Bank Winton y. Little Witte y. Vincenot Witters. Receiyer. etc. v. Sowles... Wood & Co. y. ^Merchants' Sav., Loan & Trust Company Wood y. Pierce Wood River Bank v. First Nat. Bank of Omaha Woodruff V. Plfint AVriglit v. Oroville Mining Co Wylie y. Northampton Bank Wynian v. Citizens' Nat. Bank of Faribault 4 B. & C. 163 244 13 Kan. 320 51 75 Fed. 781 Ill 77 111. 296 76 63 N. Y. 62 15 118 U. S. 655 80 55 Vt. 154 247 102 U. S. 658 153, 422. 423, 443 22 Pick. 181 249 129 N. Y. 527 227 9 M. & W. .505 431. 463 00 Fed. 326 78 18 Kan. 481 108 93 Cal. 17 97, 122 49 Mass. 301, 47 Vt. 546 178, 2 Duer, 121 21 Tenn. 339 14 Md. 566 46 N. J. Eq. 25. 18 Atl. 824. . . 79 Ga. 137 3 Mason, 505, Fed. Cas. No. 17.640 152, 42 S. W. 698 89 Ala. 483 11 Ga. 438 10 Pa. St. 104 416, 453, 94 Pa. St. 64 43 Cal. 325 31 Fed. 1, 38 Fed. 700.. 59, 78, 68 242 277 50 297 169 421 361 172 10 218 406 124 241 111 41 III. 267 401, 406 2 Disn. 411 70 36 Neb. 744 448, 450 41 Conn. 344 268 40 Cal. 20 97 119 U. S. 361 242 29 Fed. 754 325 Y. 6 Wash. 348 50 69 N. Y. 382 358 6 Mass. 181 296 Vough 23 N. J. Eq. 325 56 Grote 4 Bing. 253 301 Yakima Nat. Bank v. Knipe Yerkcs y. National Bank. . . Youn" v. Adams CHAPTER I. I BANKING A CONSTITUTIONAL AND LEGISLATIVE PRIVILEGE. § 1. Rig'ht of banking controlled by legislation. The right of banking was originally a common-law right. The privilege was without restriction and open to all. The privilege of private banking, however, has, by constitutional and legislative enactments passed by many of the States, been either prohibited or placed under control and regulation of law. The pri^dlege of private banking, it is held by leading authori- ties, is one which the Constitution or Statute of a State may for- bid. Some of the courts, however, question this doctrine and hold that the Legislature may make the issuing of notes a fran- chise ; but as to the other branches of banking, they deny the right of a Legislature to interfere. The reasoning is based upon the constitutional grounds that " no State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States, nor shall any State deprive any person of life, liberty, or property, without due process of law, nor deny to any person within its jurisdiction the equal pro- tection of law." This question as early as 1818 was presented to the Supreme Court of Judicature of the State of Xew York in the case of the People v. Utica Insurance Co., 15 Johns. (N. Y.) 358. The action was an information in the nature of a quo warranto by the Attorney-General against the defendant for exercising bank- ing privileges without authority from the Legislature, and was based upon an act of the Legislature commonly called the " Restraining Laws," which provided that "no person unauthor- ized by law shall subscribe to or become a member of any as- sociation or proprietor of any bank or fund for the purpose of issuing notes^ receiving deposits, making discounts, or trans- acting any other business which incorporated banks do or may transact by virtue of their respective acts of incorporation." The court, in defining the right of private banking under this [1] 2 Ba^skixg a Legislative Pkivilege. [ch. i. 4 Statute, says, " The right of banking, since the Restraining Act, is a privilege or immunity subsisting in the hands of citi- zens by grant of the Legislature. The exercise of the right of banking, then, with us, is the assertion of a grant from the Legislature to exercise that privilege, and consequently it is the usurpation of a franchise, unless it can be shown that the privi- lege had been granted by the Legislature." The Legislature, by the above act, did not confine the restric- tion to the issuing of notes, but included the receiving of de- posits, and the making of discounts, unlawful and prohibitive, unless the person conducting this branch of banking had the privilege or authority from the Legislature. In the case of Xance v. Hemphill, 1 Ala. 551, the court in substance says: ^' Where the Constitution or Legislature does not prohibit private banking, it is a common-law privilege; and is a right that any individual may exercise mitil forbidden by the Legislature." The Supreme Court of the State of Xorth Dakota, in the case of the State of Xorth Dakota ex rel. Marshall T. Goodsill v. Thomas Woodmansee, 1 X. Dak. 246, held that a legislative act which prohibits all persons from doing a banking business within the State, except corporations, which are organized under the law, is constitutional. The court says, " As a matter of fact, we have been unable to find an authority, and we have searched diligently, which has ever questioned the right of the Legisla- ture in the exercise of police power to regulate, restrain, and govern the business of banking." It is interesting to note the fact that the question is again brought before the Supreme Court of the State of South Dakota in the case of State v. Scougal, 3 S. Dak. 55. In this case the court holds that the Banking Act of the State, in so far as it prohibits an individual from carrying on the business of bank- ing other than the issuing of notes, and circulating the same as money, is in conflict with the Constitution of the State, which reads as follows: " Xo law shall be passed, granting to any citizen, class of citizens, or corporation, privileges or immunities which upon the same terms shall not equally belong to all citizens or cor- porations." In the absence of a constitutional provision or inhibition, the CH. I.] Banking. 3 Constitution being silent on the subject, it remains a question whether the legishitive body of the State has the right to de- prive a citizen under the Fourteenth Amendment of the Con- stitution of the United States of the rights and privileges guar- anteed to him by said constitutional pro^dsion.^ The business of banking in its very nature creates a con- fidential and trust relationship, which exists betwen the bank and its patrons ; and the difficulties that depositors and those dealing with the bank necessarily encounter in detecting ir- regular practices, and in ascertaining the real financial con- ditions of the same, seem to be sufficient to justify inspection and control.^ The question has never been directly presented to the Su- preme Court of the United States, and until it passes upon the same, which it must do when judicially brought before it, the States are left in control of the privilege ; and the right or privilege of private banking being a franchise, which may be granted, governed, controlled, or prohibited either by con- stitutional or legislative provisions of a State, the power is vested in the State, and is denominated a police power ; which may be exercised and imposed upon the theory that all private interests are made subservient to the general interests of the community, and in the interest of public safety. The law seems to be settled that a State may, by constitu- tional enactment or legislative provisions, prohibit private bank- ing within its domain, upon the principle " that the power of the States over police regulations is supreme." That this power is not restrained by the Constitution of the United States to the States, is the doctrine as enunciated and established by the Supreme Court of the United States in Slaughter-House Cases, 16 Wall. 36, and Bartemeyer v. Iowa, 18 Wall. 129. The right of banking, therefore, in a State, being a privilege or business under the control of the State, it cannot be con- ducted where prohibited by the law of the State. 1 Attorney-General r. Utica Ins. N. E. 919; Bank v. Henne, O. & L. Co., 15 Johns. (N. Y.) .3.57; Bank Co., 105 Cal. 376: Way v. Butter- of Augusta V. Earls, 13 Pet. 519; worth, 106 Mass. 75. Nance v. Hemphill, 1 Ala. 551; 2 People r. Brewster, 4 Wend. State r. Scoujral, 3 S. Dak. 55 ; Du 498 ; Blaker v. Hood, 53 Kan. 499 . Quoin V. Kellev, 176 111. 218, .52 4 Bankijtg a Legislative Pkivilege. [ch. i. The United States, under the Constitution and the hiws of Congress, is suj)renie in its authority to form a bank and con- duct the same. It is supreme in its authority, " to coin money, regulate the vahie thereof and of foreign coin." It is also within the privilege of Congress to make gold and silver, or anything else it may designate as money, a legal tender. The States are prohibited from this power, but they may form a bank and conduct the same and issue notes and circulate the same as money and manage the bank wholly in the in- terest of the State ; but the States are prohibited from forming through constitutional conventions and indorsement thereof by the people. Constitutions empowering them to make notes or an}i:liing but gold and silver coined by the government of the United States a " legal tender." The reasons for these prohibitive provisions, which were enacted and became a part of the Constitution of the United States, are historically and judicially stated in the case of Edwards v. Kearzy, 96 U. S. 595. The Supreme Court, in explaining the reasons for the adop- tion of the constitutional provisions, says: '' The history of the National Constitution throws a strong light upon this subject. Between the close of the War of the Rebellion, and the adoption of that instrument, unprecedented pecuniary distress existed throughout the country. The discontents and uneasiness, arising in a great measure from the embarrassment in which a great number of individuals are involved, continued to become more extensive. At length, two great parties were formed in every State, which were dis- tinctly marked, and which pursued distinct objects with syste- matic arrangement. 5 Marshall L. of Wash. 75. One party sought to maintain the inviolability of contracts, the other to impair or destroy them. The emission of paper money, the delay of legal proceedings, and the suspension of the collection of taxes, were the fruits of the nile of the latter, wherever they were completely domi- nant. 5 Marshall L. of Wash. 86. The system called justice was, in some of the States, in- iquity reduced to elementary principles. * * * In some of the States creditors were treated as outlaws. Bankrupts were armed with legal authority to be persecutors, and by the CH. I.] Ba^^kixg. 5 shock of all confidence, society Avas shaken to its foundations. Fisher Ames Works (ed. of 1859), 120. Evidences of acknowledged claims on the public would not command in the market more than ane-fifth of their nominal value. The bonds of solvent men, payable at no distant day, could not be negotiated but at a discount of 30, 40, or oO per cent, per annum. Landed property would rarely command any price ; and sales of the most common articles for ready money could be made only at enormous and ruinous depreciation. '^ State Legislatures, in too many instances, yielded to the necessities of their constituents, and passed laws by which creditors were compelled to wait for the payment of their just demands on the tender of security, or to take property at a valuation, or paper money falsely purporting to be the repre- sentative of specie. Eamsey Hist. LT. S. 77. " The effects of these laws interfering between debtors and creditors were extensive. They destroyed public credit and confidence between man and man, injured the morals of the people, and in many instances insured and aggravated the ruin of the unfortunate debtors for whose temporary relief they were brought forward. 2 Ramsey Hist. S. C. 429. " Besides the large issues of Continental money, nearly all the States issued their own bills of credit. In many instances the amount was very large. 2 Phillip's Hist. Sketches of Am. Paper Currency, 29. " The depreciation of both became enormous. Only one per cent, of the Continental money was assumed by the new government. jSTothing more was ever paid upon it. Act of Aug. 4, 1790, § 4, 1 Stat, at L. 140; 2 Phillips' Hist. Amer. Paper Currency, 194. It is needless to trace the history of the emissions by the State. " The Treaty of Peace by Great Britain declared that the creditors on either side shall meet with no lawful impediment to the recovery of the full amount in sterling money of all bona fide debts heretofore contracted. The British Minister complained earnestly to the American Secretary of State of violation of this guaranty. Twenty-two instances of laws in conflict with it in different States were specifically named. 1 Am. St. Papers, 195, 190, 199, and 237. In South Carolina, laws were passed in which property of every kind was made 6 Backing a Legislative Pkivilege. [ch. i. legal tender in pajTuent of debts, although payable according to contract in gold and silver. Other laws installed the debt, so that of sums already due only a third and afterward only a fifth, were securable in law. 2 Eamsey Hist. S. C. 429. Many other States passed laws of similar character. The obligation of the contract was as often invaded after judgment as before. The attacks were quite as common and effective in one way as in the other. To meet the evils in their various phases, the Xational Constitution declared that 'No State should emit bills of credit, make anything hut gold and silver coin a legal tender in payment of debts, or pass any law, * * * im- pairing the obligations of contracts.' All these provisions grew out of previous abuses. 2 Curt. Hist, of Const. 366. See also the ' Federalist,' Xos. 7 and 44. In the number last mentioned, Mr. Madison said that such laws were not only for- bidden by the Constitution, but were contrary to the first prin- ciples of the social compact and to every principle of sound legislation. " The treatment of the malady was severe, but the cure was complete. No sooner did the new government begin its auspi- cious course than order seemed to arise out of confusion. Com- merce and industry awoke and were cheerful at their labors, for credit and confidence awoke with them. Everywhere was the appearance of prosperity, and the only fear was that its progress was too rapid to consist with the purity and simplicity of ancient manners. Fisher Ames' Works, supra, 122. " Public credit was reanimated. The owners of property and holders of money freely parted with both, well known- ing that no future law could impair the obligation of the con- tract. 2 Ramsey Hist., supra, 433." We find, then, the supreme right of banking, the coining of money and regulating the value thereof, to be vested in the Constitution of the United States ; but the Constitution does not prohibit the States which form the Union and nation from creating or authorizing banks, but only prohibits them from making bank notes, or anything but gold and silver coined by the government of the United States, a legal tender. The right of banking, then, exclusive of coining money, and regulating its value in a State can be governed by the State. It then becomes a privilege or franchise whereby a person CH. I.] Banking. 7. or individuals may be authorized by law to conduct the busi- ness of banking. When banks are duly authorized and incorporated accord- ing to the provisions of law, they become private corporations. A national bank, organized under the National Banking Act, is a private corporation. The right of banking within the State being vested in the Constitution and legislative power of the State, and the priv- ilege being conceded to be a franchise granted by the law, or by special enactment of the Legislature, and one which may be controlled and regulated under the police powers of the States, private banking may be therefore prohibited by constitutional or statutory enactments. Banking institutions must, where such constitutional or legis- lative inhibitions exists, before beginning the business of bank- ing, incorporate as the law of the State may require, following the provisions laid down in the formation of such corporations ; and when duly incorporated, having complied with the special banking law in force in the State where such laws are enacted, they then become lawful institutions and have the right of banking. CHAPTER II. STATE REGULATION OF BANKING AFTER ORGANIZATION. § 2. State has power to regulate the business. The State has the power to regulate the business of banking conducted by all banks organized within the State, and of foreign banking corporations doing business within the State, but a State has no power to define the authority or regulate the business of a national bank. This power is vested in and exercised by Congress alone. But it is held in the case of Hoke V. People, 122 111. 511, that a State court has jurisdic- tion over a national bank clerk for forgery, notwithstanding he was punishable for the same act under the Revised Statutes of the United States, section 5209. A State may prescribe restrictions upon State banks which are incorporated under a general or special law, but cannot take away any power or privilege granted to them by a general law. The State may place a limitation upon the amount of in- debtedness which a bank may incur, providing that it shall not create an indebtedness in an amount to exceed its capital stock subscribed or paid up.^ The fact that debts so created does not render void notes and mortgages securing them.^ It may also prohibit the taking of or loaning money upon certain securities such as mining stocks, and may prescribe reasonable regulations as to the investment of its deposits.? It may also provide that a certain per cent, of its net earn- ings, after all expenses and losses are deducted for the current year, shall be placed as a reserve fund. And the law may provide how this fund may be turned into capital stock of the bank, thereby increasing and enlarging the capital. It may also limit the amount of indebtedness of any one person, firm, or corporation to the bank. 1 C. C. California, 309. 3 9 Cush. (Mass.) 604. 2 Underbill r. Santa Barbara, 93 Cal. 300. [8] cii. II.] Banking. 9 And may also prohibit certain persons, its officers, or direc- tors, from becoming indebted to the bank in any sum where they act in the capacity as trustees. It may also prohibit the depositing of public funds in a bank, and make such an act a penal offense against a bank for taking the same. It may also require that reports shall be published showing all dejiosits which are uncalled for and have been held for a certain period, and a failure to comply with such requirements may be made an offense punishable by fine and imprisonment.* The State may also provide that a public commissioner, or a board of bank commissioners shall be appointed, whose duties shall be to examine into the affairs of banks. They may be given full power and authority to take possession of banks^ where found insolvent. !Mational banks are regulated, as stated, by the law author- izing them, and Congress alone can place restrictions or limita- tions upon their business. It has been held that where Congress has made an act a crime and punishable, a State does not lose its right to punish the offending party also.^ The State may impose and levy a license tax upon incorpo- rated State banks and prohibit a bank from doing business unless such tax is paid. But such a license tax to be constitu- tional must apply to all corporations. The power of the State in regulating the business of all cor- porations is supreme, and it may place such restrictions and limitations upon each class as may be in the interest of the State and the public generally who may deal with the corpora- tion, but all such inhibitions and restrictions must be within the scope of legislative power. A State may prescribe the terms and conditions upon which a foreign bank or corporation can do business in the State by prescribing that it shall perform certain things before begin- ning business, and shall not be allowed to conduct business on any more favorable terms than a corporation incorporated in the State. 4Eacrle Ins. Co. r. Ohio, 1,5.3 U. Co., 82 N. Y. 172; Chicago Life S. 446; Chicago Life Ins. Co. i". Ins. Co. v. Auditor. 101 111. 82; Needles, 11.3 U. S. 574; Attornej- Ward r. Farwell, 97 III. 593. General v. North America Life Ins. 5 13 N. E. 823. 10 State Regulation of Bankixg. [ch. ii. When the Constitution or the statute of a State requires that a corporation shall have and maintain an office or place in the State for the transaction of its business, where transfers of stock shall be made, and in which shall be kept, for inspec- tion by every person having an interest therein, books in which shall be recorded the amount of capital stock subscribed and by whom, together with the names of the owners of stock, and the amount owned by them respectively, the amount of stock paid in, and by whom, the transfer of stock, the amount of its assets and liabilities, and the names and places of residence of its officers, mandamus proceedings will lie against the officer having custody of the books to enforce the right.*' The officers of a national bank cannot be compelled to exhibit the books of the bank to State officers for the purpose of furnishing a basis for a State taxation of the deposits, as against the depositors. But it is held that a State court has power to issue compulsory process against a national bank, com- pelling it to disclose the names of its depositors, and the amount of their deposits, in order to ascertain whether any money deposited therein, subject to taxation within the county^ has not been returned for that purpose by the owners.''' The proceedings in such a case cannot, where instituted by a State court, be stayed by a writ of injunction issued by a Federal court.^ Section 3177 of the Revised Statutes of the United States gives authority to any collector, deputy, or inspector of internal revenue, to enter in the daytime any building or place within his district where any articles or objects subject to such tax- ation are made, produced, or kept, so far as it may be necessary for the purpose of examining such objects or articles ; and any owner who refuses to admit such officer or suffer him to examine such article or object shall, for every such refusal, forfeit the sum of $500. Held: That under this provision paid bank checks, which were duly stamped at the time they were made, are not such articles or objects subject to taxation, and that the bank may lawd^ully refuse the collector to examine the checks.^ 6 Winter r. Baldwin, 89 Ala. 48.*?. 8 First Nat. Bank of Younjrstown 7 First Nat. Bank of Younfrstown r. Hughes et al., 6 Fed. Rep. 737. V. Hughes et al., 6 Fed. Rep. 737. f> Ignited States, plaintiff in error, r. Mann, 95 U. S. 580. CH. II.] Banking. 11 The statute may define who have the right to examine, or inspect certain books of the corporation, and where language is used that '' every person having an interest therein," etc., shall have such a privilege, it may be construed to be a depositor or creditor. The privilege is denied to such, however, unless the statute expressly provides that they may do so. Xo book, journal, or- document can be made the subject of examination by a depositor or creditor, unless the authority is expressly provided for in the statute or authorized by order of a court of competent jurisdiction. A creditor is one who has a la^vful claim against the bank. The claim may be one which the bank disputes and refuses to recognize ; and when disputed and invalid, the bank may refuse access to its books for the purpose of examination ; and where there is no penalty or measure of damages fixed by the law against the bank, for a refusal to allow depositors and creditors the right to inspect any such books of the corporation, the bank can be held for only the actual damage arising from such refusal. A violation of any national or State law can be inquired into only through an action brought by the Comp- troller of the Currency or the Attorney-General of the State. CHAPTER III. BANKING WITHOUT AUTHORITY. § 3. Unauthorized banking. The business of banking, or the privilege, being one which is -withheld or granted by the legislative power of a State, all persons being prohibited unless the privilege is first obtained, the act of banking when conducted without obtaining this right is termed unauthorized banking. A private banker, being one who conducts the business of banking ^^'ithout first securing such a right, where the law requires that such a privilege must be obtained from the power authorized to grant the same, is conducting an unla^^'ful busi- ness ; and is subject to punishment as in such cases made and provided. Advertising that deposits will be received and checks paid implies the business or act of banking. A corporation, organized to conduct a business of construct- ing and operating railroads, buying and selling real estate, dry goods^ and the like, if it conducts the business of receiving money on deposit for others, and repaying the same upon orders or checks, is conducting the business of banking unlaw- fully. The law of a State may permit the formation of a partner- ship, and authorize the partnership to conduct the business of buying and selling property, both personal and real, and (dis- count notes and other securities which is a part of the author- ized business of banks) such a business may not be unauthorized banking as construed by the law of said State. Where the partnership is formed, the receiving of money and holding the same for others and paying cheeks is an act of banking. Again, a Building and Loan Association which, in its general working and in its nature, is very similar to banking, may con- duct the business of trusts, holding money placed in trust with it, either by individuals, corporations, or courts; but it has no authority to conduct the business of banking where the act or law authorizing its creation does not grant it the power to do [12] CH. III.] Bankiistg. 13 any business other than that for which it is specifically incor- porated; and if it conducts the business of banking, receiving money on deposit, discounting notes, and securities, and loan- ing money to its customers on commercial paper, or otherwise, it is conducting an unlawful banking business. § 4. A de facto corporation. A de facto corj^oration is one acting as a corporation in good faith.^ A corporation de facto exists where a number of persons have organized and are acting in good faith as a corporation.^ A bank may act as a de facto corporation, and while acting as such in good faith without authority of law, its acts are lawful and cannot be inquired into excepting through the proper authorities of the State. All acts or business done by such corporation are not illegal, and its right to exercise corporate powers while performed in good faith, the bank claiming that it has the right to act, will be enforced as against all parties dealing with it. It is also held that one who borrows money from such a cor- poration cannot defeat a recovery by alleging that the com- pany is not a corporation.^ One who has contracted with such a corporation, and received the benefits of its performance, cannot defeat an action brought by the corporation by alleging its lack of power to contract or its want of legal existence.* A hank that acts as a corporation , and is not such, ivith the Ji'noirledf/c of the fact, hut induces another hi/ fraud to deal with it, that other is not estopped from denying the existence of the corporation. § 5. Ultra vires acts. An ultra vires act is the doing of a thing by the corporation which it has no power to do. It is also the doing of a thing which the charter or law says the corporation shall not do. A banking corporation may, in the first instance, believe that ii has the power ; and in the second, do a thing forbidden it by 1 Lakeside Ditch Co. r. Crane, 80 3 Grangers Business Asso. v. Cal. 181. Clark, 67 Cal. 6.34. 2 Martin v. Deitz, 102 Cal. 55, 41 4 Myer i: Bishop, 129 Cal. 204. Am. St. Rep. 151. 14 Banking Without Authority. [ch. hi. it.- charter or the hiw, knowing that it did not have tlie power. The hitter act is forbidden by Statute, and is illegah An illegal act cannot be enforced. It is doing, or attempt- ing to do, something the law says cannot be done. This act ehould not be called an ultra vires act. It is a violation of an expressed law. The court in Central Trans. Co. v. Pullman Palace Car Co., 139 U. S. 2-1, says: '' The view which the court has taken of the (juestion pre- sented by this branch of the case, and the only view which appears to us consistent with legal practice, is as follows: A contract of a corporation which is ultra vires, in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond the powers conferred upon it by the Legislature, is not voidable only, but wholly void, and of no legal effect. The objection to the con- tract is, not merely that the corporation ought not to have made it, but that it could not make it. The contract cannot be rati- fied by either party, because it could not have been authorized by either. Xo performance on either side can give the unlaw- ful contract any validity, or be the foundation of any right or action upon it. " When a corporation is acting within the general scope of the powers conferred upon it by the Legislature, the corj)ora- tion, as well as persons contracting Avith it, may be estopped to deny that it has complied with the legal formalities which are prerequisites to its existence, or to its action, because such requisites might in fact have been complied with. But when the contract is beyond the powers conferred upon it by existing laws, neither the corporation, nor the other party to the contract can be estopped, by assenting to it, or by acting upon it to show that it was prohibited by those laws. " The doctrine of the common law by which a tenant of real estate is estopped to deny his landlord's title has never been considered by this court as applicable to leases by realty cor- porations for their roads and franchises. It certainly has no bearing upon the question, wdiether this defendant may set up that the lease sued on, which is not of real estate, but of per- sonal property, and which includes, as inseparable from the other proper transfer, the inalienable franchise of the plaintiff. cii. III.] Banking. 15 is unlawful and void for want of legal capacity in the plaintiff to make it. "^ A contract ultra vires being unlawful and void, not because it is in itself immoral, but because the corporation, by the law of its creation, is incapable of making it, the courts, while refus- ing to maintain any action upon the unlawful contract, ha^'e always striven to do justice between the parties so far as could be done consistently "with adherence to law, by permitting prop- erty or money, parted with on the faith of the unlawful con- tract^ to be recovered back, or compensation to be made for it. In such case, however, the action is not maintained upon the unlawful contract, nor according to its terms; but on the implied contract of the defendant to return, or, failing to do that, to make compensation for, property or money which it has no right to retain.^ To maintain such an action is not to affirm, but to disaffirm, the unlawful contract." The courts hold^ that where a contract is not purely ultra vires, it may be enforced. For example, where, by a failure to enforce it, a legal wrong might be perpetrated. In the case of Whitney Arms Co. v. Barlow et al, 63 X. Y. 62, the court says: " The doctrine of ultra vires, wdiether invoked for or against a corporation, is not favorable in the law. It should never be applied where it will defeat the ends of justice." The court further says: " It is now very well settled that a corporation cannot avail itself of the defense of ultra vires when the contract has been in good faith fully performed by the other party, and the cor- poration has had the full benefit of the performance of the contract. If an action cannot be brought directly upon the agreement, either equity will grant relief or an action in some other form will prevail. The same rule holds e converso. If the other party has had the benefit of a contract fully per- formed by the corporation, he Avill not be heard to object that the contract and performance were not within the legitimate powers of the corporation." In the case of McCormick v. Market National Bank, 165 U. S. 538-540, the court says: " The doctrine of ultra \nres by which a contract made by a corporation beyond the scope of its corporate powers, is unlaw- 16 Banking Without Authority. [ch. hi. fill and void and will not support an action, rests, as this court has often recognized and affirmed, upon three distinct grounds: the obligation of anyone contracting with a corporation to take notice of the legal limits of its powers; the interest of the stock holders not to be subjected to risks which they have never undertaken; and above all, the interests of the public that the corporation shall not transcend the powers conferred upon it by law." ^ This question is further discussed in the case of California Bank v. Kennedy, 167 U. S. 362 ; the direct question at issue in this case being whether a national bank could take and hold the stock of another corporation. The court in discussing the question says: " In view of the fact that the defendant was a national bank deriving its powers from the statutes of the United States, the averment of a particular transaction of the one in question if entered into was without authority of law and cannot in reason be construed only to relate to the law controlling and governing the conduct of the corporation, that is, the law of the United States." In this case it was admitted at the trial that the stock of the Savings Bank was not taken as security, or anything of the kind, and it is not disputed in the argument at bar, that the transac- tion by which this stock was placed in the name of the bank, was one not in the course of the business of banking for which the bank was organized. The court says: " Whenever divergence of opinion might arise on this ques- tion from ^conflicting adjudications in some of the State courts, in this court it is settled in favor of the right of the corporation to plead its want of power. That is to say, to assert the annulity of an act which is an ultra vires act." In the ease of Central Transportation Company v. Pullman Palace Car Co., 139 U. S. 24, the court says: "A contract of a corporation which is ultra vires, in the proper sense, that is to say, outside the object of its creation as defined in the law of its organization, and therefore beyond 5 Concord First Nat. Bank i\ Hennessy v. City of St. Paul, 54 Hawkins. 1.57 Mass. .548: Presoott Minn. 219. Xat. Bank r. Butler, 98 U. S. 621; CH. III.] Baxkixg. it the powers conferred upon it by the Legislature, is not voidable only, but wholly void, and of no legal effect. The objection to the contract is, not merely that the corporation ought not to have made it, but that it could not make it. The contract can- not be ratified by either party, because it could not have been authorized by either. Xo performance on either side can give the unlawful contract any validity, or be the foundation of any right of action upon it." The rule is well established that where a contract is made by a corporation beyond the scope of its corporate powers, it is UDlaT\^ul and void. Unlawful banking, then, is the conducting of the business of banking by a person, or combination of persons, who have not obtained authority where the law requires that such authority must first be obtained. Unlawful banking may also be the conducting of the business of by a pretended corporation ; one which, at the time of enter- ing into transactions and contracts, well knew that it had no power or authority to act. Unlawful banking may also be acts performed by duly incor- porated corporations, which acts are either specifically denied the corporation by the charter, or forbidden by the law. 2 CHAPTER IV. BANKS CLASSIFIED AND DEFINED. § 6. Commercial and saviug^s banks. Banks are classified into two divisions, namely, Commercial and Savings Banks. Commercial banks may be divided into three classes, for example, a bank may be incorporated solely for the purpose of receiving money on deposit, retaining the deposit for the depositor and repaying the same back to him upon demand. The business of this kind of a bank is com- mercial in character, and is called a bank of deposit. Again, a bank may be incorporated to receive money on de- posit, and repay the same to the depositor upon demand, and also to discoimt notes, securities and the like for its customers, and others. The business of this bank is also commercial in its nature, and may be called a bank of deposit and discount. Again, a bank may be incorporated to receive money on de- posit, and repay the same to the depositor upon demand, and to issue notes and circulate the same as money, and to loan money, discount notes, securities and the like. The business of this kind of a bank is also commercial, and is called a bank of circulation, deposit, and discount. A commercial bank may therefore have any one or all of these elements and powers ; and when endowed with any one of them, it is termed a commercial bank. Banks are again divided into savings banks. Coming under this head there are only two classes ; one is called Mutual Savings, which is an institution incorporated without capital stock, and is purely mutual in its nature and its powers, con- ducting business only for its members, and wholly in their in- terest. While the other is a savings bank incorporated M^ith a capital stock, and is authorized to receive deposits and repay the same to depositors, loan money, and by special power granted by Statute in some of the States, is authorized to dis- count notes and issue certificates of deposit. This kind of a [18] CH. IV.] Banking. 19 bank, although denominated as a savings bank, is stripped of all the elements of such institutions. National banks are commercial in character. They are institutions authorized directly by the Government of the United States, and are empowered to conduct a banking busi- ness, and to issue, uunder direction of the Government, their notes, and circulate the same as money. Their powers are strictly commercial. § 7. General definition of banking. A banker as defined by a leading authority, " is one who conducts the business of banking, keeps an establishment for the deposit of money, bills of exchange, etc." This definition may be enlarged upon, but cannot well be improved. A definition which defines a banker to be one who conducts the business of banking is general in its application. The legitimate business of banking demands that a banker shall have a place of business ; while a broker, one who buys and sells securities, etc., may not have a place of business, but may, and frequently does, conduct the business of a banker, without ha\dng a place of business. § 8. When a broker becomes a banker. A broker becomes a banker subject to taxation, under the revenue law of the United States, when he, as an agent, re- ceives from another for sale or discount bonds, bullion, stocks, bills of exchange, or promissory notes, where he employs capital of his own, with that of another, provided he has a place of business where credits are opened for that purpose.^ The court, in the case of Warren v. Shook, says: " Having a place of business where deposits are received and paid out on checks, and where money is loaned upon security, is the substance of banking." The court also gives the follow- ing illustration: " Thus, if A. B. has $10,000, which he desires to invest, and purchases U. S. stocks, or State stocks, or any other security, he does not thereby become a broker.'' " It is only when making sales and purchases in his business, his trade, his profession, his means of getting a living, or of making 1 Warren r. Shook, 91 U. S. 704; Selden v Equitable Trust Co., 94 U. S. 419. 20 Baxks Classified and Defixed. [cit. iv. his fortune, that he becomes a broker, within the meaning of the Statute." The court, in the case of Sehlen v. Equitable Trust Co., says : " The Statute describes three classes of artificial and of natural persons, distinguished bv the nature of the business transacted bv them, and declares that individuals embraced in either of the classes shall be considered bankers. The first class is composed of those who have a place of business where credits are opened by the deposit or collection of money, or currency, subject to be paid or remitted upon draft, check or order. ' It is not claimed that the company engaged in that branch of business or that they are included in this first class. The agreed state of facts expressly repels any such claim. " The second class are those who have a place of business where money is advanced or loaned on stocks, bonds, bullion, bills of exchange or promissory notes. It is contended on be- half of the plaintiff in error that the company is included in this claSs because it advances or loans money on bonds. The case, however, states that all the loans the company makes are investments of its own capital in mortgage securities on real estate. It is true, the bonds of the borrowers are taken with the mortgages, but the bonds are mere evidence of the debt. The money is advanced or loaned on the security of the real estate mortgage, and not on the security of the bond. We think Congress, in the cause of the Act we are now considering, in- tended reference to transactions entirely different from loans or advances made on the personal promise or undertaking of the borrower. The words used are not technical. They are, therefore, to be understood in their common and popular sense, Dwarris, Stat. 573. And that in common understanding, an advance or loan of money on stocks, bonds, bullion, bills of exchange, or promissory notes, is an advance or loan where those species of property are pledged as collaterals, or are hy- pothecated to secure the return of the advance, or the payment of the sum lent, is unquestionably true. It can be nothing else where the money is advanced or lent on stocks or bullion; and, by the Statute, bonds, bills of exchange and promissory notes are placed in the same catalogue with stocks and bullion. cii. IV.] Banking. 21 All of them are like the subject on which the advance or loan is made. It is a fair presmnption, therefore, that Congress regarded an advance or loan on bonds as similar in its char- acter to an advance or loan on stocks, invohdng in each case an hypothecation of the subject on which the advance is made. If not so, if it was intended to embrace loans generally, there was no necessity for introducing .the qualifying words, ' on bonds, bills of exchange, or promissory notes.' " It was, however, not the lending, but the method or mode of operation, which was in view. If it was mere lending, Congress had in contemplation, it is difficult to conceive of a reason why mortgages of real estate were not included with stocks, bonds, bullion, etc. But it is a well kno^m common usage for banks to make advances or loans on the hypotheca- tion or pledge of such property, though not upon the hvpotheca- tion or mortgage of real estate. There was a reason, there- fore, for omitting real estate from the catalogue of things upon which the advances or loans contemplated might be made. Advances on them are not within the ordinary business of a banker. To us, therefore, it appears plain, that it is the busi- ness of advancing or lending in the mode usual with bankers, that is, on collaterals, or on the pledge of personal property, that, by the statute, is defined to be banking within the in- tention of Congress, and that lending upon mortgages of real estate is not intended. " The third class described by the statute comprises those who have a place of business where stocks, bonds, bullion, bills of exchange or promissory notes are received for discount or for sale. The language is not ' wdiere stocks, bonds, etc., are sold ' or ' are held for sale.' " Surely Congress did not intend that corporation or persons who have a place of business where they sell their stocks, bonds, bullion, bills or notes should be regarded as bankers. If they did, a vast proportion of the corporations and of the merchants and manufacturers of the country would be in- cluded. But the language of the statute is: ^ Where ' such property is ' received for discount or for sale.' The use of the word ' received ' is significant. In no proper sense can it be understood that one receives his own stocks and bonds, or bills or notes for discount or for sale. He receives the bonds, bills, 22 Banks Classified and Defined. [ck. iv. or notes belonging to him, as evidences of debt, though he may sell them afterwards. Xobody would understand that to be banking business. But when a corporation or natural per- son receives from another person, for discount, bills of ex- change or promissory notes belonging to that other, he is acting as a banker ; and when a customer brings bonds, bullion, or stocks for sale, and they are received for the purpose for which they are bought, that is, to be sold, the case is presented which we think was contemplated by the Statute. In common under- standing, he who receives goods for sale is one who receives them as an agent for the jDrincipal and is the owner. He is not one who buys and sells on his own account." Again, the Supreme Court, in the case of Richmond^ Plaintiff in Error v. Blake, Collector of Internal Revenue, 132 U. S. 592, lays down the law to be that: " Where a broker employs his own capital with the capital of others for the purpose of purchasing and selling stocks, bonds, bills of exchange, or promissory notes, he is a banker under the revenue law. But Avhere he negotiates the sale of such securities for others, receiving therefor only a commission, he does not become a banker within the meaning or construc- tion of sections 3407 and 3408 of the Revised Statutes of the United States." § 9. Broker and banker distinguished. The business of a broker is distinguished from that of a banker in this: A broker buys and sells stocks and securities for others on commission, while a banker buys and sells secu- rities by investing his own means, and the capital of others for a profit to the bank. It is not generally considered a part of the business of a bank, to conduct a brokerage business for others on commission. The ISTational Banking Law expressly prohibits this power to Xational banks, and declares it to be unlawful for a i^ational bank to take money, or the capital of others, and invest the same for them, either on a commission, or otherwise. It is the business of a National bank to make investments of its own funds, but not to invest for others. The Supreme Court of the United States, in the case of Warren v. Shook, 91 U. S. 704, very clearly distinguishes the business of a banker and broker. cir. IV.] Banking. 23 § 10. Bank further defined. The definition of a banker as given by Gilbert is, " a dealer in capital, or, more properly, a dealer in money. He is an intermediate party between the borrower and the lender." This definition applies more directly to a broker who acts in the intermediate capacity between the parties. He may, and usually does, act for both parties. A banker who receives money on deposit for the j^urpose of re-loaning the same is not an agent for the depositor. He is the agent of the bank. He acts only for the bank, and never consults the depositor as to the character of security or class of loans that the bank may invest in, or hold. The law may define the kind of investments or securities which the bank may take, but the depositor has nothing to say. § 11. Private banker defined. A private banker is one who conducts the business of bank- ing without incorporation, and without any special privilege or authority of law.^ A private banker may, when not prohibited by law, conduct the business of banking, and may make such lawful contracts with his dealers in relation thereto, as to receiving and the repayment of money, as may be mutually agreed uj)on between the parties. A private banker, then, is one who conducts the business of banking without incorporation, or a fixed capital stock in- vested; which is by law required of all duly incorporated banks, excepting mutual savings banks which, under the law as enacted bv some of the States, may become incorporations for the purpose of doing a savings bank business, without capital stock. § 12. Trust companies defined. A trust company may conduct the business of banking when not prohibited by law, without the use of the word " bank " incorporated in its charter. The name of a corporation, which may indicate its business, does not always express its powers or authority. A trust company formed and duly incorporated under an act of the Legislature providing for the incorporation 2 Perkins v. Smith, 116 N. Y. 441; People v. Doty, 80 N. Y. 225. 24 Banks Classified and Defined. [ch. iv. and administration of trusts and of trust funds only and which defines its powers to be the receiving and administering of trust funds, is not a bank, and its manager cannot be termed a banker. This subject is enlarged upon, and further discussed under a subsequent chapter treating upon trust companies. See sec- tion 47. § 13. Clearing house defined. A clearing house is a voluntary association of banks for the purpose of making exchanges of notes, checks, bills^ and moneys and settlements between the banks, all of whom must belong to the association. In the case of O'Brien v. Grant, 146 X. Y. 163, 166, the business of the clearing house is defined to be " the effecting, at one place, of the daily exchanges between the several asso- ciated banks, and the payment at the same place of balances resulting from such exchanges." A clearing house is not a bank used for the purpose of receiving moneys or other securities on deposit. Xeither does it do a discount business. Therefore, it is not a bank. It may be an incorporated body composed of banks where such banks may become stockholders, but is usually an association of bankers for the purpose of making exchanges. A clearing- house is not subject to taxation under the revenue laws. Neither is it subject to examination by Xational or State examiners. The powers and limitations of a clearing-house are treated at length in a subsequent chapter on clearing-houses. See section 46. § 14. Commercial bank further defined. The definition of a banker conducting a commercial bank- ing business is properly defined to be, " one who conducts the business of banking, Avho has a place or keeps a place or room for receiving money on deposit, and repaying the same out again to his depositors." He may buy and sell (when not pro- hibited by special acts of law) stocks, bonds, bills, promissory notes, checks, evidences of indebtedness, bullion, and bills of exchange for the accommodation of his customers, and for cii. IV.] Banking. 25 profit to the bank. He may invest his oAvn, and the money of liis customers, in any way not prohibited by law. He has, how- ever, no authority to issue notes of the bank to be used, cir- culated, or passed as money, unless the law, by constitutional and legislative enactment, expressly authorizes the privilege. He may act as an agent for his customers and depositors in the transaction of any and all classes of business, when not specifi- cally i^rohibited by law from so doing. It will be seen, there- fore, that the business of a commercial banker, or, in other words, the definition of a banker of this class, may be extended to any length. § 15. Mutual savings bank defined. A mutual savings bank, as its name implies, is mutual in character and principle. It is an institution authorized by law, either by special enactment of the Legislature (where permitted by the Constitution) or under the general laws of the State. It is not endowed with any of the commercial powers of a bank ; and while called a bank, its business comes more strictly mthin the duties and powers of a trust or trustee. It receives the money of its members, and loans the same only for their benefit. The general definition of a bank does not apply to a mutual savings corporation. A mutual savings bank, if it may be called a bank, is a place where money is received, invested for, and paid out to, its members. The ofiicers of such an institution act strictly in the capacity of trustees. It cer- tainly does not come within the definition which defines a banker to be " a money changer " or " one who traffics in money, bills of exchange, etc." § 16. Capitalized savings banks defined. There is considerable difference between a capitalized sav- ings bank and a mutual savings bank. The one is incorporated with a capital stock, while the other has no capital stock. In the one, the principal object is to engage the capital for profit to the stockholder. In a capitalized savings bank, the depos- itor has no mutual interest with the stockholder. This kind of an institution has but few, if any, of the elements of a mutual savings bank. A corporation formed with a capital stock to conduct a banking business, may designate itself as a savings bank; and 26 Banks Classified axd Defined. [ch. iv. it may be declared to be such by the law and the courts. But the fact that it has a capital stock, and that its business is principally, if not wholly, to earn diyidends for its stockholders and the owners of said capital stock, its business and all of its acts demonstrate that it is commercial in its nature, lacking all the elements of a mutual sayings bank. § 17. National banks further defined. A national bank, as has been stated, is an incorporated insti- tution organized under the law enacted by the Congress of the United States, authorizing certain j)ersons to carry on the business of banking. The general definition, that a banker is " one who conducts the business of banking,'' applies to a national bank; but the powers granted in the conduct of a national bank, by reason, of certain limitations placed upon it and specifically enacted in the law which prohibits certain privileges allowed to State banks, confine the business of banking under the national system strictly to the law enacted for their government and management. The powers and limitations governing a national bank are very clearly defined by the xS^ational Bank Act; and the agents and managers of a national bank are held closely to the enforce- ment of the law governing them. While a national bank is clearly commercial in its character, business, and powers, it is yet, nevertheless, estopped from con- ducting certain kinds of commercial transactions which are deemed dangerous for such institutions. For example, the statute fixing the powers of national banks specifically pro- hibits a national bank from holding real estate as security for a debt, unless such debt has been previously contracted in good faith. A national bank is also prohibited from negotiating loans for its o^^^l customers; and by implied limitation cannot buy and sell stocks, or realty bonds on commission. All of these privileges are commercial transactions, which may be carried on by commercial State banks without restriction, and unless a special statute intervenes. It will be seen, therefore, tliat a national bank, which is endowed with commercial powers, is restrained by law from CH. IV.] Baxkixg. 27 doing certain things which are purely commercial in their nature, and which may be done by commercial State banks. § 18. Enlarg^ed and specific definition under State authority. A bank, when incorporated under the general laws of the State, is, as stated, a private corporation; organized and to be operated for profit to its stockholders. It is subject, in its privileges and powers as to issuing and circulating its notes as money, to the laws of the United States, as enacted by Con- gress, and the laws of the State in which it conducts its busi- ness. A bank may be one of deposit where persons may sim- ply deposit their money for safe-keeping, and one where the funds may be kept separate, or all be intermingled, and paid out upon demand by the depositor. A bank may be one of discount, where persons may place their notes for sale and discount, the profit going to the banker. The Supreme Court of the United States has decided that '' the discounting of notes by a person, or corporation, for profit, where the customer's funds are used, is conducting the business of banking." Commercial banks more dearly defined. A bank, in a commercial sense, has authority, under State law, to receive deposits, make discounts, and circulate its own notes as money, where no inhibition is enacted by the Con- stitution or law of the State. Such institutions are clothed with power to transact a commercial banking business. The issuing of notes and circulating the same as money is not, however, a necessary element in the full and complete exercise of commercial banking. A bank incorporated under State authority to conduct a commercial banking business has power to carry into execution and exercise all commercial transactions necessary in the conduct of its business. It has power to re- ceive money on deposit from persons, municipalities and cor- porations (where not especially prohibited by State legislation), and repay the same to its depositors upon such terms, and at such times, as may be laT\^ully agreed upon. It has the right to receive general and special deposits. It has the right to discount notes; to make loans on personal and real estate security, under regulation of law; to discount foreign and domestic bills of exchange; and to transact any and all other business coming under the commercial class, and authorized 28 Banks Classified axd Defined. [cii. iv. by law. Its business is called. commercial, as it is the medium through "which the exchange of merchandise is transacted. It acts as the beneficiary for the commerce of the world. It holds intercourse "with all business transactions, either directly or in- directly, and becomes, and is, indispensable in the transactions of business. It holds a confidential relationship with all custom- ers dealing with it ; and the bank has the right to protect this relationship against all persons, and cannot be compelled to dis- close this right, except by order of a court of competent juris- diction. Commercial banks are the active agents of all parties who mav do business with them, and as such their interests are mutual, and in the conduct of the business they are governed by law, and are therefore possessed with all la^^'ful, expressed, implied, and incidental powers necessary to carry into execution their business and purposes. § 19. Mutual and capitalized savings banks more clearly dis- tinguished. A savings bank may be mutual, or an institution organized with capital stock. Mutual sa'S'ings banks originally were or- ganized as eleemosynary institutions in character, while mutual in principle ; their purpose being to stimulate and fix the habit of saving with the poor. They were fiduciary agents, acting for those with limited means, which could not be easily invested'; but when an accumulation of a sufficient fund was obtained, loans could be made and all depositors became in- terested in the profits. They are mutual in principle, as all the loans are made in the interest of the members or depositors, from whom the money is obtained. In case of loss, the bank having no capital stock, which may be assessed to cover the same, or other prop- erty out of which it may be paid, the loss can be apportioned pi'O rata among the members. It having no capital stock, its management must be con- ducted wholly in the interest of the members. It is merely an incorporated institution, organized for the purpose of re- ceixdng money of its customers or members on deposit, and investing the same for them, and repaying the same upon such terms and agreements as may be lawfully entered into between CH. IV.] • Ba^^ivIxg. 29 themselves. Xo profits can be made upon the funds except they enure to the benefit of the members. After the neces- sary expenses are paid for its management, as stated, all the profits, at fixed periods, belong to the members, and must be ratably divided between them. The distinction betv\^een a mutual savings banlc, namely, one without capital stock, and a savings bank incorporated with capital stock, is, that in the one the members receive all the profits, less the actual expense required in managing the same, and are liable for all the losses pro rata among the members ; while in the other, the depositors receive a stipulated divi- dend (that the directors may agree with the depositors as to interests or dividends, is fully conceded), and are relieved from any liability which the stockholder may be required to pay; the stockholder's liability being fixed by the law of the State wherein the bank is located. Savings banks, with or without capital stock, are organized institutions for the purpose of receiving money on deposit from their members, on such terms as may be mutuaUy agreed upon. In a savings bank purely mutual, and without capital stock, the conditions upon which money may be received and repaid to its members, are entirely in their personal control. In a savings bank organized with capital stock, the mutual principle is entirely eliminated, and money can be received and repaid to the depositor upon such terms as may be agreed upon be- tween each customer and the coi-poration, acting through its directors. Savings banks, organized with capital stock, are institutions having a fixed liability against the stock in case of loss, or in- solvency of the bank. In some respects, they are incidentally possessed with commercial qualities and power ; but are usually limited by law to a class of investments, which are allowed or prohibited by legislative enactments of the State where they are located. The Legislature, or statutory laws directing what securities may be taken (and in some cases fixing the sum or limit that can be loaned upon lands and other securities), operates as a guardian of the depositor, throwing around such institution such protection and safeguards as are deemed to be wise, the laws becoming a financial shield to those transact- ing business with the bank. CHAPTER V. THE ORGANIZATION OF BANKS AND PROOF OF CORPORATE EXISTENCE. § 20. Preliminary steps — organization of national banks. Section 5133, Revised Statutes of the United States provides as follows: ''Associations for carrying on the business of banking under this title mav be formed by any number of natural persons, not less in any case than five. They shall enter into articles of association, which shall specify in general terms the object for which the association is formed, and may contain any other provisions, not inconsistent with law, which the association may see fit to adopt for the regulation of its business and the conduct of its affairs. These articles shall be signed by the persons uniting to form the association, and a copy of them shall be forwarded to the Comptroller of the Currency, to be filed and preserved in his office." The foregoing section provides for the formation and or- ganization of a national bank. The language of the statute is, that a national bank can be formed '' by any number of natural persons, not less in any case than five." § 21. Who are natural persons. Human beings, without distinction as to race or color, male or female, are natural persons. Corporations, joint-stock com- panies, firms, or associations are prohibited from the very nature of their creation and powers in forming or becoming a principal in the formation or organization of national banks. While the stock of a bank can, after its formation, be legally held or acquired by a corporation, it cannot acquire the same as a subscriber in the primary proceedings of organization. § 22. Who can form a bank. Any person who can legally enter into a binding and lawful contract, which cannot subsequently be repudiated by him, can be an incorporator of a bank. Infants, persons under age, may [30] CH. v.] Banking. 31 enter into contracts; bnt having the power to repudiate the same upon arriving at the age of maturity, should not be per- mitted to become incorporators of a bank, § 23. Married women as incorporators. There is nothing in the statute prohibiting, in direct lan- guage, a married woman from becoming an incorporator of a national bank. The law of the State in which she resides, and where the bank is to be put in operation, may place some in- hibition upon her rights, and operate as an estoppel; but if the law of the State in which she resides authorizes her to make contracts, and places her in a position to bind herself to all liabilities and obligations of a stockholder, she is clothed with full power to become an incoiporator ; but inasmuch as the laws of the several States differ as to the rights of a mar- ried woman in regard to her separate estate and property, and as to the effect of covenants and agreements made by her as well as to the form of acknowledgment of instruments exe- cuted by her, all organization papers, required in the forma- tion of a bank, bearing her signature, must be accompanied by a copy of the law of the State, which certifies that she has the power to be a party to the organization. It has never been contended that women are not " natural persons," but it is interesting to know that the question has frequently been before the courts. The Supreme Court of the State of Massachusetts, in the opinion of the justices of the Governor and Council, where the statute authorized the Government to appoint nine persons, etc., as a board of health, had occasion to express its opinion that the word " persons " in its natural and usual signification, included women as well as men.^ Where also the word " person " was used in a legislative act, " natural persons " will be intended.^ The articles of association, organization certificate, and cer- tificate of ofiicers and directors must be executed in duplicate, one copy of each being filed in the office of the Comptroller of the Currency, and the other retained by the bank. The organization certificate must be acknowledged before a judge of a court of record, or before a notary public having a seal. iMass. Rep. 136, p. 58. 2 Blair v. Worley, 2 111. 177. 32 The Okgaxizatiox of Baxks, Etc. [cii. v. After the execution of the organization certificate, where the directors are not designated in the articles of association, the shareholders should proceed to elect directors as provided in section 5145, Revised Statutes of United States. After elec- tion, each director is required to take the oath of office, which form of oath will be furnished on application to the Comp- troller of the Currency. (For form, see Appendix.) A person, to be elegible as a director, must be a citizen of the United States, and own in his own right at least ten shares of the capital stock of the bank, such stock not to be hypothecated, or in any way pledged as security for a loan or debt. Three-fourths of the directors must have resided in the State, territory, or district in which the association is located, for a year or more immediately preceding. their election, and must be residents therein during their continuance in office. All the preliminary steps having been taken by the board of directors, and the officers of the association having been chosen, and by-laws duly adopted according to law, and the certificate of authority issued by the Comptroller of the Cur- rency, authorizing the bank to begin business, the certificate having been published according to the requirements of law, and forwarded to the Comptroller, the organization becomes a banking corporation from the date of the issuing of said certificate. Organization of State hauls. The Constitutions of the A-arious States, and the statutory laws enacted therein, control the right of banking within the State. A State banking corporation, unless special provisions are made providing how it shall be incorporated, can be incor- porated only under the general incorporation laws of the State authorizing the formation of corporations. Articles of incorporation are prepared setting out the name of the corporation, the purpose for which it is formed, the place where its principal business is to be transacted, the term for which it is to exist, the number of directors which the corporation shall have, the amount of the capital stock, and the amount actually subscribed, and by whom. These pro- visions mav varv in the different States. CH. v.] Baxkixg. 33 The bank must have a name; and if the name selected in- fringes upon the right of a bank previously incorporated, the Secretary of State should refuse to grant or issue the articles. It is well settled that where a corporation attempts to obtain or use a name which has been granted to another, and under which a large business has been built up, the courts are fre- quently called upon to prevent one corporation from using the name of another, and in some of the States the statute especially forbids a corporation from using the name or a similar name of a friendly corporation. Where the statute of a State permits a corporation to have more than one place in the State where it may conduct busi- ness, a State bank may establish branches therein. It is held by the Supreme Court of the State of Michigan that a bank located in one county, and having its principal place of business fixed by its charter, violates the same by es- tablishing an agency in another county, where it receives de- posits, sells exchange, and conducts a general banking business. § 24. Term of existence. The law provides that the articles of incorporation shall fix the term or life of the corporation. The time must be fixed, and a charter cannot be obtained for a longer term than that fixed by the law. It must also, when incorporated, and where required by the statute, show the amount of capital stock actually paid in. The statute regulating national banks provides when and how" the capital shall be paid.^ § 25. Purpose of corporation. The articles must also set out the purpose of the corpora- tion. This is obvious, especially where the Constitution of the State prohibits a corporation from performing any busi- ness other than that for which it is incorporated. For ex- ample, a bank incorporated to conduct a general commercial banking business should not be permitted under a commercial charter to conduct a savings bank business, a dry goods busi- ness, or a real estate business. This question is more fully discussed under a subsequent chapter upon the powers of banks. 3§ 5140 R. S. U. S. 3 3-i The Obga^izatiox of Bax'ks, Etc. [cii. v. § 26. Location. It niu;«t also have a place wliere its principal business is to be transacted. The Xational Banking Act, section 5190, Re- vised Statutes, United States, provides that the usual busi- ness of the bank shall be transacted at an office or banking house located in the place specified in its organization cer- tificate. The question as to whether a national bank can have a branch office in the same tO"s\Ti is discussed (see organiza- tion of branch banks).* § 27. Capital required. The statute of each State must be complied Avitli as to the amount of the capital required to be paid wj), and whether it shall be paid in money or otherwise. In Pacific Trust Co. v. Dorsey, 72 Cal. 55, the court holds that a promissory note given cannot be received as cash or as capital paid up. The court says: " The defendant's note Avas actually received by the cor- poration, and was a thing in action or e'vidence of debt. The first section of the act concerning corporations, and persons engaged in the business of banking 'required every corporation, and all persons doing a banking business in this State, in Janu- ary and July of every year, to publish and file for record a sworn statement of the amount of capital actually paid into such corporation, or into said banking business; provided that nothing shall be deemed capital actually paid in, except money bona fide paid into the Treasury of such bank; and under no circumstance shall the promissory note, check or other obliga- tion of any director or stockholder, or of the propnetors or proprietor of any such bank, be treated, computed, or in any manner considered any part of such actually paid-in capital.' " Under this statute defendant's note could not be adver- tised to the world, or treated as a part of the paid-up capi- tal of the bank." § 28. Requirements of law essential. The process of creating a corporation being an artificial one, all the requirements contained in the general law are held to be essential.^. •4 Mershants' Nat. Bank i. Stale strong r. Second Nat. Bank of Nat. Bank. 10 Wall. 604, Burton v. Sprinofiehl, .38 Fed. Rep. 88.3. Burlej', 9 Biss. U. S. 253; Arm- 5 Doyle v. Mizner, 42 Mich. 0S2. CH. v.] BANKI]SfG. 35 In the case of Martin v. Deetz, 102 Cal. 55, the court says: " As to the necessity of filing the articles with the proper county clerk, the law as deduced from the authorities cited is thus stated in Morawetz on Corporations, section 27: 'A sub- stantial compliance with all the terms of a general corporation law is a pre-requisite of the right of forming a corporation imder it. Thus, where it is provided that a certificate or articles of association, setting forth the purposes of the cor- poration about to be formed, the amount of its capital and other details, shall he filed vitli some public o-fficer, and per- formance of this requirement is essential; and until it has been performed the association will have no right whatever to assume corporate franchises.' And again, the same author says: 'In order to prove the existence of a corporation de jure, i. e., a corporation having a legal right to exist, it is necessary to prove not only the existence of a corporation de facto, but also the legislative authorization of its existence. A public law authorizing the formation of a corporation will be judicially recognized without proof; but proof would be necessary to establish that the corporation was formed pur- suant to the law, and that any conditions precedent to the legal right of forming the corporation have been fulfilled.' " It is held in the ease of Mokelumne Hill ]\Iin. Co. v. "Wood- bury, 73 Am. Dec. 658, that the filing of a certified copy of articles of incorporation with the Secretary of State is not necessary in order to acquire a corporate existence for cer- tain purposes. When the articles are filed with the County Clerk, as far as indi\aduals are concerned, the corporation ac- quires a valid legal existence. The filing of a certified copy \\\X\\ the Secretary of State is exclusively a matter between the corporation and the State, for which the latter alone has a remedy by direct proceeding. ^ 29. Org^anization, when complete. The organization of a bank becomes complete when the laws have been complied with ; and when the certificate of authority has been issued by the proper authority, it is held by the Supreme Court of the United States, in the case of Casey v. Galli, 94 U. S. 673, that the plea of nultiel corpora- tion cannot be interposed as against said certificate, the court says: 36 The Okganizatiox of Banks, Etc. [cir. v. " The plea of nultiel corporation cannot be interposed as against a certificate of the Comptroller of the Currency which has been issued to the bank by him. The Comptroller was clothed "\\'ith jurisdiction to decide as to the completeness of the organization, and his certificate is conclusive upon the subject for all purposes of this litigation. " It has the same effect, and for the same reason, as his de- termination and order with respect to the amount to be col- lected from each stockholder in the event of the failure of the association. Ko question can be raised in this collateral wav as to either. "In Thatcher v. Bank, 19 Mich. 196, it was held that whether there was any defect in the process of organization was a question for the Comptroller to decide, and that ' His certificate of compliance with the Act of Congress removes any objection which might othenvise have been made to the evidence upon which he acted.' In this we concur." ''Corporate Existence: A grant or charter may be pre- sumed from long-continued exercise of corporate powers; but to give rights to this presumption, the acts done must bear the impress of corporate acts; must be such as corporations are competent, and individuals incompetent, to perform. Green V. Dennis, 16 Am. Dec. 58: and a charter will be presumed to exist from long exercise of corporate rights, or from other circumstances; Selma & T. R. R. Co. v. Tipton, 39 Ind. 341. AVhere a corporation has gone into operation and rights have been acquired under it, every presumption should be made in favor of the legality of its existence: Hagersto^^^l T. R. Co. V. Creeger, 9 Id. 551. But it is sufficiently organized to bind subscription to the capital stock when the parties men- tioned in the charter have, in pursuance of its terms, by written articles of association organized themselves, and opened books of subscription. The principal case is cited in Harris v. McGregor, 29 Cal. 125, to the point that there must be a substantial compliance with all the requirements of the statute by persons seeking to become a body corporate, but the coi*poration can be con- sidered in esse. Consequently, a certificate of incorporation which does not set forth the name of the city or town or county in which the principal place of business of the corpora- CH. v.] Banking. 37 tion is to be located does not establish the existence of a tcrporation. It is also cited in Spring Valley W. W. v. S. F., 22 Cal. 434, to the point that the failnre to file a duplicate of the articles of association with the Secretary of State, is not a fatal defect." ^ Tlie process of organization being complete and the by- laws for the corporation adopted as required by law, the bank becomes a lawful institution denominated a private cor- poration, and can begin business. In the beginning of busi- ness its very first act may be contested, and the question of its due incorporation and power to act be brought to issue, and in such event proof of corporate existence is required. § 30. Organization of branch banks. Under national authority, a national banking institution has no authority to establish a branch banking institution, ex- cept by special provision or authority from Congress. This authority was granted at Chicago, Illinois, during the World's Columbian Exposition to any national bank located in the city of Chicago, which might be designated by the World's Columbian Exposition. The branch bank was restricted by the act to have only such rights as the bank to which it be- longed, and limited to conduct such business for a period of two years. The question of privilege in the establishment of a branch bank seems to be settled that a national bank has no right to establish branch banks A\'ithout special legislative authority. The ruling is upon the principle, no doubt, that the bank must have a location or place where all its business is to be trans- acted, and branches, especially if established ouside of the city or town, and at a place other than the location of the mother bank, would lead to conflict as to where notes should be protested, and payments to be made. But where State banks, which at the time of the conversion into a national bank have branches established, under section 5155 Revised Statutes, United States, may maintain such branches. But where such 1>ranches are maintained " the amount of the circulation re- deemable at the mother bank and each branch (is) to be c Mokelumne Hill Mining Co. v. Woodbury, 73 Am. Dec. 658. 38 The Organization of Banks, Etc. [cir. v. regulated bv the amount of the capital assigned to and used bv each." In the case of Merchants' Xational Bank v. State Xational Bank, 10 Wall, 60-1, it is held that the provisions requiring " the usual business " of the association to be transacted " at an office or banking house in the place specified in its organi- zation certificate " must be construed reasonably, and a part of ilie legitimate business of the association which cannot be transacted at the banking house, may be done elsewhere.'^ The Comptroller of the Currency in his report of 1902, upon the question or right of a national bank to maintain a branch or agencies principally for the reception of deposits elsewhere than at its banking house in the same or adjacent locality, says: " The only provision of law relating to branch banks, is the National Bank Act, is found in section 5155, United States Revised Statutes, and reads as follows: It shall be lawful for any bank or banking association, or- ganized under State laws and having branches, the capital being joint and assigned to and used by the mother bank and branches in definite proportions, to become a national banking association in conformity with existing laws, and to retain and keep in operation its branches, or such one or more of them as it may elect to retain. * * * The granting of this special privilege to State banks and the absence of any similar provision in the law with respect to banks of primary organization have always been construed by the Comptroller to imply that banks of the latter class were not permitted to have branches. The section cited absolutely restricts branch banks of converted associations to such as have a definite proportion of the capital of the parent bank assigned to them, and it is not to be assumed that the law con- templated that associations of primary organization should be permitted to assign any portion of their capital to and operate branches. This fact is further to be inferred from section 5138, United States Revised Statutes, which prohibits the formation of asso- " Burton r. Burley, 9 Biss. 883; Bowman v. Cecil Bank, 3 (U. S.) 253; Annstronj? r. Second Grant Cas. 33. Nat. Bank of Springfield, 38 Fed. CH. v.] Bai^kixg. 39 ciatious with less capital than $200,000 in cities of population exceeding 50,000, and contains similar provision with respect to banks organized in places with less population than 50,000. To permit the establishment of branch banks would not only render possible an evasion of the provisions of section 5138, but tend to discourage the organization of banking associations which, in the absence of such branches, might be formed. Section 513-i pro\ddes in part that the organization certificate of a national bank shall show " the place where its operations of discount and deposit are to be carried on," and section 5190 that "the usual business of each national banking association shall be transacted at an office or banking house (not at offices or banking houses) located in the place (not places) specified in its organization certificate." The words " place " and " at an office or banking house " have always been construed by the Comptroller to mean the legal domicile of the corporation, of which it can have but one ; and this construction is sustained by the Solicitor of the Treas- ury in an opinion rendered August 10, 1899, on the question of the right of a national bank to establish and maintain an auxiliary cash room at some point distant from its banking house, for the purpose of receiving deposits and paying checks. The Solicitor says: This section (5190, U. S. Rev. Stat.) contemplates that the usual business of a national banking association shall be trans- acted at one office and banking house, and as receiving deposits and 23aying checks belonging to the " usual business " of a bank, I am of the opinion that the statute does not authorize the establishment of an auxiliary cash room in a different part of the city for the purpose proposed. Besides, it may be observed that if a national banking association can lawfully establish and maintain a separate office for recei^ang deposits and pay- ing checks, it could as well establish as many of such auxiliary cash rooms in the city of its corporate residence as its business might require; and, indeed, the entire business of the bank may be parceled out and conducted in the same way all over the city. The Supreme Court of the United States, in the case of Armstrong v. Second National Bank, 38 Fed. Rep. 886, in- volving, among other things, the question of the right of a 40 The Organization of Banks, Etc. [gh. v. national bank to cash a check elsewhere than at its banking house, held that: Under this section (5190) it certainly would not be com- petent for a national bank to provide for the cashing of checks upon it at any other place than at its office or banking house. If, therefore, it is unlawful for a national bank to cash a check elsewhere than at its banking house, it is likewise un- laAvful for it to discount notes or to receive deposits elsewhere, for one is as much a part of the " usual business " of a bank as the other. While it is obviously impossible for a bank to transact its entire business within the four walls of any single building, it is not held that the law contemplates that the '' entire business," as distinguished from its " usual business," shall be transacted iu its banking house. In the case of The Merchants' National Bank v. The State National Bank, 10 "Wall. 604, it was held in this connection that: The provision requiring the " usual business " of the asso- ciation to be transacted " at an office or banking house specified iu its organization certificate " must be construed reasonably, and a part of the legitimate business of the association which cannot be transacted at the banking house may be done elsewhere. The question involved in this case was the right of the bank's officers to purchase gold elsewhere than at its banking house, and the court held that: The gold must necessarily have been bought, if at all, at the buying or selling bank, or at some third locality. The power to pay was vital to the power to buy, and inseparable from it. The " legitimate business " of a bank, therefore, which a reasonable construction of the law would permit to be done elsewhere than at its banking house would seem to be restricted to transactions similar in character to that involved in the decision quoted, and not the ordinary and usual business of receiving deposits and cashing checks. The argument has been advanced that clearance house asso- ciations are equivalent to branch banks, and the recognition by the National Bank Act of the one affords warrant for the CH. v.] Banking. 41 establishment of the other ; but such argument has no apparent force, as the two institutions are entirely dissimilar in char- acter and purpose. The principal object of the former is tO' facilitate exchange and to adjust balances between banks, while that of the latter is to transact the usual business of a bank with its customers. While .he National Bank Act does not in express terms pro- hibit the establishment and maintenance of branch banks or agencies by associations of primary organizations, the implica- tion to that effect is clear, and the courts have held that what is implied is as effective as that which is expressed. That the act does not contemplate the operation of branch banks by national banks of primary organization is evidenced by the fact that in 1892 a special act was approved authorizing the operation of a branch by a Chicago national bank on the World's Fair Grounds. In 1901 similar legislation was en- acted by Congress in connection with the Louisiana Purchase Exposition, to be held in 1901. The States authorizing branch banks or agencies, and the regulations and provisions of law^ as compiled by the Comp- troller of the Currency, are as follows: Alabama. — Section 1089 of the Code of Alabama (1896), relating to the corporate powers of banks of discount and deposit organized in the State, provides in part that they (banks) *' may fix and locate offices, agents, and agencies at places in the State other than the principal place of business." Arizona. — Branches and agencies appear to be authorized by section 140, title 1, chapter 7, of Revised Statutes, and also appear as one of the corporate powers. Foreign corporations must file certified copy of articles of association wilh the secre- tary of the State or Territory and county recorder of the county in which the principal office is located. The agent must be a bona fide resident of the county. Branches: The Bank of Arizona (Prescott), at Jerome; the Arizona Central Bank (Flagstaff)^ at Williams and Kingman; the Bank of Bisbee, at Naco; the Gila Valley Bank and Trust Company (Solomon- ville), at Morenci and Clifton. Arkansas. — Governor states that " we have no banking law^s in this State other than general banking laws, which have been 42 The Oegaxizatiox of JiA>"Ks, Etc. [en. v. established by custom and the law merchant." Operation of branches discretionary with board of directors. California. — Under special law, but covered by general agency law. The right of a bank to establish agencies has never been passed upon by the State Supreme Court. It is stated that, '* The law may permit agencies to be established within the county by the parent bank, but it certainly has no authority to conduct a general banking business." Foreign banking corporations have the right to establish agencies under the law, but have not greater corporate privileges than accorded State banks. Branches of foreign banks in operation in San Francisco: Anglo-California Bank, Comptoir JSTational D'Es- compte de Paris, London, Paris, and iimerican Bank, Limited; Agency, Bank of British ]^orth America, Canadian Bank of Commerce, Wells, Fargo and Company's Bank, Liternational Banking Corporation. Colorado. — Xo law authorizing the establishment of branches or agencies. Connecticut. — The law forbids the organization of any branch or agency, or the employing of any agent or person to make loans at any other place than the banking house. Delaware. — Banking privileges are not granted under General Corporation Law, nor are foreign corporations allowed to do banking business in the State. Banking powers in the State are only secured by special act of the Legislature, in consequence of Avhich each State banking institution is gov- erned by the special creative act. The Farmers' Bank of the State of Delaware has branches at AYilmington, Dover, and Georgetown. The Sussex Trust and Safe Deposit Company is operating branches at Lewes, Georgetown, and Milton. District of Columbia. — The organization of banking insti- tutions is confined to national banks and to loan and trust companies, under the act of October 1, 1890. Branches of national banks and trust companies are not authorized. There are a number of private banks, banking firms, and branches of savings banks doing business in the District wdihout license tax to the District government. Florida. — Banks are permitted to conduct branch offices. Georgia. — Branches or agencies are not authorized, except in the charters of three banks. The banks referred to are as cir. v.] Banking. 43 follows (location of branches not given): Bank of South- western Georgia at Americus, Farmers and Merchants' Bank of Senoia, and Oglethorpe Savings and Trust Company of Savannah, Idaho. — There is no law of the State in force in regard to banks or banking institutions operating branches or agencies. Illinois. — Branches are not authorized bv law. Indiana. — The law does not permit the operation of branches. Indian Territory, — Section 8 of the act of Congress, ap- proved February 18, 1901, provides in part that any bank or trust company now or hereafter organized under the laws of Arkansas or any other State may transact such business in the Indian Territory as is authorized by its charter and is not inconsistent with the laws in force in the Indian Territory. Iowa, — Xeither State nor savings banks organized and transacting business under the present laws of the State are authorized to establish and maintain branches, either in the town or city where the banks are located or elsewhere. The law is construed as placing loan and trust companies, so far as their right to establish branches is concerned, upon the same footing as State and savings banks. Kansas. — Xeither branches nor agencies provided for by law. Kentucky. — An examination of the corporation la^^^^ of the State indicates that there is no law authorizing the establish- ment of branch banks. The law is not construed as prohibitive. Banks operate branches, no specific information being sub- mitted, however. Louisiana. — Article 179, Act 1902, allows, on the approval of two-thirds of the stock, the establishment of two branches, which must be in the same parish as the parent bank. Maine. — There is no general provision of law authorizing State banks to establish branches. Trust companies created by special acts of the Legislature have authority in their char- ters to establish branches, but the Legislature of 1901 passed a general act which provides that no trust company shall es- tablish a branch or agency until the same be authorized by a special act. This later legislation does not apply to trust com- panies already established and operating branches. The State •i-i The Organization of Banks, Etc. [ch. v. Banking Department exercises supervising power over branches in conjunction with the coi'poration. Trust companies having branches: Augusta Trust Company, at Winthrop ; Waten'ille Trust Company, at Corinna, Dexter, Harthmd, and Xe^vport ; Eastern Trust and Banking Com- pany of Bangor, at Machias and Oldtown. Maryland. — Xo provision for the operation of branches by State banks. Massachusetts. — There are no commercial banks other than national banks and trust companies in operation in the State. The statute relating to the organization of banks of discount and deposit provides that they shall do business only at their banking house. This prohibition applies to savings banks. By an act passed by the last Legislature, chapter 365, section 2, the board of commissioners of savings banks has power to authorize, in writing, any trust company to maintain a branch office in the city or town in which its main office is located, for the purpose of receiving deposits, paying checks, and trans- acting a safe-deposit business. The Old Colony Company and the State Street Trust Com- pany of Boston have branches in operation m that city. Michigan. — There is no law authorizing the establishment of branches. Agencies are permitted, which are restricted in their operations to the receiving and paying out of deposits and issuing exchange. Branches : " The Home," " The Dime," and " The Peninsula " savings banks of Detroit op- erate two branches each in that city. '* The People's Saving Bank of Detroit " has a branch, and also " The Lansing Sav- ings Bank." Minnesota. — Xo branch banking or branches, or any other financial institutions organized under State laws, can be per- mitted : nor can the banks of any other State establish branches in this State. Mississippi. — Branches are authorized by the charters of the banks, not by any general banking law. Missouri. — Specifically prohibited by statutory enactment. Montana. — Neither branches nor agencies provided for by law. Nebraska. — Neither the law nor the charters provide for branches. CH. v.] Banking. 45 !N^evada. — Agents of foreign corporations doing business within the State must comply with local requirements relating to State and county license. Branches: The Bank of Cali- fornia, San Francisco, Cal., has a branch at Virginia City, jSiev. ; the State Bank and Trust Company of Carson City has a branch at Butler. Kew Hampshire. — Bank Commissioner states that there h no law directly authorizing the establishment of branches or agencies, but that he is not aware of any law which would prohibit such a practice within certain limits. Xo branches are in operation. ISTew Jersey. — The laws of ]^ew Jersey are the most liberal, with respect to branches, of any State in the Union. Section 7 of the General Coi^Doration Act of 1896 provides that any corporation in this State may conduct branches in any other State or in foreign countries, and have one or more offices out of this State ; and may hold, mortgage, and convey personal property out of such State, provided notice of such object is included in its certificate of incorporation. In 1889 an act was passed which provided that no corporation, bank, etc., should establish or maintain any branch or agency, nor have more than one place of business in the State without the approval of the Board of Bank Commissioners. This act, however, was repealed in 1889. Prior thereto, however, The Asbury Park and Ocean Grove Bank had established a branch at Ocean Grove, and The People's Bank of East Orange a branch at South Orange. Xew Mexico. — The law has been held to prohibit the estab- lishment of branches or agencies. Xew York. — Section 89 of chapter 689 of the Laws of 1882, as amended by chapter 410 of the Laws of 1898, permits a bank located in a city of over 1,000,000 inhabitants, with the approval, in writing, of the Superintendent of Banks, to open and keep one or more branch offices in such city for the receipt and payment of deposits and for making loans and discounts to the customers of such branch office, only providing that its certificate of incorporation shall so provide. ISTo bank in this State has a charter which originally provided for branches ; but a number of banks in the city of I^ew York have amended their charters so as to include therein such provisions. Section 46 The OROAXizATiOiS^ of Banks, Etc. [cii. v. 89 referred to provides in part that " before opening any brancli ojffice the approval, in writing, of the Superintendent of Banks shall be first obtained, and no discounts shall be made except such as have been previously authorized by the board of di- rectors." Penalty for violation of the act is $1,000 for every violation. The Bank of Jamaica (Long Island) has branches at Elm- hurst, College Point, and Richmond Ilill. The Brooklyn Bank has made arrangements for an oifice, but has not yet opened. The Corn Exchange Bank has twelve branches M-ithin the corporate limits of Greater Xew York. The Colonial Bank of Xew York has five branches. Far Rockaway Beach Bank has a branch at Rockaway Beach. The Ilamiltotn Bank, The Me- chanics' Bank, the Mechanics and Traders' Bank, The Twelfth Ward Bank, The Twenty-third Ward Bank, The Union Bank, and the Coney Island and Bath Beach Bank have each a branch in Greater Xew York; and the Xew York Produce Exchange Bank has four branches. Xorth Carolina. — There is no general law authorizing the establishment of branch banks. Most of the banks operate under special charters granted by the Legislature, and in some instances the charters granted contain authority for the opera- tion of branches. Xorth Dakota. — Branches or agencies not provided for by law. Ohio. — Branches are not authorized by law. Oregon. — There are no banking laws on the Oregon statute books; and there are, consequently, no parent or branch banks as recognized by the State in operation. The State issues no charters to banks nor has it on its statute books any laws per- taining to the operation of banks. Pennsylvania. — Branches or agencies of banks are not au- thorized by the laws of this State. One savings institution, in conformity \^^th an amendment of its charter, obtained from the Legislature an amendment having the approval of the Court of Common Pleas of the county in which the institution is located, and is endeavoring to establish a branch, but the question is now pending before the State Attorney-General. Rhode Island. — The General Laws, chap. 171, § 11, pro- CH. v.] Banking. 47, hibit the establishment of branches except by authority of the General Assembly. South Carolina. — The Code of 1892 of the Banking Laws of State contains no authority for the establishment and opera- tion of branches by State banking institutions. South Dakota. — Branches or agencies not provided for by law. Tennessee. — Under the law, branches of all corporations are permissible, the only requirement being that the charter be registered in the register's office of the county where the branches are located. The law governing branches is the same as for the parent bank, and the branches are operated in all respects as the parent banks. ISTo information submitted as to the banks operating branches. Utah. — Laws of the State do not authorize corporate banks to conduct branches or agencies in the State. One private bank (name not given) has a branch. Vermont. — Branches or agencies are not authorized by the banking laws, nor by the charter of any bank. Virginia. — Branches permissible, but none in operation. West Virginia. — Each bank must be operated under special charter in an independent way. State banks may hold stock in other banking corporations. Wisconsin. — Incorporated banks of Wisconsin cannot, un- der the law, operate branches, except possibly in the large cities where the branches are located within the same mu- nicipality as the parent bank. The certificate of incorporation of a State bank must specify the particular city or tOAvn where the business of the bank is to be carried on. Branches: The Second Ward Savings Bank of Milwaukee operates two branches ; the German- American Bank of Milwaukee also op- erates a branch. Wyoming. — The laws do not contemplate the establishment of branches or agencies. Where the statute of a State prohibits a banking corpora- tion the privilege of establishing branches, an agency cannot be created. But where the statute is silent upon the question, and the charter permits the establishment of branches, any number of branches may be established by the parent bank, 48 The Okganizatios^ of Banks, Etc. [ch. v. and they may conduct business as agencies of the parent bank. But if the charter fails to provide for branches, the parent bank cannot establish branches. But where the statute of a State authorizes corporations which are formed under the general laws of a State the privilege of establishing agencies or branches in the State, a banking corporation organized and incorporated under such a general law may establish branches. A corporation has only such powers as are granted to it by law, and it cannot establish branches in the State where this power or privilege is prohibited. It is held in the case of People v. Oakland County Bank, 1 Doug. (Mich.) 282, "where by its charter a bank is located in one county, and it establishes an agency in another county where it receives deposits and buys and sells exchange, it thereeby violates its charter." The court further says^ in determining this case : " The last, and most important question, remains to be considered ; and that is, whether the establishment of an agency in the city of Detroit was a violation of the charter of the defendants? By the act of the incorporation the stockholders were author- ized to locate the bank in the county of Oakland. It follows, therefore, that if the corporation has undertaken to exercise any of its franchise ^\'ithout that county, it has usurped an authority in violation of law, and must suffer the penalty which that law inflicts. The case admits that the bank redeemed its bills, kept deposits, and as incident to such redemption, bought and sold exchange at the agency. Did these acts, or either of them separately considered, violate the law which gave a legal existence to the defendant? To determine this question, it is only necessary to define what business this bank was authorized by the law of its creation to do and perform. Such an exam- ination ^^^ll lead to the conclusion that it is a bank not simply of discount, but also of deposit. It is quite manifest that the defendants could not establish in this city an office of discount. If so, may it not equally be intended that they cannot establish an office of deposit ? To my mind, the conclusion is irresistible. It requires no profound knowledge of the mysteries of banking to know that the amount of discounts, in institutions which profess to be guided by safe rules, is regulated chiefly by two considerations: First, the amount of actual capital paid in, CH. v.] Banking. 49 and secondly, tlie amount of deposits. If banks did not dis- count upon the strength of their deposits, their profits would be greatly diminished ; and the discounts predicated upon such deposits^ in a well-regulated bank, having its regular customers, are always deemed an entirely safe operation. But it is un- necessary to push our inquiries any further upon this point, as we are all clearly of opinion that, in this respect, there was the assumption of an authority not warranted by law." The subject is further discussed in the case of The South- western National Bank v. The Commonwealth, and it is there held that depositing money with another bank, for the redemp- tion of notes, is not the establishing of an agency. Therefore, where branches are authorized by law they are subject only to such powers and authority, as may be granted to them by the mother bank. They cannot exercise original authority which is not delegated to them. And the mother bank has authority to collect and enforce the payment of any and all debts due the branch bank.^^ "Where branch banks are authorized to be established in the State^ it is not necessary to incorporate them. The mother bank can establish the branch, using the name obtained by the mother bank from the State. But in doing so the branch bank must be designated by all of its signs as such, so the general public may have the full knowledge that they are dealing with the agency. § 31. Proof of corporate existence. When the corporate existence of a bank comes directly in question, which may arise when the State brings suit through its Attorney-General, in the name of the People of the State, to forfeit its Charter, proof of performance of every act required, whether by general law or special charter, must b© made. In collateral proceedings, being those where the corporate existence is denied or affirmed, in a suit between the bank and any party other than the State, the rule is held to be different. The fact is proved by putting in evidence the certificate of Ta Smith V. Lawson, 18 W. Va. 212; Bank of Augusta v. Earl, 13 Peters, 519. 4 50 The Orgaxization of Baxks, Etc. [CH. V. incorporation. The corporate minutes proving an organization and use of the corporate name of the bank in business.® The corporate existence of a plaintiff in ejectment may be established by evidence that it was a corporation de facto.^ One who has. dealt vn\.\\ a corporation as such is estopped to deny its existence by demurrer.^*^ The de facto incorporation can be sho^vn by oral evidence, that is, the carrying on of a general banking business, as a bank under a certain name.^^ The fact of incorporation is proved by putting in evidence the certificate of incorporation. The corporate minutes proving an organization and use of the corporate name of the bank in business, etc.^^ The fact that the certificate of incorporation of a national bank is signed by a deputy comptroller, a deputy appointed by the Comptroller of the United States, cannot be raised as an objection to its introduction in evidence ; nor, that at the date of such certificate he was not clothed vnth. authority to execute the power.^' Where the laws of a State require a foreign corporation to file within a certain number of days after commencing business within the State, a copy of their articles of incorporation with the Secretary of State : Held, that individuals who hold them- selves out as a corporation, by complying with the requirements of such a law, will not be permitted to deny their coi*porate existence when sued by persons who have acted in good faith upon said representations. The Comptroller's certificate, together with proof that the bank has been acting as a bank for a long time, is sufficient 8 Casey, Receiver, r. Galli, 94 TJ S. 673; Albert v. State, 65 Ind 413; Nicollet Nat. Bank v. City Bank. 38 Minn. 85; Bullard r Bank, 18 Wall. 589; Tapley r. Mar tin, 116 Mass. 275; Yakima Nat Bank r. Knipe, 6 Wash. 348; Aspin- wall V. Butler, 133 U. S. 595; Bank of Manchester r. Allen, 11 Vt. 302 Williams r. Union Bank, 21 Tenn 339; McCormick r. Market Nat Bank. 165 U. S. 538; Fresno Canal & Irri. Co. r. Warner. 72 Cal. 379 Soc, 70 Cal. 163; McVicer v. Cone (Or), 28, p. 76. 9 Oakland Gas Light Co. r. Cam- eron, 37 Cal. 663. 10 Bank of Shasta v. Boyd, 99 Cal. 604; Cowell v. Springs Co., 100 U. S. 61; Close v. Glenwood Cem., 107 U. S. 466. 11 Yakima Nat. Bank v. Knipe, 6 Wash. 348. 12 Ignited States Bank v. Stearns, 15 Wend. 314. i3Kevser v. Hitz, 133 U. S. 138; McCallion v. Hibernia Sav. Loan Aspinwall v. Butler, 133 U. S. 595. en. v.] Baxking. 51 evidence to establish prima facie the existence of the corpora- tion of a national bank.^* § 32. Wlien the life of bank corporation commences. A national bank becomes a corporation from the date of its organization certificate.^^ The certificate npon receipt thereof must be published ac- cording to requirements of section 5170, Revised Statutes of the United States. The proof of publication of said certificate should be promptly sent to the Comptroller of the Currency. The life of a corporation does not date from the time it begins to do business, but from the date of its organization.^^ " Where the statute points out the manner in which the cor- poration shall be organized, and the direction of the statute is followed, this brings the corporation into existence so that it may enter upon the objects of its creation." ^^ 14 Mix V Xat. Bank of Blooming- sity 13 Kan. .320; Hanna r. Interna- ton. 91 111. 20; Merchants' Nat. tio'nal Petroleum Co., 23 Ohio St. Bank i;. Glenden. 120 Mass. 97. 622. 15U, S, Rev. Stat.. §§ 5168, 5169. n i Thomp. on Corp. § 217, and 16 Whetstone f. Ottawa Univer- author cited. CHAPTER VI. BY-LAWS. § 33. Power to make inherent, in corporations. The power of a corporation to make by-laws is inherent in it. One of the important features of a corporation is the power to make by-laws.-^ § 34. By-law defined. "A by-law is a permanent rule of action in accordance A\'ith which the corporate affairs are to be conducted." A by-law is also said to be a rule or regulation established by a corporation for the government of its officers and mem- bers in the management of the affairs of the corporation as among themselves.^ § 35. Power delegated by statute. Tlie power to make by-laws, as stated, exists at common law as an inherent right of a corporation. The power may al&o be given by a statute or by the charter of the corpora- tion.^ § 36. Who has power to make by-laws ? The statute fixes and vests the authority usually in the stockholders. Tlie directors have no power to make by-la-\vs unless the statute expressly authorizes it.'* The stockholders, however, may delegate their power to the board of directors.^ Where the charter confers the power, the directors are authorized to make by-laws.*' Where the power is delegated by the charter to the directors, 1 Cook on Corporations, Vol. 1 4 North ^Milwaukee, etc., Co. V. (.5th erl), § 4a. Bishop, 103 Wis. 492; Morton, etc., 2 1 Thomp. on Corp. § 935; Flint Co. r. Wysong. .51 Ind. 4. f. Pierce. 99 Mass. 68. 5 Heintzolman r. Druids Relief As- 3 People V. Crossley, 69 111. 195; sociation, 38 Minn, 138. Kearney v. Andrews. 10 N. J. Eq. 6 Samuel r. Holladav, ^^'ool\v. 400 70: .Inker r. Commonwealth, 20 ( 1869) ; S. C. 21 Fed." Cases, 306. Penn. St. 484. [52] cii. VI.] Banking. 53 a bv-liiAv made by the stockholders, it is held, is binding as to past acts on participating stockholders/ AVhere a charter confers the power upon the board of directors to make by-laws, the stockholders are bound by their action.^ § 37. Where statute provides purpose. Where the statute provides for what purpose by-laws may be passed, none others can be passed.'' Where the by-laws are .in conflict with the charter, the latter will prevail.-^* § 38. By-laws must be reasonable. The general rule is, that a by-law must be reasonable. It must not interfere "\Hth "any vested right of the stockholders. It must not be contrary to public policy. It must not be contrary to the established law of the land. It has been held, in Burden v. Burden, 159 X. Y. 287, that where a bank by its by-laws places the management exclusively into the hands of a person " who may have the exclusive charge and manage- ment of the business of the Company," that the by-law is' not void as a whole, and until the general manager illegally exer- cises power the courts will not interfere until such illegal acts are performed. But such a by-law does not divest the directors of a duty imposed upon them by law to perform. § 39. When a by-law becomes a law. A by-law, Avheii enacted in accordance with the charter and statute of the State, is binding upon the individual mem- bers from the date of passage; and when required to be en- tered in a book of by-laws, it becomes a law when so entered. It has also been held that a by-law authorized by the charter or the statute and not in ^^olation of any constitutional pro- vision or law of the State, is equally binding upon third persons dealing with the corporation; providing they are made acquainted with the same and the business of the corporation.^^ The contrary doctrine is found in the case of The State v. ^ People V. Sterling Mfg. Co., 82 10 Republican Mountain Silver 111. 457. !Mines, Ltd.. et al. r. Brown et al., 8 Cahill V. Kalamazoo Mutual Ins. 58 Fed. Rep. 644. Co., 2 Doug. (Mich.) 124. n Cummings V. Webster, 43 Me. 9 Ireland r. Globe, etc., Co., 19 192-197. R. I. 180. 54 By-Laws. [ch. vi. Overton, 24 K J. Law, 435, where the Court savs "All regulations of the company affecting its business, "which do not operate upon third persons nor in any way affect their rights, are properly denominated ' by-laws of the comj^any,' and may come within the operation of the principal." The court further says: " The validity of the by-laws of a corporation is purely a question of law. Whether the by-law be in conflict ^^dth the law or with the charter of the company, or be in a legal sense unreasonable, is a question for the court and not for the jury." The rule may be correctly laid down as follows: Third persons are hound hij the hy-Iaws of a corporation only where they have knowledge of them and are brought into privity with them, and where they operate as a contract between the cor- poration and such persons. § 40. By-law must be proved. By-laws and ordinances of a corporation are not judicially noticed, but must be proved as facts. The courts wdll not take judicial notice of a code of by-laws. ^^ A by-law must be pleaded. The pleader may set it out in full or it may be stated in substance according to its legal effect. "When the latter course is pursued, the by-law itself may be introduced as evidence under the pleading. § 41. Actions upon by-laws. In the case of Schrick v. St. Louis Mutual House Bldg. Co., 34 Mo. 423, it is held that an action cannot" be maintained if the by-law had been repealed by substitution during the membership of plaintiff and before the bringing of his action. § 42. By-law void — which waives liability of stockholder. " The assets of a corporation being a trust fiuid for its creditors, and the indebtedness of shareholders to the cor- poration for their shares being a part of this trust fund, a by- law which attempts to release shareholders from the obligation incurred by their contract of subscription or by their know- ing acquisition of shares which have not been fully paid up, by allo-^ang them to pay a percentage of what is due in respect 12 Lucas V. San Francisco, 7 Cal. sane Asylum, 13 N. H. 532, 38 Am. 463; Haven v. New Hampshire In- Dec. 512. CH. VI.] Banking. -55 of their shares and to forfeit their shares and be discharged from the obligation of paving the remainder, is void as to creditors of the corporation." ^^ In the case of Slee v. Bloom, 10 Am. Dec. 273, it is held, that a resolution discharging from future assessments any stockholder paying 50 per cent, on his shares, is valid as to consenting creditors, and will protect such stockholders as have complied with its terms, before the dissolution of the cor- poration. In the case of "V\''ells v. Black, 117 Cal. 157, where the question of liability of stockholders to depositors in a sav- ings bank is discussed, and where a by-law adopted was not consistent mth the constitution and laws of the State, and by virtue of its terms attempted to release from liability the stockholders of the corporation: held to be void and of no binding force upon the depositors. The court in this case, in defining a by-law, says that *^ By-laws are the body of rules laid down by the government of a corporation, its officers and stockholders, in the conduct of its affairs." It is well settled that a by-law cannot be enacted by a banking corporation having capital stock, which would waive the liability of the stockholder to the depositor. However, the depositor can enter into an agreement with the shareholders, waiving the constitutional and statutory pro'^dsions of liability; but such an agreement when entered into between the parties must be thoroughly understood. Where a depositor enters into such an agreement, it would be binding upon the parties.^* §43. Lien created upon shares of stock. A lien may be created upon the stock of the corporation for dues owing by the stockholder to the corporation, if pro- vided for by the statute or by the charter of the corporation. Cook on Corporations says : " The weight of authority holds that it may be created by a by-law." The following States hold that a lien may be created by a by-law: Alabama,^* 13 Cyclopedia of Law and Proce- Sedgwick on Statutory and Consti- dure, vol. 10, p. 301. tutional Law, 111. 14 French r. Teschemacher, 24 Cal. 15 Planters' etc., Ins. Co. V. Selma 518; Wells v. Black, 117 Cal. 161; Sav. Bank, 63 Ala. 585. 56 By-Laws. [cii. vi. California/*^ Connecticut/' lowa/^ Maine/^ Mississippi/*^ Missouri/^ ISTew Hampshire/^ New Jersey/^ Rhode Island/* United States.^ The power to prescribe by-laws of a national bank is vested in its board of directors ; but a national bank cannot, even by provisions framed with the direct view to that effect, in its articles of association, or by a direct by-law, acquire a lien on its OAvn shares of stock held by persons who are its debtors.^" § 44. Pailure to make by-laws. "Where the statute by expressed terms confers the power upon the corporation to adopt by-laws, it is held that the failure to exercise the power will not render void any of the acts of the corporation which would otherwise be valid.^^ § 45. Reasonable by-law. A by-law is held to be reasonable which requires a de- positor in a savings bank to present his book for entry of the amount, which may be Avithdrawn ; but in case of loss of such book, and proof thereof duly furnished the bank of such loss, the bank cannot refuse to pay. The possession of a pass-book is not always proof of owner- ship ; and a by-law, which states that a deposit will not be paid unless the pass-book is presented, is subject to criticism. A by-law printed in the pass-book, if reasonable, and signed by the party who accepts the same, Avill bind him and likewise the bank ; and the bank cannot revoke nor amend such a by-law 16 Jennings v. Bank of Californi.i, by-law reserving lien on shares for 79 Cal. .323, 21 Pac. 852, 12 Am. St. sharplioklcr's indebteunes to the cor- Rep. 14.5, 5 L. R. A. 233; People i\ poration not ^vithin the prohibition Crockett, 9 Cal. 113. of a statute forbidding restraints 17 Vansands i\ Middlesex County upon the free sale of shares. Hill V. Bank. 26 Conn. 144. Pine River Bank, 4.5 N. H. 300. 18 Farmers', etc.. Bank r. Wasson, 23 Young v. Vough, 23 N. J. Eq. 48 Iowa, 330. 30 Am. Rep. 398. 325. 10 Batli Sav. Inst. v. Sagadahoc 24 Lockwood r. Mechanics' Nat. Xat. Bank. 89 Me. 500. 36 Atl. 99G. Bank. 9 R. I. 308, II Am. Rep. 253. 20Hollv Springs Bank r. Pinson, 25 Knight V. Old Nat. Bank, 14 58 Miss. 421. 38 Am. Rep. 330. Fed. Cas. No. 7,88.5, 3 Cliff. 429: 21 Spurlock ;•. Pacific R. Co.. 61 Pendergast l\ Stockton Bank, 19 Mo. 319: Mechanics' Bank r. Mer- Fed. Cas. No. 10.918. 2 Sa^^7'. 108. chants' Bank, 45 Mo. 513, 100 Am. 2G Bullard v. Bank, 18 Wall. 589. Dec. 388. 27 Steger r. Davis, 8 Tex. Civ. 22 Costella V. Portsmouth Brew- App. 23, 27 S. W. IOCS, ing Co., 09 N. H. 405, 43 Atl. 640; cii. VI.] Banking. 57 so as to affect the rights of such depositor. It is held that such a by-law becomes a part of the contract of deposit.^® § 46. Defining duties of officers. The officers of a banking corporation have, by law, certain implied power; and in the absence of a by-law specifically defining their powers, they have the implied power to manage and conduct the business of the corporation, and perform all the necessary acts other than those which are imposed by the statute to be performed by the board of directors. The by-laws may prescribe in detail the business and acts to be performed by the various officers and agents of the bank. When the duties and acts to be performed are defined by the by-laws, and they contain a restrictive provision, in effect stat ing that all acts other than those mentioned are proliibited, an officer or agent of the bank has no additional power or authority by implication. Where the statute of a State prescribes the mode of em- ployment or election of an officer or agent of a corporation, it must be strictly complied with. For example: Where the stat- ute says that the officer must be elected by the board of di- rectors, and it prescribes that such election must be by ballot, an officer of the corporation cannot be appointed by a vivi voce vote, or by a resolution. Also where the statute prescribes that at the time of his election he must be a bona fide director of the corporation, the directors cannot legalize the position or office, unless he was at the time a director. § 47. Amending by-laws. The power to amend a by-law is vested in the persons who are empowered to make a by-law. Where the statute of a State prescribes how a by-law may be amended or repealed, it must be strictly followed. Where a provision of the charter is made a part of the by- law, such a provision cannot be amended by amending the by-law. A provision inserted in a charter cannot be amended vnth- out amending the articles of incorporation. 28 Heath v. Portsmouth Sav. r. Germania Sav. Bank, 127 N. Y. Bank, 40 N. H. 78 ; Levy v. Franklin 488. Sav. Bank, 117 Mass. 448; Kummel 58 By-Laws. [cii. vi. Directors of a eoiporation frequently attempt to amend the by-laws, or the provisions which are a part of the articles of association ; but as stated, this cannot be done only by amend- ing the articles. *■ § 48. Provisions and form of by-laws. Banking corporations incorporated under the laws of a State, in adopting and preparing a form of by-laws, should be very careful in the preparation of the same ; as a by-law cannot be adopted, or enacted, which is in violation of a law of the State ; and all of its provisions must be reasonable. For form of by-laws for a national bank, as recommended by the Comptroller of the Currency, see Appendix. § 49. Statute prescribing time in which by-laws are to be adopted. The certificate from the Secretary of the State, which is a certification implying the due incorporation of a bank, in it- self does not put the corporation into action or life. Where a bank or other corporation is required by the statute to enact a code of by-laws within a certain number of days after filing the articles of incorporation with the proper officer of the county, where required to be filed, such a statute is not mandatory but directory.^ The failure to adopt a code of by-laws within such period of time, though a statutory provision, will not prevent the corporation, after the adoption of by-laws, from thereafter doing business within the State. But if the act of adopting a code of by-laws, as provided by the statute, is made a part of the organization of the cor- poration, the organization cannot be complete until all the re- quirements of the law are complied with ; and contracts made during organization are held to be invalid. An agreement made by a cashier of a national bank, prior to its organization, does not bind the bank unless such agree- ment is ratified after the organization is perfected under the National Banking Act.^° 29Davies v. Smith, 58 N. H. 16, 30 ]\TcDonough r. First National and cases cited. Bank of Houston, 34 Tox. 309. CHAPTER VII. STOCKHOLDERS' RIGHTS AND LIABILITIES. § 50. Who may be a subscriber. Any person, male or female, other than a minor (whose con- tracts may be revoked) may be a subscriber for shares of stock in a corporation ; provided, however, that the laws of the State in which the party resides and the contract is made, and to be executed, does not interfere. A married woman may become a stockholder under the law of the State where the contract is made, if not prohibited, and she will be subject to all the liabilities as such.^ A married woman in the District of Columbia may become a holder of stock in a national banking association, and as- sume all the liabilities of such a shareholder, although the consideration may have proceeded wholly from the husband. The coverture of a married woman who is a shareholder in a bank w^ill not prevent the receiver of an insolvent bank from recovering judgment against her for the amount of an assessment levied upon the shareholders equally and ratably under the statute.^ In the case of Witters v. Sowles, 38 Fed. Rep. 700, the court, in discussing the contractual character of the relation and the liability, says: " Doubtless it would be competent for the Legislature to declare that any married woman who might acquire shares in a corporation should be regarded as a stockholder, and should be liable as such, not^^'ithstanding her shares might be the ab- solute property of the husband at his option ; but in the ab- sence of language to that effect, a statute which makes share- holders liable for the debts of the corporation must be pre- sumed to include only persons belonging to the class who can contract that relation toward the corporation and its creditors. " The relation is a contractual one and the liability is 1 Bnndy r. Cocke. 128 U. S. 18.5. 2 Keyser i'. Hitz, 13.3 U. S. 138. [59] 60 Stockholders' Rights and Liabilities, [ch. vii. mounded on tlie presumed assent of the shareholder to be bound by the terms of the organic law of the corporation." This is well stated by Allen^ J., in Lowry v. Inman, 4G X. Y. 125: *'A personal liability of stockliolders for the debts of a cor- poration, in virtue of the charter, is not in the nature of a penalty or forfeiture, and does not exist solely as a liability imposed by statute. It is not enforced simply as a statutory, obligation, but is regarded as voluntarily assumed by the act of becoming a stockholder. By such act he assents to be bound, or that his property shall be charged, with the debts of the corporation, to the extent and in the manner prescribed by the act of incorporation." The Code of Xorth Carolina, § 1826, enacted in 1871, pro- vides that no woman during coverture shall be capable of making any contract to affect her real and personal estate with- out the written consent of her husband. The court, in Robinson v. Turrentine et al., 59 Fed. Rep. 554, in discussing this provision of the Code, and the question of liability and the rights of a married woman purchasing stock in a corporation, A\dtliout the written consent of her husband, says: " M. B. Turrentine is a married woman. After her mar- riage and after the passage of the Act of 1871 of Xorth Caro- lina (Code, § 1826), the stock in question was transferred to and acquired by her, to use the language of her answer. Her husband, the other defendant, never gave his written con- sent to the purchase. Mrs. Turrentine is not a ' free trader ' under Code, §§ 1828, 1831, 1832." The court then proceeds to discuss the question of liability of a stockholder as created by section 5151, Revised Statutes, United States, imposing individual responsibility to the amount of the par value of the shares upon stockholders in national banks, which law, he says, makes no exceptions in favor of married women. The court further says that: " To hold that a State law, were there such a law, could except certain shares from the liability, would enable States to defeat the policy of the Federal Government in establish- ing the national banking system. That the Congress has power cir. VII. J Banking. 61 to establish and legislate for siicli banks has not, since 1819, been an open question. McCulloch v. Maryland, 4 Wheat. 316. If a purchase of stocks in a national bank by a married woman without the written consent of her husband gives her the owTiership of such stock, judgnnent must be given against the femme defendant. If she owned the stock at the failure of the bank, she is liable to the assessment ; if she did not, she is not liable. While the Federal Government exclusively con- trols the question of the liabilities of stockholders in national banks, it is not doubted but that a State has power to say that, for reasons seeming good to its Legislature, and not in conflict with organic law, a particular class of persons shall not be permitted to own particular classes of property. It may law- fully be provided that a guardian or other trustee may not invest in securities other than those specified by statute. Prob- ably it might be held that a statute might constitutionally provide that purchases by guardians of, say, railroad stock, in the name of their trust, should be absolutely void. In such case it might be held that an attempted transfer of such stock so purchased passed no title ; that the stock still remained, although duly assigned and transferred on the corporation books, the property of the vendor ; and that the guardian could recover the money paid from the vendor. It would, I think, require strong and plain words to induce courts to give such a construction to an act of the Legislature." The court holds that the Legislature of a State cannot enact a law in conflict with a statute of the L'nited States. § 51. Enforcement of subscription. A subscription to the capital stock of a proposed corpora- tion, for the purpose of forming it, made by several signers, is valid. The corresponding promise of the other signers, and the common object sought to be accomplished, constitute a sufiicient consideration for the promise of each signer, and upon the formation of the coiporation and its acceptance, each subscriber becomes liable. An action against the subscriber to stock upon his subscrip- tion according to its terms, is not an action under the statute to recover assessments upon the subscribed capital stock.^ 3 The Marysville Electric Light & Power Co., appellant, v. F. W. John- son, responient, 93 Cal. 538. G2 Stockholders' Rights and Liabilities, [ch, vii. A contract in writing, bv which the subscribers agree to associate themselves into a corporation for a specific purpose, and to pay to the treasurer of said corporation the amount set against their respective names, is a valid subscription ; and an action may be maintained in the name of the corporation, after it is organized, against a subscriber.'* The court, in discussing this question, says: " In agreements of this nature, entered into before the organization is formed, or the agent constituted to receive the amounts subscribed, the difficulty is to ascertain the promisee, in whose name alone suit can be brought. The promise of each subscriber, * to and with each other,' is not a contract capable of being enforced, or intended to operate as a contract to be enforced between each subscriber and each other who may have signed previously, or who should sign afterward, nor between each subscriber and all the others collectively as individuals. The undertaking is inchoate and incomplete as a contract until the contemplated organization is effected, or the mutual agent constituted to represent the association of individual rights in accepting and acting upon the proposi- tions offered by the several subscriptions. When thus ac- cepted, the promise may be construed to have legal effect ac- cording to its purjx)se and intent, and the practical neces- sity of the case ; to wit, as a contract with the common repre- sentative of the several associations." The question of liability of a subscriber is again presented in the case of The International Fair & Exposition Association of Detroit v. Hiram Walker, 83 Mich. 386; and a subscriber who signed a subscription paper (but not the articles of as- sociation), which subscription paper was in the following form: " For the purpose of purchasing suitable grounds, erect- ing suitable buildings thereon of a permanent character for fair and exposition purposes, to be upon a plan similar to the Buffalo Exposition, and believing that a corporation, with a capital stock of at least $250,000, should be organized for such pur]>()se, the undersigned agree to subscribe for and take stock in such a corporation for such purposes to the amounts 4Athol Music Hall Co. v. Carey, 116 Mass. 471. CH. VII.] Baxkixg. 63 set opposite our respective names: Provided, that at least the sum of $100,000 shall be subscribed within sixty days from the date hereof, in order to render our agreement hereto binding. " Dated Detroit, January 9, 1889." ^Vas held liable. The court says: " The agreement sets out fully the purposes and objects for which the moneys were to be raised. It was to purchase grounds, erect suitable permanent buildings thereon for fair and exposition purposes, and to be on a plan similar to the Buffalo Exposition. Two hundred and fifty thousand dol- lars, at least, was to be the amount of the capital stock ; and the only limitation or condition under which the amount sub- scribed by each should not be paid was that $100,000 should be subscribed within sixty days. This amount was subscribed within the time. Tlie other parties who subscribed went for- ward in good faith to carry out the plan named in the agree- ment, and in reliance that the defendant would pay in the amount of his subscription. He stood by and saw the moneys being expended, the ground purchased, and buildings erected. He attended a meeting, and voted, not only the stock of his two sons, but voted his own, upon the question of the site. This subscription was accepted by the plaintiff, and it has the power to give the stock subscribed for, and has offered to do so. I think this case falls so squarely within the case of Peninsu- lar By. Co. V. Duncan, supra, that the first proposition of de- fendant's counsel needs no discussion. It is true that the statute under which the plaintiff in that case organized did require preliminary subscriptions, while the statute in the present case does not; but here, as in that case, the promises to pay the amount subscribed are mutual, and the agi-eement by the defendant to pay the $5,000 was relied upon by the other subscribers, and between them it was a valid contract, upon which, after organization, the corporation could main- tain an action." Where the purposes of the corporation are defined in the preliminary subscription paper, which paper sets out the pur- poses of the corporation, and after being signed the articles of incorporation, are changed, by additional or new busi- 64 Stockholders' Rights a:nd Liabilities, [ch. vii. ness, the subscriber will be released. Tlie corporation cannot recover against liim.^ A subscriber to the stock of a corporation may, by the terms of his subscription, vary his liability to calls or assess- ments from that imposed by the statute. The liability of a subscriber, in such a case, is measured by the terms of his agreement.'' A subscription cannot be avoided where the subscriber has partially paid for his stock, upon the gi'ound that the pur- poses of the corporation have been changed, and differ from those stated in the subscription agreement.^ The question whether an action can he brought to enforce a subscription to stock in a corporation, before the corpora- tion is organized, is not presented by the cases ; but if an agent is named in the subscription paper to receive the amount from each subscriber, for the benefit of the corporation, the assumption is, that a suit may be instituted before the organi- zation of the corporation in the name of the agent. ^ § 52. What constitutes a stockholder. The issuing of the stock, coupled with delivery, and ac- ceptance, and entry o^ the name of the o^\^ler on the stock books of the corporation, is proof conclusive of o^^^lership. A subscription to stock of a national bank, and payment in full on the subscription and the entry of the subscriber's name on the books as a stockholder, constitutes the subscriber a stockholder; though the certificate is not issued or taken out. The Supreme Court, in the case of Tlie Pacific Xational Bank V. Eaton, 141 U. S. 227, holds, that where a party who agrees to take the new shares of stock being his proportional share, to the doubling of the capital stock of the banking corporation, and paying for it in cash, and receiving a receipt for the same, are acts which are fully equivalent to a sub- scription to the stock in writing. He would then become a stockholder, and be properly en- tered as such on the stock book of the company, and his certifi- 5 ilarvsville Electric Light & 7 Walter r. Merced Academy Asso- Power Co. r. .Johnson, 109 Cal. 192. ciation, 126 Cal. 582. ©Ventura and Ojai Valley Ry. Co., 8 Athol Music Hall Co. v. Carey, respondent, r. Hartman, appellant, 116 Mass. 471. 116 Cal. 260. CH. VII.] Bastking. 65 cate of stock being made out ready for him when he should call for it, would hold : It is his certificate. A stockholder is one who is (in fact) the real owner of the shares and is liable as such, though, when he purchased the stock, he had it transferred upon the stock books to another. A purchaser of stock in a national bank cannot escape indi- vidual resiDonsibility bj having his stock transferred to a person pecuniarily irresponsible.'^ Where stock is transferred and placed upon the stock books in the name of a person who has no knowledge of such transaction, which has been done without his authority or con- sent, this does not constitute him an owner or establish lia- bility; but wdiere a person is elected a director, and vice-presi- dent, of a bulking corporation, assuming the active manage- ment of the bank, being bound by a statute to own a certain number of shares, and presumed, to know the condition of the books of the bank, not only as to whether the required number of shares are held by him, but whether there are the re- quired number of stockholders, and who they are, and does not return a dividend paid him by the bank, at a time wdien it was insolvent, upon stock transferred to him without his knowd- edge prior to his election as director, and vice-president, and does not repudiate the transfer except by a return of the divi- dend to the supposed owner of the shares, he must be held the owner of the stock thus transferred to him on the books.-^^ The general rule is, that, unless the statute otherwise pro- vides in expressed terms, " It is not essential that a certificate should have issued in order to create the relation of share- holder, provided a contract to take stock had been duly made, or provided the rights, privileges, and emoluments of a share- holder had been enjoyed with the consent of the corpora- tion." The authorities supporting this rule are sufficiently numer- ous to establish it as the laAv.^^ It is held in Chafiin v. Cummings, 37 Me. 76, that, in order to constitute a stockholder, it is not necessary that 9 Davis V. Stevens, 17 Blatchford, over, 114 Ind. 381, 16 N. E. 042; 259. Chase v. Merrimac Bank, 19 Pick. lOBro\Aii V. Finn, 34 Fed. Rep. (Mass.) 2G4. 31 Am. Dec. 1G3 ; Cliaf- 124. fin r. Cumniinenhon v. Cook, 115 N. C. 324; i!» :Monsseaux r. Urquhart, 19 La. People V. Peck, 11 Wend. 604. Ann. 482. 17 People V. Robinson, 64 Cal. 373, cii. VII.] Banking. 69 In the absence of a statute a shareholder who is delinquent upon an assessment against his stock does not lose his right to vote.2^ § 57. Eight to vote by proxy. The right to vote by proxy is generally a right authorized and fixed by statute."^ A non-resident shareholder cannot vote by proxy where the right to vote is given by the statute to citizen shareholders.^ § 58. Right of stockholder to inspect records of corporation. The right to examine, at a proper time and for proper pur- poses, the records, books and papers of a corporation^ is an incident and privilege which goes with the ownei-ship of stock in a corporation.^^ Where the statute grants the privilege to the stockholder to inspect the records, the motive cannot be inquired into. The shareholder need not give any reason to the officers for demanding the privilege.^^ The right to make an examination of the books is not con- fined to a personal inspection by the stockholder himself, but may be made by his agent, attorney, or expert.^ 20Kiman v. Sullivan Co. Club. 2G 681: Grant Corp. 311: 2 Phillips Ev. N. Y. App. 213; Price v. Holcomb, 313: Eedfield Ry. 227; Lvon r. 89 Iowa, 123. 56 X. W. 407; U. S. American Screw Co., 16 K I. 472, v. Barry. 36 Fed. Rep. 246. 17 Atl. 61 : State v. Pae. Brewing, 21 C. C. Cal.. § 303: Market St. etc., Co., 21 Wash. 4.51. 58 Pac. 584, Ry. Co. r. Hellman, 107 Cal. 571, 47 L. R. A. 208; U. S. Ranger v. 42 Pac. 225. Champion Cotton Press Co., 51 Fed. 22 C. C. Cal., § 326: Graham v. 61. Oviatt, 58 Cal. 428; In re Barker, 6 24 Foster r. White, 86 Ala. 467; Wend. (N. Y.) 509. State i: St. Louis, etc., Ry. Co.. 2!) 23 Mathews r. McClaughry, 83 111. Mo. App. 301; Mitchell v. Rubber App. 224; Ellsworth 1-. Dorwart, 95 Reclaiming Co. (C. H. 1892). 24 Iowa. 108. 63 X. W. 588, 58 Am. Atl. 407; Cincinnati Volksblatt Co. St. Rep. 427. under la. Code, § r. Hoffmeister, 62 Ohio State 189, 1279; Legendre r. Xew Orleans 56 X. E. 1033, 78 Am. St. Rep. 707, Brewing Assoc, 45 La. Ann. 669, Lyon c. Am. Screw Co.j 16 R. I. 472. 12 So. 837, 40 Am. St. Rep. 243; 25 Foster r. White, 86 Ala. 467; Cockbum r. L'nion Bank, 13 La. Ballin v. First, 55 Ga. 546 ; Ellsworth Ann. 289: In re Steinwav, 159 r. Dorwart, 95 la. 108. 63 X. W. X. Y. 250. 53 X. E. 1103,"^ 45 L. 588, 58 Am. St. Rep. 427; State r. R. A. 461, affirming 31 N. Y. App. Sportsman Park Ass'n, 29 Mo. App. Div. 70. 52 X. Y. Suppl. 343: Com- .326; People v. Xassau Feny Co., 86 monwealth r. Phoenix Iron Co.. 105 Hun 128, 33 X. Y. Suppl. 244. 66 Pa. St. 111. 51 Am. Rep. 184. citing X. Y. St. 801. Contrary, see Clark State r. Bienville Oil Works, 28 La. v. Eastern Bldg., etc., Ass'n, 80 Fed. Ann. 204; Angell & A. Corp., § Rep. 779, which holds that a corpo- TO Stockholders' Rights and Liabilities, [cii. vii. A shareholder who is not registered on the books of the corporation has no right to make an examination of the records.^*^ § 59. Liability of stockholder to creditors of corporation. General rule. The general rule at common law is that shareholders in a joint stock corporation are not liable for debts, except to make good the amount due to the corporation for their shares.^^ s; 60. Liability cannot be enlarged by a by-law. Bv unanimous consent the liability of the stockholder may be enlarged beyond the liability created by law, but such a liability must be unanimous. A by-law or resolution of the corporation cannot create a liability beyond that fixed by the statute.-^ ^61. When stockholder liable to corporation, liable also to creditors. General rule. The general rule is that a stockholder, if not liable to the corporation, is not liable to a creditor, except where the Con- stitution or statute of the State otherwise provides.^^ In the case of Potts v. Wallace, 32 Fed. Eep. 272, it is held that where a subscriber to stock tendered the amount of his subscription to the corporation while it was solvent^ and de- manded a certificate which was refused him, he was not liable to the assignee in insolvency of the corj)oration. § 62. Liability beyond subscription. A stockholder has no liability beyond the par value of the stock o^^^led by him, unless such a liability is created by the constitution, the statute, charter, or by contract. ration will not be required to permit Rindge, 57 Fed. Rep. 279; Smith r. an examination of its books at the Londoner, 5 Colo. 36.5. request of stockholder -who alleges 28 Reid v. Eatonton Mfg. Co., 40 misconduct. Ga. 98, 2 Am. Rep. 563; Flint r. 2GMatter of Reiss, SOMisc. (N.Y.) Pierce, 99 Mass. G8, 96 Am. Dec. 234; 62 X. Y Suppl. 145. 601. 27 Toner r. Fulkerson. 125 Ind. 29 Deadwood First Nat. Bk. v. Cus- 224, 25 X. E. 218: Spense r. Iowa. tin Minerva Con. Min. Co.. 42 Minn, etc.. Constr. Co., 36 Iowa 407 ; Wood 327, 44 N. W. 198, 18 Am. St. Rep. r. Pierce, 2 Disn. 411; Jackson v. 510; Union Sav. Ass'n r. Seigelman, Meek. 87 Tenn. 09, 9 S. \\ . 225, 10 92 Mo. 635, 15 S. W. 6.30; Burgess Am. St'. Rep. 620; Bank of X. A. v. v. Seligman, 107 U. S. 20. CH. vri.] Banking. 71 The liability of a stockholder in a national bank for assess- ments made by the Comptroller of the Currency on insolvency of the bank, is not dependent upon the contract of subscription between the stockholder and the corporation, but is created by statute for the benefit of the bank's creditors, and can be neither modified nor released by any act of the corporation. In the case of Scott v. Latimer, 89 Fed. Eep. 843, the court, in discussing this question^ says: '• The liability sought to be enforced in this case is not one created by a contract existing between the corporation and the stockholders, but is one created by statute in favor of creditors, and not in favor of the corporation. It is a liability which cannot be affected, discharged, or released by any action taken by the corporation, or by the combined action or agreement of the corporation and its stockholders. Thus, in Delano v. Butler, 118 U. S. 634; 7 Sup. Ct. Eep. 39, it appeared that the stockholders, in order to meet the liabilities of the bank, liad made an assessment of 100 per cent, upon the capital stock which was paid in, but the bank was ultimately compelled to go into liquidation, and the Comptroller made an assessment upon the stockholders under the provisions of section 5151 of the Revised Statutes. The Supreme Court held that the pay- ment of the assessment made by the stockholders did not relieve them from liability for the assessment made by the Comp- troller, it being said that: " 'Under section 5151 the individual liability does not arise, except in case of liquidation and for tlie purpose of mnding up the affairs of the bank. The assessment under that section •is made by the authority of the comptroller of .the currency, is not voluntary, and can be applied only to the satisfaction of the creditors equally and ratably.' '' It is thus made clear that the liability sought to be enforced in this case is not dependent upon the terms, or in fact upon the existence, of a contract of subscription to the capital stock of the bank, but it is a liability imposed by statute in favor of creditors, and it is a liability, as already said, which cannot be modified or released by any action on part of the corporation or of the corporation and its stockholders. It is created for the benefit of the creditors, and no action on part of the bank can estop the creditors from enforcing their rights in this par- 72 Stockholdees' Rights and Liabilities, [cii. vii. ticiilar. Upon whom does the statute impose the liability ^ In Bank v. Case, 90 U. S. G2S, and Bowdeu v. Johnson, 107 U. S. 251, 2 Sup. Ct. 246, it was ruled that the actual or beneficial owner of the stock would be liable, and that this liability could not be evaded by the device of transferring the title to a third person, who might be financially irresponsible. " In Paulj t. Trust Co., 165 U. S. 606, 17 Sup. Ct. 465, it is said: " ' It is true that one who does not, in fact, invest his money in such shares, but who. although receiving them simply as col- lateral security for debts or obligationss, holds himself out on the books of the association as true owner, may be treated as the owner, and therefore liable to assessment, when the asso- ciation becomes insolvent, and goes into the hands of a receiver. But this is on the ground that, by allowing his name to appear upon the stocklist as o^^^ler, he- represents that he is such owner, and he will not be permitted, after the bank fails, and when an assessment is made, to assume any other position as against creditors. If, as between creditors and the person assessed, tlie latter is not bound by that representation, the list of sharc- hcdders required to be kept for the inspection of creditors and others would lose most of its value. * * * ^\s already indicated, those may be treated as shareholders, within the meaning of section 5151, who are the real owners of the stock, or who hold themselves out, or allow themselves to be held out, as owners, in such way and under such circumstances as, upon principles of fair dealing, will estop them, as against creditors, from claiming that they were not in fact owners.' " The contrary doctrine to that just enunciated is: That a stockholder may, by express contract, entered into with a cor- porate creditor, waive his liability upon a debt, which at the time is incurred. ^° In the case of Brown v. Eastern Slate Co., 131: Mass. 590, where a bill in equity was instituted against the stockholder of the corporation to enforce payment of the judgment under the statute of the State, the court held that an oral agreement might be shown as a part of the contract to exempt the stock- holders from a statutory liability. 30Rol)inson v. Bidwell, 22 Cal. Bush r. Robinson. 0.") Kv. 402; 370; French r. Teschomaker. 24 Cal. U. y. i: Sanford, IGl U. S. 412. 518; Wells i\ Black, 117 Cal. 157; CH. VII.] Baxkixg. 73 § 63. Fixing date of liability. If a liability does not exist by statutory provision at the time of subscribing for stock, a new remedy against stockholders cannot affect those who took shares in the corporation before its passage. The proposition may be again stated as follows: AVhere a liability does not exist at the time of subscribing for stock, in a corporation organized under the general laws of a State, a statute cannot afterwards be enacted imposing a liability. In the case of Grand Rapids Savings Bank v. Warren, 52 Mich. 557, in discussing this question the court says: " The liability for which this proceeding is instituted arose previous to the passage of this statute, and the claimant at the date of this statute had a right to recover its demands of the stockholders of the Exchange Bank of Big Rapids^ on the fail- ure of the bank to pay them. If the Act of 1877 is to be applied to these demands, it takes away the right as to all the stockholders who are non-residents, unless they voluntarily come to the State so that process may be served upon them. It also enables any resident stockholder to escape liability by absenting himself from the State so that process may not be served. And apparently it takes it away as to all estates of deceased stockholders. But an act which could have this effect would be clearly inoperative, at least as to the cases in which its enforcement would release parties before liable, because it would to that extent impair the obligation of contracts. It would be inoperatiA'e, therefore, as to this estate. And this, we think, not only in so far as it undertook or assumed to give a new remedy but also in so far as to take away those which existed before. " We agree, therefore, with the circuit judge, that the claim- ant was entitled to prove its claim as Avas done against the estate. TTe also think that the liability of the shareholders is commensurate with that of the corporation itself, and extends to costs and interest on the judgments." § 64. Extent of stockholder's statutory liability. The extent of liability against the stockholder in a State bank is fixed and determined bv the statute of the State. In most of the States the liabilitv is a double liabilitv. 74 Stockiioldees' Eights axd Liabilities, [cii. vii. In tlie State of California, each stockholder of a corpora- tion is individually and personally liable for such proportion of all of its debts and liabilities contracted, or incurred, during the time he was a stockholder, as the amount of stock or shares owned by him, bears to the whole of the subscribed capital stock or shares of the corporation. Any creditor of the cor- poration may institute joint or several actions against any of its stockholders for the proportion of his claim, payable by each, and in such action the court must ascertain the propor- tion of the claim or debt for which each defendant is liable, and a several judgment must be rendered against each in con- formity therewith. The liability of each stockholder is deter- mined by the amount of stock or shares owned by him, at the time the debt or liability was incurred ; and such liability is not released by any subsequent transfer of stock. A bank charter declaring that " the stockholders of said bank shall be personally and individually liable for all losses, de- ficiencies and failures of the capital stock of said bank," has been held to make the shareholder personally liable to the creditors of the bank for its indebtedness in proportion to their respective shares in the stock of the same, and not merely bound to keep the capital good by assessments. An important case discussing this question is the case of Queenan et al. v. Palmer et al., 117 111. 619. In this case it is held, that where the char- ter of a banking corporation makes its stockholders individually liable to the amount of the stock held by them respectively to depositors, and other creditors of the bank, for any losses they may sustain, such liability is a common fund for the security of creditors, and a court of equity aside from the ground of discovery, will have jurisdiction of a bill by a creditor for him- self and others to enforce such liability, and control the fund thus obtained for their benefit, and distribute the same ratably among them. An action at law in such case is declared by the court as being inadequate Mntliout the bringing of a multiplicity of suits. Where a bank charter provides that the stockholder shall " be responsible in his individual property in an amount equal to the amount of stock held by him, to make good losses to de- positors: " Held by the court that the individual liabil- ity was not in the nature of a penalty, and, therefore, en- CH. VII.] Bain'king. T5 f orceable only in a court at law ; but was primary and subject to the demand of depositors and other creditors equally with the assets of the bank. In construing the statute making stockholders liable, the court holds that where a charter or statute makes the stock- holders of a corporation individually responsible in an amount equal to their stock, " to make good losses to depositors or others," will be construed to make the stockholders liable to all creditors who may suffer from the default or failure of the corporation to pay its indebtedness. § 65. Liability of pledgee or trustee. The Supreme Court of the United States in the case of Rankin v. Fidelity Ins. Co., 189 U. S. 242, in discussing the question as to who are stockholders, pledgees, or trustees, hold- ing stock in a national bank, says: " 1. That liability may be established by allowing one's name to appear upon the books of the corporation as owner, though in fact he be only a pledgee. Pullman v. Upton, 96 U. S. 328. Xor can the real owner exonerate himself from responsibility by making a colorable transfer of the stock, with the under- standing that at his request it shall be re-transferred. Xational Bank v. Case, 99 U. S. 628 ; Bowden v. Johnson, 107 U. S. 251 ; Stuart V. Hayden, 169 U. S. 1. " 2. Stockholders of record are liable for unpaid install- ments, though in fact they may have parted with their stock, or held it for others. Hawkins v. Glenn, 131 U. S. 319. " 3. A mere pledgee, however, who receives from his debtor a transfer of shares, surrenders the certificate to the bank and takes out new ones in his ovm name, in which he is described as ' pledgee,' and holds them afterward in good faith, and as collateral security for the pa^anent of his debt, is not subject to personal liability as a shareholder. Pauly v. State Loan and Trust Co., 165 U. S. 606. But it is otherwise, if he allows his name to appear on the book as owner, or being the owner, makes a colorable transfer of the stock. ISTational Bank v. Case, 99 U. S. 628." Where the shares of stock in a banking corporation have been hypothecated, and placed in the hands of a transferee, he 76 Stockiioldeks' Rights and Liabilities, [cii. vii.- mll be subject to all the liability of ordinarv o^\Tiers ; for the reason the property is in his name and the legal ownership appears to be in him.^^ Where the transfer appears to be absolute on the books of the bank, the transferee is liable for the debts of the corpora- tion, notwithstanding he may hold snch stock by transfer or assignment as collateral security for a loan to the shareholder from whom he receives the transfer."^ In the case of Union Savings Association v. Seligman, 92 Mo. 635, the court in discussing this question and where it was shoA\Ti that the certificate of stock was held under agreement, in writing, which agreement set out that the stock was held as collateral security, says: " The simple act of accepting that certificate of stock under an agreement in writing, which as also the entry of the stock in the stock-book the other records of the company relating to the transaction showed that it was held by them only as col- lateral security, does not make them liable as stockholders, either to the coi'poration or its creditors. As long as they held the stock under that agreement, doing no other act, their lia- bility to creditors depended upon their legal relation to the company. If stockholders as between themselves and the cor- poration, they would be liable as such to creditors of the cor- poration, otherwise not." ^^ § 66. An assignment absolute in form may be shown to be intended as security only. It is always competent to show that an assignment or con- veyance absolute in form is intended as a security only ; and in an action by creditor of a banking corporation against a stock- holder to enforce statutory liability, it is held: evidence is proper upon the part of defendant to show that an assignment of stock, absolute upon its face, was in fact given to liini as collateral security, and was held by him for that purpose only.^* 31 Wlicclock r. Kost ct al., 77 111. 34i:)ospar(l r. Walbridpe, 15 N. Y. 200. 374; SUirtovnnt r. Sturtpvant, 20 32 Hale r. Walker, 31 Iowa 344. N. Y. 39; McMalion v. Macy, 51 33 Burgess r. Seligman, 107 U. S. N. Y. 155. 20. CH. VII.] BANKIIiTG. 77 The general rule as laid doivn however may he stated as follows: A private agreement between the transferrer and the transferree that the former shall not he liable will not relieve him from liability?'^ § 67. Statute protecting pledgee. Where the statute protects the pledgee from liability, the stock if transferred on the stock books of the corporation must show that it is held as pledged property, otherwise the liability will rest upon the party shown to be the owner by the books of the corj3oration. § 68. Individual liability of shareholders of national banks. The individual liability of shareholders in a national bank arises under section 5151, Revised Statutes of the United States. Which reads as follows: " The shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such association to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount in- vested in such shares, except that shareholders of any banking association now existing under State laws having not less than five millions of dollars of capital actually paid in and a surplus of twenty per centum on hand, both to be determined by the Comptroller of the Currency, shall be liable only to the amount invested in their shares ; and such surplus of twenty per cen- tum shall be kept undiminished, and be in addition to the sur- plus provided for in this Title ; and if at any time there is a deficiency in such surplus of twenty per centum such association shall not pay any dividends to its shareholders until the de- ficiency is made good ; and in case of such deficiency the Comp- troller of the Currency may compel the association to close its business and wind up its affairs under the provisions of chapter four of this Title.'' A stockholder's liability arises and exists by force of the Statute and is not contractual.^^ 35 Bells Appeal, 11.5 Pa. State 8S, v. Hitz. 133 U. S. 138: First Xat. 2 Am. St. Ren. -532. Bank of Concord v. Hawkins, 33 3G First Xat. Bank of Concord r. U. S. App. 747. Hawkins, 79 Fed. Rep. 51 ; Keyser 78 Stockholders' Rights and Liabilities, [ch. vii. A stockholder's liability is restricted to contracts and debts of the bank which have been contracted in the ordinary course of biisiness.^^ Where a bank has been placed into voluntary liquidation a stockholder cannot be held for the claims of new creditors.^^ § 69. Extent of liability. A stockholder in a national bank is liable in proportion to the whole amount of the deficit that his own stock bears to the whole amount of the capital stock at its par value. ^^ A solvent shareholder cannot be required under the law to contribute more than his proportion in order to make good the deficiency of an insolvent shareholder.'*^ § 70. Liable fcr interest. The law holds a shareholder liable for the interest on debts of the bank as well as for the principal.^^ § 71. Representatives of deceased shareholder liable. The representatives of a deceased shareholder cannot defeat a liability, though he dies before the insolvency of the bank.^^ The fact that the title to the stock of a deceased stockholder is vested in an administrator will not relieve the estate from an assessment.^^ § 72. Married woman stockholder. In Vermont (and many other States) a married woman is competent to become a stockholder in a corporation, and to con- tract to charge her separate property with the payment of any liability which is implied from entering into that relation.*^ In Xorth Carolina a Code section 1826 provides, that no woman during coverture shall be capable of making any con- tract to affect her real and personal estate without the written consent of her husband. But the court holds that a purchase of stock by a married woman is not a " contract " within the terms of the statute, and that the wife is liable upon an assess- 37 Richmond v. Irons, 121 U. 8. 41 Case v v. GalH, 94 U. S. 673; 27; Schrader v. Mfg's. Xat. Bank, Richmond r Irons, 121 U. S. 27. 133 U. S. 07. 42 Wickman r. Hull, GO Fed. Rep. 38 Schrader v. Mfg's. Xat. Bank, 32G ; Richmond v. Irons, 121 U. S. 133 U. S. 07. 27. 30 United States v. Knox, 102 U. S. 43 Davis v. Weed, 44 Conn. .'jOn. 422. 44 Witters v. Sowles, 38 Fed. Rep. 40 Schrader v. Mfg's. Nat. Bank, 700. 133 U. S. 67. CH. VII.] Banking. 79 ment, though purchased without the written consent of her husband. In discussing this question, the court says : " To hold that a State law, were there such a law, could except certain shares from the liability, would enable States to defeat the policy of the Federal government in establishing the national banking system. That the Congress has power to establish and legislate for such banks has not, since 1819, been an open question. McCulloch v. Maryland, 4 Wheat. 316. If a purchase of stocks in a national bank by a married woman without the written consent of her husband gives her the owner- ship of such stock, judgment must be given against the femme defendant. If she owned the stock at the failure of the bank, she is liable to the assessment; if she did not, she is not liable. While the Federal government exclusively controls the ques- tion of the liabilities of stockholders in national banks, it is not doubted but that a State has power to say that for reasons seem- ing good to its Legislature, and not in conflict with organic law, a particular class of persons shall not be permitted to o^^m par- ticular classes of property. It may lawfully be provided that a guardian or other trustee may not invest in securities other than those specified by statute. Probably it might be held that a statute might constitutionally provide that purchases by guardians of, say, railroad stock, in the name of their trust, should be absolutely void. In such case it might be held that an attempted transfer of such stock so purchased passed no title; that the stock still remained, although duly assigned and transferred, on the corporation books, the property of the vendor; and that the guardian could recover the money paid from the vendor. It would, I think, require strong and plain words to induce courts to give such a construction to an act of the Legislature." ^^ The law as previously stated is: A married woman may become a stockholder in a State bank where the law of the State in which the contract is made permits it and she will be subject to all the liabilities as such.^*^ A married woman in the District of Columbia may liecome a holder of stock in a national banking association, and assume all the liabilities of such a shareholder, although the considera- tion may have proceeded wholly from the husband. 45 Robinson r. Turrentine, 59 Fed. 4G Bundy r. Cook, 128 U. S. 185. Rep. 554. 80 Stockholders' Eights and Liabilities, [cii, vii. The coverture of a married woman who is a shareholder in a national bank does not prevent the receiver of the bank from recoverinii' jiuloment against her for the amount of an assess- ment levied upon the shareholders eqiially and ratably under the statutes.^^ Where one kno^^'ingly permits his name to be entered upon the stock books of a bank as the owmer, he cannot be permitted as against creditors or a receiver of the bank to show that he was not the owner of the stock, and it is held that he is liable for assessments thereon though he held the stock in fact as trustee for the bank itself.'^^ This is in direct contravention of the law as laid down in the case of McMahon v. Macy, 51 X. Y. 155. Where a stockholder sold stock several months before the insolvency of the bank, but the transfer was not made on the books until the date of the bank's failure, held, that the stock- holder incurred the statutory liability."*^ But where the stockholder has delivered his certiticate of stock with a power of attorney to an officer of the bank, which power of attorney directed him to immediately make the transfer on the books, the owner of the stock will not be held responsible for the failure of such officer to actually m.ake the transfer,"" Where stock has been placed upon the stock book in the name of a person mth the knowledge of such fact, and he fail? to repudiate the transfer to himself, or deny the ownership, he is held liable as the owner of such stock.^^ Where the by-laws of a bank require that the transfer of the stock shall be registered, where a certificate is issued to a subsequent purchaser in lieu of a certificate of a prior owner, such person will be held liable as a stockholder.''" § 73. Executors, administrators, guardians, or trustees not per- sonally liable. Section 5152 Revised Statutes of the United States provide?: That '' persons holding stock as executors, administrators, 47Kevser r. Ilitz, 13.3 U. S. 138; 6;");"); Cox r. Elmcndorf, 97 Tenii. Bxindv r. Cocke, 128 U. S. 185. .518; Hayes r. Shoemackcr, .39 Fed. 48 Lewis r. Switz, 74 Fed. Rep. 381. Rep. 319. 4!)Riclimond r. Irons, 121 U. S. 27. "'l Finn r. Brown, 142 V. S. 50. 50 Whitney r. Butler, 118 U. S. M Lnin4 Lucas r. Coe, 8G Fed. Rep. 972. 6 82 Stockholders' Rights and Liabilities, [ch. vii. § 75. Creditor may sue stockholder of state bank corporations. A judgment creditor who has exhausted his legal remedies against a corporation in California may maintain an action affainst its stockholders to recover for the benefit of all tlie creditors who may desire to come in, and be made party, and collect the amount due upon unpaid subscriptions for stock when the corporation neglects or refuses to collect the same.^** In Indiana the assignee of an insolvent bank cannot main- tain an action to enforce the double liability of shareholders, provided by section 2933 Burns Revised Statutes, 1894 (2684 Revised Statutes 1881). Such action being enforceable only by the creditors. '^^ § 76. Enforcement of individual liability of shareholders under the National Banking Act. By an act approved June 30, 1876, section 2, it is provided: " That when any national banking association shall have gone into liquidation under the provisions of section five thou- sand two hundred and twenty of said statutes, the indi'sddual liability of the shareholders provided for by section fifty-one hundred and fifty-one of said statutes may be enforced by any creditor of such association, by bill in equity in the nature of a creditor's bill, brought by such creditor on behalf of him- self and of all other creditors of the association, against the shareholders thereof, in any court of the United States having original jurisdiction in equity for the district in which such association may have been located or established." § 77. When right of action accrues against stockholder in national bank. A right of action does not accrue against the stockholder holding stock in a national bank until the Comptroller of the Currency has detennined that it is necessary to enforce the individual liability. And the liability of the stockholder can be enforced only in favor of all the creditors.^^ The Statute of Limitations of a State cannot be pleaded as a bar to an action brought by a receiver of a failed national bank against a stockholder. r>6Bainps y. Babcock, 95 Cal. 581. ns Gatch r. Fitch, 34 Fed. Rep. f>7 Runner, Assignee, v. Dwiggins, 566. 147 Ind. 238. CHAPTER VIII. BANK OFFICERS AND AGENTS. § 78. Directors — general discussion of duties and responsibili- ties. The corporate powers, business and property of all corpora- tions formed must be exercised, conducted and controlled by a board of directors. Tlie office of director is one of the most important connected with a banking corporation. Directors have the general control and government of all its affairs. They are the lawful repre- sentatives holding by law the management and direction of all acts aifecting the welfare and prosperity of the corpora- tion. The life of the corporation and its business cannot exist or be conducted without a board of directors. They are delegated with certain powers and duties by law which cannot be transferred or conferred upon agents. A director cannot delegate a responsibility which the statute imposes upon him to specially and personally perform. But for the purpose of carrying into execution the usefulness and management of its details in business many of the powers conferred upon the corporation bank may be delegated to agents created by the board of directors. And while this is true, and although they may not be required to perform all the transactions which daily occur, they are bound to know all that is done beyond the merest matter of daily routine. They are the officers delegated by law with the power to restrain, rule, govern, direct, check, curb, overpower and counteract any and all things affecting the corporation. They cannot pass by-laws, or resolutions, relieving themselves of responsibility, or lialiility, which the law imposes upon them. Being in control of the powers, business and property, all acts however performed by agents of their creation may become their acts. Agents may exceed their authority or violate the same in such a manner that the directors and the corporation. may be excused ; but the general principle of law is, that the acts of the agents are the acts of the principal. [83] 84 Bank Officers a:nd Agents. [cii. viii. The office of a director is one of the most important con- nected with a banking corporation ; but the duties, as a rule, are looked upon as unimportant, and in many cases the neglect of the directors in the performance of their duties bring? disaster to the bank. The failure of directors to perform their duty in the super- vision and management of banks has been the direct cause for the arrest, trial and imprisonment of officers for oifences committed in their official capacity, which could have been obviated bad the directors asserted their power and fully per- formed such duty. The duty of a director begins with his election and con- tinues for one year, or until his successor is duly elected and qualified. The faithful execution and performance of all the obligations and requirements of law are so frequently neg- lected, that to occupy the position of director is one which the occupant himself regards as merely figurative. But such is not the case. The officers of a bank cannot divest the directors of any power imposed upon them by law. They cannot sell any of the property or real estate of the bank unless duly authorized to do so by resolution of the board of directors. And the instrument of conveyance is not sufficient to pass the title to the property, unless it sets out the fact that it was ordered to be executed by resolution, duly passed by the board of directors. It has been held that directors have no authority, directly or indirectly, to use any of the funds, or property of the bank, for purposes other than those properly belonging to the legiti- mate business of banking. They can make no gifts of the corporate property, unless duly authorized by all the stock- holdei*s, No appropriation in any manner of the funds or property of the bank can be made by them, unless it is clearly beneficial and for the material well-being of the bank. They are the guardians of the stockholder, and in reference to the property of the bank are the trustees. If they accept the irust, it is implied that they will use their best efforts to advance and protect the interest of the stockholders. The position being a trust, they arc enjoined by law not to use the same in any cii. VIII.] Bankiis^g. 85 manner to the injury and detriment of the stockholders or the bank. They cannot, by resolution, order the sale of real estate or other property at a consideration below its value and buy the same. A director, acting in the position of trustee, cannot make a jDrofit off of the stockholder, who is the cestui que trust. They are also liable for losses arising from the dii-ection and mismanagement of the affairs of the bank. Where, however, losses occur which arise from unforseen re- sults or mistakes arising from strictly errors of discretion, they cannot be held responsible. Upon the question of notice it has been held that when a director is engaged in the business of banking (and being a director signifies an engagement), notice to him is notice to the bank. It is a well-established principle of law, that if a director takes a part in, or acts for the bank in discounting a note which at the time is known to him to be tainted with fraud or illegality, the bank is affected with this information ; and it is not necessary that he should represent the bank. If he is present at the time and is cognizant of such facts, it is held to be notice to the bank. A director, being a trustee of the property of a corporation, is held while acting as such, especially in savings banks-, to a strict account. It becomes his duty to take part in all pro- ceedings held or acts done; while he is present at directors' meetings, he cannot close his eyes and remain passive while his co-directors are wasting by improvident investments the property and moneys of the bank. It is his duty not only actively to oppose measures passed by his associates which are unlawful, but also to invoke the law to restrain its continu- ance, and through the aid of the law seek to set aside such actions, and recover property and money which has been un- lawfully disposed of in such cases. The law imposes certain duties which are obligatory and from which a director cannot be excused. A failure to per- form duties which the laws impose makes the director wlio wilfully neglects such duty, after being duly qualified in oflice, liable in civil damages to the person, or persons, injured by such gross neglect. A director cannot excuse liimseK from statutory duties, and SQ Bank Officers and Agents. [ch. viii. grossly ignore the law, which defines the obligation resting upon him. Where the position is accepted and capital is entrusted to the care, management, or investment under the direction of a board of directors, whose duties are defined, and they wholly, wil- fully, and negligently fail in the performance of their duties to such an extent as, through such negligence, results in loss, they become civilly liable. They may become criminally liable by a failure to observe and comply with mandatory laws enacted by the Legislature. A failure to make a report when required by the statute to be made within a certain time^ and at a fixed period, whereby such failure the purpose in non-compliance is to defraud or withhold information which is required to be made public, becomes a criminal act. It is also a misdemeanor for a director to make false entries in any book, report or statement of the bank, with the intent to deceive the officers of the law. Where the directors have taken any portion of the assets of a bank, and in violation of law distributed the same as a divi- dend which the bank has not earned, and where they receive a portion in such distribution, they become civilly liable and their acts may be a misdemeanor, l^o part of the capital of a ccrporation can be withdrawn in such a manner. They cannot in any manner appropriate any portion of the ])roperty of the corporation for any purpose other than that duly authorized by law. The responsibility resting upon a board of directors govern- ing a bank is more onerous than upon a board of directors that may preside over corporations which do not hold, in trust, money belonging to the general public; consequently there is a greater degree of responsibility which the law imposes. This degree of responsibility is created in the very nature of the business of the corporation over which they preside. Their duties extend beyond the mere fulfillment of the man- datory provisions of the law. They serve more in the capacity of a trustee, and are bound by the principals of law governing that office. They are an advisory board, and are clothed with power of direction as to all the affairs and workings of the bank. CH. VIII.] Banking. 87 They are also guardians of the stockholders and the de- positors. It becomes their duty to make examinations into the management of the bank's affairs ; also to employ such agents as are qualified to conduct a business of such peculiar responsi- bilities. They have the selection of the president of the bank, the cashier and other clerks who perform the clerical work, and when selected they become in law the agents of the board of directors ; and their acts, if performed within the scope of their instructions, authority, and duties, are the acts of the board which have been simply delegated. The question of liability of the principal for the acts of his agent is one largely resting upon the facts, but the general principle of law, as is w^ell kno"s\Ti and defined, is that the prin- cipal is liable for the acts of his agent. A violation of authority by an agent, especially where the party dealing -svitli the agent has knowledge, or has reason to believe, that the agent is acting beyond his authority, will relieve the principal of liability; but if an agent of a banking corporation has been permitted, with the knowledge of the board of directors, to perform certain acts not delegated to him or authorized, which are unlawful, and they have been sanctioned by the directors as between the bank and the party dealing with it, with knowledge, the agent is excused; and the bank held responsible. The directors are, in such cases, personally responsible. The loss does not fall on the bank. It will be seen that the position of a director in a banking corporation is one of great importance and responsibility. The board should also understand the liability of the bank to its depositors, and creditors, as well as the character of de- positors and borrowers. The reputation of a bank is made up not only by the char- acter and standing of the ofiicers in charge, but as well from the character of its customers. The directors should know that the class of business to be encouraged by the bank is of a character that will establish confidence. It is also a part of their duty to become familiar with the habits of its employees; and if they discover that they are speculating, living beyond their means, or have such habits 88 Bank Officers and Agexts. [ch. viii. as if knoT\'n to the general i^iiblic, would bring discredit and possibly ruirmpon Ike bank with the public, it is their duty to dispense with such services at once. It is frequently said as an excuse for retaining an officer ^whose habits, if publicly known, would bring disgrace upon the bank, that " his ability was unequaled, the l)ank could not afford to dispense whh. him. Xo one in the community could be found to take his place." Such excuses should never prevent a director from doing his duty at once by offering a resolution to vacate the position, and fill it by a person whose character for honesty, truth, and morality has at least never been questioned. Such are some of the unwritten duties or implied laws imposed upon directors of a banking corporation. The directors of a bank, being its trustees and acting in the relationship of a guardian of its depositocrs, must never be sweiwed from doing their whole duty. If they are in posses- sion of facts that an agent or employee engaged by them to conduct the affairs of the bank is an incompetent person, and being incompetent makes losses which they might expect by reason of this incompetency, they have ^not fully performed their duty. They have been guilty of negligence, which may be of such a degi-ee as to be defined as gross negligence. The responsibility of conducting a banking corporation is too frequently given over to the manager, president, or cashier of the bank. It does not always abide "with the president to make the bank a success, or prevent its ruin and collapse. If the directors do their duty, success may be easily attained or failure prevented. Directors should have compensation for their seiwices and may vote themselves reasonable pay for services performed, if •authorized by the stockholders, and charge fhe same to expense; and should be held responsible for the failure of the bank, where it is shown that by reasonable diligence and attention to their duties it could have been by their actions j)revented. § 79. Directors of national banks. The sections of the Revised Statutes of the United States relating to the election, qualification, and other duties, powers, and limitations of directors in a national bank, are as follows: CH. viii.] Banking. 89 Election of directors. Section 5145. The affairs of each association shall be man- aged by not less than five directors, who shall be elected by the shareholders at a meeting to be held at any time before the association is authorized by the Comptroller of the Currency to commence the business of banking; and afterward at meet- ings to be held on such day in January of each year as is speci- fied therefor in the articles of association. The directors shall hold office for one year, and until their successors are elected and have qualified. Qualifications of directors. Section 5146. Every director must, during his whole term of service, be a citizen of the United States ; and at least three- fourths of the directors must have resided in the State, Terri- tory, or District in which the association is located, for at least one year immediately preccdina: their election, and must be residents therein during their continuance in office. Every director must own, in his own right, at least ten shares of the capital stock of the association of which he is a director. Any director who ceases to be the owner of ten shares of the stock, or who becomes in any other manner disqualified, shall thereby vacate his office. Oatli required from directors. Section 5147. Each director, when appointed or elected, shall take an oath that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such associa- tion, and will not knowingly violate^ nor permit to be violated any of the provisions of this title, and that he is the owner in good faith, and in his own right, of the number of shares of stock required by this title, subscribed by him or standing in his name on the books of the association, and that the same is not hypothecated, nor in any way j^ledged, as secu- rity for any loan or debt. Such oath subscribed to by the director making it, and certified by the officer before whom it is taken, shall be immediately transmitted to the Comptroller of the Currency, and shall be filed and preserved in his office. 90 Baxk Officers and Agents. [cir. viii. Vacancies, lioic filled. Section 5148. Any vacancy in the board shall te filled hy appointment by the remaining directors, and any director so ajjpointed shall hold his place until the next election. Proceedings ivhere no election is held. If from any canse, an election of directors is not made at the time appointed, the association shall not for that cause be dis- solved, but an election may be held on any subsequent day, thirty days' notice thereof in all cases having been given in a newspaper published in the city, town, or county in which the association is located; and if no newspaper is published in such city, town, or county^ such notice shall be published in a news- paper published nearest thereto. If the articles of association do not fix the day on which the election shall be held, or if no election is held on the day fixed, the day for the election shall be designated by the board of directors in their by-laws, or otherwise; or if the directors fail to fix the day, shareholders representing two-thirds of the shares may do so. The president of the hoard must he a director. Section 5150. One of the directors, to be chosen by the board, shall be the president of the board. A married woman, where the laws of the State permit her to assume the obligations of a stockholder, may also be a director. All the directors may be women. The Comptroller of the Currency requires that a director must qualify by taking the oath prescribed by the department, which oath when taken must be filed with the Comptroller. § 80. Directors of State bank. The statute of the State wherein the bank is incorporated provides for the qualifications and number of directors re- quired, setting forth the mode of their election, and fixing the term of ofiice; and also prescribes their duties, powers, and limitations; and for Avhat causes they may be removed from ofiice. A statute defining the duties, powers, and limitations of the directors, is construed as a mandatory statute and not directory. The directors derive all their powers from the statute and the charter of the corporation; and have no powers other than cii. VIII.] Baxkiis^g. 91 the exi^ressed provisions of law, and the charter, together with snch implied and incidental powers as are necessary to carry out the purposes of the corporation. " The Lest settled conclusion of judicial opinion in this country is that they are general agents " of the corporation.^ § 81. Directors' meetings. After the directors have qualified, where the laws require such qualification, they are then authorized to carry into effect their duties and powers and the purposes of the corporation. Their meetings, if the time and place are provided for in the charter, must be held at such time and place. If the charter does not provide for the time and place of meeting, the statute of the State generally designates the manner of calling meetings. In the absence of a statute, charter, or by-law, providing the time and place of holding directors' meeting.3, they may be held without the limits of such State if desired.^ § 82. Place of meeting and notice. When by-laws have been adopted by the bank providing how, when, and where meetings shall be held, a meeting held by the directors, at a time and place in contravention of the by-laws, is illegal. Notice. In the absence of a by-law, a personal notice of the meeting should be given to each member of the board. Personal notice may be waived.^ Where the statute or by-laws prescribe the mode or manner of notice, a failure to give such notice renders the meeting illegal. It has been held, however, in the case of American Ex. Xat. Bank v. First Xat. Bank, 82 Fed. Rep. 961, that if the directors of the bank have long joursued an established custom of holding meetings and transacting business at the bank, during business iGl Pa. St. 202. 48 Vt. 266, 86 1,5 Nev. 283; Hanna r. Co.. 23 Ohio 111. 220; 24 Conn. .591. St. 622. 2 Thompson r. Co., 58 Miss. 423; 3 Bank v. McCarthy, 55 Ark. 473, Lead Co. r. Reinhard, 114 Mo. 218, 18 S. W. 759; B. B. R. Co. v. Buck, 21 S. W. 488; Bassett v. Mining Co., 68 Me. 81; Library v. Association, 173 Pa. St. 30. 92 Baxk Officers and Agekts. [ch. viii. hours, whenever a sufficient number ^vere present, the custom wouhl carry with it a standing notice to each director; and enable those present to proceed in the absence of a controlling bv-law or statute. The notice is not waived except in the absence of a controlling bv-law or the statute. § 83. Number necessary to constitute a quorum. A majority of the board of directors in all the States, possibly with the exception of the State of Oregon, is necessary to constitute a quorum for the transaction of business. The gen- eral rule is, that a majority of the quorum has the power to bind the corporation.'* Where the statute fixes the number necessary to transact business, any action taken by a less number will be illegal § 84. Directors of national banks must act as a unit. The court in the case of Xational Bank v. Drake, 35 Kans. 564, in the discussion of the question as to the power conferred upon the directors acting for a national bank, says: '' The only powers conferred by statute upon the directors of a national bank are vested in them as a board, and when acting as a unit, and therefore the majority of the individual members of the board acting separately and singly is not the assent of the bank, and is not binding upon it." § 85. Board electing officers of bank. The board of directors is generally empowered by hiw, and it becomes its duty to elect the officers of the corporation, and employ clerks, and agents of the corporation, fixing their salaries or compensation. If the statute or charter does not authorize the board of directors to choose or elect the officers, the power lies and is vested in the stockholders.^ § 86. Vacancies in the board. Where the statute does not expressly provide otherwise, the law implies that a director may hold his office after the term 4 Ten Evck r. Pontiac, etc., Co., 5 Beardsley r. Johnson, 121 N. Y. 74 Mich. 226, 41 N. W. 905 ; Ho^'t 224, 24 N. E. .380 ; Re A. A. G. Iron r. Thompson, Executor, 19 N. Y. Co., 03 N. J. Law 168-357, 41 Atl. 207. 931. cir. VIII.] BAXKi^fG. 93 for Yvliicli lie was elected, aud until the election and qualifica- tion of Kis successor. Where vacancies occur in the board, they must be filled as provided for bj the statute. In the absence of a charter or statutory provision or a by-law, especially giving the power to the board to fill a vacancy, it can be filled only by the stock- holders. § 87. Duties which cannot be delegated. A duty imposed upon the board of directors by the statute to be personally performed cannot be delegated to a com- mittee or agent of the bank.*" They may delegate certain powers by the enactment of a by-law or a resolution, and confer thereby executive authority to a committee or an agent ; but where the statute or charter of the corporation specifically defines an act or duty to be per- formed by the directors, they have no power to set aside the law, and appoint agents to do the very things Avhich the law requires them personally to perform. The general and well established rule is, that all corporate contracts are to be made by the directors. The directors of a corporation are its chosen representatives, and as such they constitute the corporation, to all purposes of dealing w^th others. What they do TNdthin the scope of the objects and purposes of the corporation, the corporation does.'^ § 88. Cannot delegate authority to make discounts. They cannot delegate, to an officer of the bank, the author- ity to make discounts, generally; that is, give unlimited power to an officer to loan the funds of the bank to any person or persons who might make application therefor. It may be stated, that this inalienable duty, Avhicli is vested in the board of directors, and which neither by a by-law nor resolution, can be generally delegated to another, is a duty which is more frequently neglected by the board of directors than any other duty imposed by law upon them personally to perform. The board of directors themselves are frequently ignorant of the law, and their duty in this respect ; and just as fre- quently, the manager or cashier of a bank assumes that the « T.vons /-. Jerome, 20 Woml. 7 ^rnvnard r. Firemans' Fund &, (X. Y.) 484. . Ins. Co., 34 Cal. 48. 94 Bank Officers and Agents. [ch. viii. right to make loans and disconnts for the bank is an implied authority, and the power vests in him as a matter of custom or right. Following the general rule, that all corporation contracts are to be made by the board of directors, every borrower of the bank's funds who enters into a written promise to pay the bank a sum of money loaned by it to him, has a contract which must be autlu rized, or ratified by the board of directors. Upon examination of the principle, and reasons for the rule, it is found to be a safe and sensible law. The directors are held by a majority of the courts, at the present time, to be the trustees of the funds and property of the banking corporation ; and such funds cannot be loaned nor invested without authority emanating from the board of trus- tees, who are held responsible for them. The loans and discounts may be authorized, and the execu- tive part of the business performed by the cashier, president, or other agent of the bank ; but the officer has no inherent au- thority in the absence of a resolution or direction coming from the board of directors, to make loans to any person or persons. In xvTew York in the case of Bank Commissioner v. Bank of Buffalo, 6 Paige Chancery (N. Y.) 497, it is held, that where the board of directors authorized their cashier or president, or any other officer of the bank, to make loans and discounts in his discretion, without having the same passed upon form- erly at a meeting of the board, the corporation is liable for a violation of its charter. The directors may, by a single resolution, authorize the cashier to make loans to a certain person, firm or corporation, up to a certain amount, and in this manner delegate their authority; but beyond this it has been held, that a general resolution passed by the board of directors, authorizing the cashier to discount notes and make loans generally, to those making application, and desiring to borrow, is not within their power or authority. If loans have been made by an officer of the bank without authority obtained from the board of directors, they may afterward be ratified by the board, and such ratification legal- izes the act. cir. VIII.] Banking. 95 Discounting notes is the principal business of a bank; its resources almost entirely consists of its bills receivable. The deposits of the bank are placed with the bank by the de- positors upon an implied theory, that when invested or loaned, they are to be loaned and invested by the trustees or directors with reasonable care and diligence. And the making of the investments for the bank is a duty and an inalienable function belonging to the board of directors. § 89. Cannot delegate statutory duties. The directors cannot delegate any statutory duties imposed upon them by the law to perform. "Where they are required to make a report to an officer of the State at periods named by the statutes, as to the condition of the affairs of the bank, and are required to prepare a statement of its condition, they cannot delegate the authority and substitute a statement made by the officers of the bank; and where such a statement is re- quired of them, they must make an examination into the affairs and conditions of the bank, and upon the examination base their statement and report. Where they are required by law to make a report of the condition and affairs of the bank to an officer of the State, or for publication, and they fail to inform themselves of the condition of the bank, and make a report which is false, they are held personally liable to the stockholders and creditors of the bank. § 90. Powers and limitations. Power to sell property of bank. The power to sell the property both real and personal of the corporation, when not expressly vested in the stockholders by the statute, is one which the directors alone can carry into effect. This is done by a resolution duly passed at a meeting- called for that purpose, or at a regular meeting when a sale of the property of the corporation may be authorized. The resolution of authority should describe the property to be sold, and the consideration to be received by the bank. It should also direct that the president and secretary of the cor- poration, in the name of the corporation, be authorized to execute the conveyance. The conveyance should show when 96 Bank Oflicees aicd Agents. [cii. viii. executed that the sale was duly authorized by the hoard of directors, and that the instrument of conveyance was directed to be made, by the officers, for the corporation. The power to sell and convey property of the bank corporation is vested in the board of directors only.^ § 91. Limitation of power. No power. They have no power to increase or diminish the capital stock of the bank in any way except as expressly authorized by the law. The shareholders alone have the power to order an increase of the capital stock.^ § 92. Assessment of shares — National banks. The directors cannot order an assessment upon the shares of stock in a national banking corporation, for impairment of capital. The assessment must be made by the stockholders.^'* § 93. Directors cannot give away property of bank. The directors have no power to give away any portion of the bank's property, but the stockholders by a unanimous action may do so.^^ § 94. Cannot settle with cashier for his deficits. Tliey have no power or authority to make a settlement with the cashier whose accounts exhibit a deficit in the funds; but the fraudulent conduct of the director of the bank would not annul nor make it void unless the cashier was also guilty of fraud.i- § 95. Assuming debts of others. They have no power to assume the debt of a third person, except in case of urgent necessity. In the discussion of this question the court in the case of Stark Bank v. U. S. Pottery Co., 34 Ver. 144, says: " The directors had no such power unless under the circum- stances there M'as an urgent necessity of doing it in order to sCasliwiler v. Willis, 3.3 Cal. 11. ii Frankfort Bank v. Johnson, 24 :» Kidmand r. Boman, ,58 111. 444. Me. 490. 10 Rev. St. U. 8., § .5205; Hulilt 12 Frankfort Bank r. .John.son. 24 r. Bell, 85 Fed. Rep. 98. Me. 490. CH. VIII.] Banking. 97 save the credit of the company, and enable them to go along with their business. If there was such necessity making it for the interest of the company to enter into such arrange- ment, it was within the scope of their powers as directors, otherwise not."^^ § 96. Cannot take advantage of position for profit. The directors are precluded, by the acceptance of the trust, from making any use of their power, or of the corporate prop- erty for their o^vn advantage.^* The stockholders confer the trust power upon the board of directors, and this power must not be used with a purpose to injure or destroy that interest. ^^ Courts of equity will not permit directors, in the exercise of their duty as such, to make a profit for themselves to the ex- clusion of the other stockholders.^® It is a well settled principle of law that where a director of a bank loaned the money of the bank, and took from the borrower a note running to the bank for the principal sum loaned, at a rate of interest therein stipulated, but at the same time, and as a part of the same transaction, made an agree- ment with the borrower to permit him to participate in the profits of a purchase and sale of certain lands, it is held that the director will not be permitted to retain for himself the profits thus contracted for, but that such profits must be sur- rendered to the bank, to be participated in by all the stock- holders. Xo stockholder has the right to use, in any manner, any portion of the funds of the bank to the advantage of him- self and as against the rights of the other stockholders. The directors of a corporation are its chosen representatives, and constitute the corporation for all purposes of dealing with others. All acts done within the scope, purpose, and object of the corporation, by the directors, the corporation does, and are binding. The corporation is bound by the acts of directors in whatever they may do, if done in good faith and without fraud, upon their rights. 13 Seeberger r. McCormick, 178 15 Wright v. Oriville Mining Co., 111. 404. 40 Cal. 20. 14 Wickersham v. Crittenden, 'j3 16 Oakland Bank of Savings v. Cal. 17. Wilcox, 60 Cal. 126, 93 Cal. 29. 98 Bank Officers and Agents. [cii. viii. The directors of a bank are prohibited from making an illegal loan, or becoming an accommodation endorser for the bank. But where snch transactions a]>]:)ear to be regnlar, and within the authority of the bank, third parties acting with the bank, withont notice of a willful or wrongful purpose, the bank cannot avoid its liability. But where they borrow money, supposedly for the use of the bank but with the intention to use it for a different pur- pose, the lender being aware of their intent and purpose, the bank will be relieved from such indebtedness. § 97. Discretionary power. It is held that the directors of a national bank have dis- cretionary power, and it is left within their sound judgment and discretion in the matter of requiring an officer of the bank to gnve bond. The same opinion holds that certain special circumstances may arise making them personally liable if they fail to require bonds.^^ § 98. Safe rule. The only safe rule is to require bonds from all the officers and clerks (at least those entrusted with the moneys) of a bank, holding responsible positions. It would seem to be a part of the duty imposed upon the directors, and not a dis- cretionary power to be used at their election. It has been too frequently discovered after a bank has suffered through neg ligent or criminal acts of its officers, that the opinion or dis- cretion of the directors was worthless. § 99. Releasing debt. The board of directors may release a debt owing to the bank, if by doing so it can be sho\vTi that it is clearly an ad- vantage to the corporation. Touching the same question, it has been held, that where an officer or an employe is in defaut to the bank, the directors may settle with him upon such terms as will best subserve the interests of the bank.^® 17 Robinson v. Hall, 63 Fed. Rep. Frankfort Bank >: Johnson, 24 Me 222. 490. 18 Jones V. Johnson, 86 Ky. 530; en. VIII.] Banking. 99 § 100. Releasing subscriber to capital stock. The board of directors have no power to release a subscriber to the capital stock of the corporation; but if they can make any arrangement vith him in settlement without loss to the bank or its creditors, it would seem that they would have the power to do so. The Supreme Court of the State of Illinois, in the case of Mcl^ulta V. Corn Belt Bank, 164 111. 427, in discussing this question, says : " The effect of the resolution and what was done under it was to release the original subscribers to the capital stock from the obligation to pay their subscription. * * * It has been settled by very numerous decisions that the directors of a company are incompetent to release an original subscriber to its capital stock, or to make any arrangement with him by which the company, its creditors, or the State, shall lose any of the benefits of liis subscription. Every such arrangement is regarded in equity, not merely as ultra vires, but as unjust to the other stockholders, and to the creditors of the company," § 101. Securing preferred creditor. Where a creditor of a bank has established his debt as a preferred claim, the board of directors may dispose of prop- erty to satisfy or secure such a creditor.^^ § 102. Removing employes. The board of directors have the power to remove an officer or employe of the bank, for sufficient cause, at any time. But if such employe is removed from any State bank upon a contract of employment for a fixed period of time, without a good and sufficient cause, such employe may hold the cor- poration liable. In the case of Gabriel v. Bank of Suisun, 145 Cal. 266, the Supreme Court says : " AVhere after the expiration of an agreement respecting wages and term of service, the parties continue the relation of master and servant, they are presumed to have renewed the agreement for the same wages and term. The Bank of Suisun employed a bookkeeper, for the year 1898, at an annual salary 19 Stevens r. Hill, 29 Me. 133; Parker r. Carolina Savings Bank, oS S. C. 583. 100 Bank Officees and iVoENTs. [ch. VIII. of $1,200, payable monthly, and be continued in tbat emplov- ment during tbe first two montbs of 1899. He was tben discharged and be sued tbe bank for $1,000, tbe balance of bis salary for tbe year. There was a judgment of tbe Su- perior Court for the amount against the bank, and tbe Supreme Court has finally decided tbe case against the bank, saying: * Tbe presumption arises tbat tbe employment was renewed for the same wages and term as for the previous term.' " Under tbe provisions of tbe Xational Banking Act, tho board of directors may remove tbe officers named in said act, without cause, at any time. A provision of said act, reads as follows: Fifth. " To elect or appoint directors, and by its board of directors to appoint a president, vice-president, cashier and other officers, define their duties, require bonds of them, and fix the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places." The court, in the case of Taylor v. Hutton, 43 Barb. 195, in discussing this provision of the law, says: " I think this construction of the act, as having reference to tbe directors to do these things, and not to tbe stockholders, is quite plain. " It does not seem to be at all necessary tbat any by-laws should be adopted, before a president may be chosen or re- moved and another appointed in his place. This power is expressly given to the board, irrespective of any by-laws, both by the articles of association and by the act of Congi-ess. Besides, it is a power tbat might be required to be exercised or that it might be expedient to exercise, prior to tbe adoption of any by-laws." The board of directors derive this discretionary power to remove an officer elected by them only when such power is conferred upon them by law. g 103. Courts declare that directors are trustees. The leading authorities in discussing the nature of the office of director in a banking corporation hold, tbat their position is in the nature of a trust, and they are held to a strict account. Tbe nature of tbe business over which they preside clearly establishes this relationship. They owe a duty to the public. cii. VIII.] . Ba:^king. 101 to the depositors, and to the stockholders, and they are not permitted by law to acquire any interest adverse to the stock- holders of the bank. As previously stated they cannot make a profit ont of the business and withhold^ a division from the other stockholders. The rule of law relating to the duties of a trustee is well established, that he cannot in any manner make a profit from property held by him in trust. The law will not permit a trustee to prove " an honest in- tent." The Supreme Court of the State of California, in the case of the Farmers and Merchants l^ational Bank of Los Angeles V. John G. Downey, 53 Cal. 466, where it was shown that one of the directors of a bank loaned the moneys of the bank, and took from the borrowers a note running to the bank for the principal sum loaned, but at the same time and as a part of the same transaction, made an agreement with the borrowers, that they should permit him to participate with them in the ])rofits of a purchase and sale of certain lands, — held that the director could not be permitted to retain for himself the profits thus contracted for, but must surrender them to the bank to be participated in by all the stockholders. The court in discussing their relationship to the bank, says " He was its trustee." The court again says, " The directors are the trustees and are managing partners, and the stockholders are the cestuis que trust, and have a joint interest in all the property and effects of the corporation, and no injury that the stockholders may sustain by a fraudulent breach of trust can, upon the general principles of a Court of Equity, be suffered to pass without a remedy." § 104. Misappropriating bank funds. A director of a bank cannot use or appropriate any of the funds of the bank, to retain or pay an attorney to defend him in a suit brought by a stockholder against him.^*^ § 105. Rights of directors. May horroiv money from hank. The law does not, unless by special provision, refuse to a director the privilege of borrowing money from the bank over 20 Percy i: Millandon, 3 La. .568. 102 Ijaxk Officers and Agents. [ch. vrii. Avliich he presides. The statutes of many States have, how- ever, enacted inhibitive provisions, upon this subject, in so far as savings banks are concerned, and will not permit a director either directly or indirectly to borrow from his own bank. The Xational Banking Law permits a director to borrow as any other customer, but specifically provides, that no person shall be permitted to borrow to exceed one-tenth of its capital actually paid in. Where there is no prohibition to borrow, his application must be treated as the application of a stranger, and he is excluded from using his influence to secure the loan with the other mem- bers of the board; and from voting upon the application. It is not necessary that he should withdraw his presence from the room, but he must take no part or action relating thereto. AVhen the law prohibits a loan to a director, and one is made in violation of the charter or statute, the bank may collect the same. In the case of Britain v. Oakland Bank of Savings, 134 Cal. 282, the court in discussing this question says: "At the time of the transaction between Bowman and the bank he was a director in the bank. The Civil Code declares that no director or officer of any savings and loan corporation must directly or indirectly for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation. And declares that the office of any director or officer, who acts in controvention of this provision of the law, shall immediately thereupon become vacant. * ^ * Xhe obvious purpose of this section of the code invoked and relied upon was to protect savings banks and their depositors. To hold therefore, that if the deposits or funds of such a bank should be borrowed by any of its officers, directly or indirectly, no action could be maintained by the bank to recover the money, would often work a great injustice and wrong. The bank therefore could have sued Bowonan to recover back the money loaned." If a loan or discount is knowingly made for the benefit of a director of a bank or of a firm with which he is connected in interest or as a co-partner, it is held to be a loan or discount to such director within the intent and moaning of the statute CH. VIII.] Banking. 103 limiting the amount of loans and discounts to directors of banks.^^ Some of the States have enacted laws limiting the amount which may be loaned by a bank to any one person, firm, or cor- poration ; and many of the States have enacted laws pro- hibiting officers and directors of savings banks from directly o:* indirectly borrowing any of the funds of such bank. The statute of California is silent upon the rights of directors to borrow from commercial banks over which they preside. A director has the right to examine the books of the corpora- tion at any time, and cannot be excluded by a by-law which may deny this right to him. The right is a personal rights belong- ing to his office ; and a by-law, which may attempt to fix a time for the examination of the books of the corporation in so far as it affects the rights of a director is unconstitutional, and invalid. If the right is denied him by the other directors, or officers of the bank, to examine the books, he may apply to the court for a writ of mandamus.^^ § 106. Notice to the board. The general rule as to what constitutes notice to the board may be stated as follows: The board as such is charged with notice of a matter when, assembled at a meeting, and a member or other person discloses or mentions a matter. The fact that they, as a board, do not at such meeting discuss the matter presented to them, makes no difference. The matter has been sufficiently presented when mentioned at a meeting and they are bound by such a notice. If they have received notice of a matter which should be immediately acted upon, and they fail to act, and a loss occurs to the bank through such failure, they are liable. The rule above stated, is fully supported by the court in the case of Bank of Pittsburgh v. Whitehead, Sproul & Co., 10 Watts (P. A.) 397, where the court in discussing the question says: " Publication of dissolution in a newspaper, taken by the officers, and paid for by the bank, may not be constructive notice to a bank which had, as in this instance, previously 21 Bank Commissioners v. Bank of 22 People r. Throop, 12 Wend. Buffalo, 6 Paige, Chy. (N. Y.) 497. {X. Y.) 183. 104 Bai^^k Officers and Agents. [ch. viii. dealt M-ith the firm; but when the fact of dissolution, gleaned from that, or any other source, is stated before the board by a member of it, and made a subject of conversation during the very transaction, it is impossible to doubt that the bank is to be affected^ because knowledge of the fact material to be known is a part of the res gestae. There cannot be a question, there- fore, that knowledge imparted to the board, as was done here, by a director at a regular meeting, is notice to the bank." § 107. When the law imputes knowledge. It is held by the Court of Appeals of the State of Missouri, that where directors have had, for many years, complete man- agement of a bank, they are imputed by law to know of its con- dition and are therefore charged with knowledge of its insolvency. The Supreme Court of the United States, in the case of Martin v. Webb, 110 U. S. 7, says: " Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condi- tion of its business and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect the officers of the bank, and to make declarations of dividends. That which they ought, by proper diligence, to have known as to general course of busi- ness in the bank, they may be presumed to have known in any contest between the corporation and those who ai;e justified by the circumstances in dealing \vith its officers upon the basis of that course of business." § 108. Notice to a director. The general rule is that the bank has notice if the director receives or acquires the notice in his official capacity, or if act- ing as agent, or attorney in charge of a matter for the bank. His knowledge is, then, knowledge to the bank. The Supreme Court of the State of Massachusetts holds that if a director of a bank, who acts for a bank, in discounting a note, has knowledge that the note was procured by fraud, the bank is affected with his knowledge. The court says: " But if the director who has such knowledge acts for the bank in discounting the note, his act is the act of the bank and CH. VIII.] Banking. 105 the bank is affected with his knowledge. A bank, or other corporation, can act only through its officers, or other agents. As in other cases of agency, notice to the agent, in the course of a transaction in which he is acting for his principal, of facts affecting the nature and character of the transaction, is con- structive notice to the principal." ^^ Where, however, a note is discounted by a bank, the mere fact that one of the directors knew the fraud, or illegality, will not estop the bank from recovering.^'* It is held in the case of National Bank v. ISTorton, 1 Hill (N. Y.) 572, that notice of dissolution, published in a news- paper, and thus accidentally reaching a bank director, is not equivalent to actual notice to the bank, especially where, by the provisions of the charter a director has not power to act for the institution, save in conjunction wnth others. In dis- cussing the question of notice, the court says : " He happened to know the fact of dissolution^ as a director or other corporator may do, without perhaps being aware that the bank could be prejudiced by it. Not having any intima- tion that it was material, it is too much, even if the point were in the case, to insist on a presumption that he ever communi- cated the fact to the board. Not having acquired his knowl- edge as director, there is no room for presumption either on the ground of duty or interest. In The Fulton Bank v. Bene- dict,. 1 Hall (N. Y.) 480, 497, 557, the judge told the jury that notice to a director who appeared to have had charge of the business to which it related was not notice to the bank, unless communicated to the board, or to the officers of the bank. Oakley, J., said the charge was too narrow for the case; adding, ' I think that under some circumstances, notice to a director ought to charge the corporation, as where the director acts in any particular business as the special agent of the bank, as in the case of Bathbone. He was one of a committee to inquire as to this very notice,' etc. The "Washington Bank v. Lewis, 22 Pick. 24, 31, takes the same view of a director's agency. In the Hartford Bank v. Hart, 3 Day, 491, 5, the court said, ' The 23 Suit V. Woodhall, 113 Mass. ham, 24 Pick. (N. Y.) 270; Wash- 391 ; Bank of U. S. v. Davis. 2 Hill ington Bank v. Lewis, 22 Pick. 451. (N. Y.) 24. 24 Commercial Bank v. Cunning- 106 Bank Officers a^d Agejn'ts, [ck. viii. directors have certain powers resulting from their act of incor- poration, and are, for certain purposes, agents, and their acts, v.'hen in strict relation to their agency, are binding on the cor- poration.' See also SteAvart v. Huntington Bank, 11 Serg. & Eawle, 267, 269, and Hajward v. The PilgTim Society, 21 Pick. 270. These cases show, what is indeed quite plain, that the acts of a director or other officer of a corporation, unless official, or in respect to his agency, are no more operative as against the institution than the acts of any ordinary corporator; and these no more so than the acts of a stranger. " In the case at bar, the learned judge held that proof of publishing the notice, and actual knowledge in the director whose duty, as one of the board, it was to pass on the discount and renewal of notes, and who w^as therefore to be regarded as the agent of the plaintiffs, was sufficient proof of their knowl- edge. In this we think he erred. The board were the agents for the purposes mentioned, and they should acquire this sort of knowledge as such, or at least the firm should show notice brought home to some other agent specially authorized by the bank, or by the course of their business, to receive it." In the case of Fairfield Savings Bank v. Chase, 72 Me. 226, it is held that a notice to a bank director, or trustee, or knowl- edge obtained by him, while not engaged either officially, or as an agent or attorney in the business of the bank, is inoperative as a notice to the bank. The rule, as laid down in this case, is stated as follows: " A single trustee or director has no power to act for the institution that creates his office, except in conjunction with others. It is the board of directors only that can act. If the board of directors or trustees makes a director or any person, its officer or agent, to act for it, then such officer or agent has the same power to act, within the authority delegated to him, that the board itself has. His authority is, in such case, the authority of the board. I^otice to such officer or agent, or attorney, who is at the time acting for the corporation in the matter in question, and within the range of his authority or supervision, is notice to the corporation." In California, in the case of Balfour v. Fresno Canal Co., 128 Cal. :3!)r), the rule is laid down as follows: '* A corporation must be presumed to have full notice of all CH. VIII.] Bankiis^g. 107 the facts which are known to its president affecting its interest. It is his dntj, as the head of the corporation, to report the same to the trustees, and it is usually conclusively presumed that .he has done so." The court says : " The president of a corporation is the proper person to whom notice which is to affect a corporation is to be given. The corporation has no ears, eyes, nor under- standing, save through its agents. The president is considered the head of the corporation, and it is his duty to report to the trustees information affecting the interest of the corporation. And the presumption is that he does so. Usually this is a conclusive presumption." The question is again discussed by the court in California, in the case of McDonald v. Randall, 139 Cal 246. The case was tried on an appeal from the Superior Court of Humboldt county. The lower court found the following facts : '' That the said Randall Banking Company purchased said note and mortgage in good faith and in the ordinary course of business, and for value before its maturity and in ignorance of the fact that as to Margaret H. McDonald it was given without consideration, or for a debt, which was barred by the Statute of Limitation." The Supreme Court in its opinion says: " This finding, if sustained by the evidence, is determinative of the case against the appellants. It is contended, however, that this finding must be held to be unwarranted, because it appears, and the court found, that Randall was the president of the bank and knew of the consideration of the note. But when he procured the bank to take the note as part payment of his indebtedness, he was acting individually and at arm's length to the bank, and his knowledge was not the knowledge of the bank. The same may be said of the former secretary, Murray, who was absent when the bank acted in the matter of accepting the note and mortgage, and who obtained his knowl- edge while acting for Randall individually; and also of Roberts, who was elected secretary on the day the bank' acted, and who presented the note and mortgage to the bank for and as agent of Randall. The note and mortgage were accepted at a meet- ing of the board of directors of the bank, at which were present Hill, the vice-president, and four of the other directors. Ran- 108 Bank Officers and Agents. [ch. viii. dall not being present. Neither Hill nor any other of the directors knew that the consideration of the note was an out- lawed indebtedness. The fact that some of them kne"w, or should be held to have known, that shortly before the making of the note and mortgage the property covered by the mort- gage had been conveyed to the plaintiff by her husband — it formerly having been community property — and that the conveyance had been recorded, is of no significance. The validity of the transaction here involved was in no way depend- ent upon the time at which she acquired title to the mortgaged pi-emises. That a corporation is not chargeable with the knowledge of one of its officers or agents who is acting on his owm behalf, and not for the corporation, is beyond question the law. Sufficient authorities are cited to the point in Bank v. Burgwyn, 110 X. C. 267. It is there said, among other things: ' In such transactions the attitude of the agent is one of hostility to the principal. Pie is dealing at arms length, and it w^ould be absurd to suppose that he would communicate to the principal any facts within his private knowledge affecting the subject of his dealing, unless it would be his duty to do so, if he w^ere wholly unconnected with the principal. As was said by the court in Wickersham v. Chicago Zinc Co., 18 Kan. 481, ' !N"either the acts nor knowledge of an officer of a corporation will bind it in a matter in which the officer acts for himself and deals with the corporation as if he had no official relations with it; ' or, as was said in Barnes v. Trenton Gas Light Co., 27 N. J. Eq. 33, ' His interest is opposed to that of the corpora- tion, and tlie presumption is, not that he will communicate his knowledge of any secret infirmity of the title to the corporation, but that he will conceal it.' " We are of the opinion that the finding above discussed can- not here be disturbed; and therefore it is unnecessary to con- sider any other point argued by respondents." In Illinois, in the case of First Nat. Bank of Monmouth v. Dunbar, 118 111. 625, it is held that w^here a cashier purchases bonds for a customer of the bank^ and receives the bond on special deposit, he acts as agent of the bank. And if, to hide an embezzlement, he takes such bonds from the special deposit, and places them among the assets of the bank, his knowledge is the knowdedge of the bank, and the bank cannot acquire a CH. VIII,] Bankhstg. 109 legal title to the bonds %vitlioiit the knowledge or consent of the true owner. The rule is again stated, as follows: " Notice to an agent of a bank, or other corporation, en- trusted to the management of its business, or of a particular branch of its business, is notice to the corporation, in trans- actions conducted by such agent acting for the corporation within the scope of his authority, whether the knowledge of such agent was acquired in the course of the particular dealing or on some prior occasion." ^ In Mississippi, notice to a bank clerk of matters not under his charge is not notice to the bank.^*^ Notice to a cashier that bank funds have been loaned is notice to the bank.^^ In Massachusetts it is held that the cashier's knowledge of fraud in a note is notice to the bank.^^ It is held in the case of Seneca Co. Bank v. Xeass, 5 Denio, 329, that knowledge obtained by the cashier outside of his duties is not notice to the bank. In the case of National Security Bank v. Cushman, 121 Mass. 490, the court holds, that when a director of a bank, who acts for the bank in discounting a note, has knowledge that the note was procured by fraud, the bank is affected with the knowledge. A bank is bound to take notice of a power of attorney given by a third person to its president,^^ § 109. Director must have actual knowledge. In the case of Mann v. Sec. Xat. Bank of Springfield, 34 Kan. 746, it is held, that : " A corporation should be held to have constructive notice of only such facts as have been brought to the actual notice or attention of some one of its officers or agents, or of such facts only as have been constructively brought to the notice or attention of some one of its officers or agents by the actual notice of such other facts as would naturally put the officer or 25Cragie v. Hadley, 99 N. Y. 131; 28 pall, etc., Bank v. Sturtevant, Smith V. Board et al. Co., 38 Conn. 66 Mass. 372. 208. 20 ^Mechanics Bank v. Schaumberg, 26Goodloe r. Godley. 21 Miss. 233. 38 Mo. 228. 27 New Hope, etc., Co. v. Phoenix Bank, 3 N. Y. 156. 110 Baxk Officers axd Agexts. [ch. viii. agent upon inquiry; and therefore, held, where none of the officers or agents of a bank had any actual notice of any in- firmity of a note purchased by the bank but one of the directors who was also a member of the discount committee of the bank was the president and general manager of another coi*poration, one of whose agents, not the president and general manager, had actual notice of an infirmity of the note, such as would require the agent's own corporation to take constructive notice of such infirmity, the bank may nevertheless be considered as an innocent purchaser of the note without notice of any in- fii-mity affecting it, notwithstanding the fact that the other corporation had constructive notice through its agent of such infirmity." A bank is not chargeable with the knowledge which a director has acquired, in his individual capacity, as to paper offered for discount^ and which he does not disclose. And where as a director he does not discount the paper himself, as an officer or agent of the bank.^*^ § 110. When director is chargeable with knowledge as against himself. " Knowledge of the corporate officer or agent will not be imputed to the corporation where the fact is one which the officer or agent is interested in concealing from it, except in cases where a contrary rule is necessary to save the rights of innocent third persons." ^^ § 111. Directors' liability. The well known and established rule of law is, that the directors must manage the business of the bank, as directed by the law and the bank's charter. And if they fail to per- form their duty in good faith, they will be held lia"ble for the losses to the stockholders and creditors. ^^ Tliey are liable where they fail to use ordinary care in the inspection of the books of the bank. The directors may commit the ministerial work of the bank to officers duly authorized to perform the same, but this docs 30 49 Mich. 384. 32 Solomon r. Bates. 118 N. C. 31 Cvcloppdia of Law & Procedure, 311, 24 N. E. 478; Bank of St. vol. 10, p. 10G4. Mary's v. St. John's, 25 Ala. 566. cn. VIII.] Banking. Ill not absolve them from the duty of reasonable 'supervision or shield them from liability for the wrong-doing of snch official, if through gross inattention the wrong-doing has escaped their notice.^" They are not excused from liability because of want of knowledge of wrong-doing, if that ignorance is the result of gross negligence. They must use ordinary care, and ordinary care is some- thing more than officiating as " figure heads." ^^ § 112. Degree of care. The degree of care required of a director, the Supreme Court of the IT. S. says: " Depends upon the subject to which it is to be applied. Each case is to be determined in view of all the circumstances." Where the statute expressly provides that a dividend shall only be declared from the profits or surplus funds of the bank, and the directors in ignorance of the law, declared a dividend which impaired the capital stock, they are liable to the stock- holders. Igniorance of, an express provision of law, does not excuse a director. But where a dividend is declared, from the assets which prove to be only bad judgment, and not bad faith, they are not liable. In the case of Witters Receiver, etc. v. Sowles, 31 Fed. Rep. 1, the court says: " Bank directors cannot be held personally liable for money paid out for dividends to a greater amount than net profits, after deducting losses and bad debts (Rev. St. U. S. 5204), because these were debts, bad in fact but supposed to be good when the dividends were declared and paid. Bad judgment on the part of the directors, as to the condi- tion of the assets, without bad faith, does not make them individually liable." § 113. Acting in good faith. They will not be held liable when acting in good faith and under a mistake of law. If they act in ignorance, and wdiere 33 Wheeler v. Aiken Co. Loan & 34 Briggs v. Spalding, 141 U. S. Sav. Bank, 75 Fed. Rep. 781. 132. 112 Bank Officees and Agents. [ch. viii. their acts are directed and authorized by counsel employed by them. It is their duty to know the express provisions of the statute which define their power, and for a violation of all such acts however committed by them, they will be held liable. § 114. Directors declaring a dividend. The general rule as to the liability of the directors in de- claring a dividend, is laid down by Cooke on Corporations, he says: " Where the directors declare a dividend in good faith and without negligence, they are not to be held liable, merely because the dividend turns out to have impaired the capital stock." But where the directors place fictitious values on the assets in order to declare a dividend, such directors are liable. ^'^ A director cannot be held liable for a dividend declared at a meeting when absent or of which he had no notice, and he may be relieved from liability if present, by declaring and voting against the declaration of such illegal dividend. An illegal di\adend declared out of the capital stock, in violation of law, and paid by the directors, is a misdemeanor.^*' The statutory liability of directors in an Oregon corpora- tion for declaring dividends, out of the capital stock, is a penal liability.^^ § 115. Excuses of directors. Ill health is held to be no excuse for a failure to perform a duty, especially when at the time of election as a director, he as such director accepted the office; but where a director of a national bank is seriously ill, it is within the power of the other directors to give him leave of absence for a term of one year instead of requiring him to resign. And if frauds are committed during his absence and without his knowledge, whereby the bank suffers loss, he is not responsible for them.^^ The fact that a director is a non-resident of the State does not excuse him for false statements sent out by the bank. ^5 Cockrill r. Abeles, 86 Fed. Rep. ^' Patterson r. Wade, 15 Fed. Rep. 505. 770. SGVercontere v. Golden State L. .iS Briggs v. Spalding, 142 U. S. Co., 116 Cal. 410. 132; German Sav. Bank v. Wulfe- kuhler, 19 Kan. 00. CH. Yiii.] Baxkixg. 113 This question, with others, is discussed at length in the case of Houston y. Thornton et al. 29 S. E. 827, and in view of the importance of this subject we cite from the opinion of the court the following portion: " The issues tendered by the defendants presented the ques- tion whether there had been fraud and misrepresentation on the part of the defendants. Tliose settled by the court at the close of the plaintiff's evidence presented the enquiry whether there had been negligence and wrongful acts by which the plaintiff had been damaged. The latter were proper upon the pleadings. Tlie plaintiff complained that the board of direc- tors of the Peoples' Xational Bank, among whom were the defendants, in February, 1890, and at sundry other times before and after, caused to be published reports of the status of the bank, which showed it to be amply solvent, whereby the plaintiff was induced, in April, 1890, to purchase eleven shares of the capital stock of said bank, whereas at the times afore- said the bank was hopelessly insolvent, and had been so for at least five years; that the said directors either knew this to be the true condition of the bank, or with proper care could have known it. The complaint is full, and contains a detailed statement of the acts of negligence alleged against the defend- ant. The bank was declared insolvent on the 31st of Decem- ber, 1890, and the receiver took charge in February, 1891. The plaintiff not only lost the whole sum ($1,100) invested in the purchase of said eleven shares of the stock of the bank, but under the liability clause of the national banking act has been assessed 50 per cent, on her stock, and a judgment has been obtained against her by the receiver for $550 on that account in the Federal court. The published statement of the bank, January 2, 1890, showed that the capital stock was $125,000, the deposits $87,300, the surplus $32,000, and un- di"vaded profits $6,795. The fonner cashier of the bank testi- fied, without contradiction, that this statement was made by the order of the directors; that it was untrue; that there was no surplus, no undi-\dded profits, and that the bank did not even have its capital stock; that, if the directors had examined the papers, they would have known the insolvency of the bank; that at that time the president (Moore) owed the bank between $100,000 and $120,000; that one of the directors (Thornton) 114 Bank Officeks axd Agents. [ch. viii. owed the bank about $-10,000, another director McXiell owed it $20,000, and Starr, another director, owed it between $6,000 and $7,000,— thus between $166,000 and $187,000 being due the bank from these officials, of whom MclSTeill was then known to be insolvent and failed in ISTovember, 1890, and Thornton in the spring of 1891; that the bank never had a finance committee; that in Xovember, 1889, Moore owed the bank on his unsecured paper $100,000, of which $30,000 had been due three to ten years. It is needless to go through the evidence, which shows the most culpable negligence on the part of the board of directors, for this is sufficiently shown by the above-recited facts if nothing further had been proved. At the meeting of the directors on January 14, 1890, a divi- dend of 4 per cent, out of the profits was declared, all the directors being present, and the defendants voting for the declaration of the same; though this dividend, like all tlie other semi-annual di\'idends for the five years previous was in fact paid out of the deposits, and not out of the earnings. The defendants asked the court to charge: 1. " That upon the facts in evidence the plaintiff cannot recover, because of any negligence of the defendants, they l^eing directors of a national bank in the hands of a receiver, be- comes an asset of the bank, for which the receiver alone can sue, and the jury will therefore answer the second issue 'ISTo.' " This prayer was properly refused. The wrong complained of is not one toward the company, not any negligence in the duty to guard its interests and to comply with the requirements of the National Banking Act, but a wrong to the plaintiff in per- mitting a false and fraudulent statement of the condition of the bank to be published, whereby the plaintiff, trusting in the truth thereof, and the high character of the defendants^ was misled into parting ^^dth $1,100 for the purchase of eleven shares of the capital stock of the company, which at that time was worse than worthless. This is not a cause of action that, under any circumstances, could have passed to the receiver. 3 Thomp. Corp. §§ 4132, 4144, 4304. If this action had been brought by a depositor " the settled doctrine of the law is that if, in the pretended performance of duties imposed upon them by law, the directors of a bank used their official station to make false representations which are believed and en. VIII.] Baxkixg. 115 acted upon Lv third parties, they are liable to respond for the injury done to the one defrauded thereby, and that the lia- bility provided for, in the National Banking Act cannot be deemed to preclude the right to maintain a common-law action for deceit for such false and fraudulent representation." Prescott V. Haughey, 65 Fed. Rep. 653, 659, which distin- guishes Bailey v. Mosher, 11 C. C. A. 304, 63 Fed. Rep. 488; Delano v. Case, 121 111. 247, 12 X. E. Rep. 676; 3 Thomp. Corp. § 4304. The allegations and proof as to declaring divi- dends out of deposits, and allo^dng an official to bon'ow more than one-tenth of the capital stock, are not the basis of this action. If they were, then the receiver should have brought the action; but they are merely evidential to show the negli- gence whereby the plaintiff, not the bank, was injured, and to support her action for the injury to herself. 2. " That the plaintiff cannot recover unless the jury shall believe from the evidence that the defendants participated in the fraudulent statement made by other officers of the bank; and unless the plaintiff has shown such participation, the jury ^vill answer the second issue, ' Xo.' " Refused, and the defendants excepted. There was no error in refusing this prayer. The ground of recovery is not the participation of the defendants in fraud, but that, by their gross negligence, they permitted the statements to be put forth upon their authority showing the bank to be amply solvent, with large surplus, and the declaration of 4 per cent, semi-annual divi- dends out of profits, when there had been no profits, as to all of which the defendants should have been informed. It was in evidence, and not denied, that all the directors were present when the dividend of January, 1890, was declared, and Starr alone voted " Xo," as to whom a non-suit was entered. As was said in Solomon v. Bates, 118 X. C. 311, 24 S. E. 478, and re- affirmed in same case, 118 X. C. 321, 24 S. E. 746, and Cald- well V. Bates, 118 X. C. 323, 24 S. E. 481: '^ If false and fraudulent statements of the condition of the corporation are put forth under the authority of the directors, it is not neces- sary that they should know them to be such. It is their duty to know them to be true, and they are liable for damages sus- tained by any one dealing with the corporation, relying upon the truth of such reports." 1 Morse, Banks, §§ 132, 137; 116 Baxk Officers and Agexts. [cir. viii. Kinkier v. Jtmica, 84 Tex. 116, 19 S. W. 359. So salutary and just a rule is supported by ample authority elsewhere; and, if it were not, it is correct in itself, and a just protection, to which the public are entitled. It is not necessary, as the defendants asked the court to instruct the jury, that these de- fendants " participated in the fraudulent statements; " but, if the statements were given to the public by the authority of the board of directors (which is not controverted), and were in fact false and fraudulent, and the plaintiff rehdng thereon (as she had a right to do), was induced to buy stock, or had made deposits whereby she suffered injury, all the directors are liable whether they "" participated " in the fraud or not. Arnison v. Smith, 41 Ch. Div. 348; 3 Thomp. Corp. § 4108. § 116. Compensation of directors. The general rule is that directors of banks are acting as trustees and as such are supposed to serve Avithout compensa- tion, A governing statute may allow them to regulate their own compensation; but in the absence of a statute or by-law their services are supposed to be gratuitous. They cannot recover compensation for doing what they should have done as directors.^^ They cannot vote themselves salaries. Such a resolution is void, as being a promise without a consideration.'*^ They cannot vote themselves a compensation for services already performed."" They may recover for services, however, which are rendered outside of their duty.^^ It is claimed they may recover for services rendered prior to organization. "^'^ Such services may be recovered for if authorized by a majority of the shareholders.** 39 Brown v. Vallev View Mining 42 Bassett r. Fairchild, 132 Cal. Co., 127 Cal. 030/06 Pac. 424; G37 : Fitzgerald, etc.. Coast Co. v. Brown v. Republican Mountain Ril- Fitzgerald, 137 U. S. 98. ver Mines, 17 Colo. 421. 30 Pac. 66; 43 Mobile Branch Bank r. Collins, Brown r. Beck, 83 Ga. 471, 10 S. E. 7 Ala. 95; Allerton First Xat. Bank 121. r. Hooh. 89 Pa. St. 324. 40 Gardner v. Butler, 36 X. J. Eq. 44 Tift /-. Quaker City Nat. Bank, 702. 141 Pa. St. 550. 41 Blue r. Canfield Xat. Bank, 145 Ind. 518, 43 X. E. 655. CHAPTER IX. THE PRESIDENT. § 117. General qualifications. The executive business of a bank is conducted by its presi- dent, vice-president, cashier and secretary. They having been duly elected or appointed by the board of directors, as the law may require, assume the management and conduct its affairs. The president of a bank should be educated. He must have obtained at least a liberal education. He should be able to speak and write the English language fluently and correctly. It may not be considered necessary in the successful man- agement of a bank, that the president or managing officer should have graduated from a university^ but it cannot 1)6 said of a president of a bank who has matriculated that his attainments and distinction as a scholar are a detriment to him in his profession as a banker. The deeper his education and training are laid in youth, the broader his comprehension and ability to preside in his profession. He should be able to speak well that he may be correctly understood, and write well, so that the meaning of his words cannot be misconstrued. To be concise and accurate in his speech and correspondence forms a very important part in the management of a largo bank. There are numerous instances where the correspond- ence has been loosely prepared, possibly having a double mean- ing, which has brought litigation and loss to the bank. It must be borne in mind that the statements either verbally made or reduced to writing by an officer of the bank, while in charge of its business, are binding upon it; and the stockholders may be held liable. An officer being in charge of the affairs of a bank, and directing its business, is sufficient presumption of authority to bind the bank; and the representations of the president of a bank made in transacting its business are admis- sible in e\adence against the bank, but statements made by him away from the bank, and in which the bank has no interest^ are not admissible in evidence against the bank. [1171 118 The Peesident. [cii. ix. The duties of a president, as his office indicates, are execu- tive. He should preside at all meetings of the board of directors; and upon such occasions it frequently becomes neces- sary to formulate an important document, to draft a preamble or resolution. These meetings are usually, if not always, secret sessions; and the business is therefore secret and the president of a bank should at least have such an education as would qualify him for this work. It is an erroneous opinion which is held by some, that a preparation or education for the profession in the manage- ment of a bank is unnecessary. To say that a banker " should have some preparation for his work " is not a sufficient quali- fication, or the standard, w^hich is required in the race for prominence and success. " Some preparation " does not qualify the mechanic in the construction and building of the perfect engine, which hauls the great passenger trains that are filled with precious lives. A banker is like the educated and trained pilot, and, when a financial storm sweeps over the country^ he should be at the helm; his training and preparation for his work will then prove a storehouse of wealth, and his bank, otherwise properly guarded, cannot be foundered. To be the trustee of the stockholder and the guardian of the people's money is a responsible position, and ignorance should not be crowned as manager to execute such trusts. It is no uncommon thing to learn after a bank has failed that it was caused by the officers using and speculating with the bank's funds, or permitting the use of the same by others in violation of law. I believe the records will justify the statement that 50 per cent, of all bank failures are brought about in this way. A bank officer should not be a speculator, or become directly or indirectly a partner in speculations in- connection with his depositors. If he is engaged in outside interests there is serious danger that he ^^^ll neglect the interests of the bank. A banker who is a speculator^ without any previous thought of wrong or injury to the bank, becomes himself a heavy borrower of the bank's funds. There being no restriction or limitation as to the amount he may borrow, he finds it a very easy matter to give his note and take the money. lie has all confidence In cii. IX.] Baxkiistg. 119 his ability to replace the accommodation at any moment; bnt he seldom calls upon himself to pay back money so easily bor- rowed, and reverses set in. His judgment proved bad, and finally a general depression sweeps over the country and the bank fails. What is the cause? The practice is dangerous. - It should be stopped. There is precedent after precedent where Itank officers have granted to themselves unlimited credit in their own bank, or to others wath whom they were interested in business, which caused ruin to depositors and stockholders alike. It is said that no law is a barrier to those who intend to disobey it, but there is no criminal who does not contemplate the force and effect of the law, and if a strict limitation pro- hibiting such accommodations were upon the statute books, it would be the means of saving many banks from ruin and future insolvency. It is argued by some that such strict limi- tations should not be enforced against the bank officers by legislative action^ but should be placed in the hands of the directors. That they are better qualified to determine the ability of the borrower to repay, than the law which would fix by arbitrary legislation a limit upon his credit. Upon this question there are various and interesting opinions, from our best financiers; but many leading bankers who have given this subject unprejudiced consideration are almost unanimously in favor of restricting, or limiting, the amount an officer or other parties can borrow from his o^vn bank. Several States have put themselves on record and have enacted such a law. The National Banking Law has never been construed upon this question to operate as a barrier to business. Xeither has it had the effect to deter honest and intelligent men from serving as directors. The president of a bank should be qualified to preside over the bank, and he should not delegate his responsibility or au- thority to the cashier and reply, if disaster comes (as it may if he fails in the performance of his trust), " I could not pre- vent the crisis. The cashier failed to give me notice of the dangerous condition of matters until it was too late." It is his duty to know the condition of the bank, and when the storm is on he should be at the helm. To be the trustee of 120 The Peesidea^t. [cii. ix. the people's money is a responsible position^ but if accepted it should be faithfully executed, and criminal negligence, omis- sion of duties, and carelessness should not be excused. A successful bank will have at its head a man who is always at his post; one who will as faithfully guard the treasure of those confiding in him as he would his own. The management of banks is too frequently left in the hands of their cashiers, the president having been selected for his wealth or social standing. Every officer and employee engaged should be laborers, acquainted w^tli all the details of their business^ and interested in all matters pertaining to the prosperity oi the bank. A bank president should know his customers, the strength and weakness of those to whom money is loaned, or who are likely to ask for loans. The bank's prosperity depends largely on the sagacious lending of its resources. A successful bank president should make a practice of fre- quently examining into the condition of the bank's affairs, making a searching and thorough examination, taking off a balance, counting the cash, and generally making a careful in- spection of all the books. If this practice is maintained, employees will seldom, if they are so inclined, attempt mal- feasance. A bank that has for its president one that will faith- fully follow this practice, if otherwise judiciously managed, should never be compelled to go into involuntary liquidation. § 118. Qualifications necessary to hold office. The national banking laws specify the qualifications required of directors serving as such for said association, and section 5150 of said act requires that "one of the directors to be chosen by the board shall be the president of the board." In all of the States statutes are enacted designating certain officers that corporations must have, and providing that such officers shall be elected by the board of directors. In the absence of such statutes placing the power in the directors to elect officers, the current of authority is that the power then lies in the stockholders. The statute of the State providing that an officer shall be selected from the stockholders is mandatory. cii. IX.] Ba:xking. 121 §119. The president's powers. The president having been duly elected to preside over the bank, derives his powers from the law governing corporations and the bank's charter, the by-laws, and the authority vested in him by the board of directors. When chosen he becomes the presiding officer of the board, and ex officio is president of the bank. His position, however, does not give him extraordinary powers or authority greater than any other director. As president of the board of directors it becomes his duty to preside at all meetings held by them, and as such presiding officer he is authorized to call the meeting to order, puts all motions presented for adoption; and is entitled to vote upon every question presented; and have his vote recorded in like manner as other directors. His position and election as presi- dent of the board does not make him the chief managing agent of the bank. This power may be conferred upon him, but is not established by his selection as president of the board of directors. The office of president of the board does not carry with it inherent power as the chief executive or managing agent of the bank. The charter may prescribe that the president of the board of directors shall be the chief executive and managing agent of the bank. In the absence of such power in the charter, the by-laws of the bank when duly adopted may confer upon him enlarged powers^ particularly designating and defining his duties and powers, and practically thereby making him the chief executive agent of the bank. In the absence of such a by-law the board of directors may, by proper resolution, enlarge his powers beyond those enumer- ated either in the charter or the by-laws; but the board cannot delegate to the president a power vested by law in them which the law imposes upon them to execute and perform. His executive powers inherently are limited, but in the holding of the office, he is regarded as having charge of the affairs of the bank; and the public generally concedes to him authority which, in fact, he does not possess. Independent of his inherent or ex officio powers, his acts must be authorized, acquiesced in, or subsequently ratified by the board of director? in order to bind the bank. Usage and custom may confer upon him certain power and 122 The Pkesident. [ch. is. authority, and he may bind the bank; but where his acts are clearly beyond those authorized by usage and custom, and are such as to lead a customer of the bank to question them, the bank will not be held responsible. His powers, therefore, in the management of the bank should be delegated to him. He is an agent of the board of directors, and must per- form the duties ^vithin the scope and authority of his agency. As previously stated, his inherent power is limited. In the absence of any order of the board of directors, the president of a banking corporation has the inherent power to employ coimsel, and manage the litigation of a bank.^ He has the power by virtue of his position to take charge of all the litigation in which the bank may be involved. He may engage and retain counsel, and enter into an agreement as to compensation. He may, without previously submitting the question to the board of directors, bring suits in the name of the bank; and also appear, answer and defend the bank when sued. An exception to this right may arise, where the bank through an action of the board of directors, have engaged an attorney to attend to all the litigation in which the bank may become involved. In the case of the Pacific Bank v. Stone, 121 Cal. 202, the court says: " The president or acting president of an insolvent bank, has no authority by virtue of his office merely to retain spechil counsel in addition to the attorneys of the bank regu- larly employed to assist in litigation for the bank; without the sanction or ratification of the board of directors. * * * AVe can perceive no reason Avhy a bank president should be clothed with ex officio powers greater than those of presidents of any other corporation. As director he derives his authority from the same source as presidents of other corporations or- ganized under the statutes, and as the presiding officer, his functions and powers in the management of the corporate business are no greater than any other director." " Reasoning from the case reported in 121 Cal. 202, the in- herent power vested in the office of president of the board of directors and ex officio president of the bank, is co-ordinate 1 Citizens' National Bank v. Berby, 2 Wickersham v. Crittenden, 93 37 Tac. Rep. 131. Cal. 17. cir. IX.] Bankixg. 123 only -^vitli that of anv other director, and the single power, namely, that of employing counsel and representing the bank in all of its litigation, may be taken away from him by a resolu- tion of the board of directors, but in the absence of this act on the part of the board, or a provision in the by-laws of the bank, divesting him of his power as president of the bank, he has the authority to employ counsel and conduct the litigation of the bank; and it is immaterial whether the power of refer- ence is lodged in the president and directors, or in the stock- holders assembled in general meeting; for the entire corpora- tion is represented in court by its counsel, whose acts in con- ducting the suit are presumed to be authorized by the party.^ The president of a national bank has power, by virtue of his office, to compromise or release a debt due the bank. As- sociate Justice Stevens, of the Court of Civil Appeals, in dis- cussing the inherent power of the president of a bank to compromise a debt due the bank, says that in the absence of usage or authority otherwise derived from the board of direc- tors, the powers of a bank president go little beyond those of any other individual director, and the doctrine laid down in Farmers' Xational Bank v. Templeton, 40 S. W. 412, is in substance that the president of a bank has power by virtue of his office, to release or compromise a debt due the bank when usage, and pre^'ious course of business has sanctioned such a power. It is also held in the case of Guernsey v. Black Diamond Coal Co., 99 Iowa 471, that the president of a bank has au- thority by virtue of his office, to assign a judgment which has been obtained and owned by the bank. Where a clerk employed in a bank has absconded and taken funds of the bank, the president is authorized to offer a re- ward for information which may lead to the arrest or con- \nction.^ As is shown, his powers inherent in his office are limited; but, as stated, he may exercise power and bind the bank by usage, where the board of directors has full knowledge of such 3 The Alexandria Canal Company Insurance Company v. Oakley, 9 V. Swann, 5 Howard 83: Citizens' Paifje (X. Y. ) 496. National Bank of Kingman v. Berry. -iBank r. Griffin, 168 111. 341, 48 53 Kan. 696, 37 Pae. 131 ; American N. E. 154. 124 The President. [cji. ix. acts, and from time to time acquiesce and make no objection, his acts will be considered as authorized. It has been held that where the president has borrowed money and executed a note in the name of the bank, without authority from the board of directors, or resolution to that eifect, and they have the knowledge of transactions of this nature, and acquiesce in the same, the bank will be bound.^ The president is clothed with implied power to indorse negotiable paper in the ordinary transactions arising in the bank's business.^ In the case of Winton v. Little, 94 Pa. St. 64, it is held that wdiere the president -^nthout authority released a lien of a judgment belonging to the bank, that the bank had a knoAvl- edge of the fact and acquiescing therein for a long period of time, was bound by his acts. The president, it would seem, has the authority to enter into an agreement with a person to receive money on, or in pay- ment of a note at a place other than the place of payment, and to forward the money to the bank where the note is held and where payable.'^ This rule seems to be in conflict with the rule holding a cashier responsible for the money received or collected for the bank while absent and away from the bank. The president's acts may be those which appear to have been executed in an individual capacity, but in fact are the acts of the bank. In the case of Van Leuven v. First Xational Bank of Kings- ton, 54 X. Y. 671, it is held that where the president re- ceived government securities to exchange, and he gave a re- ceipt as an individual, executing the same upon bank paper, his act was held to be the bank's act. TTie contracts of the president entered into with individuals, who at the time believed that he was acting in his official capacity, and authority as manager and president of the bank, his acts will bind the bank, especially so if the bank receives the benefit of the transaction.* B National Bank of Commerce v. 7 Vilas Nat'l Bank v. Strait, 58 Atkinson, 55 Fod. Rep. 4G5. Vt. 448. 6U. R. National Bank r. First 8 Tremont Bank v. Paine, 28 Vt. National Bank of Little Rock, 79 24. Fed. Rep. 290. CH. IX.] Banking, 125 The failure upon the part of the president to designate himself in the contract as president of the bank, if at the time he was in fact acting as such, such facts, if shown, the bank will be bound bv his act. The question is one of fact and is one for the jury to determine.^ As we have sho^^^l, the inherent power in the president is confined to only a very few acts, but as stated, his powers may be enlarged by direct authority from the board of directors, and they may make him the exclusive manager of the bank's affairs, and authorize him to perform any and all acts other than those which the law compels them personally to perform. He may, as general manager of a bank, perform all the ordinary transactions, but being delegated with the power as general manager, does not give him authority to execute notes and borrow money for the bank. The above rule is supported by many leading authorities. In the State of Arkansas we find the rule laid down in the case of City Electric Street Railway Company v. First Na- tional Exchange Bank, 62 Ark. 33, as follows: "It may be stated as a general proposition that the president and secretary of a corporation are not empowered to bind it by their signa- ture to commercial paper, unless the authority is expressly conferred by the charter, or given by the board of directors. They have no inherent power to execute negotiable notes in the name of the corporation. Tied, on Com. Paper, § 121; Cook on Stock, etc., § 716; McCullough v. Moss, 5 Den. 567; 4 Thompson on Corp., § 4619; Life & Fire Ins. Co. v. Me- chanic Fire Ins. Co., 7 Wend. 31; Hyde v. Larkin, 35 Mo. App. 365; Pierce on Railroads, §§ 32-34; Walworth County Bank V. Farmers' Loan, etc., Co., 14 Wis. 325; 1 Morawetz on Corp. § 537; Titus v. Railroad Co., 37 K J. L. 98-102; Wait v. Nashua Armory Ass'n, 23 Atl. Rep. 77, and authorities there cited; National Bank v. Atkinson, 55 Fed. Rep. 465." In New York the rule adopted by the Supreme Court of Judicature, in 1831, in the case of Life & Fire Insurance Com- pany V. The Mechanics' Fire Company of New York, 7 Wend. 31, is laid down by the court as follows, " Such authority is not implied from his appointment as president; as such he is merely the presiding officer of the board of directors, chosen 9 Northern National Bank v. Lewis, 78 Wis. 475, 47 N. W. 834. 126 The President. [cii. ix. by them from tlieir own body, and has no more authority from the charter to bind the company by any of his acts than any other director has; his powers are such only as the board of directors, either by their by-laws or otherwise, think proper to confer upon him." This rnle of law is the rule now in force in the State of N^ew York. It is the general rule and is upheld by the courts of all the States. The rule, as laid down in one of the later cases, and stated by District Judge Riner, in the case of National Bank of Commerce v. Atkinson, 55 Fed. Rep. 465, is substantially the same rule as laid down by the court in New York in 1831. The court, in the latter case, states the rule to be that " the president of a national bank has no power inherent in his office to bind the bank by the execution of a note in its name, but power to do so may be conferred on him by the board of directors, either expressly, by resolution to that effect, or by subsequent ratification, or by acquiescence in transactions of a similar nature of which the directors have notice." There is a strong tendency upon the part of the court and authors of text works treating upon this subject at the present time to establish a more liberal rule. One which may be stated as follows: '' The extent of the powers of agents of a well defined class, such as presidents, directors or cashiers, is determined largely by general custom, of which the courts will take judicial notice, and parties dealing with such agents are entitled to assume that they possess all the powers which are usually accorded to agents of the class to which they be- long." ^" Mr. Morawetz holds that the authority of officers of banks is fixed by general custom, of which the courts will take judi- cial notice, and that they are not held to the strict iiile which applies to officers of other corporations. Banks are not incorporated for the purpose of borrowing money. It is their business to receive money on deposit and reloan the same together with such portion of the capital, and reserve fund, as the law will permit. There should but few occasions arise presenting the necessity of a banking cor- 10 Morawetz, Priv. Corp., vol. 1 ]\[o. App. .305, ami cases cited in re- (2 ed.), § 509; Hyde v. Larkin, 35 spondent's brief. cii. IX.] Baxkixg. 127 poration to borrow money. The general rule which has been conceded to be the law for so many years should not be weakened upon the theory that a more liberal one, would be of special benefit to the public or banking corporation. At least the borrowing of money by the president of a bank with- out direct authority, should not be sanctioned by the law as justifiable, and lawful upon the theory that it is or has been a practice or custom of the bank. The president has the implied power to indorse negotiable paper in the ordinary transaction of the bank's business; and authority for this purpose need not be conferred upon him by the board of directors.^^ It is laid down in the case of Simons v. Fisher, 55 Fed. Rep. 905, that where the president exercises the function of cashier, and is the managing officer of the bank, the bank will be bound by such acts of his as belong virtute offici to the office of cashier. § 120. President's powers derived from statute. Where a statute of a State confers a power upon an officer of a corporation, there can be no necessity of a by-law or resolution of the board of directors authorizing him to exe- cute the power. In some of the States special statutes have been enacted providing that many matters may be conducted in the presi- dent's name. In the case, Delafield v. Kinney, 24 Wend. (X. Y.) 345, a suit against a banking association formed under the general banking laws of the State, it is held, may be brought against it either in the name of the association or in that name with the addition of the name of the president thereof. § 121. Limited and prohibited power of president. The president of a bank, like the cashier, cannot certify his own check. Such certification appears on its face and is notice of fraud to all.^^ The president has no inherent power to transfer or indorse negotiable paper, but through a custom or habit of performing n United States Nat. Bank v. 12 Chrj-stie v. Foster, 61 Fed. Kep. First Nat. Bank of Little Rock, 79 551. Fed. Rep. 296. 128 The President. [ch. ix. such acts which are well known to the hoard of directors, they become lawful acts and cannot be denied bj the bank.^^ As president of the bank he has no authority by virtue of his office to receive the claims of a bank as against a debtor. That power rests alone with the board of directors; and in order to bind the bank, the consent of the board, either directly or by implication, must be first obtained.^'* Xeither has he authority by virtue of his office to use any portion of the assets of the bank to settle with the bank's credit- ors. He may, however, do so, if the power is conferred upon him by the board of directors. Neither has he the authority to mortgage the property of the bank, but when authorized to do so, may execute a mortgage upon the bank's property. Xeither has he inherent power to stay the collection of an execution against the property of a judgment debtor. The board of directors alone are endowed with this power.^^ ISTor has he authority inherent in his office to enter into agreements or contracts on behalf of the corporation, but it is held that this power may be conferred upon him by the board of directors. As an officer of the bank he has no implied authority to give away any portion of the corporate property, or to create a gratuitous corporate obligation binding on the corporation.^^ If as president of the bank he holds out to the public that certain powers have been delegated to him, and it is believed by parties dealing with him that he is acting within the scope of his power, his acts are binding upon the bank.^^ A commercial banking corporation doing a banking business and refusing to pay interest on deposits, advertising that it does not pay interest, its president has no power or authority to enter into an agreement with a customer to pay interest, and if such a contract is entered into in violation of the rule, and advertisement of the bank, it cannot be held responsible for the interest. An agreement to pay interest on deposits of money deposited in a commercial bank is no part of the ordinary busi- 13 United States Xat. Bank v. 16 Robertson v. Buffalo County First Nat. Bank, 79 Fed. Rep. 20G. Xat. Bank, 58 N. W. 715. 14 Olnev r. Chadsev, 7 R. I. 224. IT Farmers' Bank v. McKee, 2 Pa. 15Spyker r. Spenee, 8 Ala. .3.33. St. 318. en. IX.] Ban^kixg. 129 ness of the bank, and the president has no power to bind the bank to pay interest in such cases.^^ AVhere a bank is entitled to and makes it a part of its busi- ness to take special deposits, the president cannot charge the bank with anj extraordinary liability in regard to such deposits. He has no power or authority by virtue of his office to com- promise a debt. This duty belongs to the board of directors. ^"^ The president of a bank is ^'ithout authority to release a judgment which has been entered in a court of record, in favor of the bank, unless duly authorized by the board of directors. The satisfaction or release should set out that, it was ordered by the board of directors, and it should have the seal of the bank attached. Where the president performs acts which are not implied or inherent in his office, but which are afterwards ratified by the board of directors, they become the legal acts of the bank, and where a bank retains the proceeds derived from the sale of property, and guaranty of notes owned by the bank, the fact that the bank retains the proceeds, operates as a ratification of the president's acts in the selling of the prop- erty, whether he was authorized or not.^° An agreement by the president and cashier of a bank, that an endorser shall not be liable on his indorsement is not bind- ing on the bank. It is not within the scope of their duties, and they cannot bind the principal except in the discharge of their ordinary duties."^ § 122. Representations and admissions, effect of. The general rule is that the president of a bank, by admis- sions and representations, may bind the same, if such admis- sions or representations relate to matters within the scope of his agency, and, like other agents, he must act within the scope of his authority to bind the principal." 18 Fulton Bank v. New York & Parsons Slerd. Law, 140 note 1 ; Sharon Canal Co., 4 Paige (N. Y. ) Bank r. Dunn, G Pet. 51; Bank c. 127. Jones, 8 Pet. IG; Minor i: Bank, 1 19 Rvan r. Manufacturers' & Mer- Pet. 4G ; Hodge v. Bank, 22 Gratt. chants' Bank, 9 Daly, .308. 51; Harrisburg Bank r. Tvlor. 3 20 Thomas r. City National Bank, W. & S. .373 ; Merchants' Bank r. 59 X. W. 943. :\Iarine Bank, 3 Gill. 90; Crump i: 21 First National Bank of Stur- U. S. Mining Company. 7 Gratt. 352. gess r. Bennett, 33 Mich. 520; Angel 22 Panhandle National Bank r. & Ames on Corporations. §§ 298, Emery, 78 Tex. 498, 15 S. W. 23. 301, 309; Storv on Agency, § 115; 9 130 The President. [cir. ix. The president of a national bank has no inherent anthority to make sncli admissions as will release the maker of a note from his liability.^^ Xeither can the ]n'osident of a bank by admissions charge the same with a debt.^* In the case of AVashington Xational Baiik v. Pierce, 6 AVash. 491 (33 Pac. 972), it is held that where the president of a bank is informed by the maker of a promissory note that the same was procured by fraud, and that he (the maker) would not pay it, the remark not being made to the president in his official capacity, nor at the bank, does not bind the bank. Such knowledge does not estop the bank from subsequently dis- counting the note. § 123. President liable to bank for acts which amount to breach of trust. Where the law forbids overdrafts, and the president or cashier permit the overdrawing of the account of a customer, and through such overdraft a loss occurs to the bank, the president authorizing the same becomes personally liable.^ In a review of the opinion in the case of the Oakland Bank of Savings v. "Wilcox, it was found that the president was sub- ject to the by-laws and direction of the board of directors. There is no provision found in these by-laws permitting a customer to overdraw his account. It was the duty of the auditing committee to supervise and direct the mode in which the business was to be conducted. It was their duty to count the cash and examine, or cause to be examined, the books, vouchers, documents, papers and other assets of the corporation. The duties as they here appear, devolved upon various per- sons; but this was held not to discharge the president in the failure to perform his dut3\ The lower court in the trial of the cause, in giving his instructions, granted the following instruction to the jury: " It has been said to you, gentlemen, during the argument 23 Farmers' National Bank r. 25 Oakland Bank of Savings V. Templeton, 40 S. W. 412. Wilcox, 60 Cal. 120. 24 Henry r. Northern Bank of Alabama/63 Ala. 527. CH. IX.] Banking. 131 of the case, that it Avas a usage at the bank to allow customers to overdraw, and have checks and notes charged np without present funds in the bank. I Ijelieve there is evidence before you showing the existence of such a usage to a certain extent. The fact, however it may be, is for you to find. But I say to you, as a matter of law, that if such a usage did exist, it would not justify an officer of the bank in case of loss. The usage is still nothing more than usage and practice to mis- apply the funds of the bank, and to connive at the with- drawing of the same without any security. Such a usage and practice is a manifest departure from the duty both of the directors and president of the bank as cannot receive any coun- tenance in a court of justice. It cannot be done by the sanction or approval of any officer of the bank, and when done it is at his ovra peril and responsibility, especially if done in his own interest." The foregoing instruction may be criticized by the courts as too broad, but it is wholesome advice to officers having charge of funds deposited in the bank. The instruction as given the court justly says may be too broad, but declares it to be applicable and justifiable in this case. Where the president takes a note which is burdened with a guaranty, and which is liable to cause loss to the bank, it is held in the case of Stearns v. Laurence, 83 Fed. Rep. 738, to be such negligence in case of loss, as will render him liable to the bank, and where the president sells property of the bank without first obtaining the authority from the board of directors to do so, and loss occurs, he is liable to the bank.^*^ "Where the president of a bank, by false statements in rela- tion to its affairs, when such statements are officially made, and loss occurs to one who has relied upon such statements, the president is personally liable.^^ The ISTational Banking Act, by provision of section 5209, makes a false statement of the affairs of a national bank a misdemeanor. A false entry or statement is one which is intended to deceive and represent that which is false as true. The Supreme Court 26 First Nat. Bank of Central City 27 Prewitt, Trustee, v. Trimble, 92 V. Lucas, 21 Neb. 281. Ky. 176. 132 The Pkesidext. [cit. ix. of the United States says, " that where a president of a bank placed on its books to his own credit at their face value bonds known to him to be worthless or of small value, without the authority of the board of directors or stockholders, the fact that he gave a guaranty of payment of the bonds on demand, does not relieve him from liability; or of an intent to defraud the bank by misapplying its money, although at the time he was solvent and intended to pay his guarantee on demand." § 124. President borrowing from bank. The president of a bank, unless expressly prohibited by stat- ute, may borrow money from the bank, as any other person may, and execute a valid note for the same that will bind him as well as the bank receiving it. Such a note is not void, nor in the absence of fraud it cannot be repudiated or avoided by the bank.^^ The president of a bank should not be permitted to borrow its funds, without the consent of the finance committee; and in the absence of such a committee, the loan should be passed i:pon by the board of directors. The statutes of some of the States limit the amount which may be borrowed from State banks by any one person. The by-laws may control this privilege where the statute is silent upon the subject. The national banking act places a restriction or limitation against making loans to any association, person, company, cor- poration or firm in excess of one-tenth part of the amount of the capital stock of such association actually paid in. But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borroAved. This provision of the statute does not prohibit an ofiicer or director from borrowing money, but limits the amount which may be borrowed at any one time. This is a wise provision of law and should be strictly enforced. The various States which have not now a statute similar to that enacted by the United States, should be urged to place such a law upon the statute books of the State. 2S Blair v. Bank of Mansfield, 10 Lg. N. S. 94. CH. IX.] Banking. 133 Officers and directors of savings banks are by statutes passed in most of the States, prohibited from borrowing any of the funds from the banks over which they act and preside. The penalty prescribed by the National Bank Law for a vio- lation of its provisions, prohibiting any one person from bor- rowing to exceed 10 per cent, of its capital actually paid in, only subjects the bank to a forfeiture of its charter. The loan may be collected, although made in excess of the amount prescribed. The bank can recover the full amount.^'' Section 578, Civil Code, California, provides that: *' Xo director or officer of any savings and loan corporation must, directly or indirectly, for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation, nor must he become an indorser or surety for loan to others, nor in any manner be an obligor for moneys borrowed of or loaned by such corporation. The office of any director or officer who acts in contravention of the provisions of this section immediately thereupon becomes vacant." This section operates as a prohibition to the bank in making or accepting a loan made to it by an officer or director; and is a violation of its charter. The making of such a loan may be sufficient grounds for an action against it to declare the same forfeited; but such an action when brought must be in- stituted by the Attorney-General of the State, in a suit brought by him in the name of the people. Where a statute by its provisions declares that if a person holding an office in a private corporation violates the expressed provisions of the same, and that the office thereupon imme- diately becomes vacant, the vacancy may be filled as the law or the charter may provide. But where there is no provision in the charter or by-law authorizing such vacancies to be filled, the office remains vacant until the next general election, when it may be filled as provided for by the statute governing such provisions. The office of a bank director or president is a private office, and the general laws of the State affecting vacancies in public offices does not apply. The power to declare the office vacant in a banking corporation is vested in the board of directors. 2!) Gold Mining Company r. National Bank, 96 U. S. G40 ; Corcoran V. Batchelder, 147 Mass. 541. 134 The President. [cit. ix. A statute which declares that the office of a director in a private corporation shall become vacant upon the happening of a certain event, to wit: the violation of a law, which fails to provide the mode of filling the same, such vacancy can only be filled under the provisions of the law governing such corporations. The fact that an officer of a banking corporation borrows money of the bank in violation of the statute, wdiicli declares that he must not do so, does not prevent the bank from en- forcing the collection of the debt.^'^ § 125. President's compensation. The president of a bank is entitled to compensation for services rendered to the corporation; but there is no implied promise to par him because he has been elected by the board of directors as its president; and he is not entitled because of his position to compensation, any more than any other director wdio may perform services for the corporation. The president, however, when he has been delegated and selected as the general manager of the bank; and devotes his energy and time to the bank's affairs, his salary is usually fixed by the board of directors; but if no action is taken by the board in fixing the amount to be paid him, he can recover for his services only such a sum as may be deemed reasona- ble for the labor performed. It is held that the president of a bank w^ho superintended the repairs u]X)n a building situated upon real estate owned by the bank, could not recover for such services. This would be the case where he had previously been engaged upon a fixed salary; but if no salary was fixed and the services were per- formed with the knowledge and consent of the board of directors, he could recover the value of his services. Tlie board of directors having the authority to employ the president, it may discharge him. The National Banking Act provides that it is within the power of the board of directors to " appoint a president " * * * and " dismiss such officers or any of them at pleasure and appoint others to fill their places." The directors may remove the president at any time for 30 Savings Bank r. Burns, 104 Cal. 473. cii. IX.] Banking. 135 cause; and the bank cannot be held liable to him for the un- expired term. Under the National Banking Act they may remove him at their pleasure and the bank cannot be held liable for the unexpired term.^^ In the State of Illinois it is held that where the bank has employed a president at a fixed salary that the directors have no authority or power to pay him any sum as a bonus in ad- dition to the salary fixed. He cannot recover for services or acts performed for the bank, though performed or coming outside of his duties. If the bank's charter provides that the president shall not be permitted to draw a salary, the board of directors have no authority to engage to pay a regular salary; but they may en- gage to pay him for services rendered; and if no stipulation or agreement is entered into as to the value of such services, he may recover for labor performed the value of his service. "Where the president is actively engaged in the interests of a State bank, and the board of directors have engaged his services for a fixed period of time, he can be discharged only for cause, and may recover for the unexpired term if discharged without cause. The only exception to this rule are the provisions of the National Banking Act which as stated provide that it is within the power of the board of directors to dismiss him at their pleasure and appoint another to fill his place. 31 Taylor v. Hutton, 43 Barb. 195. CHAPTER X. THE CASHIER. § 126. Cashier, general duties and qualification. The cashier of a bank is elected by the board of directors, the term of office being iisnallv fixed at the time. He should be required to give a bond for the faithful performance of his duties. The cashier, unless there be a vice-president, ranks next in authority to the president, and has certain specified duties to perform. He is selected for his business qualifica- tions, and adaptability to the business which he is required to transact. His specific duties are to attend to the coiTe- spondence. He receives all letters and communications ad- dressed to the bank, and should make it his business to open and attend to the contents of the same. All applications for loans, discounts, proposals for new customers, orders for the sale or purchase of stock, bonds, letters asking for advice concerning the standing of persons etc., should be retained by him and when answered copies should always be kept. Let- ters received containing statements of enclosures, and collec- tions are usually passed over to clerks having charge of those departments and by them in due time answered. His position in a large bank is one of great responsibility. He must on entering the bank each morning see that all the clerks are on hand. If a vacant place is obseiwed, it is his duty to supply the work necessary to be performed during the day. Some one may be found to take the place or perform the labor; if not, and it becomes necessary, the cashier should be sufficiently qualified to supply the place, and perform the labor himself. His business is executive and supervisory. He is supposed to be the thermometer of the bank, and should be able to denote the condition and financial temperature of the same at any time. It should be. his imperative duty to examine daily the bal- ance books, and as frequently as possible inspect the work of clerks, and keep himself infomied concerning the business of the bank. [1.36] CH. X.] BA]s^KI^'G. - 137 His position necessarily brings him continually in contact with the patrons of the bank, and through these means he can in every proper way increase the business of the bank. The profits in the business in most banks are made on the de- posits. To increase these, therefore, the cashier has the greatest opportunity. Xew accounts, if desirable, are eagerly sought. While this is true, no well conducted bank will blindly open an account ^ntli a person \\athout due investigation. A depositor, if not kno%vn, should be properly identified and introduced, and before an account is opened or accepted, his character ascertained; and this investigation usually is the business of the cashier. The duties of a cashier may depend in a degi'ee upon the conditions surounding the bank. The location, and volume of business which the bank has may enlarge or lessen the detail of labor and his responsibility; but it is his duty, however, under all circumstances, to see that all papers, valuables and other property of the bank, are in its possession. He should see that, at the close of business, the cash is properly and safely placed in the vaults and the doors securely fastened. It is claimed that, though other officers may have access to the money and other property of the bank which is confided to the cashier, his responsibility therefor is not released. In an important case upon this subject, Chief Justice Mitchell said : " We cannot know judicially what ofiicers and employees are required for the conduct of the business of the bank, nor can we define in detail their several functions and duties. These vary — vary according to the location and business of the bank. It is, however, a matter of such common obser\'a- tion that courts cannot be ignorant of the fact that in the ad- ministration of the daily affairs of a bank some one besides a cashier must have access to its funds. It by no means fol- lows that the cashier is not so far in possession as to be rightfully held responsible to account for the funds of the bank to the extent, perhaps, of exhibiting each day, or whenever properly called upon, at least the exact condition of its af- fairs." ^ This seems to be generally conceded, but it certainly can- not be held that for the carelessness and negligence of other 1 Bank of the State v. Wheeler, 21 Ind. 90. 138 The Cashier. [cii. x. employees, having access to the funds and other property of tlic bank that the cashier should be liable when loss in snch cases occur, unless by the negligence and carlessness of the cashier, he having knowledge of the fact that the funds or valuables were being handled by the employees when it was his duty alone to handle and safely care for the same. Tlie duties and responsibilities of the cashier are many. His position is one of great importance, and he should be a man of irreproachable character, a good judge of human na- ture, alert and circumspect. He should have a good education, and be satisfied to make a quiet and genteel living by means of study, work, and close aplication to business, willing to forego chances for the accumulation of large fortunes, or of fame. He should be content with steady employment which, if his adaptability and habits justify, will insure him. He should, in conclusion, carefully avoid everything which might in the public eye compromise himself, and through him the bank which employs him, and unless in the beginning he can master himself for these duties, and responsibilities he should avoid banking. § 127. Cashier executive officer of the bank. The Supreme Court of the United States, in the case of The Merchants' Bank v. State Bank, 10 Wall. 60-1, in defining and discussing the powers and duties of the cashier of a bank, says: " The cashier is the executive ofiicer, through whom the whole financial operations of the bank are conducted. He receives and pays out its moneys, collects and pays its debts and re- ceives and transfers its commercial securities. Tellers and other subordinate ofiicers may be appointed but they are luider his direction and are, as it were, the arms by which designated portions of his various functions are discharged. A teller may be clothed with the power to certify checks, but this, in it- self, "would not affect the right of the cashier to do the same thing. The directors may limit his authority as they deem proper, but this would not affect those to whom tlie limita- tion was unknown." " 2 Commercial Bank of Lake Erie Mechanics' Bank r. Butchers' & r. Norton et o/., 1 Hill (N. Y.) 501: Drovers' Bank, 14 New York G24. Bank of Vergennes r. Warren, 7 Hill North River Bank r. Aymar, ^ Hill 01; Beers r. The Phoenix Glass Com- 202. 208; Barnes r. Ontario Bank, pany, 14 Barbour, 358; Farmers' & 19 New York 152. en. X.] Banking. 139 Tlie office of the cashier is strictly executive. In the absence of expressed authority from the board of directors, he can only perform the daily routine business of the bank. To state his position correctly he is the executive agent of the board of directors. The leading authorities hold that beyond the ordinary business of the bank his acts must be authorized, and directed by the board of directors. In the case of the United States v. City Bank of Columbus, 21 Howard, 356, the Supreme Court of the United States held: that where the cashier of a bank wrote to the Secretary of the Treasury saying, '^ that the bearer of the letter was authorized to contract for the transfer of money from Xew York to Xew Orleans, such a transaction was not within the scope of the powers of the cashier nor authorized by the directors, therefore the Bank was not bound to reimburse the money which the Secretary of the Treasury advanced." In this case it was shown that the directors nor president of the bank had any knowledge of the transaction. All of' the directors of the bank at the time of the transaction testified, that the cashier had not been authorized by the board or by any of themselves to constitute Miner, who was the bearer of the letter, as such agent of the bank. The directors also testi- fied that they had no knowledge of the cashier's letter, and that they never sanctioned the same. The court, in giving an instruction to the jury in this case, gave the following instruction: " That if they should find that the letter written by Moody (the cashier) was his own act, and had been given without the knowledge or authority of the board of directors, or any of them individually, except Miner, and that the agency of Miner was not constituted by or knowTi to the board of directors, or any of them except Miner, but was the act of the cashier alone ; and if they should find that Moody had no power as cashier, except such as be- longed to the office of cashier generally, or such as was given by the charter or by the by-law or other law or usage of the said bank, that the defendant was not concluded by that letter, and is not bound by the contract made by Miner, without some subsequent ratification of the same, though the Secretary had, in contracting with Miner, relied upon it as the act of the bank." 140 The Cashier. [cii. x. The court, in discussing this instruction to the jurv, sajs : " It is also in coincidence with the theories generally enter- tained of the poAvers and duties of the cashiers of banks, by those most familiar with the management and business of banks and perfectly so with such as has been expressed by this court in previous reported cases." In the absence of expressed powers granted by the charter of the bank, or authority given by the by-laws of the corporation, or resolution duly passed by the board of directors, the cashier has no power to perform any act other than those which are termed inherent powers which belong to his office. § 128. Cashier's inherent powers. The cashier or office of cashier, by long usage and custom with banks, has acquired certain inherent powers which the courts have judicially declared to be powers inherent in the office, and which have become settled as recognized law. They are such powers as the cashier may exercise without any special direc- tion, vote, or authority from the board of directors. They are such as go with the office, inherent m the office. As previously stated, his powers may be enlarged by the language of the charter or by by-laws duly adopted by the corporation, or by resolution of the board of directors. In the absence of such special authority, the powers denominated in- herent powers are those Avhich belong to him by virtue of his appointment to the office. § 129. Cashier has inherent power to certify checks. The power to certify checks has by universal usage become recognized as an inherent power, belonging to the office of cashier. To perform this act the cashier is not required to obtain special directions or authority from the board of di- rectors. lie mav certify checks when requested so to do by a customer of the l^aiik, if the bank has sufficient funds of the drawer against which the check is to be charged ; and it may be said that it is a part of his duty to do so; but he has no authority to certify a check drawn upon the bank, unless the drawer has the full amount of funds deposited in the bank to pay the same at the time the check is draAATi. The Xational Banking Act, § 5208, Rev. Stat., U. R., pro- cii. X.] Banking. 141 vides that: "It shall be unlawful for any officer, clerk or agent of any national banking association to certify any check drawn upon the association unless the person or company drawing the check has on deposit with the association, at the time such check is certified, an amount of money equal to the amount specified in such check. Any check so certified by duly authorized officers shall be a good and valid obligation against the association ; but the act of any officer, clerk or agent of any association, in violation of this section, shall sub- ject the bank to the liabilities and proceedings on the .part of the Comptroller as provided for in section fifty-two hundred and thirty-four." The Supreme Court of the United States, in the case of Thompson v. St. jSTicholas jSTational Bank, 146 U. S. 240, in discussing this section, while holding that it is a violation of the law for an officer of a national bank to certify a check unless the drawer of the same has an equivalent amount of money on deposit at the time, holds, that it does not preclude the bank from enforcing its claim out of collaterals pledged to secure the obligations of the drawer of the check. The only penalty incurred by the bank through the acts of its officer for a violation of the provisions of this section, may be a forfeiture of the bank's charter ; but where the law pro- hibits certain acts by banks or their officers, their validity can be questioned only by the United States, and not by private persons. The penalty for false certification of checks by any officer, clerk, or agent of any national banking association, is pro- vided for and fixed by section 13 of the act of July 12, 1882 ; which provides: " That any officer, clerk or agent of any na- tional banking association who shall willfully violate the pro- visions of section fifty-two hundred and eight of the Revised Statutes of the United States, or who shall resort to any device, or receive any "fictitious obligation, direct or collateral, in order to evade the provisions thereof, or who shall certify checks before the amount thereof shall have been regularly entered to the credit of the dealer, upon the books of the banking association, shall be deemed guilty of a misdemeanor and shall, on conviction thereof in any Circuit or District Court of the United States, be fined not more than five thousand 142 TiiE Casiiiek. [cii. x. dollars, or shall be imprisoned not more than five years, or both, in the discretion of the court." To constitute a criminal certification of a check by the cashier, it must be a -willful act. The Supreme Court of the United States in the case of United States v. Britton, 107 U. S. 655, says: " That the willful misapplication of the moneys and funds of the banking association * * * means something different from the acts of official maladministration referred to in section 5239 (Eev. Stat., U. S.), and it must be a willful misapplication for the use of the party charged or of some person or company, other than the association, with the intent to injure and defraud the association or some other body cor- porate or some natural person." To certify a check, the cashier writes the words " certified good," or the word " good," across the face of the check, usually dating the time of the transaction and signs his name officially to the certification. A stamp may be used, and in such a case the date and signature only are to be written. After the check is certified and delivered to the owner, the drawer's account is immediately charged, and the bank charges itself with the amount of the check by placing it to the fund called the " Certified Check x\ccount."^ The holder of the certified check may at any time present his check to the bank for payment, and the bank being a debtor to the holder of said check for the amount named therein, must pay the same on demand. While the bank's posi- tion is one of debtor, it may elect to notify the holder of the check, if known, to present the same for payment at any time. The holder of the cheek is not a depositor of the bank, but is in the position or the relationship of a creditor, holding the obligation or certified clieck designating a certain sum of money due, and payable on presentation of the same. The holder of the certified check cannot issue a check on the bank and draw against his credit, as he has no account with the bank, but simply holds a negotiable instniment with the bank's certified statement that on presentation by the legal holder of the same, it will ]iay it upon demand. A certified check is in the nature of a certificate of deposit, which represents the fact that the bank holds for the legal owner of the same, the amount represented by the check ; and cii. X.] Banking. 143 like a certificate of deposit, it must be presented when payment is demanded; and, like a certificate of deposit, the bank can refuse to pay any portion of it. But must pay in full on de- mand. The bank should not make a partial payment of the check and enter a credit upon the pame ; but if pre- sented and a portion of the check is paid, the bank should cancel the original check and give credit to the owner for the difference, or issue in lieu of said credit a certificate of deposit, for the amount remaining due and unpaid. It has been held that a check may be certified verbally ; thaf is to say, where a check is presented by the drawer thereof or by the payee to the bank, and an officer of the same, duly authorized to certify checks, is handed the check and asked the question: "Is this check good?" and he replies in answer thereto, after examination of the same, that " it is good " or, " it is all right," then such language is equivalent to the cer- tification of the check. It is held, however, in the case of Espy V. Bank of Cincinnati, 18 Wall. 604, that where a party to whom such a check is offered sends it to the bank on which it is drawn, for information, the law presumes that the bank has knowledge of the drawer's signakire, and of the state of his account, and it is responsible for what may be replied on these points. That unless there is something in the terms in which in- formation is asked, that points the attention of the bank officer beyond these two matters, his response that the check is good will be limited to them, and will not ^extend to the genuine- ness, of the filling in of the check as to the payee or amoiint. The court further holds that a verbal reply that a check is " good " given for the information of the party about to re- ceive it, extends only to matters of which the bank liad knovrl- edge. or is presumed to have by the law, unless he is told that more extended information is expected or asked for as to the validity of the check. In so far as the cashier's power is concerned, it is conceded that by universal custom and usage among banks, he has the inherent power to certify checks. This privilege or power, however, is not exclusive to tlie office. The president of the bank and vice-president also, are inherentlv clothed witli the power; and may do so without having special authority granted 144 The Cashier. [ch. x. to them by the board of directors. It is also claimed that the assistant cashier and the paving teller, by usage and custom, have the inherent power and may certify checks ; but the sound- ness of this law has been questioned. It is held that the as- sistant cashier, or teller, cannot without authority first obtained from the board of directors, perform this function, but if au- thorized to do so, they may make such certificates. The courts of the various states have discussed this question of inherent power in ofiicers of banks,- to perform certain func- tions, and have attempted to give logical reasons why a certain cfficer is clothed with incidental or inherent powers, and some of them have declared the law to be that the cashier is alone delegated inherently to certify checks. One court undertakes to show that the jDOwer is only inherent in the teller. !Many of these decisions are written without any knowledge of the business of banking, or the division of duties which necessarily and naturally belong to the various departments and officers. To hold that the cashier alone is clothed with the power to certify checks, is establishing a law, which by usage and custom, is accepted everwhere. While it may be conceded that such a custom and usage is inherently established, as a part of the duty of the cashier, it does not necessarily follow that no other officer of the bank is without this inherent power. One court holds that the teller cannot certify a check because he is not authorized to " pledge the bank's credit." This state- ment and language is sufficient to demonstrate the fact, that tlie learned jurist is not a banker. The bank's credit is not in any way affected bv the certification of the check. The money to meet the check's payment before certification must be placed in the bank, and all the bank does, or binds itself to do, through its officer, is to pay the check when it is presented. It enters into no extraordinary transaction. In the simplicity of the act it is accepting a certain sum of money from a cus- tomer, and certifying that the amount for which the check is draAATi is in the bank, and that it will be paid to the bona fide holder of the same when it is presented. Again, it is the depositing of a certain sum of money with the bank, fwliich a teller ordinarily lias the right to receive), and when so received the bank by agreement, namely, the cer- tification of a check dra\vn against the amount by the depositor, cii. X.] Bai^tking. 145 agrees that it will, on presentation of the check, pay the same. There is no " pledging of the bank's credit " in sncli a trans- action, and, it may be argued, that if the teller has the inherent right to receive the money of customers for deposit, inherently he should have the power to certify the depositor's check, ■which is in effect the payment of the check in advance, the drawer's account having been charged with the amount at the time. We find the Xew York courts sustaining the position that the authority to certify checks is inherent in the cashier, and that such authority is derived by usage. If a bank establishes a custom with its dealers and those doing business with it, which is reasonable, and the act performed under such a custom does not work an injustice to the parties dealing with it, and where such custom is universal with the banks in that particular lo- cality, the courts will sanction the custom and make it the law. Therefore, if it is the custom of the teller to certify checks of the bank, it is reasonable to assume that the power is inherent in his office. The nature of the business, particularly delegated and performed by him, of receiving money and pay- ing checks, comes within that class of duty or authority, which the teller assums and transacts daily and hourly, and the certi- fying of checks is nothing more than the receiving of money and paying the same out again upon a written order or check. In the case of Merchants' Bank v. State Bank, 10 Wall. 601, v;hich is cited as a leading and important case upon the question of inherent power, in the cashier to certify checks; the court there holds that if the cashier has power to receive the moneys, the authority to receive implies the power to give certificates of deposit and other proper vouchers. Upon the same reason- ing, and upon the same ground, the teller who receives deposits has implied authority to perform the act of certifying a check, as it simply amounts to the paATiient of a deposit. The by-laws of the bank may deprive the cashier or the teller of this particular power, and place the same exclusively in some other officer of the bank, but in the absence of such a delegation of power or restriction of power in the by-laws, the cashier and paying teller, by the very nature of their duties, should have the inherent power to certify checks. In the absence of a limitation, or prohibition, of a power which l»y the very nature of the business is required to be per- 10 146 The Cashier. [ch. x. formed by an officer of the bank, it becomes his duty to per- form the same, and the act, when performed, may be said to be an inherent power in the office. The law is settled that where the directors in a ha)il' allow an officer to certify checks, the hank cannot repudiate his acts; and where no knowledge of restrictions or limitations arc known to the general public, the act is valid between the hank and the party dealing with it. The cashier or other officer of a bank who, without authority, certifies a check " good," when the drawer has not unincum- bered funds deposited in the bank to meet the check, is a wrong- ful act, and a person having knowledge of such a fact is pre- sumed to know that such an act was unauthorized, and there- fore void; and such knowledge of the wrongful act will not permit the party to hold the bank liable; but if the check is negotiable, and passes into the hands of an innocent holder without notice, the bank cannot repudiate the check. In the case of Morse v. Massachusetts Xational Bank, 1 Holmes, 209, the court says: " The certificate of a cashier of a bank that a check is ^' good " is a representation of a present existing fact within his knowledge as cashier, and if that cer- tificate be made by him in the course of his ordinary business as cashier, it will bind the bank in favor of innocent third per- sons, upon the ])rincit)le of estoppel in pais, even if the certificate is not true, and the drawer of the ch&ck has no funds on deposit in the bank." § 130. Cashier cannot certify his own check. The certification of his own check is utterly void, though he has money to his credit in the bank covering the amount of the check. The fact that he has deposited, or has on deposit, the amount of the check does not authorize or give him the power to certify his own check. Where an officer of a bank is authorized to certify checks, and certifies his own check, which passes into the lumds of a bona fide holder for value, the bank, though not liable, should be held for it. It has been held that where the president of a bank had drawn his check, and certified the same, that this fact alone was not sufficient to charge the holder with notice, and tliere being no proof of notice that the drawer was the person CH. X.] E^VXKIXG. 147 who certified the check, the bank was held liable ; but it is also held that if the names are identical that fact alone is sufficient to put the holder at least upon inquiry, and the bank is not liable. The fact that the names are identical might occur, and a more reasonable holding would be, that proof should be fur- nished, showing that the bona fide holder for value, had notice that the drawer and the officer certifying the same, were one and the same person. In the case of The Clark Xational Bank v. The Bank of Albion, impleaded, etc., 52 Barb. 592, it is held that a holder of a check certified to by the cashier cannot recover from the bank unless it appears that he became the owner and holder of the check in good faith for a full and fair consideration and without notice of the cashier's want of power to make the cer- tification. AVhere the public and those dealing "^^nth the bank, have notice that a cashier by the very nature of his office and busi- ness, is authorized to certify checks; the want or lack of power to certify his own check is requiring of those dealing with him extraordinary (or legal) knowledge of all his expressed and implied power. It is requiring of the public and persons dealing with the cashier a degree of information as to his powers, which the law does not impose upon persons generally who deal with general agents. There are but few persons who deal with banks that have notice that the cashier cannot certify his own checks ; and if they are not possessed with such notice, the holder of a hona fide check should be in a position to hold the bank. The law, as laid down by the courts, however, and the rule adopted, is stated as follows : " Where the face of the check shows the officer's attempt to use liis official character for his private benefit, every one to wlioni it comes is put upon in- quiry; and when the certificate is false, no one can recover against the bank as a bona fide holder/' § 131. Power to draw checks. The cashier has the inherent power to draw drafts or checks, when the business of the bank requires it upon the funcjs of the bank Avhen deposited elsewhere. It is not necessary for the board of directors to confer such a power upon him; it is 148 The Casiiiee. [cii. x. inherent in the office. In the excution of such checks he should desig^nate himself as cashier of the bank which he represents. This is very important where a cashier by a check or draft directs that the funds of his bank be transferred or paid to a certain person, the check or instrument should be so drawn, shovvang on its face all the necessary elements of perfectness; and have all the marks of official authority upon it. A failure to perform his duty in this particular may cause loss to a cus- tomer of the bank; which negligence upon his part may also make him liable personally. If the instrument is imperfect, for example, if the cashier fails to sign it as cashier, designating the bank which he repre- sents, it may be refused payment. The bank or cashier upon whom it is drawn should refuse to honor it if presented and signed in an individual capacity. The payee bank may honor it, and be safe in doing so, but if it is shown that the cashier was not acting in his official capacity when the check was drawn, the bank paying it would have to sustain the loss. Parole evidence is admissible to show the fact, namely, that the cashier was acting in his official capacity; and that it Avas an omission upon his part to sign his name as cashier. In the case of Mechanics' Bank v. Bank of Columbia, 5 AVheat. 326, the question presented to the court in this case arose upon an instrument or check issued by the cashier of the Mechanics' Bank of Alexandria, which check was signed by the cashier in his individual capacity. The form of the check is given in the reported case as follows : a a No. 18. " Meeliauios' Bank of Alexandria. < June 25th, 1817. ■H o Cashier of tbe Bank of Columbia, a Pay to the order of P. H. Minor, Esq.. Ten thousand Dollars. o H a .a o c <5 $10,000 This is one of the early cases. It presented the following question: Was the act of the cashier official, his name appear- ing and being signed in an individual capacity. cii. X.] Banking. 149 The court declared in delivering the opinion that parole evi- dence was admissible when the instrnment npon its face raises a doubt as to the capacity in which the officer w^as acting. The justice, in delivering his opinion of the court, says: " The question is whether a certain act done by the cashier of a bank was done in his official or individual capacity? Had the draft, signed by Paton, borne no jnarks of an official char- acter on the face of it, the case would have presented more diffi- culties. But if marks of an official character, not only exist on the face, but predominate, the case is really a very familiar one. Evidence to fix its true character becomes indispensible. * * * The only ground on which it can be contended that this check was a private check is, that it had not below the name the letters Cas. or Ca. But the fallacy of the proposition v/ill at once appear from the consideration that the consequence would be that all Baton's checks must have been adjudged private. Bor no definite meaning could be attached to the addition of those letters without the aid of parole testimony. But the fact that this appeared on its face to be a private check is by no means to be conceded. On the contrary the appear- ance of the corporate name of the institution on the face of the paper at once leads to the belief that it is a corporate and not an individual transaction: to which must be added the circum- stances that the cashier is the drawer and the teller the payee ; and the form of ordinary checks deviated from by the substi- tution of to order, for to bearer. The evidence, therefore, on the face of the bill predominates in favor of its being a bank transaction." The cashier acts for the bank in the capacity of a general agent, and if it is shown that his acts are done in the exercise and within the limit of the power delegated, such facts are inquirable into by a court and jury. Any form of check may l)c used l)y the cashier for the pur; pose of transferring the funds of the bank, and the drawee may honor it, but if it fails to show any marks or words to indicate the corporate name of the institution, under the holding of the court in the case above referred to, parole evidence would be inadmissible to show its status, therefore, it should be signed by the cashier, not in his individual capacity, but in his official capacity. 150 The Cashier. [CH. X. "While the form may not, as stated, be essential, when prop- erly drawn it removes all suspicion and must be honored immediately on presentation, A cashier may, by letter, addressed to a corresponding bank, direct that the bank's account be charged with a certain sum, or payment be made to a certain person, or that a remittance be made by the bank to a certain person or bank ; such written instructions are frequently used and operate as a check upon the bank's account ; but a cashier's check, which is drawn and delivered to a person and which becomes transferable, should bear on its face all the essential elements marking it as an instrument free from suspicion and doubt as to its genuine- ness. The form, therefore, and the essential requisites, may be important to the holder of the check, but if lacking any of these essentials and it can be shown that the cashier was acting in his official capacity, the bank will be held responsible for the same. The cashier's check, when drawn upon his own bank, is an acknowledgment of the fixed indebtedness due by the bank; and, unlike other checks, in this particular, the holder is not required to present the same for payment within any specified time. It being an acknowledged indebtedness of the bank, it may be presented for payment at any time before being barred by the Statute of Limitation. g 132. Power to receive offers for the purchase of bank securities. As a general agent of the bank the cashier has the authority to receive offers of purchase for the property or securities belonging to the bank; but he is not authorized to dispose of, or sell such securities ^vithout an order from the board of directors. The Supreme Court of the United States, in the case of First Xational "Bank of Xenia, Ohio, Plaintiff in Error, v. Daniel M, Stewart and ]\Iartha A. McMillan, Admrs. of the Estate of Daniel McMillan, Deceased, 114 F. S. 224, holds that it is Tsnithin the scope of the general authority of a cashier to receive offers for the securities of the bank, and to state whether or not the bank owns socuritios which a cu^^tomer wanted to buy. en. X.] Banking. 151 His statement to a person who was in treaty to purchase that the bank was not the owner of a certain security in his manual possession as cashier, was clearly within the line of his duty and was binding on the bank. § 133. Cashier has inherent power to deal in bills of exchange. A bill of exchange is "A written order from one person to another, directing the person to whom it is addressed to pay to a third person a certain sum of money therein named." ^ "A foreign bill of exchange is one which the drawer and drawee are residents of countries foreign to each other." In this respect the States of the United States are held foreign to each other.* An inland bill of exchange is one of which the drawer and drawee are residents of the same State or country.^ A cashier has the inherent power to buy and sell foreign or inland bills of exchange. The Xational Banking Act, by provisions of section 5197, Revised Statutes of the United States, authorizes national banks to purchase, discount or sell a bona fide bill of exchange. It is not a violation of the National Banking Act for a cashier to discount bills of exchange dra\\Ti in good faith against actually existing values, though the amount exceeds the amount, which by the law may be loaned to any one per- son. It is not construed as money borrowed. Dealing in bills of exchange is a part of the business of banking and it becomes the duty of the cashier in the purchase and sale of the same to endorse them over to the buyer. *^ If the bank's charter being a savings bank, forbids this branch of the business, the cashier has no authority to buy and sell bills of exchange, but should he do so, in violation of the charter, or the direction of the board of directors, the pre- sumption of his authority, without notice to the contrary to a customer, will bind the bank. The cashier of a national bank, being authorized to buy SWood I'yles on Bills, 1. 5 Ragsdale V. Franklin, 25 Miss. 4 Dickens* r. Beal, 10 Peters 572; 143. Phoenix Bk. r. Hussey, 12 Pick. 6 Fleckner r. United States Bank, 483; Green v. Jackson, "15 Me. 136: 8 Wheat. 338; Bank of New Haven Armstrong v. American Ex. Bk., 133 r. Perkins, 29 N. Y. 554. U. S. 433. 152 The Cashier. [ch. x. and sell bills of excliange, a national bank may charge the rate of interest allowed by the State, or a rate that may be allowed to State banks of issue. § 134. Cashier has charge of personal property. The cashier, by the very nature of his office, has charge of all the personal property of every nature belonging to the bank; and is held to a strict account for the same. He has full charge of the cash. Chief Justice Mitchell holds that he should be able to g'ive an account of the same at any time when called upon to do so. If he is charged with the responsibility of giving an account of the cash of the bank at any time, inherently he is endowed with the power of paying all the la^\i:ul demands when due and presented against the bank. He may open an account with a customer or refuse the same. Being held accountable for the cash, he may open an account, and select a correspond- ent bank and deposit with such bank such portion of the funds or cash, as in his judgment is prudent and for the best inter- ests of the bank. Having authority to select a correspondent, and establish such a depositary for the bank, he has authority to "withdraw the same at any time. He is also charged with the care and safe keeping of all the notes, bonds, bills and other securities and valuable papers belonging to the bank; and may, when the necessity arises, during the ordinary course of business, sell, transfer and dis- pose of the same, and, it vnll be presumed, until the contrary- is shown, that he sold the same on behalf of the bank and was authorized to do so by the directors, or that they ratified his act."^ The inherent powers of his position, holding him responsible for and, placing in his charge, all the personal property of the bank, and the auxiliary power, when the necessity arises to surrender and transfer notes, fixes a very gi*eat responsibility ^^pon him and the office. Having charge of the personal property of the bank, a per- son dealing with him in his capacity as cashier, may assume 7 Hawkins v. Fourth National Story on Agency, § 114: Jones v. Bank. 40 N. E. 957; Wild r. Bank Hawkins. 17 Ind. 550, 559; Ryan of Pasa Maquoddy, 3 Mason 505; r. Dunlap, 17 III. 40. cii. X.] Baa-kixg. 153 that be has authority to dispose of the property, and in the ordinary transactions and dealings with him, such person is not required to inquire into the limitations or i^strictions placed upon him or his authority. If, however, the transactions of the cashier in the disposi- tion of property belonging to the bank, raises a doubt as to his authority to do and perform the act; it would be the duty of the person dealing with him to investigate and inquire into his authority. In the case of Franklin Bank v. Stewart, 37 Me., 519, the court in discussing the powers and duties of agents and refer- ring to the power of a cashier, says that : " When a bank presents its cashier as habitually performing certain acts or duties, these may be regarded as official acts or duties, and for the performance of them he may be considered as its general agent." ^ § 135. Power to indorse negotiable paper. The power of the cashier to indorse negotiable paper of the bank is inherent in the office; and it becomes his duty, when so required, to make the indorsement and transfer such paper. The power to transfer paper for collection is one which au- thorizes the cashier to indorse the same. The various forms (or language) employed in the indorse- ment of negotiable paper is important. There are several variations of the simple indorsement "' for collection," evidencing the same intent to retain title in the indorser. For example, an indorsement in the following form " For collection for account " of a certain person named does not pass the title to the paper.^ iSTor does the indorsement which reads as follows, " Pay to B or order, for account of C " pass the title of the paper.^*^ iSTeither do the indorsements, " For collection on account," or, '" For collection and credit," pass the title of the paper. ■'^ 8 Franklin Bank v. (Stewart, 37 lo White v. National Bank, 162 Me. 519. U. S. G58. First National Bank of Crown n Armstrong r. National Bank of Point v. First National Bank of Bovertown, 90 Ky. 431. Richmond, 76 Ind. 561. 154 The Cashiek. [cii. x. It is held, however, in the case of Fawsett v. I^ationat Life Insurance Company, 5 Ilh, App. 272, that an indorsement made by the payee in the following form, '' Pay to the Second National Bank of M for collection of account of II, executor of A, deceased," passes the title to the paper. If the indorsement is made by the cashier in his individual capacity, it may become a question whether the transaction is one which wall bind the bank. As previously stated in the discussion of the question as to the individual or official signing of the signature of the cashier, an indorsement signed by him in a personal capacity may raise the question of fact. Is the signing a personal or, an official act? If it can be shown that it was a bank transaction, the bank is bound by the language of the indorsement. § 136. Indorsement for accommodation. Tlie cashier of a bank has no inherent authority to indorse paper of another in behalf of the bank, for accommodation. Neither can this power be conferred upon a cashier by the board of directors. The bank has no authority to enter into such transactions. Tliere are certain limitations placed upon him as cashier in the indorsement of paper belonging to the bank, but he has the right inherently in his office to indorse for collection and discount, but has no authority to transfer judgments standing in favor of the bank. His authority in this respect only ex- tends to negotiable instruments. The president and directors are the only persons who can legally make a transfer of a judg- ment; and where the cashier acts as their agent, it should appear in evidence. ^^ It has been held in the case of Crockett & Harper v. Young et al, 1 S. M. 6z M. (Miss.) 214, that the cashier has the au- thority under the direction of the board of directors to indorse negotiable paper in payment of the bank's debts. This power, under direction of the board of directors, au- thorizes the cashier to settle with all legitimate creditors of the bank while the same remains solvent, by assigning to them the negotiable promissory notes of the bank. 12 Holt et ah r. Bacon ct al, 25 Miss. 567. CH. X.] Bankii^^g. 155 Tlie question, plainly stated, is, can a hnnJr transfer its se- curities to depositors in settlement of their deposits? The cashier has no inherent power or implied authority to make transfers or assignments of the bank's negotiable instru- ments for this purpose, but, under authority by the board of directors, he may assign and deliver negotiable notes to any depositor of the bank in payment and settlement therefor. In the case of Schneitman v. Xoble, 75 Iowa, 120 (39 :N". W., 221), the court holds that in the absence of a more special authority, the cashier would bo restricted in his power, to bind his principal to the doing of such acts as are usually performed by persons who occupy the position he held. The court holds in this case that in the absence of proof of special authority which the cashier did not have, he was devoid of the power inherently in his office to settle with depositors, by transferring to them promissory notes or other securities of the bank. The opinion denies the inherent power upon the following grounds, that the agent cannot bind his principal " only by acts done in the usual and ordinary course of business." We find then that the law establishes the rule to he that the cashier of a hank may, without special authority from the hoard of directors, transfer and indorse the negotiahle paper of the hank in its ordinary course of husiness; hut that he is precluded from making such indorsements with the intent and purpose of settling with a creditor or depositor of the hank, and that hefore such settlements are made, direct or special authority must he ohtained, or his acts afterwards ratified hy the hoard of directors. The rule, as laid down and universally adopted ,and sus- tained by the courts, cannot be questioned, and possibly should not be in any way criticized, but it is certainly open to dis- cussion, as stated, the rule gives the cashier the inherent power to assign and indorse all negotiable paper belonging to tlie bank in the ordinary transactions which may daily occur. The cashier of the bank is inherently endowed with the power to receive or reject a deposit. He may also at any time upon demand, and when requested so to do, repay such de- posits. He has the inherent power to repay a deposit before 15G The Cashier. [cii, x. a demand is made for the same and settle the account with the depositor. As cashier of the bank he may nnder direction make dis- counts, and perform all other acts necessary, and relating to the notes and personal property belonging to the bank. His power in all these respects is not limited by restrictions or directed by special authority from the board of directors. They are poAvers, as stated, inherent in the office. It becomes his duty to pay deposits upon demand and to pay the same in current funds. "While this is the rule, and one which, in nearly all cases, the depositor would insist upon being fulfilled, we can conceive of no reason or law prohibiting the cashier through the inherent power in his office, from transferring a negotiable instrument of the bank if at the time of the trans- action the bank is solvent, to the depositor in payment of his deposit. The cashier cannot settle with a depositor in this manner without his consent, as all deposits, when repaid as previously stated, must be paid in current funds. The transaction, there- fore, is one which, if the depositor accepts, agreeing to take in lieu of current funds the assignment of a note belonging to the bank, no one should be heard to complain. § 137. Cashier's powers and duty when " run on bank." When a run occurs upon a bank the powers of the cashier, in relation to the property of the bank, are not changed or in any way affected. All the rights inherent in his office, or special powers conferred upon him by the board of directors, or granted to him by the charter and by-laws of the corporation are such as must, during such dangerous periods, all be put in use. A run may occur at any time. It is frequently induced or occasioned by a false report put into circulation by some enemy of the bank or suspicious person. When the bank is being run by its depositors, and they are demanding tlic immediate payment of their deposits ; the cashier being usually in charge and the executive officer of the bank, and having under his control and direction all the funds of the bank, he has the inherQut power to put into exercise every usage, custom, privilege, and law, in order to protect the in- en. X.] Banking. 157 terests of the bank ; and see that no depositor or creditor obtains a preferred jjosition or right over another creditor equally entitled. In such an emergency the cashier may personally take charge of all the affairs of the bank to the extent of examining into each transaction as it may occur. lie has the power to refuse payment upon the presentation of a check, until sufficient and reasonable time is given to ascertain that the account upon which the check is drawn is in sufficient funds to pay the same ; and not until such examination of the drawer's account, can the holder of the check insist upon payment. In a previous chapter the case of Marzetta y. "Williams, was cited to show that tlie cashier was entitled to a reasonable time in which to make ex- amination and payment of a check Avhen so presented. The cashier, as stated, being held responsible for all the funds of the bank, is entitled to know personally that the drawer of a check is in funds and is entitled to payment. To obtain this information requires time for the purpose of examining the account of the drawer. In the settlement with the drawer of the check and payment of the same, the person to whom the funds are to be paid, are entitled to receive payment in " current funds." The cashier has no right to purposely delay the payment of a check when properly dra^^^l and presented for payment, if the drawer has the funds deposited in the l)ank to his credit at the time of presentation sufficient to pay the same. But he may take sufficient time to satisfy himself as to the con- dition of the drawer's account, and being satisfied as to his right, it then becomes the duty of the cashier personally, or through the paying teller of the bank, to pay the same. It then becomes the duty of the cashier, under such extra- ordinary conditions affecting the bank, to act with great care and deliberation. More than ordinary care and supervision is demanded of him in such an emergency. Ilis duties are at all times burdened with responsibility, but when the bank's credit and life is in jeopardy, his duties become very strenuous, and his powers under such emergencies affecting the bank are en- larged, and he may, in order to preserve the bank's credit and safety, make discounts, assign notes, bills of exchange, and 158 The Casiiiee. [ch. x. pledge of securities of the Lank and when authorized borrow money to meet the immediate demands of the bank.-'^ If his function or right to borrow money is divested and the right a-h^ne is in the board of directors, though during such an emergency, he cannot borrow money for the bank. § 138. Cashier borrowing money — Inherent power. This is a power that many cashiers assume and exercise, but the authorities do not agree that it is inherent in the office. The principals of law do not sanction it as an inherent power in the office. Some of the leading authorities, however, lay down the rule wdthout qualification or restriction and say that the cashier may borrow moi-v.^v on behalf of the bank, and that this power is inherent in the office most of the authorities justify and sanc- tion this extraordinary authority by simply stating that custom and usage in the banking business authorize it. It is necessary in the presentation of this important ques- tion, to ascertain the true position and rights of the cashier in this particular. He is the executive officer of the bank. lie is in charge of, and is held responsible for the cash and all the personal property of the bank. He can accept or refuse ac- counts. He can loan money by the order of the board of di- rectors and take notes. He can buy and sell notes, foreign and inland, bills of exchange. He can certify checks for others, but not his own check. He can issue letters of credit, certifi- cates of deposit, attend to the transfer of stock, indorse notes for collection, employ an attorney to make collections, all of which powers inherently belong to the office of cashier, but the right to borrow money for the bank certainly is not an inherent power belonging to the office. In the discussion of this important question, and in order to determine his rights, it becomes necessary to examine the leading authorities upon the subject. It should be understood that there is no contention upon the question as to the power of the bank, when acting through its board of directors, to borrow money for the corporation, pro- viding it acts within its corporate authority and the law. 1^ City National P.ank r. Cliemioal ]r)2: Sturjjos r. Bank of Cirploville, National Bank. 80 PVl. Rep. 859; 11 Oliio State, 153. Barnes v. Ontario Bank, 19 N. Y. CH. X.] Banking. 159 The question here discussed is, has the cashier the inherent power to borrow money for the hank? In presenting the question it also becomes necessary to de- termine to what extent are the rights and jiowers of corpora- tions in this particular. The borrowing of money by a corporation is the creation of a debt therefore the question reduces itself to one stated as follows: When and how may the corporation (bank) borrow money i Does a custom or usage authorize a corporation, through one of its executive officers, without authority from its board of directors, to create a debt ? Banking corporation are institutions, organized and author- ized by law, A national bank deri\es all its powers from the laws enacted by Congress, and their powers are limited to the express provisions of law and such incidental powers as are necessary in the conduct of their business. The statute governing national banks is silent upon the ques- tion of power of a national bank to borrow money ; but it has been held that it has incidentally the power and that this power may be used. This question has been discussed in another chapter, under the title, " Banks borrowing money." The dis- cussion there relates to the power of banks to borrow, while here the question is the " power of the cashier to borrow." In the case of Western National Bank v. Armstrong, 152 U. S. 346, the -court, in discussing the power of an executive officer of the bank to contract an indebtedness, where it has been shown that the vice-president of the bank, without authoritv from the board of directors, had borrov/ed the sum of $200,000, says: "It cannot he 'pretended as such that he, the vice-presi- dent, had power without authority from the hoard to hind the hank by horrowing $200,000 at four months' time." And upon the ciuestion as to the authority of the hank, fhouqli actinq through its hoard of directors to borrow, the court says: ''It might even he questioned whether such a transaction icoidd he within the power of the hoard of directors." We iind the su- preme Court of the United States authoritatively declaring the law to be that an executive officer of the bank has no authority to bind it or borrow money for its use, without the authority of the board of directors. The inherent authoritv of the cashier to borrow monev for IGO The Cashier. [ch. x. a national bank, is denied bv the Supreme Court of the United States. The court, in its opinion, further states : " Xor do we doubt that a bank, in certain circumstances may become a temporary borrower of money, yet such transactions woukl be so much out of the course of ordinary and legitimate bankins; as /o require iliose mahing the loan to see to it that the officer or agent, acting for the hank, had special authority to borrow the money/' The law of the Supreme Court of the United States, as it stands at the j^resent time, upon the inherent power of an executive othcer of a national bank, to borrow money, is, that he lias no inherent power ; that such power can only be used by him by authority and under direction obtained from the board of directors. State banks (so-called), are organized under special banking laws, or under the general incorporation laws enacted by the Legislature of the various States. Where a banking corpora- tion is incorporated under such general or special laws, and the law restricts such coi-poration in, or provides how, debts may be created, no debt of any such corporation is valid or binding upon it unless all the necessary steps in conformity to law are taken; and a cashier of any such banking corporation has no inherent power to bind it by borrowing money, which act is creating a debt, unless such power is conferred upon him by the directors. In view of the fact that the Supreme Court of the United States has declared the law to be, that under the Xational Banking Law the cashier or executive officer has no power inherent in his office to borrow money for the bank, it is deemed advisable to review some of the leading cases of the State courts which have held that the cashier has power as a general agent of the bank inherently in his office to borrow money for the bank. In a leading case determined by the Supreme Court of the State of Illinois, Mr. Justice Sheldon, delivering the opinion of the court, sustains the Appellate Court, which holds that where the cashier of a bank is also the general manager of the same, and that it was one of the usual customs or operations of the bank, in the vicinity or town in which the bank was located, to borrow money on time CH. X.] Banking. 161 and execute a note therefor, that such person while acting as cashier and manager for the bank, who borrowed in its name a certain sum of money and executed and delivered a note, held: that the bank was liable.^* It mnst be noted that in this case the cashier was also shown to be the general manager of the bank, and was proven to be the general agent of the bank and at the time of the execution of the note by the cashier it was shown that the bank was a private banking institution, not incorporated under any law of the State and therefore not under the same limitations and restrictions as to the creation of debts imposed upon incor- porated banking companies. An early and leading case frequently cited as giving inherent power to the cashier of a bank to borrow money is the case of Barnes v. Ontario Bank, 19 ]^. Y. 152. In this case it ap- pears, that the cashier and chief financial officer of the bank issued certificates of deposit of the bank and delivered the same to one Hollister who had no funds in the bank, but who was directed bv the cashier to negotiate the certificates. The agent, Hollister, indorsed the certificate and procured a third person to sell it. The questions presented in this case are: 1. Did the bank have power to borrow the money? 2. AVas the cashier the proper agent to execute that power without any special delegation of authority thus to act? The court says : " That the power to borrow existed was determined by this court upon the fullest examination in the case of Curtis v. Leavitt, 15 iS[. Y. 9. That the cashier in virtue of his general employment, could exercise the power, was not denied upon the argument and the proposition does not admit of a reasonable doubt." " In the next place, if the bank could borrow money, it could execute and deliver an assurance or undertaking for the pay- ment of the sum alone in any form not forbidden by the terms or just interpretation of some statute of this State. This was also settled in the case above mentioned. There is no pretense that these certificates of deposits, payable, as they were, on demand, fall within any of the restraints imposed by law upon the banking institutions of the State. They were, therefore, i4Crain et al r. National Bank, 114 111. 516. 11 162 The Cashier. [ch. x. valid instruments, so far as any question of corporate power to issue them is concerned." The law of the State as it existed at this time authorized the cashier to draw and sign certificates of deposit, and it appearing that this particular certificate of deposit, being authorized by law and having passed into the hands of an innocent purchaser, without notice of the fact, that Hollistcr, to whom the same had been issued, had made no deposit in the bank representing the same, the bank was rightfully held responsible. The court, in further discussing the question, says : " The cashier, therefore, in issuing such instruments, acted under his authority, and in so doing, he wielded the power of the cor- poration itself. The corporation, therefore, cannot be per- mitted to repudiate the obligation on the mere ground that it was not duly executed." It must be noted that the law authorized the cashier to draw certificates of deposit, but the assumption is always that they are drawn upon a deposit which has previously been made by the o^\mer of the certificate. It cannot be contended that it is a transaction in the nature of creating a debt as debts are usually created, namely, by executing a promissory note, and therefore this case, when cited in support of the inherent power of the cashier to borrow money, is not in point. In the case of Ballston Spa Bank v. The Marine Bank and others, 16 Wis. 125, the court, in discussing the inherent power of the cashier to borrow money, disposes of the question as follows : The court says, " It was competent for the cashier, a.s' agent for the hoard of directors, to execute the promissory notes in question and bind the bank for such execution. "Whether, then, the cashier has prima facie authority by virtue of his ofiice, or whether absolute, or whether, still, the parties seeking to charge the bank through his act, must give evidence that he was expressly authorized by the board of directors, we need not now inquire, A subsequent ratification is equivalent to a previous expressed authority." The court very carefully and purposely refrains from declar- ing that the cashier has inherent power to execute promissory notes and borrow money for the ])ank, but very correctly states and emphasizes the law to be that if such notes are issued, a subsequent ratification is equivalent to a previous express authority. CH. X.] Banking. 163 A recent and very important case, discussing this question, is the case of City National Bank v. Chemical National Bank, 80 Fed. Rep. 859. The importance of this case demands that the opinion of the court should be given in full. Opinion : In this suit by the Chemical National Bank of St. Louis, Mo., against the City National Bank of Quanah, Tex., the plaintiff by its petition sought to recover against defendant on certain promissory notes executed by the defendant bank through its cashier, William F. Brice. There was also an account in the petition for money loaned, covering the same transaction as that embodied in the notes. The City National Bank defended on the ground that the action of Brice was not its action, and that it never made the loans or executed the notes, and that the trans- action by Brice was for his personal benefit, and did not inure to the benefit of the bank in any way. The record discloses the fact, which is undisputed, that Brice was the cashier of the City National Bank, and that in 1894 he applied to the cashier of the Chemical Bank for accommodations, proposing to keep a balance in the Chemical Bank, and to send it the collections in St. Louis of the City National Bank. Brice also sent to the Chemical National Bank, to be used for comparison, what he represented to be, and what purported to be the signatures of the officers of the City Bank; also what purported to be a reso- lution of the directors of the City Bank, authorizing him as cashier to borrow from time to time, and to rediscount with the Chemical Bank, the whole or any part of $10,000, and to deposit as collateral paper made by the customers of the City National Bank. The correspondence resulted in an agreement between the cashiers of the two banks, and on August 27, 1894, a note for $5,000 was sent by Brice to the Chemical Bank. This note was signed " City National Bank, by William F. Brice, Cashier," V\^ith the seal of the bank affixed. Certain col- lateral, amounting to $7,640, consisting of what purported to be notes payable to the City Bank, was forwarded with this note. Subsequently a note similarly signed was made on September 27, 1894, for a like amount, with which collateral, or what pur- ported to be collateral, amounting to over $8,000, was placed. The proceeds of these notes, when discounted by the Chemical 164 TnE Cashier. [ch. x. Bank, were placed to the credit of the City Bank, bnt unques- tionably a large proportion of the amount was used by Brice for his indi^ddual benefit. Soon after these transactions 3,000 silver dollars were sent by the Chemical Bank, on a telegram requesting the same, signed "■ City Xational Bank," and this silver, according to the evidence, went into the vaults of the City Bank. There was considerable evidence in the case, but it need not be set out in detail, as the above statement embraces the material facts necessary to an understanding of the issues involved. The court directed a verdict, under all the evidence ir. the case, for the plaintiff, and the question presented is, was this action of the court right. Xot only did Brice, the cashier of the City Bank, have the usual powers of a cashier — of general management of the bank's business, as to loans, rediscounts, etc. — but the testi- mony of the president shows that the actual management of the City Bank was left almost entirely to Brice after April 2, 1894:. Brice seems to have been left by the president and directors of the bank, in connection with his son, as assistant cashier, in full control of the bank's business. The letters written by Brice in reference to loans from the Chemical Bank, and all the correspondence, were on the regular letter paper, and what was piirported to be a copy of a resolution of the directors authorizing the loan. There was printed on all the paper so used this heading: The City National Bank. Capital $100,000. G. S. "Wliite, President. J. AV. Colston, Vice President. "Wm. F. Brice, Cashier. E. H. Brice, Asst. Cashier. AYhile it appears to be true that the signature of the presi- dent, though a good imitation of his genuine signature, was a forgery, and while what purported to be a resolution of the board of directors was also a forgery, there was nothing what- ever to excite the suspicions of the officials of the Chemical Bank as to their genuineness. The action of Brice was within the general scope of his duties as cashier of the bank, and there was nothing whatever in it calculated even to arouse inquiry as to Brice's honesty, and as to the transaction being made in good faith on behalf of the City Bank. CH. X.] BAyKi:^G. 165 Any authority that may be found to the effect that redis- connting the bank's paper does not come within the scope of the powers of the cashier of a bank would not be applicable to the facts here. There is e\'idence in this case to show that it was customary for similar banks in Texas, during certain sea- sons, to borrow money this way. Considering the amount and character of these loans, and the whole nature of the trans- action with the Chemical Banls:, there was nothing done, as it appeared to the Chemical Bank that Brice could not legally and properly do. The cases of AVestern lsa.t. Bank r. Armstrong, 152 IT.'^S. 346, li Sup. Ct. 572, and Chemical Xat. Bank v. Armstrong, 13 C. C. A. 47, 65 Fed. 573, are not applicable, on their facts, to this case. The character and amount of the loans, and the manner in which they were made in both of these cases, were such as might well have raised suspicion as to the regularity and bona fide character of the transaction. In this case the negotiations and all the correspondence were such as might well lead the officers of the Chemical Bank to believe that Brice was acting on full authority, with perfect good faith and honest intention. The transaction with the Chemical Bank being, as we have stated, within the general scope of the duties of a bank cashier, and Brice having been placed by the authori- ties of the City Bank in a position and afforded facilities to enable him to make these loans as its representative, we do not see how the court could have done otherwise than direct a ver- dict, as it did in favor of the plaintiff on these notes. A sen- tence or two from leading authorities vrill indicate without multiplying citations, the law we think applicable to -this case: " The cashier is the executive officer through whom the whole financial operations of the bank are conducted." Merchants' Bank V. State Bank, 10 Wall. 601. " The cashier has inherent power to borrow money in the regular course of the business of the bank, and may secure the loan by note or pledge of the bank's property." Morse, Banks, § 160. See also Mor. Priv. Corp., §§ 539, 597. The first specification of error is that the court erred in admitting in evidence the notes executed by Brice as cashier of the City Bank to the Chemical Bank, without proof of execu- tion, notwithstanding the plea of non est factum. They were admitted on an admission by defendant that Brice, who signed 166 The Cashier. [CH. them, was the cashier of the defendant bank, that the same were in his handwriting, and that the seal affixed was the genuine seal of the hank. There was no error in this. The second specification of error is that the court erred in admitting in evidence what purported to be a copy of the reso- lution of the board of directors authorizing Brice to make these loans. There seems to have been no question but that Brice placed this paper, containing what purported to be the action of the board of directors, with the Chemical Bank, in connec- tion with the loan transaction; and we think the paper was properly admitted, its weight and value as evidence to be after- ward determined. The third specification of error is that the court erred in refusing to instruct the jury to return a verdict for the defend- ant. In this the court was clearly right. The fourth assignment of error is that the court erred in instructing the jury to return a verdict for the plaintiff. We think, on the whole case before the court, for the reasons we have heretofore given, that this instruction to return a verdict for the plaintiff was right. The court having correctly directed a verdict for the plaintiff, the judgment based thereon should be affirmed; and it is so ordered.'' The facts in this case show that the Chemical Xational Bank believed that Brice was acting under full authority, with per- fect good faith and honest intention. Relying upon such au- thority and resolutions and believing them to be genuine, authorizing Brice to borrow the money, the court held that the City iSTational Bank could not defeat the debt for lack of au- thority, while at the same time accepting the benefits resulting from the loan. The rule as well known and unquestioned is that the directors wield all the powers of the corporation for the purpose of con- ducting its business. In the case of a ministerial officer of the corporation, such as the cashier of a bank, the power to borrow money must emanate from the board of directors and ought to be proven. The power, however, need not be proved by the production of the official records, but may be proved by circumstances. The Supreme Court of the United States, in the case of Min- cir. X.] Banking. 167 ing Co. V. Anglo-California Bank, 104 U. S. 194, in discussing this question in connection with the provisions of the Civil Code of California, §§ 305, 354, says: " It is equally clear that the board had as incident to the general powers conferred by law upon the company power to borrow money for the purposes of the corporation, and to invest certain officers with authority to negotiate loans, to execute notes, and to sign checks drawn against its bank account. And it is settled law that the existence of such authority in sub- ordinate officers, may, in the absence of express statutory pro- hibition, be shown othenvise than by the official record of the proceeding of the board. It may be established by proof of the course of business between the parties themselves ; by the usages and practice which the company may have permitted to grow up in its business ; and by the knowledge which the board charged with the duty of controlling and conducting the trans- actions and property of the corporation, had, or must be pre- sumed to have had, of the acts and doings of its subordinate in and about the affairs of the corporation." That the cashier may be delegated with this power, or his acts afterward ratified, is not questioned ; but we are unable to find an opinion of a court which goes to the extent (through custom or usage) of giving an unlimited inherent power in the cashier to borrow money. § 139. Inherent power to collect debts. The cashier has inherent authority to collect debts due the bank, and to accomplish this purpose he may engage an attorney and agree to pay him a reasonable compensation for his services. His power in this particular is co-ordinate with that inherently given to the president of the bank.^^ He may, of course, receive payment obtained from collec- tions, but is not permitted to accept in payment anything but money.^^ He has also authority to release a mortgage debt by a re- lease duly executed in the name of the bank, or by a release 15 Root V. Olcott, 42 Hun (N. Y.) N. C. 561, 32 S. E. 889; Bank of 536; Young v. Hudson, 9!) Mo. 102.5. Commerce :. Hart, 37 Neb. 197. 16 Piedmont Bank v. Wilson, 124 168 The Cashier. [ch. x. entered upon the record in the recorder's office, where such a release is authorized by statute.^' He has power to transmit notes for collection, but it has been held that he has no power to enter into a compromise with a creditor of the bank; and settle a claim in favor of the bank for a sum less than the actual amount of such claim. "When collateral security is held bv the bank to secure a debt due the bank, when the debt is paid he has power to surrender and assign the collateral security to the owner. -^^ It has been held in the case of Bridenbecker v. Lowell, 32 Barb. (N. Y.), 9, that the cashier in the securing of a collection and debt of the bank may make a compromise of the claim, but this power strictly and properly belongs to the board of directorc-. § 140. Liability of cashier. Lord Loughborough, in 1 II. Bl. 151, lays down the follow- ing rule : " If the man be in a situation or profession to imply skill, an omission of that skill is imputable to him as gross negligence." ^^ Where a cashier fails to notify the maker of a note, which is held by the bank, and the bank suffers a loss and an indorser through such negligence escapes liability, the cashier is liable to the bank, to the extent of the loss sustained.^ The cashier contracts to act in good faith and mtli entire honesty in transacting all the business of the bank, and to exercise as high a degree and skill as is generally exercised by business men in the management of such business; but he is not liable for honest errors in judgment, nor for the failure to take the utmost precaution possible in making investments for the bank."^ The cashier is liable in damages for an injury arising from his "UTongful or unofficial act, or for a violation of the direc- tions imposed upon him by the board of directors to perform. " Thus it has been held that where losses occur to a savings bank through investments by the president in securities not 17 Ryan r. Dunlap, 17 Til. 40. 184; 1 Parsons. Cont., 73, 74 and i8]\Iatlio\vs r. Massaclmsetts Na- note; 20 Pick. 1G7. tional P.nnk, 1 Holmes. 396. 20 p.ithvpH ,-. Aladison. 10 Minn. 1. 19 Story, Partnership. §§ 169, 170, 21 Exchange Bank r. Gardner, 73 171, 173; Story, Agency, §§ 182, N. W. 591. CH. X.] Banking. 169 ^\ithin the restrictions of the charter, by means of checks signed and left in bhmk by the treasurer, the president and treasurer are personally liable, the president first and the treasurer next. "Williams v. McKay, 46 N. J. Eq. 25, 18 Atl., 824. An honest error of judgment while in the exercise of ordinary care docs not make the president liable to the cor- poration. Gubbins v. Bank of Commerce, 79 111. App., 150. It has been held that, although he should have consulted the board of directors before authorizing certain expenditures, yet if he acted in good faith and did no more than what they prob- ably would have authorized, he was not liable to the corpora- tion for damages. Davis v. Memphis City R. Co., 22 Fed. 883. It has also been held that a president of a national bank is guilty of no want of ordinary care, in accepting a leave of absence granted to him of one year on account of ill health and is not to be held for neglect of duty because he did not resign. Briggs v. Spaulding, 141 U. S., 132, 11 S. Ct. 924, 35 L. ed. 6G2. See also Movius v. Lee, 30 Fed., 298. It has been held, that the president of a corporation is liable, for allowing a debt of a corporation with which he is closely con- nected to accumulate until, the debtor corporation becomes insolvent, when it could have been saved by prompt action. Doe V. Northwestern Coal, etc., Co., 78 Fed., 62. But he cannot be held responsible for not defending a suit, where there is no good defense. Boston Tailoring House v. Fisher, 59 111. App. 400. Tbe cashier may be liable on his bond for making improper loans, although the by-laws of the bank provide, for the ap- pointment of a committee, to control the making of loans.'^ § 141. Cashier responsible for subordinates, when. It is the duty of the board of directors to employ all the subordinates and clerks of the bank, but in the very nature of the office of cashier, the tellers and bookkeepers are his sub- ordinates and sub-agents, and only through improper or negli- gent performance of his duty as manager and superintendent of the bank, can he be held for the default or errors of his subordinates. He is only held as cashier to exercise such care 22 Wallace j;. Exchange Bank, 126 Ind. 265. 170 The Casiiiek. [cii. x. and supervision, as a man of ordinary prudence would do in the conduct and management of his own affairs.^^ But where the cashier without authority from the board of directors or necessity, employs an assistant on his own account, and the assistant fraudulently embezzles the funds of the bank, the cashier having fraudulently concealed the fact of such em- bezzlement after it came to his knowledge, he is personally liable to the bank.^* § 142. Cashier — Penalty — Liable, when. The cashier of a national bank is prohibited by section 5187, Revised Statutes of the United States from countersigning or delivering to any association or to any company or person any circulating notes contemplated by this section, except in ac- cordance with the true intent and meaning of its provisions. It may be stated that this only applies to officers of the gov- ernment. Section 5207, Revised Statutes of the United States, pro- vides that no association, shall hereafter offer or receive United States notes or national bank notes, as security, or as collateral security for any loan of money or for a consideration agree to withhold the same from use or offer or receive the custody or promise of custody of such note as security, or as collateral security, or consideration for any loan of money. The law further provides that any officer or officers of any such national banking association, who shall make any such loan, shall be liable for a further sum equal to one-quarter of the money loaned ; and any fine or penalty incurred by a viola- tion of this section shall be recoverable for the benefit of the party bringing such suit. The object of the provision of this law is designed by the government to prevent the locking up of money. Section 5209, Revised Statutes of the United States, pro- vides a penalty for the embezzlement, abstraction or willful misappliance of any of the funds, moneys or credits of the association, and declares that every person who makes any false entry in any book, report or statement of the association, with intent to injure or defraud the association, or any other 2-\ Batclielor t\ Planters' National 24 Vance v. Motley, 92 Tenn. 310, Bank, 10 Rep. 16 (Ky. 1880). 21 S. W. 593. CH. X.] Banking. 171 company, body or politic, or corporate, or any individual per- son, or to deceive any officer of the association, or any agent appointed by the Comptroller to examine the affairs of any such association with intent to defraud the same, shall be deemed guilty of a misdemeanor and shall be imprisoned not less than five years nor more than ten. Section 5437, Revised Statutes of the United States, pro- vides a penalty for officers, meaning thereby any director, president, cashier, oflicer or other agent of the corporation, in using notes, etc., of closed banks, and declare that if any per- son knowingly aids in such act he shall be punished by a fine of not more than ten thousand dollars, or by imprisonment not less than one year nor more than five years, or by both such fine and imprisonment. Section 5497, Revised Statutes of the United States, pro- vides a penalty against every banker, broker or other person not an authorized depositary of public moneys, who knowingly receives from any disbursing officer or collector of internal revenue, or other agent of the United States, any public money on deposit, or by way of loan or accommodation with or without interest, or otherwise than in payment of a debt against the United States, or who uses, transfers, converts, appropriates or applies any portion of the public money for any purpose not prescribed by law and every president, cashier, teller, director or other officer of any bank, or any banking association, who violates the provisions of this section, are de- clared to be guilty of an act of embezzlement of the public money so deposited, loaned, transferred, used, converted, ap- propriated or applied, and shall be punished as prescribed in section 5488. A violation of this section constitutes embezzlement and all banking institutions not public depositaries are subject to the provisions of this section. Tlie fact that the cashier commits an act which is a violation of law, or an express statute, will not relieve him from liabi- lity, unless done under duress. Where the cashier obeys an ordei' of the board of directors, which he knows to be illegal, and given by them for the purpose of defrauding the bank, he is held to be equally guilty, though he does not participate in the illicit gain obtained from the bank. 172 The Cashier. [CH. § 143. Notice to cashier of bank — When notice to bank. The fjencral rule is that notice to the cashier, white acting as such for the Ijanh, is n-otice to the hank. The rule, as stated bv the court in the case of First National Bank of Mason v. Ledbetter, 34 S. W., 1042, is as follows: " The cashier of a national bank is the executive officer of the bank and his acts, done in the ordinary course of business, bind the bank, and notice to him is notice to the bank." Where the cashier of a bank conspires with a third person to sell worthless property to defendant at par, in order that the proceeds may be applied to the payijient of a debt due tha bank, the bank is chargeable '^'ith the knowledge that the cashier had of such conspiracy."^ ISTotice to the cashier of an incorporated bank that a note discounted with the bank was procured by fraud, is notice to the bank, so that the defense is available against it.^' It is also held that knowledge by one of the officers of a bank, who joined in the acceptance for the bank of a negotiable note before due, of a fact which would put a prudent person upon inquiry as to the power of the maker to execute the paper, is sufficient to charge the bank with notice of a disability, if such existed.^ The knowledge of a cashier and two directors that he, the cashier, has without authority, pledged the bank's responsibility upon the note of the corporation, in Avhich such officers have an interest adversely to the bank, is held not notice to the bank.2s In the case of TTinslow v. Harriman Iron Company, 42 S. W. 698, where a holder of bank stock placed it in the hands of the bank's cashier for negotiation, and the cashier obtained a loan on the stock, and was told by the owner to remit the proceeds to him, the owner Avas at the time indebted to the bank, and the cashier, without authority, deposited the proceeds in the bank, by which it was appropriated in payuient of the indebted- ness, held by the court that the bank was charged with notice of the cashier's fraud and could not make the appropriation. 25 Jlerchants' National Bank v. Tracy. 20 N. Y. S. 77. 20 Citizens' Savings Bank v. Wal- den, 52 S. W. 953. 2T Hager v. National German- American Bank, 31 S. E. 141. 28 Fort Dearborn National Bank t'. yeyraour, 73 N. W. 724. en. X.] Bai^king. 173 The cashier having been given full authority to make dis- counts, it cannot be contended in behalf of the bank that notice to the cashier is not notice to the bank in the discounting of notes.^^ Where the articles of incorporation of a bank provided that " it is to act as an agent in the investment of fmids," and '" to transact any business that may properly be done by a financial agent; " and the cashier of such bank made a loan for a customer who had money deposited therein, and took the acknowledg- ment to the mortgage securing the loan, and had possession of the unrecorded mortgage, and received two installments of interest, which he placed to such customer's credit on his pass book; Held, that the knowledge of its cashier was the knowl- edge of the bank, affecting it vdth notice of such unrecorded mortgage."*^ In the case of Loring v. Brodie, 134 Mass. 453, the court holds that if a cashier of a bank receives securities on a loan from the bank to a trustee, with knowledge that the securities belong to a trust, the bank is affected with the knowledge of its cashier, and is put upon inquiry as to whether the trustee has authority to pledge the securities. The court, in its opinion, says: "If he received the securities with a knowledge that they were wrong-fully transferred and were the property of others, his knowledge must affect the bank. His attitude and relation were such that it was his duty to communicate this information to the bank; and it cannot be deemed that he was a mere channel of transmission, and that his knowledge is to be treated as affecting only himself. Although he was the attoraey of Brodie, in taking care of and managing the trust property, he was the cashier also and there was a confidence reposed in him as such which makes his knowledge the knowl- edge of the bank." This doctrine is supported by the Supreme Court of the United States in the case of Duncan v. Jaudon, 15 Wall. 105, where the court holds that notice to the cashier of a bank that the stock pledged is trust stock, is notice to the bank. The rule is again laid down as follows : " The knowledge of 20 INIerchants' & Planters' Bank V. 30 Christie r. Sherwood, 113 Cal. Penhmd, 1 B. C. 25. 526, 45 Pac. Rep. 820. 17-1: The Casiiiek. [cir. x. an authorized agent acquired in the course of a given transac- tion within the scope of the agent's authority, is the knowledge of the principaL" The knowledge of the cashier of a bank of a defense to a promissory note, if acquired in the course of the transaction which results in the discounting of the note, is the knowledge of the bank, and will deprive it of the position of an innocent holder for value. ^^ A bank is not chargeable with notice of the misappropriation of money by its cashier, acting as agent for a third party, in his individual capacity ; nor is it liable to the principal for such money when it receives no benefit therefrom.^^ Where the cashier of a bank is also the secretary of another corporation, and while working in the interest of the latter, sold stock therein, taking the purchaser's note therefor, which note was afterward discounted by the bank. Held, that the bank ic not affected with its cashier's knowledge as to the value of the stock sold, obtained through his connection with the other corporation.^^ It is held in the case of Drovers' l^ational Bank v. Potvin, 74 X. W. 724, which case was appealed from the Supreme Court of the State of Michigan, that where a bank had no committee or agent to make loans, excepting their cashier, evidence that he had no knowledge that a note indorsed to them for value M-as procured by fraiul, is prima facie sufficient to show want cf such notice by the bank. In the case of Indian Head Xational Bank v. Clark, 43 X. E. 912, the court, in discussing the general rule of agency, appli- cable both to corporations and to natural persons, which Ic defines as follows, is that " notice to an agent, while acting for his principal, of facts affecting the character of the transaction, is constructive notice to the principal," the court says, " that there is an exception to this rule when the agent is engag-^d in committing an independent fraudulent act on his o\\ti account, and the facts to be imputed relate to this fraudulent act. It is the circumstance that the agent, while acting for his principal, SlNationnl Bank of Bedford v. 32 1 00 Fed. Rep. 705. Stever, Appollaiit, 109 Penn. St. 3:'. Benton r. German American 574; Burmin<;liam Trust Co. f. National Bank, 20 S. W. 975. Louisiana National Bank, 99 Ala. 379 ; Niblack r. Cosier, 74 Fed. 1000. cii. X.] Banking. 175 is at the same time committing an independent fraudulent act upon his own account which makes the case an exception to tlie genera] rule." ^^ § 144. Cashier's declarations and admissions. The rule is that the declarations or admissions must he made officialhj and within the scope of the agent's duties to hind the hankJ"^' A declaration or admission made beyond the scope of his authority will not bind the bank.^*' The cashier of a bank ordinarily has no authority to dis- charge its debtors without payment, or to bind the bank by an agreement that a surety should not be called upon to pay a note he has signed, or that he would have no further trouble from it." Where the cashier attempts to answer as to the genuineness of paper, and the responsibility of the makers or indorsers in which the bank has no interest, and is not in any way affected thereby, the act is beyond his authority. A\niere a check drawn upon the bank is presented to the cashier and he says " it is good," held that the bank is bound as to the signature and the sufficiency of funds, but the bank cannot be held as to the genuineness of the filling in. The Supreme Court of the United States, in the case of Espy V. Bank of Cincinnati, 18 Wall. 1-604, says, "The ansvs-er he gave that the check was ' good,' or was ' all right,' must be supposed to be responsiA^e only to these two points. The gen- uineness of the payee's name and of the sum filled in the body of the check were as well knoAvn and as easily ascertainable by the payees themselves as by the bank officer, and unless the inquiry was so framed as to call his attention to these points, he had no reason to suppose, in the nature of the transaction, that he was expected to give information in regard to them. So the response of ' good ' should not on sound principle be held to extend to them. He was under no moral or legal obli- gation to give an opinion on these points. He had no reason "4 Atlantic Cotton ]\Iills v. Indian 36 Goodbar r. National Bank, 7S OrHiard Mills, 147 Mass. 268, 278, Tex. 461. 14 S. W. 851: Bank of the 17 X. E. 496. ]\retropolis v. Jones, 8 Peters, 12. •-."' St urges r. Bank of Circleville, 37 Bank v. Haskell, 51 N. H. 116. 11 Ohio St. 153. 176 The CasuiePw [cii. x. to suppose that he Avas asked for such an opinion, and because be did give an opinion that the check was good in the only points of which he knew anything, it wonkl be illogical to hold the bank liable on the ground that the response meant good absolutely and for all purposes." The Supreme Court of Xebraska, in the case of Grant v. Cropsey, 8 Xeb. 205, holds that it is a firmly established rule that when one by his words or conduct willfully causes another to believe in the existence of a certain state of things and induces him to act on that belief, so as to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the same time.^ ^Vhere the cashier admits that the drawer of the check has sufficient funds to pay the same, the bank is bound. It is an act within the scope of his authority and is equivalent to the verbal certification of the check. AVhere a cashier Avas asked about the solvency of a firm and lie reported that the firm " was good, Avas perfectly solvent,'' afterward the firm failed and it was shoAm that at the time of the inquiry the firm Avas insolvent and the bank, with the bank- rupt, Avas sued, held that the bank Avas not responsible for the statements of the cashier ; that he was not employed by the bank to giA-e such information. " A cashier of a bank who is also a director of a manufactur- ing company, and as such director assisting in promulgating false statements as to the financial condition of the company, for the purpose of defrauding all of its creditors, including the bank, was not the agent of the bank in such matter so as to affect the validity of its claims against the company." ^ § 145. Cashier's acts away from bank. A cashier may draAv checks AA'hilc away from the bank; and may also indorse paper Avhile away from the bank.^ He may also pay or certify checks away from the bank.^^ nspickard r. Scars. 133 Ens:. Com. 40 Bissell r. First National Bank Law Rep. 409; DaviB r. Handy. 37 of Franklin, G9 Pa. St. 415. X. H. r>5; Merchants' Bank r' Ru- 41 Bullard v. Randall, 1 Gray dolph ct al., 5 Neb. .527. (Mass.) G05. 3i> Madden v. Doolev, 92 Fed. Rep. 274. en. X.] Bank;i:xg. 177 If the cashier can bind the bank bj representations made "U'hile in the bank, he may, while absent, if representing the bank and npon the bank's business, bind it."*" § 146. Limitation of power. Ordinarily the cashier of a bank has no authority to discharge its debtors without payment, or to bind the bank by an agree- ment that a surety should not be called upon to pay a note he had signed or that he would have no further trouble from it.^''* Under section 5136 of the Xational Banking Act the cashier of a national bank has no power to bind it to pay the draft of a third person on one of its customers, to be drawn at a future day, when it expects to have a deposit from him suffi- cient to cover it, and no action lies against the bank for its refusal to pay such a draft.^ Where a statute creating a banking corporation provides that its affairs shall be managed by a board of directors who shall have power to appoint and remove a cashier and other em- ployees of the bank, the power to discharge a surety on a note cannot be exercised unless expressly delegated to him l\v the directors.^ The cashier of a national bank has not in the absence of special authority from the board of directors or a usage or prac- tice so to do, power to receive on behalf of the bank property for safe keeping.*'^ The cashier has no authority by virtue of his office to bind the bank by certification of his own check. The certification ir. invalid. ^^ In the case of State National Bank v. ]Srewton jSTational Bank, 66 Fed. Rep. 691, it is held that a cashier of a bank has no implied authority, to bind the bank by a pledge of its credit to secure a discount of his own notes for the benefit of a corpora- tion in which he was a stockholder. A bank may become liable for the cashier's deceit. 42 Houghton i-. First National 45 Peoples Savings Bank i". Hughes, Bank of Elkhorn, 26 Wis. 663. 1 Mo. Att. 549. 43 Coclieclio Xational Bank r. Has- 40 First Xational Bank of Lvons kell et al., 51 N. H. IIG. r. Ocean Xational Bank, CO X. Y. 44 Flannigan et al r. California 278. National Bank et al., 56 Fed. Rep. 47 Gale v. Chase Xational Bank, 959. 104 Fed. Pveep. 214. 12 ITS The Cashier. [cii. X. The cashier of a bank is the proper officer to receive deposits and to give certificates in respect thereto, which may properly include (with the consent of the depositor), a statement of the source from which the deposit arose; and for a false statement in that respect made to subserve the interests of the bank, the latter is liable in tort to one injured thereby, although the cashier was not expressly authorized to make such statement by the board of directors.^* The cashier has no power to release a security upon a note given to the bank. He cannot execute or bind the bank by execution of a mort- gage on the real estate of the bank. The bank's property cannot be mortgaged only by resolution directing the same, emanating from the board of directors. The cashier cannot plead the Statute of Limitation to his own note due the bank, unless the board of directors had knowledge of the due date of the note and knew it was unpaid."*^ In the case of First jSTational Bank v. Ocean National Bank, 60 ]Sr. Y. 278, it is held that a cashier of a national bank has no authority as such to receive special deposits, and thus bind the bank for their safe keeping. It is also held that a cashier can- not bind his bank by any contract, express or implied, concern- ing the taking of special deposits taken for the mere accommo- dation of the depositor, as such act is not within the authorized business of the bank.^'^ A cashier of a bank has no legal authority by virtue of his position to compromise a claim of the bank or to execute a com- position agreement and release therefor. Such a power is dis- cretionary, calling oftentimes for the exercise of considerable reflection and a high degree of judgment. It is strictly a sacri- fice at least of nominal property of the bank, and is a function of the board of directors and not of an executive officer.^^ 48 Hindman v. First National Bank of Louisville, 112 FeU. Rep. 931. 40Harrisburg Bank r. Forster, 8 Watts (Pa. St.) 12. 50 Wiley v. First National Bank, 47 Ver. .546 : First National Bank V. Graham, 79 Pa. St. 106. Bi Chemical National Bank v. Koh* ner, 58 Howard Prac. Rep. iio7. CHAPTER XI. PAYING AND RECEIVING TELLERS § 147. Functions of the paying teller. The functions of the tellers, receiving and paying, are re- spectively to receive and pay out the moneys of the bank, deposited or drawn out from it; and as a rule one cannot dis- charge the duties of the other. The paying teller usually receives a higher salary than any other clerk, because the responsibility put on him to senitinize signatures and to pay money is peculiar and very great. To his care is committed the custody and disbursement of the bank's funds. He must know the signatures of the bank's customers, and be ready to decide upon the payment or refusal of all checks whei; presented. His position is very re- sponsible. _ The refusal of payment, of a genuine check, or the payment of a forged check, in either case may be a serious matter. A great variety of checks are, during a day's business, drawn and presented for payment, and each one requires more or less examination. Many of them are required to be endorsed, and before passing his hands he must see that the proper en- dorsement is made. Frequently checks are post-dated, and may be presented for paymient before the time fixed by the drawers. Sometimes the dates are altered, and the teller must satisfy himself whether the alteration is material or not. In the payment of checks, the teller must think of and decide many important things: First, is the signature gen- uine ? Second, is the account of the drawer good ? And third, is the person holding and presenting the check entitled to re- ceive the money ? Fourth, is the check raised or altered ? "A teller," says an eminent jurist, " is an agent acting under a special or express authority, and not one so appointed by a principal that there can arise any implication of defined power. By the nature of the teller's employment, his duties are defined with an approach to exactness. Such a one is [179] 180 Paying and Receiving Tellers. [cii. xi. sometimes called a special agent, tliougli the phrase is open to objection. The principal holds ont to the public as an agent with limited powers, and with such a one third persons deal peviculo." A teller, known to be such by one doing business with him, cannot bind the bank by an agreement to pay interest to a depositor in excess of the rate which the bank through its board of directors have authorized, and especially so where the rate of interest agreed to be paid was entered as a stipula- tion in the passbook. The teller has no authority to make contracts for the bank, and when he attempts to do so, if the party dealing with him has the knowledge of the fact that his position in the bank is that of a teller, the bank is not bound by the contract where the same is outside of his duty and authority to act. The rule, however, is different where persons dealing with him and in good faith, without notice of any want of authority in such officer, and the act done is in the apparent scope of his authority, whether clothed with such aaithority or not, the party so dealing with him would be protected. The acts of a teller, if not within his authority, may be ratified like those of other officers. Tlie powers of a teller to act in the absence of the cashier is one of considerable im- portance. In Potter v. Merchants Bank, 28 K Y. 041, p. 650, Justice Mullin says : " The cashier cannot clothe him with any more of his power than was necessary to enable the latter to carry on the usual and ordinary business of the bank." In that case the teller " in the absence of the cashier had author- ity undoubtedly to receive payments of notes and surrender them to the j^erson entitled, and, in a word, to do Avhatevcr was necessary and proper to be done in the ordinary course of business." " I do not doubt," the court continued, " but that the teller had power to transmit notes owned by the bank or held by it for collection and payable in other places, or at other banks, to its agent for that purpose, and as, in order to do so it becomes necessary to endoi-se the paper of the bank, he had power to make such endorsement. But ho had no power to pledge its securities unless they became pledged by the mere act of transmitting for collection." The paying teller's duties necessarily bring him in contact cir. XI.] Banking. ISl with the active customers of the bank, and although his book- keeping is simple, no item which requires entry for his settling book can be omitted. The paying teller's duties principally are, as has been stated, the payment of checks presented by customers of the bank. These checks are usually on the bank over which he presides as paying teller. These checks, when paid, pass out of his hands to another clerk, to be charged to the account of the dealer. He also cashes checks for the customers of the bank which are drawn upon other banks. These are then sent to another department to be collected. After checks have passed from the hands of the paying teller to other departments to which they belong, any attempt to get them back by the teller paying them is regarded with suspicion. It is also the duty of the paying teller, when authorized, to certify checks, unless such authority is strictly delegated to the cashier. In certifying a check, when it is a part of the teller's duty, he should be provided with a book of blank forms with two stubs, both being numbered, which are used in his reports to be made to the general bookkeeper. The certfica- tion of a check is usually done by using the stamp of the bank, which saves time, the teller signing his name and date of certifi- cation. It is then handed back to the holder. The bank then has obligated itself to pay the check;. whether the drawer or holder has the money to his credit in the bank makes no differ- ence. Certified checks should not be issued, however, unless the customer has the amount for which they are drawn to his credit. jSTo ofiicer of the bank has the authority to certify credit to any one unless authorized by the board of directors. Certified checks covering an amount in excess of the deposit on credit in the bank to the drawer of the check is permitting an overdraft, and overdrafts, being granted and allowed with- out security, in case of loss the officer allowing the same be- comes personally responsible. A paying teller's position in a large bank is a very important and responsible one. The bank may have any number of tellers; the volume of business may be so great that many persons are required to perform this duty. The first paying teller is considered in rank for promotion 182 Payia'g and Receiving Tellers. [CH. XI. next to the assistant cashier; and receives from him or tlie cashier instructions which he should, if not inconsistent with special orders or directions from the board of directors, follow and comply with. At the beginning of business in the morn- ing he receives from the cashier a certain amount of cash, which he is charged with and must account for at the end of the day's business; deducting therefrom all checks or other payments made by him. The daily routine and duty of the teller begins a short time before the bank's doors are open for business. He should appear at the bank sufficiently early to arrange for the duties of the day. Having received from the cashier the cash his responsibility of paying checks begins. His duty in this particular department is to pay only such checks as are properly drawn, dated, and signed. If he honors a worthless or forged check, the bank must bear the loss, unless by reasonable care and ordinary precaution it «ould have been discovered and the loss averted, and in such a case failing to use such care he may make himself personally responsible. A paying teller may safely guard and prevent all liability by adhering to the well known principles and rules relating to and governing the payment of checks. He is supposed to know all the customers of the bank, at least should be familitr with their signatures; not having such knowledge and a check is presented for payment it becomes his duty to satisfy himself as to the genuineness of the signa- ture, and if, being in doubt as to the sufficiency of funds to pay the same, he should pass it to the ledger clerk, who will inform him of the status of the customer's account. Having satisfied himself fully ui:)on all these points he can safely pay the same ; failing to perform this ordinary duty and care, if loss occurs to the bank the teller may be held personally respon- sible as it is his duty to use reasonable care. The paying teller cannot be held personally responsible for losses occurring when he uses such care as one in his position is expected to use and does use. He cannot be held for pay- ing a raised check which by ordinary care, careful scrutiny, and inspecion could not be discovered; but if there are any indications which might be discovered on the face of the check by an ordinary person that it has been raised, or that the CH. XI.] Banking. 183 check is not genuine, or lacks anv of the legal requirements to make it good ; for example, if it is not dated, or is a post- dated check, or is not properly indorsed when an indorsement is required, or the amount of the check is not legibly written, or lacks the proper signature to charge the drawer's account : he may be held personally responsible to the bank ; but he may pay a counterfeit or forged check or a raised draft and, where he uses reasonable skill and such ordinary care and precaution as may be expected and required of a person occupying the position, he cannot be held liable. It is also the duty of the paying teller, after the exchanges have been made at the clearing house, to examine carefully each check coming through the same before charging the same to the drawers account. If any are found to be irregular, or forged, it becomes his duty to immediately notify the manager of the clearing house and give notice also to the bank from which they were received; failing to perform this duty in due time the bank may be held responsible for any loss which may occur. It also becomes his duty, in the absence of the cashier and when authorized so to do, to certify checks when required and presented for that purpose. Before binding the bank by such certification it becomes his duty to examine the account of the drawer, and ascertain that he has sufficient funds de- posited with the bank to pay the same. Having ascertained this fact, and being clothed with the power, he will not hesitate to place the certificate on the check. This is ordinarily done, as previously explained, by WT-iting or stamping upon the face of the check the words " certified good " or the word '' good." The certification should be dated and then signed by him in his official capacity. Having certified the check, he then by a memorandum check charges the same to the customer's ac- count; and the amount is charged against the bank and placed to an account called " certified check account." The bank then becomes a debtor and must pay the same to any lawful holder who may afterward present the same. In certifying a check it is held that he has no inherent or implied authority to do so, and cannot perform this act unless authorized, and unless the drawer has the money to his credit in the bank at the time of certification. If he allows an over- 184: Paying axd Receiving Tellers. [en. sl draft by paying or certifying a check, having no special direc- tions or authority to do so, he makes himself personally liable. He has no authority or latitude upon this subject; his duty is plain to pay checks only when properly drawn and the drawer has the money in bank to meet the same. Latitude is often taken and responsibility assumed, but unless he has been di- rected or authorized by proper and superior authority he has no right to grant a credit by paying checks or certification thereof when the maker has no money on deposit to meet them. The overpayment of a check creates an overdraft which, though authorized and permitted in many State banks, is allowing credit to persons without an expressed promise to pay, and such overdrafts thereby become doubtful loans; and the bank has no authority to advance money upon a verbal promise to repay the same; and an officer is restricted in liis authority to make loans upon a written agreement to repay unless duly authorized by the board of directors. Where a teller certifies a check or gives credit to a customer by permitting him to overdraw his account; and such latitude has been frequently practiced and sanctioned by the board of directors, this degree of latitude may release him from personal liability. He may also be released from liability by the ratification of his acts by the board of directors ; but the rule is that he has no inherent authority to bind the bank by any act outside of his defined duty or authority granted to him, and failing to secure such authority his acts are unlawful. In the payment of indorsed checks care should be used, and before pavment the teller should require the holder and in- dorser if not personally loiovni to him to identify himself. This is done by the holder of the check calling into the bank some person personally known to the teller, who is required to iden- tify the indorser as the person entitled to payment. This may be a verbal identification or it may be an indorsement of the check by the person himself. Such an indorsement may be a restrictive one, not a guaranty of payment but one of identifica- tion only. H a check indorsed comes to the bank through the clearing house, the bank receiving payment of the sarae is held liable upon its indorsement. ciT. XI.] Ba:vking. 185 The teller should also before honoring a check satisfy him- self that there is no revocation not to pay, previously entered with the bank by the maker. The bank should always require, that the notice of revocation should be in writing, signed by the maker. While a verbal notice may be held to be good, the authority may be questioned and in such a case it must be proven that notice was duly given. A verbal notice frequently causes litigation; and the rule should be that all such notices, to be binding upon the parties, should be reduced to writing and signed by the party revoking the payment of the check. A teller paying a check where notice is on file not to pay the same, will be held personally responsible (if liable at all) to the maker for such negligence; as it is his duty to ascertain whether any such notice of revocation has been filed, but if no notice has been filed with the bank, a verbal notice to some officer of the bank which has not been conveyed to the teller cannot bind him. At the close of the day's business it is the duty of the teller to make "proof" of the day's transactions; his cash on hand, adding all checks paid, must agree with the cash received from the cashier at the beginning of business of that day. Having discussed in a general w^ay the qualifications and office of the paying teller his duties as defined by law are presented. § 148. Teller's duties. It may be said that the courts generally have denied that the teller by virtue of his office has any inherent power. They lay down the rule to be that through a course of dealing, and by usage and custom, he may have (without being specially delegated to perform certain duties) the implied power to represent, and thereby bind the bank. If it is the usage of the bank to recognize the acts of the teller of the bank is held liable. The teller by prior course of dealing may have implied power to bind the bank by certifying a check.-^ "Where the teller is authorized by the bank to certify checks it is bound by his certification, and his authority may be shown 1 Security Bank r. The Xationa) Bank, 69 Am. Dec. 67S; Meads r. Bank of the Republic, 23 Am. Rep. The Mercliant's Bank of Albany, 25 129; Farmer's Bank r. Butcher's >?■. Y. 143. ISG Paying and Receiving Tellers. [cii. xi. by proof of his custom to do so which has been recognized by the bank.^ The duties of a teller, however, are usually those which are delegated to him either directly by the board of directors or by the president or cashier of the bank. If his duties are specifically defined by the board of directors, the cashier has no authority to interfere with the instructions. Usually, however, he receives his instructions and authority from the cashier. His office is to aid the cashier and perform such clerical duties as may be required of him. Therefore the teller is the cashier's subordinate. He is detailed to perform a certain duty. As his office signifies, being designated "Paying Teller," his duty is to pay out money for the bank, and if specially delegated by the board of directors to perform this service and this alone, he has no authority to receive on deposit money for the bank, or certify checks; however, in the absence of such authority if he does so in violation of the order of the board of directors, and those dealing with him have no reason to question his authority, the bank will be held liable ; but it is seldom that the board in the employment of a teller specifically defines and limits his power to that alone of paying out money for the bank. The fact that the paying teller is employed by the board of directors for that purpose, does not estop the cashier from paying. He has the inherent power to perform this function, and is therefore a co-ordinate agent with the 'teller of the bank. It is possible for the board of directors to take away from the cashier an inherent power. It could withdraw from him the power to pay out the funds of the bank, and delegate the power alone to the paying teller; but such a rule would de- stroy the usefulness of the office of cashier; and such an order, therefore, would greatly retard and injure the business of the bank. The teller independent of direct instnictions as to his duty, as stated, is under the direction of the cashier, and while acting under such direction his acts become the acts of the cashier. There is a very interesting discussion of the question as to 2 Hill r. Trust Company, .57 Am. Pa>p. 189, 108 Pa. St. 1. CH. XI.] Baxkixg. 187 the power of the paying teller to receive deposits where his duty alone is to pay deposits. It is held that if he attempts to act in the capacity of receiving teller, he becomes the agent of the depositor to turn over the money to the receiving teller. In the case of Thatcher v. The Bank of the State of Xew York, 5 Sandf. 121, the court says: '"A person may, no doubt, become a dealer, by a deposit made on the day his draft or note falls due, though never before in the bank, but his deposit must be made with the proper officer of the institution and wntli the requisite assent to his becoming such dealer. " In this instance there is, in the first place, no pretence that the cashier, or any officer of the bank except the paying teller, ever assented in any manner to the plaintiff's making a deposit, or becoming a dealer with the bank. The first step toward establishing a duty of the bank toward the plaintiff is therefore wanting. " Let us suppose this difficulty obviated, the next step is to show a deposit properly made, that is, that the money was left with an agent of the bank authorized to receive it. The person who left the money knew that the agent who received it was the paying teller, and not the receiving teller of the bank, and it cannot be said he was ignorant of the fact that there were two such officers. Indeed, there was no such idea advanced at the trial. Xow the very names of these two agents indicate to every one the proper and widely different functions of each. The one is to pay out the money of the bank; the other is to receive moneys for the bank. Dealers always pay their money to the receiving teller. When they draw money from the bank or their notes or bills are presented made payable at the bank, the paying teller pays the amount to them, or to the holders of such notes or bills. "But we are not left to the inference derived from the names of these agents. The answer states that the proper receiving officer of the bank is the receiving teller, and that it was not within the duties of the paying teller to receive the money left in this instance, or to assume to pay the plaintiff's bill with it, and that it is not in the usual course of business to deposit moneys with the paying teller. The reply does not traverse the allegation as to the receiving teller being the proper receiving officer of the bank, but it alleges that the 188 Paying aisd Receiving Tellers. [Cll. XI. receirino- of monev by tlie paying teller, in the Lank, 'luring bank honrs, is within the ordinary scope of the business of the paying teller and of the bank, and that his receipt and promise in the instance before ns were within his duties and bound the bank. " The proof entirely failed to make out these allegations. It was shown that in several instances these same parties had left funds with the paying teller in the same way that these were left, but there was no proof that it was his proper func- tion to receive them, or that it was in the usual course of business for hint to receive funds in behalf of the banlc. On the contrary, both the cashier and paying teller clearly prove that it is no part of his duty or business to receive moneys for the bank; and the teller testifies that when he does receive money for parties who do not keep an account in the bank, in order to pay notes they have drawm payable there, it is as a favor to such parties; he sometimes refuses, sometimes when pressed very hard he takes it for them, and he then keeps it separate from the money of the bank, '' It is true the cashier appears to have known in a few in- stances that the paying teller thus received money to pay notes and bills, and did not forbid it; but we cannot infer from this an assent of the bank that he should, in their behalf ^ receive money for that purpose. His duties as their agent were clearly defined, and the cashier's knowledge that he occasionally while in the bank acted for others does not show that the bank adopted those acts. " So far from the proof showing that, in this transaction, the paying teller was the agent of the bank, it clearly shows that he w^as the agent of the party who left the money. The bank had nothing to do with the affair, nor was it intended that it should have." The view of the court in the above case is that the teller's office is a very narrow one; and where his duties are confined to that of paying out money he cannot perform any other service for the bank, such as receiving a deposit. If he does so he becomes the agent of the depositor. lliis Rule may hold good, where it is clearly slioivn llinl (he person dealing until Mm had the Jcnowledge that his duties vjere limited to the payment of money for the hank, and that only. en. XI.] EA:^'KI]s^G. 189 In the absence of the cashier the paying teller does not succeed to his powers. It would be necessary, therefore, in the absence of the cashier for the board of directors to delegate to him such powers as they might wish him to perform. The cashier may direct him, the teller, to perform certain duties, but he cannot absent himself from the bank and its responsibility and delegate his authority to the teller. The cashier may delegate to him authority to make remit- tances for the bank and to pay its lawful debts; but he cannot authorize him to perform acts which are clearly and exclusively those inherent in his office. The cashier of a bank has the power to transmit a promissory note to another bank for discount and collection, and to trans- fer the title thereto to the latter bank; but a mere clerk, acting as cashier in the absence of that officer, has no authority to transfer any of the notes or securities of the bank, unless such authority has been given to him by the directors. It is held, however, that the cashier may clothe such a clerk wdth ordinary power necessary to enable the latter to carry on the usual and ordinary business of the bank.'"* § 149. Teller's torts. A teller cannot bind the bank by unlawful and unauthorized acts; and in order to charge the bank with a violation of the law subjecting it to the penalty imposed, it must be shown that the teller acted under authority from the board of directors, or that his act was subsequently made known to and adopted by the board.'* In a previous chapter the penalty imposed by section 5209, Revised Statutes of the United States, was discussed as it ap- plied to the officers of a national bank. It was there stated that in order to hold an officer, namely, the president, director, cashier, teller, clerk, or any other agent, of such an association for the violation of any of the provisions of said section of the law, it must be shown that the act was "willfully'' committed.^ 3 Potter V. Merchants Bank, 28 5 United States v. Britton, 107 N. Y. 641. U. S. 655. 4 Clark r. Metropolitan Bank, 3 Duer, 241. 190 Paying and Keceiving Tellers. [cii. xi. § 150. Receiving teller. The receiving teller's position is one of peculiar responsi- bility, requiring- great skill, accuracy, and caution. He is the hank's agent to receive money (of which there are ten dififerent kinds in circulation in the United States) from those wishing to make deposits in the bank. His position places him in close relationship with all customers and persons who may make deposits with the bank. His office, therefore, and the duties arising therefrom, require that it should be filled by a person adapted to the business which necessarily is to be per- formed. The bank imposes great confidence in the receiving tellers's judgniient and skill to protect it from bogus and spurious checks, bank notes, and coins which may be presented for deposit and credit. H he lacks the judgment and skill re- quired as an expert to detect counterfeit notes, coins, and forged signatures, he is not a suitable person to occupy the position of receiving teller ; for through his hands the bank receives its deposits and is held responsible to its customers and depositors to repay to them upon demand lawful money. Therefore, it is his duty when receiving a deposit, before en- tering the same on the book of the depositor, and giving credit therefor, to make a careful examination of all the money, checks, notes, and bills that are offered for deposit. It is his duty to protect the bank and not receive or give credit to a depositor for money, checks, or drafts which may be counterfeits or spurious. He should make a careful ex- amination of each coin, bank note, check, draft, or other in- strument offered for deposit, and before acceptance, if in doubt as to their genuineness, apply the test known to experts. For example, if coins are presented, which may consist of gold and silver, coined by the mints of the United States, or any other country, he should know their value ; and ascertain before accepting the same, that they are genuine, and contain the standard weight fixed by the government coining such money. The test adopted by the United States mint to detect counter- feit gold and silver is as follo^^'S: !N^itrate of silver (crystals) 24 grains. Pure nitric acid 1.5 drops. Distilled water ; . 1 oz. cir. XI.] Banking. 191 A drop of this liquid on counterfeit gold or silver, immedi- ately turns black ; while if applied on the genuine coin it will remain clear. If the teller, after applying this test and finding them to be genuine, is in doubt about the coins containing the standard weight, the bank should be equipped with scales sufficiently accurate to test their weight. It frequently happens that coins which are genuine are light and do not contain the standard weight fixed by the Government. If they are found to be be- low the standard required, the Government will deduct from the value the amount necessary to reinstate the loss. A gold coin in the ordinary use of the same, say a double eagle, will maintain its standard weight for over fifty years. It may be reduced in weight by being put through various processes, that of " rubbing " or what is called " sweating." If the teller finds the coins light (perceptibly so), he should deduct the amount from the value of the coin. If the owner objects to this, the coin should be refused. If the bank ac- cepts the coin which it knows to be below the standard weight at a discount found to be correct by w^eighing the same, it becomes the duty of the bank to transmit the same at once to the Treasury Department at Washington. On receipt of the coin it is tested as to its genuineness and weight, and if found to be below the standard, it is immediately turned into the mint and again recoined. If the bank accepts coin which it knows to be below the standard of value, in the acceptance of it, having discounted it, and charging the amount of loss to the owner from its standard value, and again puts the same into circulation, pass- ing it as of correct standard weight, and for its face value, it is subject to punishment. It is the duty of the receiving teller to examine all national bank notes. United States notes, currency certificates, or treas- ury notes that may be offered for deposit, and before accepting the same satisfy himself as to their genuineness. To become an expert for this purpose it requires considerable practice and study, and for the benefit of those who occupy the important position of receiving teller, the following in- structions and specific tests are given. The Government of the United States has expended a very 192 Paying and Receiving Tellers. [CH. XI. large sum of money for complicated mechanism embracing geometric lathes, hjdraulic presses, ruling, and transfer en- gines, patent paper, secret inks, electrical test, all of which are used in the manufacture and printing of our money ; by the use of -which the Government of the United States, by au- thority of law, give us the handsomest paper money in the world ; at the same time making it (by the use of such fine and costly complicated mechanism, consisting as stated of such delicate and perfect machinery, etc.) impregnable against the skill of the counterfeiter. The Tests. The paper used by the Government for the body of the note is composed of material known only to the Government. This is true also of all its inks and coloring fluids used on the paper. The body of the paper is manufactured from the finest quality of silk and linen. This is rolled in layers crossing and recrossing each other, which give it great strength and durabil- ity. In the body and on the surface of all genuine paper money is the "localized fibre," which is a mixture of jute, a species of sea-weed and clippings of colored silk thread. This fiber may be seen in the paper and can be picked from the surface with a sharp-pointed instrument. The genuine bank-note paper is a clear milky white. The counterfeit imitation of the fibre are printed scratches of ink appearing on the surface of the paper, and by the use of a sharp instrument can be easily detected as such. What is known as the localized tint appears in a blue tinted parallel strip crossing the face or back of the genuine note and has not as yet been successfully imitated. The expert desiring to make himself proficient should take a new bank note and inspect it very carefully. In doing so he will discover that it is manufactured from the most costly quality of silk and linen, which is seldom used in a counterfeit. The Bank of England, it is claimed by experts, manufactures the best bank-note paper in the world. Its strength is so great that a five-pound note twisted into a rope or cord will sustain a weight of 1.50 pounds. The genuine paper through the sense of touch and feeling en. XI.] Bankiis^g. 193 after some practice becomes so familiar to experts, that tlirougli tliis test alone coiinterfeits are easily detected. The touch test. This test is one which experts and those experienced and who .are accustomed to handling bank notes regard as one of great value. In using this test, take a genviine bank note, hold it firmly in the hand and draw it carefully, but not too swiftly between your thumb and fingers ; do not press it so tightly as to impair the sense of touch, and you will discover that the paper will reveal a rough parchment feel, the interior will be oily, tough, elastic and silky. The sense of touch is one when practiced becomes very ac- curate. The genuine bank note possesses through its manu- facture and the materials used in its composition a something which you become familiar with. The counterfeit bill, if tested in the same way, reveals to the touch a very different sense of feeling. The counterfeit reveals to the touch a smooth, dry, and glassy surface. The paper seems to be devoid of life, elasticity, and the sillcy texture felt in the genuine. Tli<3 counterfeit, as it is drawn through the fingers, slips easily, lacking that clinging feel presented in the genuine. If the counterfeit appears devoid of the glassy surface, the paper will usually be inferior, flimsy, having a spong}^, pulpy, and shoddy feel. The paper lacks the strength of the genuine, being rotten and easily torn. Experts by the use of this touch test have become so pro- ficient that they will, when blindfolded, detect the counterfeit from the genuine bank note. Geometric lath-work test. The endless, white, curving lath lines in the test dyes of all genuine Government or national bank notes are very accurate, fine, and more delicate than a hair. They are sharp and smooth on the edges (but do not present sharp angles), and are invariably the same size. These delicate, perfect, and beautiful lines are cut vnth. the point of a diamond. The texture of this Avork varies quite materially. In some dyes the net work is shovTi lieing twined together, while in others the work is woven and interwoven until almost as fine and 13 19-i Payixg axd Receiving Tellers. [cji. xi. close as cloth ; all lines, however, cross each other at regular Intervals, the curves are perfectly symmetrical and appear as if struck with the point of a compass. Xo defects can be seen in the lines, no breaks appear, while in the counterfeit lath work, which is engraved usually by hand or imperfect machinery, the lines are not continuous, breaks are frequently discovered, and by close observation it will be seen that the lines at the edge present sharp angles resembling fine saw teeth. They lack the graceful curves and perfect geommetrical symmetry of the genuine. The lines also in the counterfeit are not equidistant, they are also hea^ner in some places than others, neither are they entirely straight. The genuine vignettes. The genuine vignettes appearing on the government notes and bonds are exquisitely finished. The engraving is very expensive. An eminent artist who excels in this line, it is said, has received for a single head furnished the government the sum of six hundred and fifty thousand dollars ($650,000). These pictures are lifelike. They are as perfect as skill and talent can make. In observing the eyes you can perceive that they are expressive, clear and sharp, showing the white very distinct. The lips are shown to be slightly pouting and display delicacy. The hands and feet being perfectly formed ; observ- ' ing the forehead, the pores of the skin or flesh tints are ex- posed. The face, limbs and neck and other portions of the body are represented by delicate dashes and dots set in perfect semicircular rows. On the shaded side will be seen the beautiful fine black lines crossing and recrossing each other at accurate angles presenting a clear sharp diamond work, producing a symmetrical beauty and relief apj^earance to the picture. Tlie backgroimd of the picture, which has gradually vanished and which surrounds it, is formed of delicate and perfect squares. Tlie drapery of the picture is exceedingly graceful, flowing, and natural. The hair is artistically ar- ranged, it is devoid of coursencss, it appears soft and natural. The shades and lights are so nearly perfect that the strands *j V cir. XT.] Banking. 195 of the hair can be distinctly seen. The whole picture shows exceedingly great skill, all the work being wrought out and blending together to a perfect degree of harmony and per- fection. Tlie counterfeit vig-nettes present a lifeless appearance. Tl:!e countenance appears haggard, the eyes are blurred, dull and foggy. There is distinct demarkation of the black and white of the eye. The black of the eye mingles with the white. The features are flat and expressionless. The mouth lacks the rounded pouting lips. The flesh tints, showing so perfectly upon the genuine on face, neck, and limbs, upon the counter- feit show course dots. The diamond and background of the counterfeit work is blurred. The hair fails to show the dis- tinct strands, and appears coarse and altogether unnatural. The genuine inls. There are five kinds of inks used in numbering the genuine notes, three of red and two of blue. There are also two shades of red appearing in the seals. The number at the top of the national bank note is the serial number. The number at the bottom of the note is the serial number of issue by the bank. The number at the top is a very rich, bright carmine with clear cut edges. The number at the bottom of a note is several shades darker. The number at the top and bottom of the government notes ap- pear in the same color and are several shades darker than those on the national bank note; but they appear with the same lustrous surface and sharp cut edges. The seal on the national bank note is darker than that on the government note ; it is a bright carmine with a pinkish tint. The inks used are manufactured by secret process, the chemicals used are unknown to counterfeiters; and it is said that in no instance have they been successfully counterfeited, or even imitated. The red ink number may be obscured by soiling but by touching it with a damp sponge its color will be brought out perfectly, while in the counterfeit the red ink used in the number and seal presents a pale red or dark log wood. It lacks the lustre, the edges appear ragged, while the dampening with the sponge more clearly reveals its spuri- ousness. 196 Paying and Receiving Telleks. [ch. xi. Tlie genuine green ink used kas a very rich grass-green hue. The color of this ink is very strong and will be retained until the note is almost worn out. It will be noticed that the only distinction between the national bank note and the government note is in the shading. The government note ap- pears several shades darker than the national. This ink is also made by a secret chemical process known only to the government. The counterfeit green ink upon close investiga- tion appears in a variety of shades, dark green, pale, or pea green, and lacks the lustrous green of the genuine. It is dull and dead in its appearance. The genuine black ink used is almost a pure carbon and will retain its jet black and glossy appearance a great length of time, even on old and worn notes. It appears remarkably fine. The counterfeit black ink lacks the gloss. It has a brownish, smokey aj^pearance and is devoid of the lustre appearing in the genuine. The chemical bath which the bank and government note paper receives prepares it for receiving the ink impressions and prevents the ink from spreading, which is frequently noticed on the counterfeit. The plate used in making these impressions is a work of art and very accurately cut. It is very di^cult for the counter- feiter to produce a plate that even resembles the genuine. To detect altered bank notes it is necessary to become famil- iar with the genuine engraving. Upon close observation a striking contrast Avill be observed between the genuine portion of the note and that of the counterfeit substituted. In the altered bank note the corners are generally ex- tracted and the counterfeit printed into their places. To execute this work it becomes very difficult. The extracted part of the note must leave the paper more or less damaged; and the printing taking the place of the original and generally the miserable execution of the work can be perceived at a glance. In substituting the letters and figures it is almost im'- possible to retain the natural and genuine colors; and it will be observed that the substitution presents coui*se outlines and is otherwise imperfect. cii. XI.] Banking. 197 Spurluus signatures. The signatures upon all government notes are engraved, while those upon national bank notes, under section 5182, E. S. U. S., are required to be signed. But under the ruling it is held they niav be stamped upon the notes. The same rule applies in detecting the engraved signature and determining its genuineness as given to detect other por- tions of a note which is engraved. Tlie counterfeit mil lack the symmetry and perfect shading and natural appearance. The signatures appearing on the national bank notes, as stated, should be sigTied. They are those of the president or vice-president and the cashier of the bank. It is very difficult to determine the genuineness of the writ- ten signature unless you have the standard or genuine before you; and have familiarized yourself with the characteristics of the w'riter. Having become thoroughly familiar with the genuine signature of the writer, it does not become impos- sible to detect a counterfeit; but it is impossible that a banker or teller should have the opportunity to know the signatures of the signing officers to the national bank notes, and there- fore it is seldom that a counterfeit national bank note is dis- covered through this source. There is no known rule to be guided by in the detection of a counterfeit signature. It has been demonstrated beyond question that the most scientific and greatest experts have been deceived at their own trade. Of course the forgery of a signature may be and frequently is discovered, but this is usually done where the work is rough and unskillfully performed. ISTo person ever wrote his signa- ture exactlv alike the second time. It is a thing impossible to do. Expert knowledge is very useful, especially in discovering forgeries of instruments such as wills. Where the forger undertakes to imitate the hand^Titing of a person (other than his signature) it becomes very difficult, and the forgery may be comparatively easy to detect; but it is very difficult to detect a forged signature where skillfully executed, there- fore the courts hold that the bank can only be held responsi- ble for such reasonable care, prudence, and skill as may be required and is expected of a paying teller. 198 Paying and Receivixg Tellers. [ch. xi. The receiving teller mav not liave the time to apply all these various tests; but if when receiving a deposit he has any doubt as to the genuineness of a note or coin it is his duty to call the attention of the depositor to the fact, and if upon examination it is discovered that the coin or bill is a counterfeit, it then becomes the duty of the officer or receiving teller to immediately take possession of such counterfeit coin or note, and if a note to stamp in plain letters upon the face of the same the word '^ counterfeit." Section 5 of the act of Congress approved June 30, 1876, provides " that all United States officers charged with the re- ceipt or disbursements of public moneys, and all officers of national banks, shall stamp or write in plain letters the word " counterfeit," " altered," or ^' worthless," upon all fraudu- lent notes issued in the form of, and intended to circulate as money which shall be presented at their places of business; and if such officers shall wrongfully stamp any genuine note of the United States, or of the national banks, they shall, upon presentation, redeem such notes at the face value thereof." There are no provisions of law enacted by any State direct- ing that officers of State banks shall mark such notes as are found to be counterfeit; but it would clearly be the duty of such officer to do so. Counterfeit notes or coins when detected should be re- mitted to the treasury department at Washington. After receipt of same at such office, and upon examination, if they are found to be counterfeits, they are returned to the sender (canceled) for the purpose of enabling him to make recla- mation; and after such use they must be finally returned to the Treasury Department and by it transferred to the secret service division thereof. The teller must also satisfy himself that all checks pre- sented by the depositor are regular. As stated in a previous chapter the check must be dated, must be drawn on a bank, it must call for a certain sum of money, payable either to bearer or to order of a person named, and be signed by the maker. Being satisfied that the check is regular he should require the depositor to indorse the same, for by such indorsement the bank i>; in possession of positive cii. XI.] Banking. 199 evidence of the source of its receipt; and the last endorser may also be held liable to the bank. If the teller receives certified checks, being checks certified by another bank, the indorsement of the depositor becomes necessary to pass the title of the check and establish the fact that he is the bona fide holder. § 151. Limitation of power. The receiving teller has no authority to make discounts, certify checks, or allow a credit to a depositor. His duty is confined to receiving money, and only such documents as pass for cash. He should not open an account with a stranger un- til he has been instructed or authorized to do so. This au- thority is left with the president or cashier, who may alone determine who the customers of the bank shall be. § 152. Rule as between depositor and bank correcting errors. The receiving teller in receiving a deposit may fail to give the depositor the proper credit on his pass book. Errors are likely to occur in this way. The depositor failing to list the items of deposit on the deposit slip, which may consist of coin, notes, checks, etc., the teller should return the deposit slip to him and request him to enter each item on the deposit slip. Failing to do this the teller's entry of the amount of the deposit in the absence of the depositor is subject to cor- rection. If the depositor can show that an error has been made, and he has not received a proper credit, the bank will be held liable. But it may be very difficult for him to show this. If he has entrusted the money, checks, and drafts, to- gether with his pass-book, with the teller and leaves the bank before the entry is made, the teller may become both his agent and the agent of the bank for the purpose of making the deposit. The teller may require the depositor to remain and verify the amount to be entered to his credit in his pass book. But where the depositor says, " I am in a hurry, I cannot re- main," and the teller enters the deposit, the bank may be held for an error if any should occur. The teller is not required to take the responsibility of listing the items for the party upon the deposit slip, and may refuse to give credit to the depositor 200 Paying and Receiving Tellers. [ck. xi. unless the items have been listed npon the deposit slip by the depositor himself. The bank may make any reasonable rule governing the re- ceiving of deposits, and if known to the depositor, and he fails to comply with it, the bank cannot be called npon to correct an error wdiich was the direct default of the depositor. Where the rule requires the depositor to verify the cor- rectness of the deposit in the presence of the teller, and fail- ing to do so he entrusts the counting of the deposit, and the entry thereof in the pass book to the teller, the bank cannot be held liable. The depositor has made the teller his agent to count the money and make the entry. The teller, however, may be held liable to the depositor as an agent in case of loss or false entry. It is well understood that the bank cannot make a by-law, or establish a usage, which would injure or deprive third parties of their rights. A by-law which may operate by construction of the law to relie^'e the bank of a reasonable duty or responsibility, which is imposed upon it by the very nature of its business to perform, is void. But a bank is entitled to protection from suspecting and designing persons, and it may enact a by-law which i.s reasonable, requiring the depositor to be present and verify the correctness of the amount of the deposit, before it is passed to the credit of the depositor. If a customer of a bank cannot be held to reasonable care and diligence in respect to his o^^^l business, he should not ask the bank to be held to correct an error for which he alone is responsible. A depositor cannot walk into a bank and hand to the teller his deposit book with money and checks for deposit, and leave the same with the teller before the amount of the deposit is verified, and the entry is made, and afterward charge that the teller was in error, and upon his testimony alone hold the bank liable. The duties in general of the receiving teller may be de- fined and prescribed by the board of directors, or by the by- laws of the bank. In the absence of such directions or by- laws he is the subordinate of the cashier and is subject to liis direction and orders. CH. XI.] Bankixg. 201 If his duties are definitely prescribed by the board of direc- tors, he is held aecoiintablc only to them for a failure in the performance of the same. If he is the subordinate? of th€ cashier and follows his orders and directions he cannot be held personally liable for loss or injury to the bank. Where a teller is selected and retained by the bank, to per- form^ the duties of receiAung teller, the cashier may also re- ceive moneys for deposit, for his duties are co-ordinate ■with the teller in this particular. § 153. An act prescribing punishment for mutilating, uttering, or passing United States coins. Be it enacted hy the Senate and House of Representatives of the United States of A.merica in Congress assembled. That section fifty-four hundred and fifty-nine of the Revised Stat- utes of the United States be amended so as to read as follows: '' Sec 5459. Every person who fraudulently, by any art, way, or means, defaces, mutilates, impairs, diminishes, falsi- fies, scales, or lightens or causes or procures to he fraudulently defaced, mutilated, impaired, diminished, falsified, scaled, or lightened, or willingly aids or assists in fraudulently de- facing, mutilating, impairing, diminishing, falsifying, scaling, or lightening the gold or silver coins which have been or which may hereafter be, coined at the mints of the United States, or any foreign gold or silver coins which are by law made cur- rent or are in actual use or circulation as money within the United States, or who passes, utters, publishes, or sells, or attempts to pass, utter, publish, or sell, or bring into tlie United States from any foreign place knowing the same to be defaced, mutilated, impaired, diminished, falsified, scaled, or lightened, with intent to defraud any person whatsoever, or has in his possession any such defaced, mutilated, impaired, di- minished, falsified, scaled, or lightened coin, kno^nng the same to be defaced, mutilated, impaired, diminished, falsified, scaled, or lightened, with intent to defraud any person what- soever, shall be imprisoned not more than five years and fined not more than two thousand dollars." CHAPTER XII. THE NOTE TELLER. § 154. His duties. The note teller's duties are to receive the money for all promissory notes liquidated at the bank. There are two kinds of notes. The notes which are dis- counted by the bank are called " biMs discounted " ; those left for collection are "' collection notes." All the notes falling due ai-e placed in the hands of the teller on the day of their maturity. The discounts are re- ceived from the discount clerk ; the total amount is usually marked on a slip of paper strapped around the notes. When the collection is made the amount is credited to " bills dis- counted " in the general ledger. All other notes, falling due and belonging to the bank on the day of maturity, are placed in the hands of the note teller by the collection clerk ; the amount of each note is either marked in pencil on the note or is sho^^^l bv a ticket accom- panying the note. After the notes are placed in his hands, he is authorized to receive payment. All notes received by him which are payable at other places in the city are sent out by messenger for presentation and collection. When notes are paid, certified checks or money should be demanded. Tlie teller should be careful to preserve all memoranda of his transactions, in the order of their occurrence, until his cash is proved at the close of business for the da v. At the close of business he erases from the cash-book and discount tickler such notes remaining unpaid, and when not othenvise in- structed and when protest is necessary, places them in the hands of a notary public for that purpose. lie should de- maud of the notary a receipt for such notes as are placed in his haixls. Wlipu a note is forwarded to a foreign ])lace for collection, the items or notes are dulv entered in a letter form which shows each item or transaction ; from this letter the items and totals can be taken and posted in the note teller's cash-book. [202] cir. XII.] Banking. 203 The letter under this svsteni is the original entry and a copy thereof should be taken and preserved. At the close of each day's business the teller must account for the disposition of all notes received by him. His tag or memorandum charging himself with notes uncollected and which are not in his hands should not be accepted. He should present receipts or acknowledgments for all notes and collec- tions when called upon to do so. CHAPTER XIII. BANK POWERS DEFINED. § 155. Statutory and expressed powers. Tlie po'w'ers given to banks are those derived from their charters and the law creating them, and the statute of the State under which they operate. The statutory j^owers are called the express powers. The expressed powers of national banks arc the laws enacted ' by Congress, creating the right of a banking corporation to organize and to conduct the business of banking and prescrib- ing their duties and powers. The express powers are those which directly authorize certain things appertaining to bank- ing, and which guarantee the right of the bank to put them into use and force. In law, an express or statutory power is one defined and authorized by the legislative body of the State, granting au- thority to do and perform certain things ; and when authorized by law to do and perform an act under such expressed or stat- utory provisions, the right to do the same can oidy be in- quired into by the State. A law may be unconstitutional, but the right to put it into force until it is adjudged so by a court of competent juris- diction, cannot be questioned. The expressed powers enumerated in the statute, authoriz- ing a bank, when duly incorporated, to do and perform certain things, are privileges created by law. The extent and use of these powers may present questions requiring adjudication by the courts, but banking corporations may use all the powers granted to them by the statute, and if their acts, when per- formed, are within the law, being lawful, they cannot after- ward be declared unlawful. The statute may grant a specific power to a bank, and pro- hibit another privilege, which is not unlawful in itself, but dangerous if allowed to be performed by a bank. This is termed a police power or regulation. [204] cii. XIII.] Banking. 205 A statute mar specify the principal things which a bank may do, and prohibit it from doing certain other things which it might la-uiiully do if they were not prohibited. Bnt the Legislature seldom undertakes to define all the powers ex- pressed, implied, or incidental, belonging to the banking busi- ness, but usually contents itself by specifying the principal privileges or powers wliieh it may exercise. The implied or incidental powers are those not enumerated by the Legislature, but are such as pertain to, and are con- ferred upon banking corporations by accepted and long-con- tinued use and custom. The courts recognize these incidental privileges and in- herent powers as necessary incidents in carrying on and con- ducting the business of banking. While customs and uses do not, in every instance, signify that they are fixed privileges or laws, a well-established custom, if reasonable and just, by de- cisions of the courts, may pass into a fixed rule of law and become a recognized principle and privilege. The decisions of the courts generally go to the extent in defining incidental or implied powers ; " and say that a hanJc irnay make any contract, or establish any reasonahle custom aifecting or appertaining to the business of banl-ing, and can exercise the powers expressly enumerated in the statute, and also such powers ivhich are properly incidental to the hus-iness of hanhing in conducting its affairs/' In the case of Logan County x^ational Bank v. Townsend, the Supreme Court of the L'nited States fully established thiz principle : The court, in discussing the question, says : " It is undoubt- edly true, as contended by the defendant, that the IsTational Banking Act is an enabling act for all associations organized under it, and that a national bank cannot rightfully exercise any powers except those expressly granted by that act, or such incidental powers as are necessary to carry on the business of banking for ivhich it was established." A banking corporation has all the powers expressed and implied though not enumerated in its charter, which are law- ful and authorized in the formation of such a corporation, whether organized under a general or special law. It has also 206 Bank Powers Defined. [ch. xiii. all incidental, ancillary, or implied power necessary to carry on the business of banking. It has power by reason of the very nature of its purposes and business to do> many things not specifically delegated to it by the statute. The statute may provide that it has power to receive de- posits general, special, and specitic, and to loan money, to buy and sell exchange, coin, and bullion ; to purchase notes and bills, and deal in checks ; to make discounts of negotiable paper ; to issue and give certificates of deposit, but all of these things by right belong to the business of banking in the absence of and without specific power, delegated and prescribed by the statute, and unless prohibited by law, these powers belonging to a bank incidentally and in the very nature of its purposes and business. Tlie statute may provide that its business shall be restricted and controlled, for example, if a savings bank, that it shall not invest the money of its depositors in mining stocks, but it has all lawful powers, in the conduct of its affairs necessary to carry on its business which is lawful and permitted to be per- formed by law; and also all such incidental implied and an- cillary powers which such corporations may enjoy in the trans- action of their business. The ancillarv^ powers are those giving to the corporation the right to sue and be sued ; to have a corporate seal ; to appoint agents and elect officers, and to make by-laws for the manage- ment and government of the affairs of the corporation. In other words, a bank may, unless restricted by the law, perform any lawful act necessary to accomplish the purposes of its creation that an individual could do. CHAPTER XIV. CONVERTING STATE INTO NATIONAL BANKS. § 156. Steps to be taken. The Xational Banking Act, section 575-i, Revised Statutes of the United States, provides that " a State bank may be converted into a national bank." This may be done without reorganization, and no authority is required from the State in which the bank is situated. In the case of Casey v. Galli, 9-i U. S. 673, the court in disposing of the second plea filed by the defendant, which alleges " that there w\qs not then, nor when the plaintiff was appointed such supposed receiver of said Xew Orleans Banking Association, nor before, nor since that time, any such corpora- tion in existence, because the Ijank of Xew Orleans had no power by its charter, nor authority otherwise from the State of Louisiana, to change its organization to that of a national banking association under the laws of the United States," says : " The second plea is clearly bad. iSTo authority from the State was necessary to enable the bank to so change its organ- ization. The option to do that was given by the forty-fourth section of the Banking Act of Congress. The power there con- ferred was ample and its validity cannot be doubted. The act is silent as to any assent or permission by the State. It was as competent for Congress to authorize the transmutation as to create such institutions originally." In converting a State into a national bank the statute must be strictly complied with. Section 5154, Revised Statutes of the United States, pro- vides as follows : ''Any bank incorporated by special law, or any banking institution organized under a general law of any State, may become a national association under this title by the name prescribed in its organization certificate; and in such case the articles of association and the organization certificate may be executed by a majority of the directors of the bank or banking [207] 208 Conveetinct State Ixto Xatioxal Banks, [cii. xiv. institution; and the certificate shall declare that the owners of two-thirds of the capital stock have authorized the directors to make such certificate^ and to change or convert the bank or banking institution into a national association. A majority of the directors, after executing the articles of association and organization certificate, shall have power to execute all other papers, and to do whatever may be required to make its or- ganization perfect and complete as a national association. The shares of any such bank may continue to be for the same amount each as they were before conversion, and the directors may continue to be the directors of the association until others are elected or appointed in accordance with the provisions of this chapter; and any State bank which is a stockholder in any other bank, by authority of said laws, may continue to hold its stock, although either bank, or both, may be organized under and have accepted the provisions of this title. When the Comptroller of the Currency has given to such association a certificate under his hand and official seal, that the provisions of this title have been complied with, and that it is authorized to commence the business of banking, the association shall have the same powers and privileges, and shall be subject to the same duties, responsibilities, and rules, in all respects, as are prescribed for other associations originally organized as na- tional banking associations, and shall be held and regarded as such an association. But no such association shall have a less capital than the amount prescribed for associations organized under this title." § 157. Incorporated banks can only be converted. The bank to be converted into a national bank must exist as a corporation under State laws. A certificate from the proper authority of the State, certifying that a cor]3oration had authority to act as such in a State would be jyr'ima facie evidence of the fact that the corporation existed under the State law. Tt would folloM^, therefore, that a private bank, although permitted by authority of a State to do a banking business, could not be converted into a national bank. The first step required in the process of conversion from a State into a national bank is to obtain in writing the consent of at least two-thirds of the stock owned bv the shareholders. cir. XIV.] Banking. 209 (By application to the Comptroller of the Currency a proper blank form, or authority for conversion, can be obtained.) When the consent of two-thirds of the stockholders is ob- tained, notice should then be given to the Comptroller of the Currency of the intention to make the conversion, and the title to the bank should be submitted. Upon notice being received by the Comptroller, the proper blanks will be furnished by him, which consist of the organization certificate, which must be certified to by at least two-thirds of the board of directors. This certificate must set forth the fact that the stockholders authorized the conversion of the State bank into a national bank. When so executed it should be certified to before an officer, a clerk of a court of record, or a duly appointed notary public. In the case of a conversion- from a State to a national bank, the directors of the State banking corporation hold their posi- tions as directors in the national banking corporation until the next regular annual election. § 158. Corporate relation to old bank after reorganization. The Supreme Court, in the case of Metropolitan Bank v. Claggertt, 141 U. S. 520, in discussing the relationship between the State bank converted into a national bank, holds that: " " * * the conversion of the State bank in the State of Xew York, into a national bank under the act of the Legis- lature of that State of March 9, 1865 (j!^. Y. Laws of 1865, chap. 97), did not destroy its identity or its corporate existence, nor discharge it, ' the State bank,' as a national bank from its liability to holders of its outstanding circulation issued in accordance with State laws." The court in further discussing this subject, says: " The question we are to consider here is, did the court err in holding that the plaintiff in error was not exonerated from liability either by its becoming a national bank, or by the pro- ceedings for the redemption and retirement of its circulating bills issued whilst a State bank, which proceedings, it was claimed, were in strict observance of every requirement of the jSTew York statute of 1859 in relation thereto, or by the statute of limitations of the State of New York? " The court decided that the New York statute providing for 14: 210 CoxvERTi^'G State Into Xational Banks, [cii. xiv. a redemption of circulating notes and for releasing the bank, if the notes were not presented in six years, applied alone to banks "closing the business of banking;" that the change or conversion of the Metropolitan Bank into the Metropolitan National Bank did not " close its business of banking," nor destroy its identity or its corporate existence, but simply re- sulted in a continuation of the same body, "wdth the same officers and stockholders, the same property, assets, and bank business under a changed jurisdiction; that it remained one and the same bank, and went on doing business uninterruptedly; and tliat, therefore, the statutory proceedings relied upon in the answer could not operate as a bar to the liability of either bank to pay the bills delivered by the Metropolitan Bank in 1861 to plaintiifs intestate. The conversion is not a termination of the corporate exist- ence of the bank, neither is the change one which will destroy the liabilities of the bank. It is simply a continuation of the same body under a changed jurisdiction. The act of conver- sion does not destroy the corporate existence of the bank; it is only the business or assets of the bank which are converted into the new jurisdiction, and when its liabilities are all dis- posed of and paid, the bank is left in possession of its charter, and retains all of its corporate rights. If so, it may again go into business as a banking corporation. This position is fully sustained by the Supreme Court in the case of Michigan Insurance Bank v. Eldred, 11:3 U. S. 293. It is held in this case that " the State bank, after conversion into a national bank, does not affect its identity, and that it can maintain an action under its charter and in its corporate name, and sue upon liabilities incurred to it." In this case " an action was brought by the Michigan Insurance Bank, a corporation created and organized under the laws of the State of Michigan, against a citizen of "Wisconsin, upon a judgment recovered by the plaintiff against him on May 13, 1862, in an inferior court of Michigan, for the sum of $4,211.56; in the present action the writ was dated May 11, 1872, and appeared by the marshal's return thereon to have been served on J\me 3, 1882. The defendant originally pleaded the statute of limi- tations of ten years and on that issue obtained a verdict, the judgment on which was reversed by this court at October CH. XIV.] Banxixg. 211 term, 1888, because evidence introduced by the plaintiff that ^vithin ten years the summons which had been delivered to the marshal for service, had not been properly submitted to the jury. The defendant answering denied, upon information and belief, that at the time of the commencement of the action the said plaintiff was, or is now, a corporation created or organized under the laws of the State of Michigan. In support of the other defense the defendant offered in evidence duly certified copies of the following documents : First. Articles of association. " Second. The organization certificate executed at the same date as the articles of association. " Third. Instruments signed by the stockholders conferring the authority of the change of the State into a national bank. " Fourth. A certificate of the Comptroller of the Currency that the association had complied with the provisions of law, and was authorized to commence business." The defense in this case in effect, was that the plaintiff at the time of the commencement of this action was not, or is it no'W, a coii^oration. The court, in discussing this question, says : '' The evidence offered by the defendant on this point wholly failed to support this defense, and it must only profit that the plaintiff sued by the wrong name. It showed no more than, that the plaintiff corporation, having been originally created by the laws of Michigan, had, in accordance with the Xational Banking Act, become a national bank, and its name been changed accordingly, without affecthig its identity or its right to sue upon ol>Iigations or liabilities incurred to it by this former name. " In the absence of a statutory provision limiting or affect- ing the corporation rights of a State banking corporation after conversion into a national bank, the State bank does not Jose its charter or right to sue in its original name; but where, at the time of re-organization the choses in action or property of the State bank have been assigned and transferred to the na- tional bank, the action should properly be brought in the name of the assignee." In the case of Atlantic Xational Bank v. Xathaniel Harris, 118 Mass. 147, held: 21;^ CONVEKTING StATE InTO XaTIONAL BaXKS. [ciI. XIV. That " the new bank could maintain an action in its own name against the })resident for money had and received under the statute of 1870, chap. 217; the fact of sale by the State bank, and purchase of the chose in action by the plaintiff being set forth in the writ." § 159. Liabilities of national bank after conversion. Upon the question as to liability of a national bank formed by the conversion of the State bank, for the debts of the State bank, the case of Metropolitan Bank v. Clagget, 141 U, S. 520, is directly in point. It holds that: " * * * where a national bank is organized as the suc- cessor of a State bank and takes over the assets of the bank and holds the same, it is liable to the depositors of the former bank." In the case of The City N^ational Bank of Poughkeepsie, Bespondent v. William Philps, 'Appellant, 97 iST. Y. 44, the court holds that: *' * -x- * r^ State bank transformed into a national bank is but the continuance of the same body under a changed juris- diction, and between it and those who have contracted with it, it retains its identity and may, as a national bank enforce contracts made with it as a State bank." Held also that: " * * * where a State bank, at the time of its change to a national bank held a continuing guarantee of loans made by it to one W., upon the strength of which it had made loans, and after the change further advances were made, an action was maintained by the national bank upon the guarantee and that the guarantor was liable for the loans made both before and after the change." Where a national bank goes into liquidation, closes its busi- ness, and ceases its organization as such in conformity with the act of Congress, in such cases made and provided, and the bank is .subsequently legally organized and incorporated ac- cording to law, it becomes liable as the successor of all of the property and interests of the former bank to depositors in said bank.-* 1 Eans, Administrator, Pl.Tintiff in son City, 70 Mo. 182; P.nnk r. Mc- Error, i\ Exchange Bank of Joflfer- Intjre, 40 Ohio State 528. CH, XIV.] Banking. 213 Where a national bank is formed as the successor to a State bank and becomes possessed by assignment of the property of the State bank, owning and holding the assets of parties liable to the State bank before its formation or reorganization into a national bank, the debtors became liable to the national bank, and upon the same theory, if it took the assets of the state bank and can collect and sue upon them, it becomes liable for all the transactions legally entered into by the State bank prior to the assignment or reorganization. And a national bank in taking over the assets of a State bank, either by conversion or otherwise, cannot take hy trans- fer or assignment and hold the stock of the State tank. National hanking corporations are prohibited hy laio from holding hy purchase directly, stock of another corporation. A State bank, as formerly stated, does not lose its corporate ex- istence or its charter by conversion into a national bank ; it simply transfers or converts its assets into the new corporation formed under the [N'ational Banking Law. A State bank may transfer all of its assets and property of every nature, and its surplus fund, if authorized by all of its stockholders, but it cannot transfer its stock to a national bank. Such an act is an act ultra vires on the part of the National Banking Act, and, as previously stated, unless a statute exists which provides that the State bank's charter shall be annulled or be declared forfeited to the State within a certain period after conversion, the coiporation (State bank) lives for the full period granted to it by the provisions of its charter and the law. In the case of Hayden v. Bank of Syracuse et al., 15 IST. Y. Supp. 48, it is held that: " * * * in accordance with the provisions of the statute laws of said State, chapter 97 of the Laws of 1865, the change from a State bank to *in association organized under the Bank- ing Laws of Congress, the action on the part of the State l:)ank under said statute operated as a surrender of its charter and its existence as a corporation ceased." But, as stated, if there are no statutory provisions terminat- ing the existence of the charter, its rights exist for the re- mainder of tlie period granted to it by law from the date of the transfer or reorganization. 214 Co^■VEKTI^-G State Into National Banks, [ch. xiv. " The transition of a State into a national bank does not dis- turb the rehition of either the stockholders or officers of the corporation, nor does it enlarge or diminish the assets of the institution. These all remain the same under the national as they were under the State organization. The bank neither loses any of its assets nor escapes any of its liabilities by virtue of the change." It is not a new creation, but as a national organization, in assuming the place and position of the State bank assumes all of its legal liabilities. It is held that: " Where certain packages of coin were specifically deposited with the State bank prior to the change, that an action in trover would lie against the national bank for conversion." ^ Where an asset has been assigned, the assignee taking title would be the proper party plaintiff in action, and the coi-pora- tion bank after assignment, could not claim title or interest in the property, and, therefore, would not be a proper partv plaintiff under the statute. But where the old bank corpora- tion has a continuing guarantee of loans, it is held, it retains the right to enforce the guarantee.^ Assets which may be transferred by a State bank and con- Terted and held by the new national bank, are limited to such only as the national bank may hold at any time. All assets prohibited to be held by sections 5137 and 5200 of the Revised Statutes of the United States must be retained by the old cor- poration. SEoniamin Coffv, Eospondpnt r. 3 Xational Bank v. Phelps. 97 National Bank of the State of Mo., N. Y. 44. Appellant, 46 Mo. 140. CHAPTER XV. AMENDING BANK CHARTERS. § 160. National bank charter, how amended. The National Banking Act provides the steps to be taken in obtaining- a charter, and when all such proceedings are com- plied with and the Comptroller of the CuiTency issues a certifi- cate of due incorporation, the charter become'^ a contract and is not subject to amendment, only under such laws and re- strictions as are imposed by the statute. A national bank may amend its charter, providing "no clianqe shall he made in the articles of association by which the rights, remedies, or security of the existing creditor of the association shall he impaired/^ The necessity of amending a charter obtained to conduct the business of banking, when obtained under the National Bank- ing Act, could hardly arise. The charter when obtained with power to do a general banking business under said act is com- plete. An amendment does not enlarge its power by setting- out the various statutory enactments, and provisions in the articles of incorporation. All such powers are implied and need not be set out In haec verha; but a national bank charter w^hicli has been granted, and is defective as to requirements of form and law, may be amended by application to the Comp- troller of the Currency. § 161. Amending State bank charter. The laws of the various States by statutory provisions pro- vide for the amendment of the articles of incorporation setting- out the mode which must be followed. But the amended articles can, in no instance, extend the life of the corporation beyond the time granted to it by its original articles of incor- poration, and the articles of incorporation by amendment can- not create a new power or definite purpose from that intended by the original articles. For example, a bank which is incor- porated as a savings bank under a statute authorizing and pro- viding specifically for the incorporation of such banks, and in [215] 21G AMEXDI^■G Baxk Chakters. [ch. XV. conformity with such a specific hiw, cannot amend its articles of incorporation to include, and give it the power of conducting a commercial banking business. The Constitutions of the various States generally have a pro- vision that no corporation shall engage in any other business other than that expressly authorized in its charter, or the law under which it may have been incoi-porated.^ The National Banking Act expressly limits the exercise of the powers delegated to national banks, and they can only per- form such delegated powers and powers incidental thereto as are necessary in the conduct of their business. The object and purpose in so framing the law was evidently to confine such corporations to a strict legitimate banking business, to make therfi safe in regard to their circulating notes, and as places of deposit. Public policy, therefore, demands that banking cor- porations be held strictly within the limits of the law prescrib- ing and authorizing their organization, and the same policy holds good as to State banking corporations. The Legislature of a State, after a charter has been once obtained by due process of law, has no power to divest the corporation of its rights, or to amend the same, unless such power has been reserved in the Constitution of the State, or unless it has been found that by the operation of such power granted in the charter, the health, peace or public interests generally, are being seriously affected or destroyed by the operation and power of such corporation. It can hardly be assumed that such a condition, or such results could arise from, the operation of powers granted to a bank corporation. The principle is established that a charter Avhen olitained from the Legislature of a State (if not obtained through fraud), or from the general law, becomes one of contract between the parties and cannot be set aside or impaired. The Constitution of the United States provides that " no State shall * * * pass any * * * law impairing the obligation of contracts." The celebrated case of Dartmouth College v. Woodward, decided by the Supreme Court of the United States, established 1 See Constitution of California, art. 12, § 7: Constitution Pennsyl- art. 12, § 0: Constitution Alaliama. vania.. art. 16, § 6. art. 13, § 5; Constitution Missouri, cii. XV.] Banking. 217 it as the law that when the State granted a charter to a private corporation, it became a contract and could not be set aside unless by the consent of the parties thereto. It has been held, however, that the Legislature has the power to modify at its pleasure, a summary remedy against defaulting stockholders givcD to a corporation by its charter." The general rule is: That the courts in construing charters, construe them liberally when attacked collaterally and directly as against the State. A charter of a company formed under the General Corporation Law of a State cannot obtain any j)rivilege in violation of the laws of the State.^ Articles of incorporation of State banks may be amended in conformity with the law authorizing such privileges, or power, but the law as stated, must be complied with in all its recpiire- ments, as the stockholders' and creditors' rights may be af- fected, and every step taken must be performed in strict com- jjliance with the statute. A banking corporation incorporated under the general law of a State to conduct a general commercial banking business, cannot amend its articles giving it power to conduct a savings bank business, or a commercial and savings bank business com- bined. The law permitting the corporation to amend its arti- cles will not permit it to change its entire purpose. The amendment cannot change the original intention and purpose of the corporation. Its powers may be enlarged and new powers may be added and grafted into the corporation, but such powers must be those appertaining to the original purpose of the corporation; therefore, as stated, a commercial bank incorporated as such, with power to conduct a commercial banking business, cannot amend its articles of incorporation authorizing it to conduct a savings bank business. This privi- lege is not germane to the original purposes of the corporation ; it is a new power attempted to be created ; a new right, and not an amendment of the original purpose or intentions or object of the corporation. A bank may amend its articles of incorporation, but it can- not, by such an amendment, reduce its capital stock to an amount less than its indebtedness. The law permitting a cor- 2 Ex parte X. E. and S. W. Ala. 3 X^^y Orleans National Banking Co., 37 Ala. 679. Association v. Wiltz, 10 Fed. 330. 218 Amexdixg Bank Ciiaetees. [ch. xv. poration to amend its articles will not, at the same time, permit it to destroy them to the injnry of its stockholders or creditors. The purpose of the corporation cannot be wholly changed. For example, a bank which destroys its original name, and incor- porates a new name in place of the old one, and enlarges its capital, enumerating other and different powers from those which it had originally attained l\v law, is creating a new right and not amending its former rights. The statute of the State of California, approved March 11, 1903, providing for the amending of articles or certificates of incorporation, j^rovides that " the articles may be amended by majority of vote of its board of directors or trustees, and by vote or written consent of the stockholders representing at least two-thirds of the subscribed capital stock of such cor- poration." A copy of the said articles of association, or cer- tificate of incorporation as thus amended, duly certified to be correct by the president and secretary of the board of directors, or trustees, of such corporation, must then be filed in the office, or offices, where the original articles are required to be filed. At the time of so filing such amended articles, a corporation is deemed to have the same power as if such amendment had been embraced in the original articles of incorporation. A defect in the original articles of incorporation can be cured by the process of amendment. Where amendments to charters are provided for by the various statutes of the States, the provisions for amendment must be strictly followed. Cook on Corporations (5th ed.), section 499, declares that " an amendment may be said to be auxiliary and incidental when it merely grants new powers, or authorizes new methods and new plans for the purpose of car- rying out the origiiml plan and effecting the real object of thai plan)' It is also held that " where an amendment changes the cor- l)orate plans, the question to be determined is one of law."^ 4 Winter )•. Muscogee R. R., 11 Ga. 438; Southern R. R. r. Stevens, 87 Pa. St. 190. CHAPTER XVI. BANK EEMOVING ITS PLACE OF BUSINESS. § 162. National bank removing place of business. A national bank may, with the consent of the Comptroller of the Currency, remove from one place to another within the State, not more than sixty miles distant from the original place of business designated in its articles of incorporation. The distance cannot exceed the limit of sixty miles, and it must have, before remo^'ing, the consent of the Comptroller of the Currency. The Xational Banking Act, amended March 14, 1900, pro- vides that " an association may be organized in a town of three thousand population, or less, with a capital stock of twenty-five thousand dollars." Such an institution, authorized to conduct business at the place named, with a population of, not to exceed 3,000 inhabitants, would certainly be prohibited from remov- ing its place of business into a city or town exceeding 3,000 inhabitants, and where a capital stock of a greater sum is re- quired. But where a corporation which has secured right? prior to any such restriction enacted by law, and which it could enforce prior to such enactment, it could not be estopped from changing its location where the statute authorized such a primal ege. A corporation which is required by law to designate a place of business in its articles of incorporation, by such designation thereby gives notice to the world that the place designated is its legal home ; " its domicile " is there, and it then becomes legally a citizen of the State. § 163. State banks removing place of business. It is held in the case of George Runyan, Plaintiff in Error, V. The Lessee of John G. Coster and Thomas K. Mercien, 11 Peters, 122, that: a * * * ^ corporation can have no legal existence out of a sovereignty by which it is created, as it exists only in con- [219] 220 Bakk Kemoving Its Place of Business, [cii. xvi. tcmplation of law and by force of law. It must dwell in the place of its creation and cannot migrate to another sovereignty. But, where the statute of a State provides that a corporation may change its particular place of business from one point to another in the same State, it has such power." It is also held that a corporation bank may, where no statu- tory law intervenes, establish a business in a foreign State as agent of the mother bank, but the rule is well established that a foreign bank corporation cannot have greater privileges in the conducting of its business in the State than those organiz'^d within the State. Such a law is reasonable and just. ISTo for- eign corporation should be allowed to transfer its franchise in^'o a foreign State without complying with all the laws governing corporations of such State. A banking corporation, however, where the statute of the State so provides, may remove its principal place of business from one place to another in the same county, or from one ci'y or county to another city or county within the State; but where no such provisions are provided for in the law, a corporation has no right to remove its principal place of business, but a banking corporation may conduct business within th'c State and out of the city through its agents duly authorized. Such busi- ness, however, must be that which is given to the corporation by right, by organic law, and such ordinary business as its organic law gives it power to do. For example, an agency may exist for the redemption of bills; an agent may collect a note payable out of the State; a banking corporation may purchase a note in a foreign State. This is held and construed " not transacting business " in the State. It is also held in the case of The President, Directors and Company,, of Bank of Utica v. Smeeds & Canfield, 3 Cow. Eep. 662, that: " * * * a bank corporation may make any contract within the scope of its general powers, and may bind itself to do an act at any other place, and whenever the engagement may be broken the bank will be equally liable." In the case of Merchants' jSTational Bank v. State Bank, 10 Wall. (U. S.) 604, the court, in referring to the powers of the national banks, says: "Associations organized under the act of Congress to carry CH. XVI.] Banking. 221 on the business of banking are required by the expressed words of the act to transact their usual business at an oflSce or bank- ing house located in the place specified in their organization certiticate, and no individual officer or party is allowed to leave his bank to go elsewhere to make large contracts without the instructions of the directors. Unless his power in that behalf is limited to the established place of business, he may go wherever he pleases for that purpose, and if he certifies checks anywhere within the four seas of our continent, the bank is bound by his contracts. Stockholders and depositors should take warning for such is the law, as the national banks are liable at any moment to be overwhelmed Avith pecuniary obli- gations and involved in utter ruin." A bank located in one county and having its principal place of business fixed by its charter violates the same by establishing an agency in another county where it receives de- posits, sells exchange, and conducts a general banking business unless the statute authorizes the privilege. The court, in the case of The People ex rel. Zephaniah Piatt, Attorney-General, v. The President, Directors, etc., of the Oak- land County Bank, 1 Douglass (Mich.), 283, holds that " where, under the provisions of a charter which fixes the place of business, that the bank violates the law if it establishes an agency in another county; " and in discussing this question the court says: " The last, and most important, question remains to be con- sidered; and that is, whether the establishment oi an agency in the city of Detroit was a violation of the charter of the defendants. By the act of the incorporation, the stockholders were authorized to locate the bank in the county of Oakland. It follows, therefore, that, if the corporation has undertaken to exercise any of its franchises without that county, it has usurped an authority in violation of law, and must suffer the penalty which that law inflicts. The ease admits that the bank redeemed its bills, kept deposit, and, as incident to such redemption, bought and sold exchange at the agency. Did these acts, or either of them separately considered, violate the law which gave a legal existence to the defendants ? To de- termine this question, it is only necessary to define what busi- ness this bank was authorized, by the law of its creation, to do 222 Bank Removing Its Place of Business, [ch. xvi. and perform. Sucli an examination will lead to the conelnsion that it is a bank, not simply of discount, but also of deposit. It is quite manifest that the defendants could not establish in this citv an office of discount. If so, may it not clearly be intended that they can establish an office of deposit? To my mind the conclusion is irresistible." In the case of Kennedy Southern Railway v. Gebhard, 109 U. S. Rep. 527, the court says: "A corporation may do busi- ness in all places where its charter allows, and the local laws do not forbid." AVhere the statute of the State provides that an agency may be established within the State, such an agency may conduct a business for the parent bank. In doing so, however, by all of its signs and advertisements it must indi- cate to the public that it is acting simply as an agency of the parent bank. It has no authority to conduct through the agency a general banking business. It can do no business except in the name of the parent bank. If an agency could be established out of the county by the parent bank to do the general business of the corporation, it would be unnecessary to require the corporation to have a principal place of business named in its articles of incorporation. AVhere the statute of a State pro^'ides that a corporation may remove its place of business, the proceedings of removal must be strictly complied with. § 164. Place of business. In the case of Bank of Augusta v. Earle, 13 Peters, 510, Taney, Chief Justice, says: " It is very true that a corporation can have no legal ex- istence out of the boundaries of the sovereignty by which it is created, but, although it must live and have its being in that State only, yet it docs not by any means follow that its exist- ence there will not be recognized in other places; and its resi- dence in one State creates no insuperable objection to its power of contracting in another." It is broadly held by many of the courts that a corporation may be organized in one State and do all of its business in an- other State. ^ 1 Missouri Lead, etc., Co. v. Rcinliard, 114 Mo. 218 (1893). CH. XVI.] Banking. 223 It is also held in the ease of Oakdale Mfg. Co. v. Grarst, 18 R. I. 484, and in the case of The People v. Fidelity, etc., Co., 153 111. 25 (1894), that: '^ * * * a corporation may be organized in one State and do all of its bnsiness in another State, but, a foreign corpora- tion organized in a foreign State cannot enter another State and conduct bnsiness on more favorable terms than corpora- tions organized in said State." CHAPTER XVII. INCREASING OR REDUCING CAPITAL STOCK. § 165. Law governing national banks. Section 51-i2 Eevised Statutes of the United States provides for the increase of capital of a national bank in the words and figures following: ''Any association formed nnder this title may, by its articles of association, provide for an increase of its capital from time to time, as may be deemed expedient, subject to the limita- tions of this title. But the maximum of such increase to be provided in the articles of association shall be determined by the Comptroller of the Currency." Section 1 of the act of May 1, 1886, provides that: a * * * j^j-^y national banking association may, with the approval of the Comptroller of the Currency and by the vote of shareholders owning two-thirds of the stock of such asso- ciation, increase its capital stock, in accordance with existing laws, to any sum provided by the said Comptroller, notwith- standing the limit fixed in its original articles of association and determined by said Comptroller; and no increase of the capital stock of any national banking association, either within or beyond the limit fixed in is original articles of as- sociation, shall be made except in the manner therein pro- vided." A national bank desiring to increase the capital stock, the first step necessary upon the part of said association is to call a meeting of shareholders for that purpose, and at said meeting adopt suitable resolutions authorizing the increase. Before the resolution adopted at said meeting becomes lawful it must receive the votes of shareholders representing two-thirds of the existing stock. A resolution passed hy a vote of two- thirds of the shares represented at the meeting will not he suf- ficient. The succeeding step is to open subscriptions for the new stock; when all of said stock lias been subscribed and paid for, [224] cii. XVII.] Baxkixg. 225 such proceedings should be certified to the Comptroller of the Currency. It is held by the Comptroller of the Currency that: " * " * in increasing the capital stock of a bank no moneys in the surplus fund, or to the credit of undivided profit account can be used except by the declaration of a divi- dend by the board of directors in the regular course, where- upon the shareholders, if they so desire, may use the pro- ceeds thereof in payment of their subscription to the addi- tional stock. Such portion only of the surplus funds as exceeds the amount required by law may be capitalized in the man- ner indicated." The action of the Comptroller of the Currency, in approv- ing of an increase of the capital of a national bank, and cer- tifying that the amount thereof has been paid in, is conclusive, and the validity of the increase cannot be assailed in a col- lateral proceeding, such as an action to enforce the liability of a stockholder. If the stockholders' have received their ad- ditional stock, and for several years held themselves out to the public as stockholders, they cannot subsequently, when the bank becomes insolvent, and they are assessed to pay its in- debtedness, deny their liability upon the ground that the increase of capital was fraudulent.^ Under the United States Statute, national banks have the power to increase their capital to such a limit as may be ap- proved by the Comptroller of the Currency.^ The capital cannot be increased for the entire amount until new capital stock has been paid in, and not until the Comptrol- ler of the Currency has certified to the increase.^ It is held in the case of Aspenwall v. Butler, 133 U. S. 595, that: " * ^ " when the previous proceedings looking to an increase in the capital stock in the national bank have been regular, and all that are requisite, and a stockholder sub- scribes to his proportionate part of the increase, and pays his subscription, the law does not attach to the subscription a con- 1 Upton /•. Tribilcock, 91 U. S. 45. 3 McFarlin r. National Bank of 2 Chubb r. Upton. 9,5 U. S. 665 ; Kansas City. G8 Fed. Rep. 868 ; Veeder r. ]Mudf;ott, 95 N. Y. 295 ; Charleston * r. Peoples' National Scovill v. Thayer. 105 U. S. 14.3; Bank, 5 S. C. 103. Latimer r. Bard. 76 Fed. 536. 15 226 Ixcin:A8i>;G oi; Reducing Capital Stock. [cii. xvii. dition that it is to be void if the whole increase authorized be not subscribed, although there may be cases in which equity would interfere to protect him in case of a material deficiency." The same authority holds that: '' * " * the provision in the Revised Statute, section 5142, that no increase of capital in a national bank shall be valid until the whole amount of the increase shall be paid in, and the Comptroller of the Currency notified and his consent obtained, was intended to secure the actual cash payment of the subscriptions made, and to prevent watering of stock, but not to invalidate bona fide subscriptions actually made and paid. " The Comptroller of the Currency has power by law to assent to an increase in the capital stock of a national bank less than that originally voted by the directors, but equal to the amount actually'' subscribed and paid for by the share- holders under that vote." The right of shareholders to subscribe for new shares of stock, gives them the right to subscribe in proportion to their shares in the original stock. A shareholder, however, may waive his right to the new subscription. Such a waiver need not necessarily be given in writing, it may be given tacitly. Each shareholder has the right to subscribe to the new stock, and his right holds for a reasonable time, and until subscrip- tions are closed. Where a stockholder has subscribed his proportion to double the capital stock, and pays his subscription, he cannot repudi- ate it because the stockholders, with the consent of the Comp- troller of the Currency, reduced the amount of the stock they originally intended to issue.^ The same authority holds that: " * * * a subscription to stock in a national bank and payment in full on the subscription and entry of the sub- scriber's name on the books as a stockholder constitutes the subscriber a shareliolder ivitliout taking out a certificate." For a form of resolution to increase the capital stock of a national bank as approved by the Comptroller of the Cur- rency, see Appendix. 4 Pacific National Bank r. Eaton, 141 U. S. 227. cii. XVII.] Banking. 227 § 166. Increasing capital stock of State banks. The capital stock of all incorporated companies being gen- erally fixed by the statute and the charter in the original articles of incorporation, it frecjiiently, however, happens that the capital stock is found to be too small and an increase is demanded. Such a change cannot be made lawfully only un- der certain conditions and limitations. In the absence of ex- press authority from the State, a corporation has no power to increase or reduce the amount of its stock.^ Where an attempted increase or reduction of the stock of the corporation is not authorized by the charter, and there is no authority given by statute, not even the unanimous a^^- sent and agreement of all of the parties interested would legalize the transaction.^ A State banking corporation, duly incorporated according to the laws of the State, may, where the statute so provides, at any time during the life of the corporation, increase its capital. The procedure defined by the statute must be strictly conij)lied with. It is held that: " * ^ " an injunction is the proper remedy to prevent an illegal increase or reduction of capital stock of a corpora- tion, but an injunction against the issue of new stock by a foreign corporation will be dissolved where the courts of the State, where the corporation was created, decide such issue of stock to be legal. ^ In the case of White v. AVood, 129 N. Y. 527, it is held that " an increase of the capital stock without Avarrant or authority is called an over-issue of stock." In the State of California the statute provides that: u * * * ^^ corporation shall issue stock or bonds except for money paid, labor done, or property actually received, and all fictitious increase of stock or indebtedness is void. " Every corporation may increase or diminish its capital stock, create or increase its bonded indebtedness subject to the following provisions " (then follows the provisions of the 5 Scovill V. Thayer, 105 U. S. 7 Cook on Corporations, 5th cd., 143, 148. § 281. 6 Cooke r. Marshall, 191 Pa. St. 315 (1899). 22S IxcEEAsiXG OR Eeducixg Capital Stock, [ch. xvii. law providing- the mode and requirements of the statute upon the subject). It is held in the case of D. Stein, Appellant v, Charles How- ard, et al, 65 Cal. 616, that: " * * * under the Code and Constitution of the State of California an increase of the capital stock of the corporation, and the issuing of the additional shares to be sold at a price less than the nominal value of the stock to supply funds actually required by the corporation, is not a fictitious issue of the stock within the meaning of article 12, section 11 of the Constitution." In Jefferson v. Ilewett, 103 California, 624, the court holds: u vf * -H- ^|j^|. ^^ii(]pj. section 359 of the Civil Code which provides that no corporation shall issue stock or bonds ex- cept for money paid, labor done or property actually received, that certificate of stock issued upon credit is absolutely void." It is also held in California that under the statute which provides that stock shall be void except for money paid, labor done, or property actually received, " that a note given in payment for stock with a valid consideration, is a legal is- sue of stock." Where the statute of a State provides how, a corporation may increase or reduce its capital stock, the courts have no power by mandate or decree, or in any other manner the right to affect the increase or decrease of the capital stock. It is held in Smith v. Xortli American Mining Co., 1 Nev. 423, and in Mechanic's Bank v. Xew Road Rd., 13 X. Y.' 599, that: " ^ " * when a corporation has issued certificates of stock (which are valid and not void) to the full extent of all of the shares which by law and the constitution of the company it may issue, no court can order the issuance of other shares because in that respect the powers of the corporation have been exhausted. Stockholders alone have the right to authorize the increase in the capital stock of the corporation. Where, bv legislative act or charter, an increase of capital stock is effected bv the act and assent of the board of directors, it is held that it must be ratified and authorized by the stockholders at a corporate meeting." CH. XVII.] Banking. 229 " The statute of the State governs the power, and may direct and authorize the directors of a corporation and vest them with power to increase the capital stock." ^ § 167. Reduction of capital stock. National hanks. — The Revised Statutes of the United States, section 5143, provides that: " * * * any association formed under this title may, by vote of shareholders owning two-thirds of its capital stock, re- duce its capital to any sum not below the amount required for its outstanding circulation, nor shall any such reduction be made until the amount of the proposed reduction has been re- ported to the Comptroller of the Currency and his approval thereof obtained." The Comptroller of the Currency recites that by his con- sent and the vote of shareholders owning tAvo-thirds of the shares, a national bank may reduce its capital stock to any sum not below the minimum amount required by the JSTational Bank Act. A reduction becomes operative upon the issuance of his certificate and approved. An association that contemplates reducing its capital, should always advise the Comptroller thereof before formally sub- mitting the matter to the shareholders. Before any final ac- tion can be taken in the reduction of the stock of such an association, steps should be taken to call a meeting of stock- holders ; the stockholders should then adopt a suitable resolu- tion authorizing the reduction ; two-thirds of the stock of the bank is necessary in the reduction ; two-thirds of the quorum voting in favor of the proportion is not sufficient. A reduction of capital stock in no case can occur to reduce the capital below the minimum amount of capital required by section 5158, Re- \'ised Statutes of the United States. Capital stock set free by the process of reduction belongs to the stockholders in proportion to the number of shares held by each. The stock cannot bo retained by the bank for any pur- pose whatever ; the released capital stock, from the date of the reduction certificate issued by the Comptroller of the Currency, becomes the property of the individual stockholders. In the case of McCann v. The First I^ational Bank of Jef- 8 Southerland r. Oleott, 95 N. Y. 03. 230 Increasing ok Reducing Capital Stock, [cii. xvii. fersonville, 112 Ind. 354, where the capital stock of the bank was shown to be impaired and the reduction was made to avoid assessments, the lang'uage of the court is as follows: " In the present case the reduction was not made to affect a distribu- tion of the accumulated surplus or unemployed capital of the bank ; the original capital had become impaired bv reason of " bad debts " and the stockholders were in the situation of being compelled to elect either to submit to an assessment of their stock, or go into liquidation and reduce the capital of the bank so as to put the amount of the capital in correspond- ence with its value. They chose the latter alternative rather than submit to an assessment of their stock, so as to make good their deficiency ; each stockholder surrendered a ]iroportionate share of their stock, and by that means they secured the privilege of continuing the business of the bank \vith a reduced capital. Tlie appellant, as appears from his complaint, sur- rendered his ])r()p(»rtion, receiving as a consideration thei*ef(n- immunity from the impending assessment, and the privilege of holding the residue of his stock in a continuing association. This was all the consideration he contemplated, and all that was implied in the transaction." ^ Having received the whole consideration upon which the surrender was made, the stockholders could not afterward re- cover more, simply because the bank succeeded in realizing upon the suspended bills and notes, the suspension of Avhich occae'oned the reduction. ' (For a form, as prepared by the Comptroller of the Cur- rency, being the resolution to reduce the capital stock, see Appendix.) It is held by the Comptroller of the Currency that '' no part of the reduction can be carried to surplus or undivided profits without the unanimous consent of the shareholders. When the reduction is made the shareholders should return their old certificates. Xew Certificates, if the capital is re- duced, should then be issued. It is competent to issue certifi- cates for fractional shares." The Comptroller of the Currency also requires that a record of the vote of stockholders should be kept and forwarded Anth the resolution. SDolano r. Butler. 118 U. S. 634. CH. XVII.] Baxkixg. 231 § 168. Reducing capital of State banks. The capital stock of a State banking corporation can only be reduced by complying \Wtli the law as enacted in each State. The statute providing the steps to be taken and the proceedings to be had must be strictly complied with. In no instance can the capital stock be reduced to an amount less than the in- debtedness of the corporation. In the State of California the statute reads that " no corporation shall diminish its capital stock to an amount less than the indebtedness of the incorpora- tion.'' After an authorized reduction of the capital stock of a duly incorporated company it is held, that the '" amount of corporate assets over and above the amount of the capital stock is reduced, and the debt is equivalent to surplus profits, and may be treated as such by the corporation. It may be set aside as surplus, or it may be divided among the stock- holders proportionately, inasmuch as the rights of previous corporate creditors are not injured." ^'^ And the same authority holds that " under certain circum- stances the surplus may be used to buy outstanding shares of stock." In Strong v. Brooklvn Cross Town K. R., 93 X. Y. 426, held: " * * * where upon the reduction of the capital stock of a bank, certificates of deposit are issued to the stockholders to the amount of the reduction of the capital stock, such certifi- cates of deposit can be enforced only to the extent that the actual assets of the bank exceeded its liabilities and reduced capital stock." A distribution is only lawful when, upon investigation, it is found that the capital stock was imimpaired at the time of the decrease. The reduction of the capital stock of the corporation does not take place, and is not final in the State of California until the filing of the proper certificate in the ofiice of the Secretary of State. "Wlien the statute of a State makes a certificate conclusive proving that the capital stock has been reduced, the same can- not l)e questioned in a collateral proceeding, though the re- duction was not made in accordance with the statute.-*^ 10 Cook on Corporations. § 2^0. .300 (1899), aff'd (1900), 2 Q. B. 11 Ladies, etc.. Associatio'i. Lim- .376. ited, V. Pulbrook, 81 L. T. Rep. CHAPTER XVIII. CHANGING NAME OF BANK. § 169. Adopting new name. The name of the corporatiou is an essential part of the in- strument or articles of incorporation, it cannot exist or do business without a name. The law authorizing a bank to amend its articles of incorporation does not apply where the object is to change the name of the corporation. The name of a corporation may, or may not, designate its purpose. Where a new name is to be entirely adopted, this can be done only by complying with the special provisions of the statutes prescrib- ing the mode of procedure. When the name of a corporation is to be abandoned and an entirely new and different name to be substituted, it can hardly be an amendment, or classed as an amendment to the articles of incorporation. The articles of incorporation usually may be amended without application to a court of record, while in some of the States an application for change of name must be made to the court, and Avhere a statute prescribes a mode of procedure it is mandatory and must be followed. The National Banking Act provides by the act of 'Max 1, 1886, section 2, that the name of a national bank may be changed; said section reads: '' That any national banking association may change its name * * * with the approval of the Comptroller of the Currency by the vote of shareholders holding two-thirds of the stock of such association. Duly authenticated notice of the vote and of the new name * * * shall be sent to the office of the Comptroller of the Currency, but no change of name * * * shall be valid until the Comptroller shall have issued his certificate of approval of the same.'' The name of a national bank cannot be changed unless by consent of the Comptroller of the Currency. Section 3 of the act approved May 1, 1886, provides that: "All debts, liabilities, rights, provisions and powers of the association under its old name shall devolve upon and inure to the association under its new name." [232] CH. XVIII,] Banking. 233 Section 4 of said act provides: " * * * tliat nothing in this act contained shall be con- strued as in any manner to release any national banking as- sociation under its old name * * * from any liability, or effect any action or proceeding in law in Avhich said associa- tion may be, or become, a party interested. ''A national bank desiring to change its name may call a meeting of the shareholders for that purpose, and by their directions direct that the president or cashier of the association submit the resolutions adopted by the shareholders to the Compfroller of the Currency, and if approved by him he will issued a certificate to the effect that the change has been ap- proved by him." When a State bank desires to change its name, after the preliminary steps have been taken by the shareholders of the corporation, and where a procedure is to be had in a court of record, an application may be made to said court, by petition or bill, setting out the necessary facts, and upon hearing, no objector intervening, the court may order a change of name ; but where sufficient objections have been alleged by parties who would be directly injured, and a serious wrong be perpe- trated upon some other friendly corporation having a similar name, the court would probably refuse the application. The statute of the State wherein the bank is located would govern the procedure, rights, and power of the coqioration to change its name. The statute authorizing a corporation to select its name Avill protect it in retaining the same, and the courts are inclined to protect the name of a corporation independently of any statute. In Holmes v. Holmes, etc., Co., 37 Conn. 278, the court, in discussing this question, holds that " a corporate name, legally acquired, should be protected upon the same pricipal and to the same extent that individuals are protected in the use of trade-marks." " The case of an encroachment is analogous to, if not stronger than that of a piracy upon an established trade- mark." ^ " In Massachusetts, by statute, a foreign corporation doing 1 NpAvbv V. Orppon Centra] Rv.. Rubber Co. r. Goodvear Rubber Co., 18 Fed. Cases, 38; Goodyears' India 128 U. S. 598. 234 Changing Xame of Bank. [cii. xviii. a banking, loan, trust, or investment business in the State cannot use the same name as, or a similar name to, a domestic corporation." ' In Higgins Co. v, Iliggins Soap Co., 144 N, Y. 462, Xew York Court of Appeals states the law as follows: '' In respect to corporate names the same rule applies as to the names of firms or individuals, and an injunction lies to restrain the sim- ulation and use by one corporation of the name of a prior corporation which tends to create confusion, and to enable the latter corporation to obtain by reason of the similarity of names the business of the prior one. The courts interfere in these cases, not on the ground that the State may advise such corporate names as it may elect to the entities it creates, but to prevent fraud, actual or constructive. For the purpose of suits it is held that the original name remains unchanged." ^ The changing of a name of a corporation cannot affect its real estate contracts.* As to the right of a corporation to maintain an action on the contract or note executed, to-wit: In the old name.' It has' been held that where a coi-poration selects a name similar to one already in existence without the knowledge of such facts and without intention of deceit, the court may, in the exercise of its discretion refuse an injunction.^ In the absence of statutory provisions providing that a cor- poration may change its name, it has no power to do so.^ 2 Cook on Corporations, Vol. 1, 4 Wellflev r. Shenandoah, etc., {5th ed.), § l.T; International T. Co., 83 Va\ 768. Co. r. Tnternationil Loan & Trust 5 Northwestern College r. Schwag- Co.. 153 Mass. 271; The Illinois ler, 37 la. 577. Watch Case Co. r. Piearson, 140 111. 6 Hvgeia. etc., Co. r. New York, 423. etc.. Co.. 140 N. Y. 94. 3 Morris r. St. Paul, etc., Ry. Co., 7 Bellows v. Hallawell, etc.. Bank, 19 Minn. 459. 2 Mason, 31 ; Svkes r. People, 132 111. 32. CHAPTER XIX. DEPOSITS. § 170. Nature of deposits. A deposit made by a dealer with the bank (unless declared special), and placed to his credit as such, makes it a general deposit. There being no terms or agreement expressed or fixed between the bank and the depositor, that it is to be held by the bank as distinct from other deposits which are general, it therefore becomes what is termed a general deposit. The depositor in making a deposit in a commercial bank, does so with the implied promise that (unless some special agreement is entered into) it will repay the same upon demand. The money therefore becomes the property of the bank, and the bank has a right to the use of the same, but must repay it upon demand without grace. A general deposit is therefore one which de- prives the depositor of the title to the funds until a demand is made for repayment; and it is at once owned by the bank, and ownership authorizes the bank to use the same until called for by the depositor. During such ownership the bank may loan the money and make profit therefrom. The position be- tween the bank and the depositor in a commercial bank of a general deposit is always one of debtor and creditor, and the bank is bound by law to pay upon demand. A depositor in such a case is not required to give notice of a particular time when he wall demand payment, but may present his check drawn upon the bank and against his account, without previous notice, and the amount withdra^wm discharges the debt of the bank to the extent of the sum named in the check. "When the position between the depositor and the banker is one purely of debtor and creditor, the bank cannot be held to the position of a trustee, but may loan such funds for the profit of the bank. Special deposits are the placing of specific kinds of property, or money, in the possession of the bank, to be held by it in kind and returned t'^ the bailor. The bank, in such a case, in [2.35] 236 Deposits. [ch. xis. accepting the property or money, merely becomes the bailee of the depositor. Tlie distinction between a general and speciat de- posit is, tltat if general, the depositor loses the title to the money ; if special, the title of the deposit always remains with the depositor or bailor, and must be returned in specie or kind. The insolvency of the bank does not change the position be- tween the parties; the property must be returned, and the depositor is entitled to the identical property. A special de- posit, if made in money and accepted by a bank, should not lose its identity and be mingled with or thrown into the general cash funds of the bank. The reason for this is evident, for it cannot become part of the general resources or liabilities of the bank, but it becomes a special liability and is governed by the laAV in such cases made and provided. It is a well conceded principle of law that the banker and depositor may, at the time the deposit is made, make any law- ful contract as to the terms upon which it is received, and also terms upon which it may be paid or returned. § 171. Nature of general deposits. The relation of banker and depositor, where a general de- posit is made in the bank, either on demand or on time, is one of debtor and creditor. As previously stated, a general deposit when placed in the bank becomes the property of the bank. The bank becomes a debtor to the depositor for the amount thereof deposited, and the debt can only be discharged by pay- ment to the depositor or pursuant to his order.^ General deposits in a commercial bank, received on account of the depositor, when not complicated with transactions other than those of depositing and withdrawing the money, transfers the ownership of the money to the bank, and established a relationship between the parties of debtor and creditor.^ A deposit made in the usual course of business vests in the bank, and cannot be recovered by the depositor on the ground of fraud, even though the bank was insolvent and failed on the next day. A deposit cannot be recovered by a depositor on the ground 1 The J^tna National Bank r. The -^\ :Mich. 134, '.■>! Mioh. 132; 17 Fourth National Hank, 4G X. Y. 82: Weiul. (X. Y. ) 100; Collins r. State, Bank of Republic r. Millard. 10 1.5 So. 214. Wall. (U. S.) 1.52; Xeeley r. Rood, 2 Collins r. Siate, 1.5 So. 214. cii. XIX.] Backing. ' 23? of fraud, even tlioiigli the deposit is made in reliance and on representation by the cashier of the bank that the bank was solvent, unless the officer of the bank knew of its insolvency at the time of the deposit. A depositor making a deposit in a bank may, at the time of making the same, contract with tlie hanh to ivhom the deposit shall he repaid} The pnl)lic funds of a municipality may be deposited in a bank and the bank may agree to pay interest on such deposit, and can also give a bond to the municipality for security. The statute of the State may provide otherwise. The Con- stitution of a State may also make the receiving of such a deposit, when received as a general deposit, unlawful. Where such a statute or constitutional provision is in force, the de- posit cannot be made and received as a general deposit. A party acting as a trustee and making a deposit in a bank, placing the same to his credit or private account, without noti- fying the bank that the same is a trust fund, the bank having no knowledge of the fact that he is a trustee, but believing that the property is his own private property, the bank does not become liable to the cestui que trusts AVhere a bank has knowledge of the fact that money depos- ited with it to the general credit of one of its depositors is held in trust by such depositor, the bank cannot apply the deposit, or any portion thereof, to cancel a note due from the depositor to the bank.*^ A deposit made in a bank at a time when the officers knew that it was in a failing condition and insolvent, held, that it cannot be recovered from the assignee, unless it can be identi- fied and traced to his hands. ^ Where a party mails to a bank money or checks, directing that the bank place the same on deposit to his credit, but the bank refuses to acknowledge receipt thereof, and persistently denies that it has received such money or checks, the relation- ship of depositor and depositee is not established.'^ •5 Sj^kes V. First National Bank, 2 Clemer v. Drovers National Bank, 8. D.'242. (111. Snp.) 41 N. E. 728. 4 School District r. First National 6 /» re Commercial Bank, (Ct. Bank. 102 Mass. 174. Insolv.) 2 Ohio N. P. 170. 6 57 Illinois App. 107, reversed; 7 Miller r. Western National Bank, (Pa. Sup.) 33 A. G34. 238 Deposits. [ch. xix. A bank makes itself liable, if in any "vvay it colludes with a trustee "where it may hold such funds, if the trustee misapplies the same, and the cestui que trust may refuse to look to the trustee, and can recover from the bank, holding- it responsible for any liability or damage accruing to the cestui que trust. Where a person designates himself as a trustee for another, and deposits the funds of his cestui que trust in a bank, it has been held that there is a complete and valid transfer of the title to the funds, the title thereby immediately vests in the donee, and the personal representative of the donor cannot recover them from the bank. Trust funds have caused more or less complication and lia- bility in the withdrawal of the same, but the law seems to be well settled and established, that if a trustee deposits trust funds to his own account, and with his individual money, the bank having no knowledge of the fact, that it may pay all checks when signed and presented by the party making the deposit. Where an agent or trustee deposits money belonging to his principal in a bank, to which he himself is indebted, and the bank without authority and in ignorance of the true ownership of the fund, applies it on the debt, the owner may recover from the bank if it can be identified.^ When a customer of a bank who has overdrawn his account, and afterward makes a deposit, the presumption of law is, in the absence of evidence, that the deposit was general, and that it was made and received toward the payment of the overdraft.^ Where a l)ank depositor heard rumors of its insolvency and went to withdraw his deposit, but was informed by an officer of the bank that it was perfectly solvent, the depositor, relying on such representation, and permitting his deposit to remain, when in fact it was insolvent at the time the representations were made, such officer is personally liable to such depositor. ■''' Where a national bank has been designated as a depository of public moneys, such designation does not constitute it as an agent of the government or render the government liable for moneys lost by failure of the same.^^ A national bank receiving State funds, subject to check and 8 Burtnett Admr. r. First National lo Townsend r. Williams, (N. C.) Bank, 38 Mich. (i30. 2.-? S. E. 461. » Nichols r. 8tate, (Neb.) G5 "Branch v. The United States, N. W. 774. 1 N. B. C. 363. cir. XIX.] Banking. 239 to withdrawal thereof on seven days' notice, and giving security therefor; also agreeing to pay interest on daily balances, the transaction is held to be one of deposit and not a loan.^^ In the case of Quin v. Earle, 95 Fed. Eep. 728, the court holds that: " To authorize the recovery of a general deposit from the .receiver of an insolvent bank on the ground that the bank was insolvent, and known to be so by its officers when the deposit was received, and that the fraud authorized a reeision of the contract by the depositor; the thing deposited or its proceeds must be capable of identification in the hands of the receiver or it must appear that the funds coming into his hands weTe increased by that amount." The court further says: " To constitute fraud on the part of a bank, in receiving a deposit when insolvent, which will authorize a reeision by the depositor and a recovery of the deposit from a receiver subse- quently appointed for the bank, the officers of the bank must have known or believed that it was insolvent at the time the deposit was received; and such knowledge cannot be presumed, but must be proved. The mere fact that the bank was known by the officers to be in an embarrassed condition is not sufficient to establish fraud." ^Yliere checks are delivered to the bank by a depositor for collection and deposit at the tim^ when the bank was insolvent, and when it was known by its officers to be insolvent, which checks had not been collected when the bank closed its doors, they remain the property of the depositor and cannot be held, by the receiver. ^^ A party who has sufficient funds in a bank and draws a check on the same for payment, while the funds are hot in any way encumbered l)v an earlier lien in favor of the bank, on refusal to pay the check, he may sue the bank for damages. ^^ T\^iere, after the maturity of a promissory note held by a bank, and protest thereof, the maker of said note makes a gen- eral deposit of an amount sufficient to pay the note, held that this does not of itself, as between the bank and indorser, operate 12 state of Neb. r. First National i4Mt. Sterling National Bank t". Bank of Orleans. 88 Fed. Rep. 947. Green, .(Ky.) 35 S. W. 911. i^i Richardson i-. Denegre, 93 Fed. Rep. 572. 24:0 Deposits. [cii. xix. Ski a payment. In the absence of an agreement between the parties, the bank has the option to apply the money in payment; but it is under no legal obligation so to do.^^ The writing-up by the bank, of a pass-book, in other words what is called " balancing of a pass book," and the delivery thereof to the owner, does not preclude the owner of inquiring into its correctness.^^ A pass book made transferable by the by-laws of a bank, may bind the parties thereto, but it would not be so as to third parties.^^ But an assignment and transfer of a pass-book with an order to pay the balance then due, would l)ind all parties and the bank could not refuse payment on the order or check. It is held in the case of Arnold v. Hart, 176 111. 442, that pass- book wdien balanced and delivered binds the bank, and operates in the same manner as an account stated. This can hardly be the law. Ail account stated is an agreed balance of accounts. An account ichich has been examined and accepted by the parties. While the pass-book is a statement of an account, it does not l)ecome binding upon the parties as an account stated until it has been agTeed between the parties that a balance fixed which has been examined and accepted by the parties is found to be due. An error may be found by examination of the pass-book, and the bank balancing the same should also have the privilege of correcting any error fouud therein. An entry is a pass-book cannot be conclusive against either the bank or the customer. The entries therein made, may be inquired into. It is a ques- tion of fact and subject to investigation. The law may provide that after a certain period of time, both parties may be estopped by a Statute from investigating or making any corrections.^^ ij 172. Special deposits. Originally, all deposits of money deposited with a banker, was a special deposit. The custom prevailing at that time re- quired the banker, when called upon, to deliver to the de- ir. Tl>e National Bank of New- 2 Edw. Ch. (N. Y.) 292; Bank v. burfjli. Respondent, r. Daniel Smitli, Earp, 4 Rawle (Pa.) 384. Appellant. fiC N. Y. 271. 17 Whitte r. Vineenot, 43 Cal. 325. 16 First National Bank r. Whit- 18 French r. Banking Co., 01 :\Ie. man. 94 U. S. 343; Bullock v. Boyd, 48.5. cii. XIX.] Baxkixg. 241 posiior, the same identical coin^, the depositor agreeing to pay the banker a compensation for the care of the property. Special deposits are accepted by bankers at the present time, and such deposits, may be taken gvatnitously or npon com- pensation. It is a ^vell settled principle of law, that all banking corpora- tions organized for the pnrpose of conducting a banking busi- ness, with the right to receive deposits, unless prohibited by Statute or the bank's charter, may accept on deposit, special deposits of money, stocks, bonds, or other personal property for safe keeping, either for compensation or gratuitously. Special deposits as stated, are placing specific kinds of prop- erty, or money, into the care or possession of the bank to be held by it and returned at some future time. The bank, in such a case, becomes the bailee of the depositor, and upon de- mand by the bailor the property must be returned. Special deposit when made in money, should never lose its identity or be mingled with or thrown into the general cash funds of the bank. The reasons for this, as stated are obvious. The money so deposited cannot become a part of the general resources or liabilities of the bank, but becomes a special lia- bility and is governed by the law of liailment. The distinction between a general and special deposit, as previously stated, is this, when general, the identity of the prop- erty is lost. If special, it should at all times he capable of being identified. A special deposit of money can be made as stated, and be returned and be identified. If, however, it is allowed to be intermingled with the general cash funds of the bank, it must necessarily lose its identity and thereby become a general liability of the bank. Xational, State Commercial Banks, and Savings Banks, with- out a special prohibitive provision enacted in their charter, have the right to accept special deposits. A mutual savings bank organized and conducted purely upon the mutual prin- ciples, unless such a provision is enacted into its charter, has no authority incidental or otherwise, to accept special deposits. It is held that a national bank has authority to accept special deposits: 1. Upon the ground that it is a power incidental to the banking business. 16 242 Deposits. [ch. xix. 2, That section 5/228 of the Kevised Statutes of the U. S. im- plies the authority that a national bank may receive deposits of bonds and securities for safe keeping, either for a compensa- tion or gratuitously.^'^ But the question as to whether the cashier or other execu- tive officer of a national bank, has the authority to take a special deposit for safe keeping without direction from the board of directors, is questioned. The authority must be im- plied by custom or usage and known to be exercised and sanctioned by the board of directors. ~° The question, however, is different even without authority expressed or implied, where the bank habitually receives special deposits, it will be bound by the acts of the officers receiving the same.^^ When a special deposit is received by the bank and is lost through the gross negligence of the officers, managers or em- ployees thereof, the bank will be hekl liable to the owner for the value of the deposit." It is held that where a national bank receives United States bonds of a certain class, with instructions to have them con- verted into bonds of another class, for a failure to deliver the bonds on demand the bank becomes liable.^^ It is the duty of a national bank or other bank where prop- erty deposited with it as a special deposit, and is stolen by burglars, to take active steps for the recovery of the property and a failure to exercise proper diligence and care in perform- ing such an undertaking, the bank may be held in damages for such failure. ^^ In an action against a national bank to recover bonds de- posited with it for safe keeping without compensation, and which the bank alleged were stolen from it vaults, it was held : 1. That the bank was liable only for gross negligence. 2. That a failure to give prompt notice of the robbery 19 Pattison r. Syracuse National Syracuse National Bank. 80 X. Y. Bank, 80 N. Y. 82; National Bank 82. r. (irahani, 100 U. S. 699. 22 National Bank r. (Irahani. 100 20WilPv r. First National Bank V. S. 699. of Brattieboro, 47 Vermont .546; 23 Loach r. Hale, .31 la. 69. National Bank of Lyons r. Ocean 24 Wylie r. Northampton Bank, National Bank. 60 N. Y. 278. 119 U.' S. 361. 21 f'liattahoochee National Bank r. Schley, .58 Ga. 369; Pattison c. cii. XIX.] Backing, • 2-13 was a question for the jiu*y, as bearing on the question of negligence. 3. That the vohuitary act of the cashier in receiving the propert}' would not subject the bank to liability ; yet, if the deposit was known to the directors and its retention acquiesced in, a contract relationship would exist and the bank would 'be held liable.'^ Property taken by a national bank for safe keeping, where the same is agreed to be cared for without compensation, is only liable for gross negligenee.^*^ Where the statute of a State prohibits a State bank from receiving special deposits from a city, of city funds, a provision in the bank charter authorizing the officers to accept such de- posits is a direct violation of law ; and a bank that accepts such deposits endangers its charter privileges, and is subject to an action which may be brought by the State to liave its charter forfeited. But where the Statute is silent upon the subject, and the charter provides that special deposits of money or property may be taken by the bank, it is not necessary to specially delegate such privilege to the managers and officers of the bank. But M'here the charter is silent ujion the question, and there is no authority granted to the officers through the by-laws of the bank to accept special deposits of money or property, the bank cashier is without authority to accept such deposit. Where a charter of a bank does not specifically authorize the establishment of a safe deposit department, the power to conduct the same for special deposits of property or money is purely incidental to the business of banking, and to what extent this authority may be conducted is of serious conse- quence. The Comptroller of the Currency, while adnutting that there is no provision in the Xational Banking Act, au- thorizing national banks to invest any considerable sum of money in the building of safe deposit vaults (which may be used for the special deposit of money or other property) holds; that a reasonable s^um may be invested for such purposes, and 25 First Xational Bank of Carlisle 26 De Haven r. Kensington Na- V. Graham, 79 Pennsylvania State tional Bank, 81 Pennsylvania State 106, aflTirmed 100 U. S. G99. 95. 244 Deposits. [ch. xix. that it is a matter largely within the discretion of the directors of the hank. To what extent this discretionary power may be carried is not determined by the Comptroller, and it is impossible for him to have the knowledge of the extent to wdiich it may be carried by the bank. It would, therefore, seem to be a privilege purely incidental to that of banking, and where not authorized by the Statute or the charter of the bank, the limit or extent to which the power could be carried, should be defined by the proper authority in a by-law, as all incidental powers of this nature should be specified and governed by a by-law. It is a well established principle, that a national or State bank has the authority and right to refuse either general or special deposits, and may arbitrarily select its customers from among those that apply. AVhere a bank receives a special deposit in gold coin of the United States, and agrees to return the deposit in lawful money of the United States, it may pay in money which is current funds. It is held in the case of ]\layer and Lowenstein v. The Chatta- hoochee jSTational Bank, 51 Ga. 325, that where "A" makes a deposit of money with a bank, specifying that the deposit is made for the express and special purpose of paying a certain debt, which he ''A," had already or would draw checks to pay; that the deposit became a special one and that it continued the property of " A," the debtor, until the bank paid the debt or agreed to pay it.^^ The liability of the bank only attaches where it agrees to see to the application of the money. § 173. Deposits of paper. Where cliccks are received and credited as cash, the rule is, that it becomes a general deposit. Checks are, however, gen- erally credited as casli with the understading implied, that if payment is refused upon them, that tlie depositor's account will be charged with the amount. The credit given by the bank 27 Owen r. Bowon, 4 C. & P. 9.1, Of.: Siirtoos r. TTnbbard. 4 Esp. 203; Wharton r. Walker, 4 B. & C. Ifi.*}. cir. XIX.] Banking. 245 upon checks so deposited, allows the depositor to draw upon his account at once, and the bank upon refusal of the depositor to repav the amount of such, refused and returned checks, it is claimed the bank would have no right of action. The rule is again stated that where the title passes to the bank, a general deposit arises, and when credit is given on a check deposited and properlv endorsed, the title passes to the bank, and an implied understanding or promise to pay all such checks which mav be returned, lacks the elements of an agree- ment upon which the bank could sue. § 174. Liabilities of banks for special deposits. The general rule is, that a banl- is only responsible for gross negligence where it receives on special deposit, property with- out reward. The Court in the case of First Xational Bank v. Ocean Xational Bank CO X. Y., 278 says: " Gross negligence is incapable of precise definition, and its application and use may lead, in some cases, to results unsatis- factory ; but that comes as directly from the nature and extent of the duty in the particular case, as from the phrase by which a breach of the duty is expressed. "What constitutes gross negligence, that is, such want of care as would charge a bailee for loss, must depend very much upon the circumstances to wliich the term is to be applied. It has been defined to be the want of that ordinary diligence and care which a usually prudent man takes of his own property of the like description. This definition is given by a reference to the degree of care, rather than the degree of negligence, which may be the easier and more intelligible mode of defining the extent of the obligation, and the measure of duty assumed. Ordinary care as well as gross negligence, the one being in contrast with the other, must be graded by the nature and value of the property, and the risks to which it is exposed. A depositor of goods or se- curities for safe keeping with a gratuitous bailee, can only claim that diligence which a person of common sense, not a specialist or expert in a particular department, should exer- cise in such department." " The bank, as depository, taking no pay and taking no risks, was (is) not bound to resort to any special or extraordinarv measures to protect the property of the depositor, and the negli- 246 Deposits. [ch. xix. gence for which it could be charged, or which was the proper subject of evidence upon the trial, was only that which was connected with, and directly contributed to the loss. Inde- pendent acts of negligence, disconnected with the loss, were not properly admissible in evidence."^* '' The defendant was not chargeable with negligence or want of care for not acting upon facts or circumstances not coming to the knowledge of its directors or officers. Facts not brought home to them, tending to show that the property was exposed to loss from some unusual cause, to some peril growing out of peculiar circumstances, were not admissible in evidence against the defendant. The bailee Avas only called upon to take such care as became necessary to protect it against risks known to it, or of which it had notice. There was great latitude in the evidence on the part of the plaintiffs, and some of it was quite dramatic in its character, the purpose and end was to show that the place of deposit was peculiarly and extraordinarily exposed to perils from robbers at that time, calling for more than the nsual cautions from the bailee. This was competent, so far as facts and circumstances proved to exist were communicated to the officers of the bank, but no farther." In the further discussion of the question defining gross negligence, the case of Thomas E. Patterson, Respondent, v. The Syracuse National Bank, Appellant, 80 JST. Y. 82 ver^- clearly defines the facts which constitute gross negligence. The syllabi in said case is as follows: " In an action to recover damages for a special deposit alleged to have been lost through defendant's gross negligence, il appeared that plaintiif delivered to defendant's teller, at its bank, for safekeeping, a package containing certain bonds. Defendant had been accustomed to receive for that purpose, packages supposed to contain securities and valuables. Some of these were left by its directors. " The cashier of the bank had the control and management of its affairs. It did not appear that the president took any part in its management, or that the directors held any meet- ings. The teller sometimes acted as cashier in his absence. Some time before the deposit, the cashier said something to the 28 Scott V. National Bank of Chester Vallev, 72 Pa. St. 471. CH. XIX.] Banking. 247 teller as to their not taking any more packages for safekeeping. The teller testified that this was not a positive instruction, but merely an opinion, and that he did, after that, receive packages. He also testified that he told plaintiff when the deposit was made, that it would be at his own risk; this was contradicted by plaintiff. The teller also testified that the cashier sometimes told persons depositing packages, that they would be at their own risk, and at other occasions, packages were received with- out such notice. The package so left by plaintiff was kept in defendant's bank for al)out two years before its loss, being occasionally taken out by him to cut off coupons, and then returned. Held, that the evidence justified the submission to the jury of the question of the authority of the teller, and whether the deposit was with the bank; and, this having been found, that defendant was bound to return the bonds when demanded, or to show some sufficient ground for not doing so. " There was no direct explanation of the manner of the loss, but the evidence tended to show that the bonds were stolen in the daytime, when the bank was open. They were kept in a safe, so placed as to be accessible to any person enter- ing the bank from the street, while those in the bank were so placed that at times the safe was not in their view, and some- times the door of the safe was left open. Held, that the evi- dence authorized a finding, that the bonds were stolen by some one coming in from the street; and that leaving the property thus exposed was gross negligence." Where there is neither fraud or gross negligence imputable to a bank, it is not liable for loss of a special deposit, which has been stolen from the bank. In the case of J. D. Whitney V. The First Xational Bank of Brattleboro, 55 Yt. 15-i, it is held by the court, that where a naked deposit is made with a bank, without reward, that it cannot be held liable for the robbery or larceny of bonds deposited with it, unless there was complicity or bad faith; that the law demands good faith and the same care of the plaintiff's property as defendant took of its own of like character. § 175. Negligence in delivery of special deposits. A bank holding property on special deposit in delivering the same, must use the same degree of care as is required of it 248 Deposits. [ch. xix. in keeping it safely on deposit. A bank is held liable where the teller is guilty of gross negligence in failing to identify the OAATier, and deli^^ers the property to one not the o^^^ler. The bank would also be held liable in delivering the property upon an order which is a forgery. In the case of Ganlcy v. Troy City ^N'ational Bank, 98 K Y. 487, the court held, that where ''A" left certain securities with a bank for safekeeping, and for which the bank executed a receipt duly signed by it, that said securities would be delivered by it on the surrender of the receipt; and the bank delivered to ''A's " husband the securities without requiring production of the receipt, it was held that the bank was still liable to "A'' the bailor. In the case of Anderson v. Pacific Bank, 112 Cal. 598 (44 Pac. 1063), the court holds that the bailor will be entitled to recover interest on a special deposit from the time the bank wrongfully refused to return it. § 176. Bank deposits received. At common law, a bank has the authority to receive or reject a deposit. The statute does not attempt to regulate this privi- lege. It is one incidental to the rights of the bank which can- not be questioned or legislated upon. A statute would be unconstitutional, which if enacted declaring that a bank must receive on deposit, all deposits offered to it ; but a statute enacted, prohibiting banks from receiving public funds (taxes collected from the people by municipal authority), and placing such funds in the bank upon general deposit and min- gling them with the general deposits, may be prohibited upon the theory that they are trust funds, and as such, must be held and retained by the officer representing the municipality. The relationship existing between the bank and the depositor, may at any time, by either party at option, be dissolved. This rule holds unless the bank has accepted a deposit and agreed with the depositor to retain the same for a specific time and pay interest thereon for the use and retention of said deposit; in such a case, the deposit is received in the nature of a special contract, and is binding upon the bank and the depositor. A deposit, when made in a bank, should always be made to an agent of the bank, w^ho at the time represents the bank; but the deposit need not necessarily be made to the receiving teller cii. XIX.] Banking. 249 of the bank, but must be made to some officer or agent of the bank, who, at the tmie of receiving the deposit, represents the bank. If made to a person claiming to represent the bank, when in fact he does not, the bank will not be held responsible. It is therefore important to the depositor to know who are the agents of the bank. The rule that the bank is not liable, where an officer or other agent of the bank, other than a receiving teller who has been delegated to alone receive the deposits is not the law. Any duly authorized agent of the bank may bind it by receiving deposits. A notice posted in a bank " deposits received " and the words " receiving teller " is not a sufficient notice to the depositor that no other officer or agent of the bank other than the receiving teller, cannot receive a deposit and bind the bank. It has been held by numerous authorities,^^ that the cashier is the proper officer to receive deposits, also to give certificates of deposits; and likewise the power rests with him to accept or refuse the account of one desiring to become a depositor; but the rule is not laid doAvn in any of the cases above cited, that he is the only officer authorized to receive deposits. The president of a liank, by inherent power, has the right to receive a deposit for the bank.^° The rule is, that any ar/ent of the hank who receives a deposit from a customer irithin the bank durinq hanhing hours, binds the bank. The bank cannot set up a defence that it is not responsible because the deposit was not received or passed through the hands of the receiving teller. A deposit is complete when it passes from the possession of the depositor into the hands and into the possession of the agent of the bank, if at the time of the transaction it was per- formed A\4thin the bank and during banking hours. In the case of the East River National Bank, Respondent, v. Francis X. Gove, Appellant, 57 IST. Y. 597, the court very cor- rectly states the law upon this subject. The case is so replete 29 The ]\Ierchants' Bank r. State r. American Tract Society, 123 Bank, 10 Wall. 604; L'Herbette v. Mass. 129; Davis r. Old Colony Pittsfield National Bank. 162 Mass. Railroad. 131 Mass. 258; Ellerbe r. 137, 38 N. E. 3G8 (1894) ; White v. National Exchange Bank, 109 Mo. Franklin Bank, 22 Pick. (Mass.) 445. 181; Atlas Bank r. Nahant Bank, 30 Bicklev r. Bank, 43 S. C. 528, 3 Met. (Mass.) 581; Dill v. Ware- 21 S. E. 886 (1892). ham, 7 Met. (Mass.) 438; Morville 250 Deposits. [ch. xix. and so conchisively sustains the rnle that any agent of the bank while representing the bank and within the bank and act- ing during banking hours, binds it that we here quote from the opinion. " There were in this bank, besides the cashier and book- keepers, a paying teller and a receiving teller; the general duty of the former being to pay the moneys of the bank, and of the latter to receive money paid to or deposited in the bank. In the absence of the receiving teller, other clerks and officers of the bank acted in his place. The defendant had for some years been a dealer with the bank, and he knew that there were a paying and a receiving teller. There was no proof that the receiving teller was in the bank on the twenty-eighth day of August, when the defendant made the payment. For aught that appears, the paying teller was then the highest officer of the bank present. The defendant had several times been spoken to, to make the mistake good. He received the letter from the paying teller and went to the bank, and, upon his request, paid him the money over the counter. There was no proof that the paying teller was not, in fact, authorized to re- ceive this money. He testified that he was not accustomed to receive money from depositors. But this payment was not a deposit. It was a payment of a debt due the bank; there was no proof that defendant had any reason to believe that Van Orden was not authorized to receive this money, except the fact that he was the paying teller. Under such circumstances, I hold that the payment to the paying teller was a good payment to the bank. " The defendant Avent to the bank, he found behind the counter the paying teller who asked him to pay a demand the bank had against him, and he then paid it. It would he a very inconvenient and unreasonable rule to hold that hank wan not hound hy such a payment. If this payment was not binding upon the bank, it would not have been if Van Orden had de- clared to the defendant that he was authorized to receive it; and if every clerk then in the bank except the cashier had, upon the inquiry of the defendant, made the same declaration. If he had gone to the bank to pay a note and the paying teller had gone to the vault and got the note, taken the money and CH. XIX.] Bais'king. 251 surrendered up the note, upon the same principle such a pay- ment would not have bound the bank. Banks must he held re- sponsible for the conduct of their officers within the scope of their apparent authority. \Vhen one goes into a. hank and finds behind the counter one of its officers employed in its business, and upon his demand pays a deht due the hank in good faith, without any knowledge that the officer's authority is so limited that he has no right to receive it. he must he protected and the bank must he hound by the payment." The rule then is, as stated in C^'clopedia of Law and Proceed- ure, volume five, p. 510, " The payment of a deposit to anyone servifig behind the counter of a hank is valid, and if he retains the money for his own use, the hank is liahle."^^ The same authority lays down the rule that '"' the same prin- ciple applies to a bank whose officers receive special deposits of bonds and other securities." "" The rule would be different if a person dealing with the agent knew at the time that the agent was acting \vithout authority. § 177. Kinds of deposits received. A special deposit when authorized to be received by a bank, must as formerly stated, be safely kept and that identical thing returned to the party making the deposit. Where a customer presents to a bank a certain amount of money, and directs that it be received to be applied at some future date, to the payment of a check specifying it, which may be presented, or to be used in the payment of a claim whicli may be presented against him (the depositor), such a deposit is not a general, but a special deposit. The deposit, although in money, cannot be placed to the credit of the depositor and become a general liability of the bank. It must be retained for the specific purpose named. 31 East River Xat. Bank r. Gove, (X. Y. ) .589; Jumper r. Commer- 57 N. Y. .597: Sweet r. Barnev, 2.3 cial Bank. .39 S. C. 296, 17 S. E. N. Y. 33.5 ; Hotchkiss v. Artisans' 980, 48 8. C. 430, 26 S. E. 725 ; Bick- Bank, 2 Abb. Dec. (N. Y.) 403, 2 ley v. Commercial Bank, 39 S. C. Keves (N. Y.) 564; Ihl r. St. .Joseph 281, 17 S. E. 977, 39 Am. St. Rep. Bank, 26 Mo. App. 129; McCann i: 721. State, 4 Nebr. 324; Rich r. Xiap;ara 32 Foster r. Essex Bank, 479, 9 County Sav. Bank, 5 Thomps. & C. Am. Dec. 168. 252 Deposits. [cii. xix. It is ad^^sal)le, where special deposits are received by banks, to have a special deposit book or ledger for the purpose of entries, and in which should be entered the conditions upon which each deposit is received. Where such a record is not kept bv the bank, written instructions should accompany the deposit directing the nature of, and disposition of the same. It frequently occurs that a customer will deliver to his bank, a check drawn upon some foreign bank, directing that it be lised for a specific purpose for example, " when 'A' presents a deed accompanied by a certificate of title showing the title to be perfect in the grantor mentioned in the deed; the money is then to be applied in payment for the property conveyed." Such transactions are common, and the deposit of the check cannot be presented and cashed until the deed and certificate of title, are delivered to the bank. In this case, the bank cannot 1 e held for failure to present the check; but if the bank is instructed to collect the check and hold the money for the purpose designated, and it fails to present it for collection within a reasonable time, the bank may be held liable. If such a deposit is made, and the bank accepts the conditions it will be held as by a contract and must comply witli the same. The court holds, in the ease of American National Bank v. Presnall (48 Pac. 556), that where a check was delivered to the cashier of the bank, and for which he gave a writing as follows: " Deposited ^vith American Xational Bank, Arkansas City, Kansas, by J. K. Presnall, October 18th, 1890, $22,200, to be delivered to Presnall upon clear abstract of property^ on deeds left with me. H. M.. Lamsen C." It was shown by the evidence, that the document signed " 11. Lamsen, C " was executed by the cashier in his official capacity, and that in fact he only received a check. In con- struing the document the court says, " In effect it is stated that the deposit is made with the hank ; thai the deposit is money and not a check." As stated in this case, a check was deposited, but the bank through its cashier, acting in his official capacity, gave a " de- posit slip " showing upon its face that money was deposited and the court contended that the bank was held by the docu- ment and must make good the amount in money. en. XIX.] Banki:s"g. 253 In receiving a check, as a special deposit, the bank may elect to collect the same and hold the money in its place, if not other- wise specifically instructed; bnt in such a case, the bank cannot open an account in the name of the party depositing the check, but must retain and hold the money to execute the trust and purpose for which it is to be used. Where a clerk of a Court of Record, under order of the court, deposits money in a bank and the money is mingled with and becomes a part of the common fund, and the bank be- comes a debtor therefor, the deposit is general. " If the deposit had been placed in a separate package and so deposited and never mingled with the funds of the bank; or had it been so kept that its identity could be established, it would no doubt have been different." A special deposit may be changed to a general one or vice versa, for example, ''A" may deposit a note Avith a bank for collection, while the note remains unpaid it assumes the nature of a special deposit, to be returned if not collected; but after collection, the proceeds may be in the absence of other instruc- tions, placed to the credit of the owner. It then becomes a general deposit. In California it is held in Howard v. Roeben, 33 Cal. 399, that where one makes a special deposit of gold coin and after- ward contracts with the bailee to pay interest on the same, the special deposit is turned into a general one. CHAPTER XX. DEPOSITS REPAID. § 178. When and how paid. A general deposit of money when made and placed to the credit of the depositor, from that time becomes a debt due from the bank to the depositor, and unless a stipulated time is agreed upon between the depositor and the bank when the de- posit is to be repaid, the law implies a liability npon the part of the bank for its repayment to the depositor at any time when demand is made. It is not necessary that the depositor should have a contract or agreement in writing, executed by the bank, agreeing to repay the same. The entry of his deposit in a book furnished by the bank showing its liability to the depositor is sufficient. It is a presumption of law, that when money is deposited in a bank and credit is g-iven in the name of the party deposit- ing the same, that it belongs to the party making the deposit, and the Lank is justified in honoring the check of the party making such deposit. A third party may make a claim of ownership to the funds, but a simple claim or notice to the bank verbally made by the claimant that such funds when de- posited in the name of another, are his funds or property, cannot be construed by the law as a sufiicient notice to the bank, and as a justification of its right or refusal in the pay- ment of checks signed and presented by the depositor. But if the bank has been enjoined by process of law from paying such funds to the depositor, it may refuse to pay the same until the injunction is dissolved. Where deposits are made in the name of a firm, complica- tions may arise in the payment of checks, especially so, if the bank should pay out money upon the individual check of one member of the firm. If this is done, and the firm should claim that the funds withdrawn were withdrawn without au- thority, the bank can only justify its action by proving that the money drawn by the individual nunnber was applied to [254] cir. XX.] Baxkixg. 255 the use of the firai. To avoid such danger and complications, it is advisable that the bank, when such an account is opened, and before checks are paid, require the firm to empower some one member thereof to draw and sign checks in the name of the firm, upon the account in the bank. The power of at- torney, authorizing this, being filed with the bank would establish the right of the party to draw checks and relieve the bank from all complications and liability. Savings banks have two classes of deposits, ordinary and term. The ordinary deposit is somewhat in the nature of a commercial deposit. It may be one wherein the bank will agree to repay up to a certain sum or fixed amount on demand and without notice. AYhen this rule or agreement is entered into between the parties, interest upon the sums are generally waived. The depositor in a savings bank, however, where his deposit is classed as ordinary, is governed by the same law in relation to his rights and claims against the bank in case of insolvency, or liquidation, and is placed in the same position as the term depositor. But the law is well established that before an action can be maintained by a depositor against the bank, he must first have made a demand upon the bank for repayment. This demand may be in the presentation of a check signed by the depositor against his account held by the bank. A depositor's account or deposit in the bank remains a lia- bility against the bank until the statute of limitations bars a right of action. In some of the States the statute will not run against the depositor. The depositor is not entitled to interest upon his deposit made in a commercial bank, unless by special contract entered into by the bank, interest is agreed to be paid; and it seems to be a well settled principle of law upon this subject that, unless the by-laws of the bank author- ize interest to be paid to depositors, that the officers of the bank who enter into such contracts with depositors without first having such authority from the board of directors, have violated certain principles of banking, and as between them- selves and the bank, are personally liable. It is not claimed, however, that as between the depositor and the bank that the bank would not be held liable. 256 Deposits Repaid. [ch. xx. If certificates of deposit have been issued and a specified time agreed upon when the money should be repaid, the depositor cannot demand repayment of the same before the expiration of the time; neither can the bank, upon the other hand, pay the depositor upon such certificate before its maturity for the purpose of evading the agreement to pay interest on the same. A term deposit is one wherein it is generally stipulated be- tween the parties by contract, that the same shall be withdrawn from the bank only upon notice duly served. This notice when given, if the by-laws require it, must be in writing, specifying that the depositor demands repayment of his deposit within the time which the bank stipulated to repay the same. Banks may repay without notice, electing to waive the same, but they have a right where such contracts have been entered to demand notice before repayment. Savings banks through their by-laws when properly enacted, can fix the time required to be given by a depositor before the withdrawal of his money, his right to withdraw the same being a contract between the parties, and before withdrawal he must comply with the terms of the agreement and the by-laws. It is unnecessary to state that a bank cannot pay out its funds held for one on deposit upon an oral order. It can do so, but in doing so it is done at its risk. Money paid upon an oral order, the payment may be denied by the heirs after death, and the court would exclude the proof if offered by the bank, of such payment. The usages of the banking business entitle it to written evidence of money paid by it. A general depositor of funds in a bank, having claimed that he deposited certain money, is not entitled in repayment to the particular kind of money deposited, unless in case of a special deposit. A depositor, however, when the deposit made by him is in current fimds, at the time of repayment, may in- sist that he shall receive in return current funds. And this is held to be the case, although the funds deposited have in the meantime depreciated. "Where deposits are made in de- preciated funds and credit is given to the depositor in current funds, the depositor is entitled on withdrawal of the same from the bank, to be paid in funds which are current. The bank at the time of the transaction should note the fact in accepting CH. XX.] Banking. 257 the funds that they were not current funds, if it desires to protect itself at the time of payment. This subject is further discussed under chapter treating on Duties of Paying Teller. § 179. Bank may refuse payment of deposit when. A bank may refuse to honor and pay out deposits on a check when defects appear upon the face of the check. If the bank questions the genuineness of the signature its duty is to at once give notice to the owner of the deposit that payment is withheld for that reason. A bank may be deceived as to the genuineness of a signa- ture, and refuse to pay a check where the signature is genuine, and when refusal is based upon that ground and with a motive to protect the deposit, or against fraudulent checks and signa- tures, the law would not hold the bank liable in damages. A bank, before payment of a check, is entitled to time in which to examine its books, and ascertain from them whether the amount demanded by the check is then a balance due the depositor. This may require the examination by a clerk of all checks, drafts and other orders which may have been during the day, previously presented and charged to his account. The bank may take time to strike a balance from the books of the depositor's account, and, if in ease of a run on the bank, a depositor presents his check which purports to be for the balance tlien due him; demanding that he be paid his balance in full,- the bank is entitled to a sufficient time in which to balance the account of the depositor before payment of the check. This requires time in which to enter the checks and deposits for the day upon the books of the bank and the de- positor's pass-book, and, when balanced, if the check as drawn, is for the correct amount of the balance, it must then be im- mediately paid. When a " run " is on against the bank, it is not required to call in or retain extra assistance for the purpose of rapidly facilitating such settlements to accommo- date a customer, but it may proceed in its customary and or- dinary way of doing business. A bank must pay checks in the order in which they are presented. Where two or more paying tellers are employed, checks may be presented to each paying teller simultaneously, 17 258 Deposits Repaid. [cu. xx. and to prevent confusion or preference in payment, the pay- ing teller is entitled to time to examine the debits and credits of the depositor, and by so doing, the order of payment may be fixed. The question of M'hat is a reasonable time in which accept- ance and payment should be made is one of fact to be deter- mined by the court when brought into issue. A check may be paid when presented, by giving the o\vner credit therefor upon his account, or it may be paid in money; or it may be paid by substituting a draft drawn upon some other banking institution, for the amount, or it may be turned into a certificate of deposit, made payable by the bank at some future date; or as stated, it may be paid by the cancellation or discharge of a debt owing by the depositor to the bank. When a check is surrendered and a substitution takes place, for example, when a draft or certificate of deposit is issued in a subsequent suit, if it should arise, the suit should be brought upon the new instrument. A check in effect is also paid where a certification of it by the bank takes place. The check is immediately charged to the drawer's account and the bank becomes from that date, liable to the bona fide holder. The drawer is discharged and the bank at once becomes the debtor to such holder. "When a certified check passes by endorsement to a bona fide indorser, the bank cannot set up error, but must pay. It cannot be revoked. "When a check is not dated it is sufficient to put the bank upon inquiry. The bank may refuse to pay an undated check and before payment require that the date be inserted, and it is held that the payee may insert the true date. It is also claimed that an undated check is never payable, and a date WTitten in not the true date, of the check is a material alteration of its terms such as would destroy its validity.^ Held that " whenever the legal rights and liabilities of a maker of commercial paper are changed, in a material respect, by fraudulent alteration of the obligation, such alteration vitiates the instrument and the question whether it is material or not is one of law for the court." ^ 1 Crawford v. West Side Bank, 2 Crawford r. West Side Bank, 100 N. Y. 50. 100 X. Y. .56, and cases cited. cii. XX.] Banking. 259 A payment by the bank of a check where it is changed so that by such change the obligations are altered, makes the bank liable. A banker may pay to a depositor his deposit, npon an oral order as previously stated, but in doing so it takes all the risk of the depositor repudiating the transaction, and death may also complicate the position ; the representatives denying the payment, the burden of proof would then be on the bank to show that payment was made. " It has been said that a depositor can demand his deposit without a Avritten order." ^ The bank may and frequently does pay on telegraphic in- structions, and in doing so it is not liable to the sender if the message received does not conform in amount to the original.. The sender may hold the company transmitting the message for error, but as between the bank and the owner of the de- posit, it is not liable. A person having a deposit in a bank and becoming insane, and during insanity issuing his check which is paid by the bank after knowledge of insanity, is not payment; hut if it pays in good faith, without the knowledge of such insanity, it will be protected.^ Where the amount of money named in the check is written out in full and which differs from the amount specified by the figures, the writing prevails over the figures. This subject is further treated in the chapter on checks. § 180. Payment of trust funds. In the leading case of Hatch v. Johnson Loan and Trust Company, 79 Fed. Rep. 828, the court says: " A bank cashier or teller may pay out a check of a corpora- tion when it is dra-vvn in the usual course of business; and there are no circumstances of suspicion to put him in inquiry without instituting a preliminary inquiry as to what is to be the destination of the money drawn before the check is honored. SMcEwin r. Davis, 39 Ind. 109; 24 So. .526; NeflF v. Green Co. Nat. Ellis V. Woodsocker First Nat. Bank, Bank. 89 Mo. 581. 22 R. I. 565, 48 Atl. 936 ; Watts r. * Riley v. Albany Savings Bank, Christie, 11 Beav. 551; Cambridge 36 Hun (N. Y.) 513. First Nat. Bank r. Hall, 119 Ala. 64, 200 Deposits Eepaid. [ch. xx. llie bank was bound to pay the check when drawn by the Com- pany in the usual course of the company's business." The opinion of the Supreme Court of the State of Illinois in the case of the State National Bank v. James Reilly, 12-i 111. 464, is in direct line mth the doctrine laid down by the district judge in the Federal case above cited. The rule is, ivlieve a hanl'cr lias l-nowledcje of the fact that a breach of trust is going to he perpetrated upon the trust fund, and he participates in such fraud, the Jjank is liable for' such misappropriation and the true owner can recover. Where a public officer, a United States postmaster, deposits money in a bank in his official capacity and executes his checks in such capacity and withdraws the funds applying them to his personal purposes, the bank would not be responsible "unless it had actual or constructive knowledge of the unlawful intention and purpose of the postmaster when the checks were drawn or presented and paid/'^ Where a bank has full knowledge of the trust, it must pro- tect it to the extent of refusing the payment of checks where the funds are to be used to the loss and injury of the real owner. Money deposited by the husband in his wife's name does not give him the authority to withdraw it. The fact that he de- posited the money as an agent does not make him an agent to withdraw it; and he has no authority to execute checks in his 'U'ife's name, signing the same as agent. ^ Deposits in all instances can be withdrawn by the real o"v\mer. It frequently occurs that deposits have been made by mistake and an " account opened " in the name of a person who is not the real o^vner of the funds. When the bank is fully satisfied that the account has been opened and credit given to the wrong person, it may of its own action, change the account and place the deposit to the credit and in the name of the real owner; but where the bank is ignorant of any mistake and a deposit has been made in the name of a party who, in fact, is not the o^\^ler or entitled thereto; and pays a check executed by the party shown by the books of the bank as the owner, the bank is not liable. A deposit may be made by a person under ago in his own 5 United States V. Nat. Bank, 73 6 Bates v. First Nat. Bank of Fed. Rop. 379. Brockport, 89 N. Y. 286. en. XX.] BAXKI^'G. 261 name, and he may execute checks and withdraw the same (un- less a statute to the contrary intervenes), and the bank will be protected. But upon notice given to the bank by the parent or guardian that such funds are claimed, the bank may refuse payment of the minor's cheeks. A bank may be estopped from the payment of a deposit by process of law, for example — the deposit may be attached or garnisheed. When the court issues a writ and the same is served upon the bank, the bank must respect and obey the notice and refuse to pay until the proceedings are determined. The death of a depositor, when known by the bank, estops the bank from payment of checks though delivered to the payee by the maker thereof prior to death. The rule is, that the death transfers the deposit to his per- sonal representatives, and a hank, having the knowledge of the death and which afterward pays checks, does so at its peril. The statutes of some States, however, provide that tlie per- sonal representatives may draw upon the account of the de- ceased in a certain sum before letters of administration are granted. The bank is also estopped from making payment after notice of insolvency and assignment by the depositor. The assign- ment transfers the deposit to the assignee for the benefit of all the creditors. If the bank honors the check before notice to it of assign- ment, it is protected. "Where the bank has a claim or debt due it from the depositor, it may set off the deposit (if done before the death of the maker) as against such debt, and this operation acts as a with- drawal of the deposit. The deposit must belong to the del)tor in his own right. The bank cannot apply trust funds in this way, and even after the application is made, if it is shown that the deposit belonged to someone else, the court will order the bank to return the same to the rightful owner. Where a debt is secured, the bank has no authority to apply the deposit in payment of such a debt. Also after notice of death, a bank has no right to apply the deposit standing in the name of the deceased, to the payment of his debt though the debt be due and acknowledged. CHAPTER XXI. CHECKS. § 181. Defined. BoiiTier's Law Dictiouarv defines a check to be: " A -written order or request addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, desiring them to pay, on presentment, to a person therein named, or bearer, or to such person, or order, a named sum of money.'' Xorton on Bills and Xotes, defines a check as follows: "A check is a draft or order on a bank or banker, purport- ing to be drawn on a deposit of funds, for the payment, at all events, of a certain sum of money to a certain person therein named, or to him or his order, or to bearer, and payable instantly on demand." There is no essential difference in the definition. Bouvicr defines it to be a written order or request addressed to a bank or banker by a party having money in their hands, requesting them to pay on presentment, to a person named, or bearer, a fixed sum of money. A form of the written instrument commonly used is in the words and figures as follows: No " Pasadena, California. .Jan. 1st, 1906. SAN GABRIEL VALLEY BANK. Pay to the order of Robert J. Burdett .$100,000.00 One Hundred Thousand DoHars." " Frank C. Bolt." The form of the check presents a very accurate definition. It is a written instrument dated, addressed to a bank, directing ii to pay to a person named therein or to his order (or bearer), a fixed sum of money, and is signed by the drawer. The requisites of a check, are that it shall be, first, dated, second, it must be drawn on a bank; third, it must be payable to a person named to order (or bearer); fourth, it must specify a certain sum of money to be paid; fifth, it must be signed by the drawer. [202] cii. XXI.] Banking. 263 If it is defective in any one of these requisites, it is an imperfect instrument and may be refused when presented to the bank for payment. A check, being an order on a bank to pay a certain sum of money, is a direction to the bank to charge the drawer's account with the sum named therein. § 182. A check must be dated. If a check has no date, it has no definite time for payment. A check is only payable on the day of its date or on a day a future date, or at the time of presentment subsequent to its date. The bank, therefore, if a check is not dated has no direc- tion when to pay or charge the drawer's account; but a bank may pay a check without risk and without a date when pre- sented by and payable to the drawer himself. A bank may pay to a customer his deposit in full, at any time without direction or authority in writing from the depositor, upon the ground that the bank can select its customers, receive deposits and repay them at any time. Therefore, it may close the ac- count with the depositor by payment in lawful funds at any time without being requested to do so; and a check in such a case, is not required as an evidence of authority. But the bank cannot charge the depositor's account with a sum of money, which sum is to be paid to or transferred to the account of another, without direction or authority in writing; and this authority must be dated and signed by the party to be charged. The date is important, as stated, because it fixes accurately the time in which payment may be demanded. It is not due until a date is fixed. If it fails to bear a date, the bank is at once put upon inquiry and may refuse payment upon the special ground that the check not being dated, no time of payment is fixed. Checks are either payable on demand or at a date fixed in the future. In the case of Crawford v. Westside Bank, 2 N. E. 881, the court says: " In the present case, the plaintiff, on the twentieth of April, intending to be absent from his place of business for a few days, drew his check on the defendant, dated April 22d, for $700, payable to his clerk, one Morgan, for the purpose of enabling -64 Checks. [ch. xxi. him to obtain funds to pav Avages becoming dne to the drawer's employees on the 2 2d. The cheek was left in the drawer's check-book, in his safe, with directions to Morgan, who had a key to the safe, to take the check on the 22d, draw the money, and deliver it to his foreman to pay ont to the employees in case the drawer did not return before noon upon that day. The plaintiif did not return until after the time appointed; but on the 21st, Morgan took the check, and, having altered the date to the 21st, drew" the money from the bank, and absconded with the funds on the same day. " The check, as drawm, conferred no authority on the bank to pay the amount for which it was drawn out of the plaintiif's funds before its date.-^ '* Such payment did not, therefore, justify the bank in charg- ing the check to the plaintiff. The bank, undoubtedly, had the same right as any other person to purchase a post-dated check, and enforce payment, however, depended upon the question as to wdiether the purchaser became a bona fide holder of the paper, and also wdiether it was then a valid obligation of the maker. A material alteration of its terms, after execution and before payment, w^ould destroy its validity. A change in its date, u'herehj/ the time of its payment was accelerated was undoiiht- edli/ sucli an alteration. " Thus, it was held, in the case of Vance v. Lowther, 1 Exch. Div. 170, where the date of a chock had been altered from March 2d to March 26th, and, as thus altered, was attempted to be enforced against the drawer by one wdio had paid value to an unlawful holder for it, that such alteration vitiated the check, and no recovery could be had thereon." The fact that a check is not dated or that the date is changed as stated, would put the bank on inquiry, and it has been, held that an undated check is never payable. § 183. It must be drawn on bank. The Su])reme Court of the United States, in distinguishing a check with a bill of exchange, says that a check is always drawn on a bank or banker; while a bill of exchange is not. 1 Godin V. Bank of the Common- r. Broderick. 10 Wend. 304 ; S. C. wealth, 6 Duer, 76; Mohawk Bank 13 ^^'end. 133. cii. XXI.] Baxking. 265 It is ahvays necessary that the drawee be designated as a banker, so that the instrument "will not l)e construed as a bill of exchange. The Supreme Court of the United States, in defining the difference savs: " The chief differences are, that a check is ahvays drawn on a bank or a banker. ISTo days of grace are allowed. The drawer is not discharged by the laches of the holder in pre- sentment for payment, unless he can show that he has sus- tained some injury by the default. It is not due until payment is demanded, and the Statute of Limitations runs only from that time. It is, by its face, the appropriation of so much money of the drawer in the hands of the drawee to the pay- ment of an admitted liability of the drawer. " It is not necessary that the drawer of the bill should have funds in the hands of the drawee. A check, in such a case, would be a fraud." The court further says that a check is never presented for acceptance but only for payment. § 184. Check must be payable to a person named or to his order or to bearer. A check failing to designate a payee, pr to designate him wdth sufficient certainty, it is claimed, Avill render the check void. A check payable to a person named is a negotial)le instru- ment and may be transferred simply by the payee indorsing his name on the back or on the face of the check. It is held, that where a check is drawn payable to a fictitious person or to a name or figure, as for example " 1905 " or a word " rent " is in law regarded as payable to bearer, and is transferable on delivery. § 185. A check must be for the payment of a certain sum of money. Daniels on Xegotiable Instruments, 3d Edition, § 1570, says, '' In this respect it does not differ from other negotiable instruments, and though perhaps it still might be termed a check, although not paid in money, by Avhich is meant the legal tender currency of the country, it would certainly not be nego- 2GG Checks. [ch. xxi. tiable if expressed to he payable in ' bank bills,' or ' in cur- rency,' or if it lacked words of negotiability, or were deficient in any of the characteristics in respect to certainty in fact and time of payment and party to whom payment is to be made." In the case of Bank of Mobile v. Brown, 42 Ala. 108, where an action is on a bank check by the indorsee against the drawer, it is held by the court, that a bank check payable in Confederate currt ney is not an instrument payable in money. § 186. A check must be signed by the drawer. The place of the signature is immaterial, provided it appears to have been intended as a signature. It may be written in pencil. Or it may be printed or stamped. Or it may be the drawer's mark. In which case, however, wdien executed by the maker by mark, it should be executed in the presence of an officer of the bank, or ^ntnessed by a person who could, if called upon by the bank, verify the check. Coupons of bonds may be signed by the printed facsimile of the maker's autograph adopted by him for that purpose, though not expressly authorized by statute. The State Treasurer of the State of Calfornia refused to pay the interest on certain bonds, alleging that the signature of the party entitled to collect the same, had been printed upon the coupon and not written with his own hand. The court man- damused the treasurer, and he was compelled to pay.^ The place of the signature upon the check is properly at the bottom and below the written order to pay; but the place of the signature is immaterial, provided it appears to have been intended as a signature. § 187. Days of grace. The bank, upon presentment of a check, must pay the same upon demand, and cannot claim days of grace. Xo days of grace are allowed upon checks. A bill of exchange drawn on a bank entitles it to days of grace, and the bank may claim this time and is not liable to an action for non-payment until the expiration of the time; but a check must be paid when presented. This rule cannot \:o\\ be changed. It would retard the progress of business and ex- ^ Ponniiigtor. v. Baohr, 48 Cal. r)G5, 2S Ind. 18; G Hill (N. V.) 443. cir. XXI.] Banking. 267 clianges to establish a custom allowing banks a fixed number of days in which payments could be made on checks. The refusal of a bank to pay a check when presented gives the drawer a right of action, in case he has funds in the bank to meet the checks.^ § 188. Checks negotiable when. A check is a negotiable instrument under the law unless by its written terms, it is made non-negotiable. A check pay- able on a contingency is not negotiable.* § 189. Delay in presentment. A delay in presenting a check for payment will not dis- charge the drawer from his obligation on the check unless it is shown that he was prejudiced thereby.^ It must be presented within a reasonable time. If the holder fails to present it within a reasonable time and the bank be- comes insolvent, the drawer will be discharged. § 190. What is a reasonable time. The rule is, that where the payee or holder is in the same town where the bank is located, the check should be presented the next secular day after it is received and during banking hours. In the ease of Russell K. Bickford v. The First Xational Bank of Chicago, 42 111. 238, it is held that in order to fix the liability of the drawer of a check in case of non-payment, the holder should present the check to the bank on which it is draMTi within business hours of the day next succeeding the receipt of the paper and give notice of the dishonor to the drawer. In the ease of Smith c. Miller, 43 X. Y. 171, Held, that the check could be operative as payment only by express agree- ment; but that although as between the drawee and payee, the payee was not bound to present the check until the day after its recei])t by him; yet, that between the draw'er and payee, it was the duty of the payee to present the check at sUiooks r. Tradesman's Xat. 4 Littlo r. Bank, 2 Hill (X. Y.) Bank, 22 X. Y. St. 63.3. 42.5. r, Bull ,-. Bank, 123 V. S. 10.5. 208 Checks. [cii. xxi. once and he "was guilty of laches in not so doing and was chargeable with consequent loss. In the case of Hamilton v. Lumber Company, 95 Mich. 43 G, the court says: " It was held in Holmes v. Koe, 02 Mich. 199, that where the person receiving the check, and the banker on whom it is drawn, are in the same place, in the absence of special cir- cumstances it must be presented for payment the same day, or, at latest, the day after, it is received; but if in different places, the check must be forwarded for presentment on the day after it is received, at the latest. It is also well settled that where the drawer has been discharged by the laches of the holder, and that fact appears, there must, in order to render the drawer liable, be clear proof that the promise was made with full knowledge of all the facts and circumstances." ^ § 191. Diligence to bind the indorser. Where a check is drawn on a bank located at a distant place, the rule is, that the check must be mailed to that place for collection during business hours of the next secular day after its receipt, and the person charged with its collection must present it during business hours of the next secular day after its receipt. In case of the Northwestern Coal Company v. Bowman and Company, 09 Iowa, 1-50, the court holds that this rule, how- ever, may be varied by the particular circumstances of the case. The presentment, however, must be made in every case, with all the dispatch and diligence consistent with the trans- action of other commercial concerns.^ § 192. Stale checks. A bank is bound to honor and pay a check when not barred by the Statute of Limitations. If a check is not presented vs'ithin a reasonable time, where the drawer, the payee and the 6Edw. Bills & N., 652-654; 2 Morris, 28 Barb. 616; Smith V. Daniel, Xeg. Inst., 1149; Wade, No- .Janes, 20 Wend. 102: Burkhalter r. lice, 974; Parsons v. Dickinson, 23 Second Nat. Bank, 42 N. Y. 5.38; Mich. 56; Miller r. Hacklev, 5 Griflin r. Kemp, 46 Ind. 172-176; Johns. .375. ' WoodrufT v. Plant, 41 Conn. 344; 7 Mohawk Bank r. Broderick, 10 Werk r. Madriner Valley Bank 8 Wend. .304; Middletown Bank r. Ohio St. 302. CH. XXI.] Banking. 269 bank are all in the same place, the bank will naturally look upon such a failure to present the check, with suspicion, and it is sufficient cause to put the bank upon inquiry, and if, failing to make a proper inquiry, it pays the check at its peril. In the case of Bull y. Bank of Kasson, 123 U. S. 105, the court holds that a bank check presented by a bona fide indorsee for payment six months after its date, the funds against which it was dra\\ni remaining in the hands of the drawee, and the drawer haying been in no way injured or prejudiced by the delay, is not oyerdue so as to be subject to equities of the drawer against a preyious holder. § 193. Holder of check rights against bank. The weight of authority is, that the payee of a check, before it is accepted by the bank, cannot maintain an action upon it against the latter, as there is no priyity of contract between them. The holder's remedy is against the drawer. The bank's liability, if any, is to the drawer. This question is fully and elaborately discussed in the case of First Xational Bank of Washington y. Whitman, 94 U. S. 343, and is of such importance as to here justify the giying of the opinion of the court in full. The facts are stated in the opinion of the court: " Opinion. This action is brought against the First Xational Bank of Washington to recoyer the amount of a check drawn upon it by Mr. Spinner, Treasurer of the United States, for $3,414, dated March 0, 1867. The check is in this form, yiz. : " Draft No. 9.243 on War Warrant No. 915. "($3,41-1.) " Treasury of the United States. " Washington, March 9, 1867. " Pay to the order of Mrs. E. S. Kimbo, three thousand three hundred and fourteen dollars. No. 9,243. Registei'ed March 9, 1867. " Issued on requisition No. . .?3.414. " S. B. Colby, " Register of the Treasui'y. " F. E. Spinner, " Treasurer of the U. S. "To the First National Bank of Washington, D. C." 270 Checks. • [ch. xxi. '' It was indorsed in the name of Mrs. Kimbro without au- thority, and the amount of it was paid by the bank to an un- authorized hokler. It appears from the testimony of Mr. Tayler, first Comptrolller of the Treasury, that the funds of the Government deposited by the Treasurer in a national bank, are treated by the Government, for the purposes of keeping accounts, as in the Treasurer's own charge and custody; that they are charged to him, and that payments made are credited to him, and that he is chargeabk' precisely as if the funds had been in his own office, and that he had power to make the check in question. " ^Ve may, therefore, simplify the case by clindnating from its consideration, all reference to the United States, and con- sider the transaction as between Mr. Spinner, as an individual, and the bank, as his depository, and Mrs. Kimbro, as the payee of his check. " The question is this: Can the payee of a check, whose indorsement has been forged or made without authority, and when payment has been made by the bank on which it was dra^UTi, upon such unauthorized indorsement, maintain a suit against the bank to recover the amount of the check ? We think it is clear, both upon principle and authority, that the payee of a check unaccepted cannot maintain an action upon it against the bank on which it is drawn. The careful and well-reasoned opinion of Mr. Justice Davis in delivering the judgment of this court in Bank of the Republic v. Millard, 10 "Wall. 152, leaves little to add upon this subject by way of illustration or authority. In that case a paymaster of the army made his check on the Bank of the Republic to the order of Captain Millard for $859, due to him for arrears of pay as an officer of the army. The bank paid the amount of the cheek upon a forged indorsement of Millard's name. Recovering the check and exposing the forgery, Millard de- manded payment to himself, and, upon refusal, brought his action against the bank. This court held that the action could not be maintained, upon the principle that there was no privity between the bank and ^fillard. The bank's contract was with the paymaster only, and to him only was its duty. It received no money from Millard. It never promised Mil- cir. XXI.] Banking. 271 lard to pay liim any money. It had no money belonging to him. It received money from the paymaster, upon an agree- ment that it would return it to him when called for by him in person, or that it wonld pay it upon his checks. But it made no such agreement, or any agreement, with Millard. For a failure of duty in this, respect, it was responsible to the pay- master, with whom it made the contract, and to no one else. If the check was not paid, the arrears of pay to Millard were not paid, and his claim upon the Government or the paymaster was not impaired by the giving of the check, which, being presented in due time, was not paid. He was still entitled to demand his arrears. '' That case is a perfect and complete authority upon the question stated. See also Aetna iSTational Bank v. Bank, 46 N. Y. 82. " Xor is this principle confined to checks or bills. Thus, in Ashley v. Dixon, 48 N. Y. 430, it was held that if 'A.' be under a contract to sell property to ' B.,' and ' C persuade 'A.' to sell the property to him, no action lies by ' B.' against ' C There is no privity of contract between ' C and ' B.,' but the remedy of the latter is against 'A.' only. " It is not to be doubted, however, that it is within the power of the bank to render itself liable to the holder and payee of the check. This it may do by a formal acceptance written upon the check, in which case, it stands to the holder in the position of a drawer and acceptor of a bill of exchange.^ " It may accomplish the same result by writing upon it the word ' good,' or any similar words which indicate a statement by it that the drawer has funds in a bank applicable to the payment of the check, and that it will so apply them.^ "And such certificate, it is said, discharges the drawer. As to him it amounts to a payment. ^^ " Whether this certificate be obtained by the drawer before the check is delivered, and is thus made an inducement to the payee to receive the same, or whether it is made upon the application of the payee for his security, is of no importance. 8 Merchants' Bank r. State Bank, lo Bank r. Leach. 52 N. Y. 350; 10 Wall. 004; Epsy r. Bank of Cin- Meads r. Merchants' Bank. 25 id. cinnati, 18 id. 004.' 143, 9 Met. 311, 2 Duer, 121. 9 Cook V. State Bank of Boston, 52 N. Y. 96. 272 Checks. [cii. xxi. It is a contract recognized by tlie law, valid in its character, which essentially changes the position of the parties. The privity of contract -with the drawee, which before pertained to the drawer alone, is now imparted to the payee, and the duty which before existed only to the drawer now exists to the payee, '' It is said that this fact of a contract between the payee and drawee exists in the present case. The testimony of Mr. Arnold is referred to, to the effect that in April, 1867, the bank made its weekly statements to Mr. Spinner of deposits received and payments made, returning the draft of Mrs. Kimbro as paid on the 22nd of that month, and that in the statement the amount of the draft was entered to the credit of the bank. " There is no suggestion in the evidence that either the bank or Mr. Spinner knew that the indorsement of the payee was unauthorized. The bank, we assume, would not know- ingly subject itself to the dangers and liabilities resulting from making payment to one not authorized to receive it. AVe assume, also, as we are bound in justice to it to do, that it would not ask Mr. Spinner to give credit for a payment that it knew to have been illegally made, and that it would not attempt to deceive him into the belief that a pretended in- dorsement was a real one. It comes to this, that, upon a settlement of accounts between them, a credit was by mistake allowed to the bank to which it was not entitled. The law is, that neither party is to be benefited or to be injured by the mistake. The bank must refund the amount by handing over the siun, or by crediting the same to Mr. Spinner in his next account. Mistakes in bank accounts are not uncommon. They occur both by unauthorized or pretended payments, as well as by the omission to give credit for sums deposited. When discovered, the mistake must be rectified, and an ordi- nary writing up of a bank book, with a return of vouchers or a statement of accounts, precludes no one from ascertaining the truth and claiming its benefits.^^ " "We cannot perceive that such a mistaken recognition of 11 Storv, Eq. PI., §§ 79!)-S01 ; r. Hone. 2 Barb. 586; Bullock v. Ptory. Eq. .Jur., §§ 52.3, .527; Buch- Boyd, 2 Edw. 292, lin V. Chaplin, 1 Lans. 44.3; Bruen cir. XXI.] Banking. . 273 the validity of the payment of this check can create an addi- tional or diffeient contract between the bank and the owner of the draft. " It is further contended that such an acceptance of the check as creates a privity betw^een the payee and the bank is established by the payment of the amount of this check in the manner described. This argument is based upon the erroneous assumption that the bank has paid this check. If this were true, it Avould have discharged all of its duty, and there would be an end of the claim against it. The bank sup- posed that it had paid the check; but this was an error. The money it paid was upon a pretended and not a real indorse- ment of the name of the payee. The real indorsement of the payee was as necessary to a valid payment as the real signa- ture of the drawer; and in law the check remains unpaid. Its pretended payment did not diminish the funds of the drawer in the bank, or put money in the pocket of the person entitled to the payment. Tlie state of the account was the same after the pretended payment as it was before. " We cannot recognize the argument that a payment of the amount of a check or sight draft under such circumstances amounts to an acceptance, creating a privity of contract with the real owner. It is difficult to construe a payment as an acceptance under any circumstances. The two things are essentially different. One is a promise to perform an act, the other an actual performance. A banker or an individual may be ready to make actual payment of a check or draft when pre- sented, while unwilling to make a promise to pay at a future time. Many, on the other hand, are more ready to promise to pay than to meet the promise Avhen required. The differ- ence between the transactions is essential and inherent. " Without discussing the other questions argued, we are of the opinion, for the reasons given, that the plaintiff below was not entitled to recover." Where a bank certifies a check, it is equivalent to a declara- tion upon the part of the bank that the maker has the funds deposited with the bank and to his credit to pay the same. Immediately upon the certification of a check by the bank the maker's account should be charged with the amount of the check, and the bank at once charges itself with the amount 18 274 Checks. [ch. xxi. and places the same to the " certified check account." There- upon, it becomes an unconditional promise by the bank to pay the check to the payee named therein or to the bona fide owner. The rule then is, that the legal holder upon failure of the bank to pay, may enforce payment in an action directly against the bank.^^ A certificate of deposit issued by a bank is very much like a certified check. It is equivalent to a certification that the bank has received the amount named therein, and it agrees to pay the same to the bona fide OAvner thereof on presentment, and a failure of the bank to pay, the holder may enforce pay- ment in an action against the bank. § 194. Certified checks. A certified check is in form, the same as an ordinary check drawn upon the bank, and when presented for certification, the officer of the bank having authority to certify checks, stamps or marks across the face of the check, the word " good," signing his name thereto and writing the date of certification. All banking corporations conducting a commercial or sav- ings bank business, and authorized to issue or pay checks upon accounts, may certify any check drawn upon the association, if the drawer of said check has an amount of money equal to the amount specified in such check in the bank. The Kevised Statutes of the United States, section 5208, provides : " It shall be unlawful for any officer, clerk, or agent of any national banking association to certify any check drawn upon the association unless the person or company drawing the check has on deposit with the association, at the time such check is certified, an amount of money equal to the amount specified in such check. Any check so certified by duly au- thorized officers shall be a good and valid obligation against the association; but the act of any officer, clerk, or agent, of any association, in violation of this section, shall subject such bank to the liabilities and proceedings on the part of the Comptroller as provided for in section fifty-two hundred and thirty-four." 12 Florence Mining Co. r. Brown, 124 U. S. 385. cii. XXI.] Ba:xking. 275 In the discussion by the court of the foregoing section of the statute, in the case of Thompson et al. as executors, etc., Appel- lants V. The St. Xicholas Xational Bank, Respondent, 113 X. Y. 325, the court says: " It will be seen that the statute affirms the legality of the contract of certitication, and expressly prescribes the conse- quences which shall follow its violation. It, therefore, appears that, so far from making the contract of certification void and illegal, its validity is expressly affirmed, and the consequences which follow a violation are specially defined, and impliedly limit the penalty incurred to a forfeiture of the bank's charier and the winding up of its affairs. There is a clear implication from this provision that no other consequences are intended to follow a violation of the statute. It would, indeed, defeat the very policy of an act intended to promote the security and strength of the national banking system, if its provisions shoidd be so construed as to inflict a loss upon them, and a consequent impairment of their financial responsibility. " The decisions of the Supreme Court of the United States are uniform in giving this construction to the provisions of the National Banking Act." ^^ The above case was appealed from the Court of Appeals of the State of Xcw York and heard Iw the Supreme Court of the United States at its October term, 1802. Mr. Justice Blatch- ford, in delivering the opinion of the court, says: " In addition to that, the statute expressly provides that a check certified by a duly authorized officer of the bank, when the customer has not on deposit an amount of money equal to the amount specified in the check certified, shall nevertheless be a good and valid obligation against the bank; and there is nothing in the statute which, expressly or by implication, pro- hibits the bank from taking security for the protection of its stockholders against the debt thus created. There is no pro- hibition against a contract by the bank for security for a debt which the statute contemplates as likely to come into existence, although the unlawful act of the officer of the bank in certify- ing may aid in creating the debt. In order to adjudge a con- is National Bank of Xenia v. Xational Bank r. Whitnev, 103 id. Stewart, 107 U. 8. 67G ; Xational 99. i'.aiik r. Matthews, 98 id. 621; 270 Checks. [ch, xxi. tract unlawful, as prohibited by a statute, the prohibition must be found in the statute. The subjection of the bank to the penalty prescribed by the statute for its violation cannot op- erate to destroy the security for the debt created by the for- bidden certification. * * * " This construction of the statute in question is strengthened by the subsequent enactment, on July 12, 1882, of section 13 of the act of that date, chapter 288, 22 Stat. 166, making it a criminal offence in an officer, clerk or agent of a national bank to violate the provisions of the act of March 3, 1869. This shows that Congress only intended to impose, as penalties for over-certifying checks, a forfeiture of the franchises of the bank and a punishment of the delinquent officer or clerk, and did not intend to invalidate commercial transactions connected witli forbidden certifications. * * * " Moreover, it has been held repeatedly by this court that where the provisions of the National Banking Act prohibit cer- tain acts l)y l)anks or their officers, without imposing any pen- alty or forfeiture applicable to particular transactions wliich have been executed, their validity can be questioned only by the United States, and not by private parties." ^'* The penalty for illegal issue of certified checks will be found in the Act passed by Congress and approved July 12, 1882. Section 13 of said act fixing the penalty is as follows: " That any officer, clerk, or agent of any national banking association Avho shall willfully violate the provisions of an act entitled, * An act in reference to certifying checks by national banks,' approved March third, eighteen hundred and sixty-nine, being section fifty-two hundred and eight of th^ Revised Stat- utes of the United States, or who shall resort to any device, or receive any fictitious obligation, direct or collateral, in order to evade the provisions thereof, or who shall certify checks before the amount thereof shall have been regularly entered to the credit of the dealer upon the books of the banking associa- tion, shall be deemed guilty of a misdemeanor and shall, on conviction thereof in any circuit or district court of the United States be fined not more than five thousand dollars, or shall be 14 National Bank r. Wliitney. 103 thews, 98 id. 621 ; National Bank of U. S. 99; National Bank v.' Mat- Xenia v. Stewart, 107 id. 67G. CK. XXI.] Bankixg. 277 imprisoned not more than five years, or both in the discretion of the court." § 195. Right of holder to look to both the acceptor and the drawer of a certified check. The Supreme Court of the State of Illinois in the case of Bickford r. First Xational Bank of Chicago, 42 111. 238, de- clares that the holder of a certified check has the right to hold the drawee and acceptor as well as the drawer. That where the acceptor has failed and made an assignment, the holder waives none of his rights against the drawer by giving notice to the assignee of the acceptor not to pay over any money to the drawer out of assets which might come to his hands in that capacity. The court says: " Certifying a check to be ' good ' is nothing more than a promise by the bank to j)ay it when presented, as in the case of the acceptance of a bill of exchange. Xow, in the latter case, what are the rights and duties of the parties? If the bill is accepted by the drawee and protested for nonpayment and the drawer duly notified thereof, the law is well settled that he is bound to pay the bill with damages and costs. The same is the law in regard to a certified check. Barnett v. Smith, 10 Foster (K H.) 206. In AVillets v. The Phoenix Bank, 2 Duer. 121, it was held that certifying a check to be ' good ' meant not only that it was good when certified, but that it shall be good when presented for payment. If this was not so, the act of certifying would be nugatory and amount to a fraud." § 196. Drawer of certified check when released. "Where the drawer of a check makes and delivers the same to the holder and he procures a certification by the bank, the drawer is released. By his own act he makes the bank his debtor. In the case of Born v. The First Xational Bank of Indianapolis, 123 Ind. 78, the court says: " "\Ve agree with the appellant's counsel that the drawer of a check is released if the holder instead of presenting it for payment himself, procures it to be certified by the bank upon which it is drawn. If the holder elects to procure the certifica- tion of the check, it becomes in his hands substantially a cer- 2TS Checks. [ch. xxi. tificate of deposit. By his own act lie makes the bank his debtor and releases the drawer of the check. The reason for this rnle is, that the moment the check is certified, the funds cease to be under the control of the original depositor and pass under the control of the person who procures the certification of the check drawn in his favor. First Xational Bank v. Leach, 52 X. Y. 350; Thomas y. Bank, 82 X. Y. 1; Girard v. Bank of Pennsylvania, T. P., 39 Pa. St. 92; Freund v. Importers', etc., Bank, 76 X. Y. 352." And the court in this connection states : ^' It is true that the bank b_v which the check is certified be- comes bound for its payment, and that it cannot defeat the right of the holder upon the ground that the drawer has no funds on deposit. Espy v. Bank of Cincinnati, 18 Wall. 604." ^^ It is held in the case of Riverside Bank v. First Xational Bank of Shenandoah, 74 Fed. Pep. 276, that the certification l»y a bank of a check made payable by such bank where the drawer keeps an account, is an absolute promise by the bank to pay such check, not as the debt of another but as its own obligation. This entitles the holder of the check to suspend any remedy against the maker and relax steps to charge an indorser, and cannot be rescinded by the bank because made under a misapprehension of fact as to the efficiency of the maker's account to meet the check. Where "A" purchases a certified check payable to order and obtains title "VA-ithout indorsement by the payee, he holds it sub- ject to all equities and defenses existing between the original parties, although he may have paid a full consideration without notice. -^^ § 197. A bill of exchange may be accepted orally. Where the statute of a State does not provide that an accept- ance of a bill of exchange or check shall be made in writing, a verbal acceptance, when proven, is good. The court, in the case of Jarvis v. Wilson, 46 Conn. 90, says that the Statute of Frauds does not apply to such an under- taking, and gives as a reason, that the acceptor is regarded as iSTlie Irvinpr Bank r. Wetherald. 16 Goshen Nat. Bank, Appellant, f. 3fi N. Y. .S3.5: Drover's Nat. Bank Bingliam. Respondent. 118 N. Y. r. Provision Co., 117 111. 100. .340; Lvnch r. First Nat. Bank of Jersey City, 107 id. 179. CH. XXI.] Banking. 279 the primary debtor and his acceptance is an undertaking not merely to pay a debt due from the drawer to the payee, but to pay his own debt to the drawer. The courts say that it is fully settled, both in England and in the United States, that in the absence of a statute, an oral acceptance of a bill of exchange will bind the acceptor. ^^ § 198. Liability of banks — Negligence. In the case of Peter Helwege v. Hibernia National Bank, 28 La. Ann. 520, it is held that where a bank certified a check failing to use proper caution, allowing the check to pass from its hands after certification drawn in such a manner that the amount could be easily raised without suspicion, that in the hands of a bona fide owner for value, it had no defense. The court says: " The bank was negligent in certifying the check without drawing a line with a pen across the blank between the words forty-one and dollars, thereby enabling the drawer to perpe- trate the fraud. The evidence is, there was nothing in the appearance of the check to excite the suspicion of the plaintiff or a prudent man in business." § 199. When mistake in certification may be corrected by a bank. "Where a bank, through a mistake, has certified a check for an amount greater than the drawer has on deposit, it may, after discovering the mistake and after the delivery of the check to the holder, upon getting temporary possession, cancel and make the certification of no effect as between the holder and the bank, provided no rights of other parties have intervened and the situation or rights of the holder between the certifica- tion of a check and its cancellation has in no way changed. § 200. Who may certify checks. The president and cashier of a bank have the inherent power to certify checks. The assistant cashier, paying and receiving tellers may do so when duly authorized by the board of directors. HDunovan r. Flinn, 118 Mass. Vt. 31: Ward i'. Allen, 2 Met. 53; 539; Spaiilding r. Andrews, 48 Pa. Exchange Bank f. Kice, 98 Mass. (S. R.) 411; 1 Parsons on Con- 288. tracts, 267; Fisher v. Beckwith, 19 280 Checks. [ch. xxi. "Where there is no authority for the act, a general or par- ticular usage in a given direction will bind the bank to respond to a third party who deals with it in good faith. The general rule is, that where a subordinate officer or clerk of a hank performs any act out of the mere ordinanj routine of hanking business, that in order to hind the hank, his authority to act must he shown. Where a subordinate officer or clerk has been permitted to pursue a particular practice in certifying checks for customers or othenvise, his acts although icronqful, ivill hind the hank in, faror of a person who fuUfils the conditions of a dealer in good faith}^ § 201. When bank estopped from denying a forged certification. '* Where a forged certification of a check is presented at the bank upon which the check is drawn, to the teller whose certifi- cate it purports to be, and he pronounces it genuine, he adopts the certification and the bank is bound by it the same as if it was genuine. § 202. Bank can correct mistake when. Where a bank certifies a cheek by mistake, it may correct the same by immediately notifying the holder and before the check has passed from his hands to the hands of a bona fide 20 owner. § 203. Memorandum checks. Memorandum checks or checks marked as such by the drawer by writing on the face of the check " memo " or *^ memoran- dum," has no significance relating to the duties of the bank when presented for payment. They are treated as all other checks, and when presented by the payee they must be paid. The words " memo " or " memorandum " written on the face of a check, as between the drawer and the payee, may signify and denote a contract of some nature existing between them; but the words as stated have no significance to the bank. 18 Farmers & M. Bank v. But- New York Nat. Banking Assoc, 20 Cher's & Drover's Bank, 16 N. Y. N. W. 8.52. 125. 20 The Irvin,'king. 317 court holds that a certificate of deposit in the words and figures following, to-wit: '' I hereby certify that C. S. Tarpley ha? deposited in this bank (Mississippi Union Bank), payable twelve months from May 1, 1839, with 5 per cent, interest till due, per annum, $3,091.63, for the use of K. Patterson & Company, payable to their order upon the return of this certificate. " (Signed) R. ^Y. CLIFTOX, Cashier." is not a promissory note. That '' nothing is a promissory note in ivhich the promise to pay is merely inferential." The weight of authority so far, and at the present time, is that a certificate of deposit issued by a bank agreeing to pay to the order of a person a sum of money on demand or in the future, the time being fixed, is in effect a promissory note. If so, it is subject to the law governing negotiable notes and hills, as to presentment for payment, protest, etc.; and if a prom- issory note, and the money represented by it is money borrowed by the bank, the Statute of Limitations, which in most of the States, does not run against a deposit would run Against a cer- tificate of deposit. Again where " statements " and '' reports " are required to be made by banks to the Comptroller of the Currency, or a State Commission, such certificates under the ruling of the courts that they are in effect promissory notes, should be re- ported as they are legally defined; and held by the courts to be, namely, — promissory notes. A promissory note represents, in all cases, an indebtedness; such an indebtedness, therefore, as pre"\dously stated, can be set-off by the bank against its taxable property when assessed by the State. The bank cannot deny the position in relation to such cer- tificates of deposit placed upon it by. the court. If, therefore, it is estopped from denying that a certificate is a promissory note in effect, it is a loan, and the bank becomes a borrower of money; and as a result the money so borrowed or placed upon deposit must be treated as money borrowed, and is not subject to taxation as a deposit. The rule reversed: if it is declared to be money on deposit represented by such certifi- cates of deposit and is purely a deposit, the ruling of the -courts that the certificate is a promissory note is wrong. 318 Certificates of Deposit. [ch. xxm. § 223. Statute of limitations. In the State of California the Code of Civil Procedure (^see section 348) provides that there is no limitation where money is deposited in the bank. The reading of the Statute is: *' To action brought to recover money or other property de- posited "vvith any bank, banker, trust company or savings and loan society, there is no limitation." In the case of Wells, Fargo & Co., Respondent, v. Joseph Enright, et al., Defendants, Commercial and Savings Bank, Appellant, 127 Cal. 669, the court holds that where an agree- ment based upon a sufficient consideration is entered into be- tween the parties agreeing to waive the limitation of a statute that it is a personal agreement, not against public policy and can be legally executed. Tlie court says: " The general rule is that no contract or agreement can modify a law, but the exception is that, where no principle of public policy is violated, parties are at liberty to forego the protection of the laAv. Statutory provisions designed for the benefit of individuals may be waived, but, where the enact- ment is to secure general objects of policy or morals, no con- sent will render a non-compliance with the statute effectual. The statute limiting the time within which action shall be brought is for the benefit and repose of individnals, and not to secure general objects of policy or morals. Its protection may, therefore, be waived in legal form, by those who are en- titled to it; and such waiver, when acted upon, becomes an estoppel to plead the statute." ^® Mr. Wood on Limitations, section 76, where it is stated that if the promise to pay be made before the debt is barred and in consideration of forbearance to sue and the creditor forbears: " It is binding upon the debtor and at least has the effect to keep tliS debt on foot until the statutory period dating from such promise expires either by way of estoppel or as a con- ditional promise to pay the debt in case the plaintiff proves it." > The law in California is that the Statute of Limitations 18 State Trust Co. v. Sheldon, G8 Vt. 259. CH. XXIII.] Bankixg. 310 does not run against p, depositor of money or other property deposited with any bank, but under the mling of the courts that a certificate of deposit is in effect a promissory note. The statute above refered to, would not apply because, in effect, it is not a deposit of money, but the bank is placed in a posi- tion as a borower of money, and, therefore, the owner of such certificate would lose his right of action under the statute, and the Statute of Limitations governing promissory notes would apply. The law governing this question is, that where a certificate of deposit in legal effect is a promissory note, the statute of limitations runs from the date of maturity. Where a certifi- cate of deposit does not fix the time of payment, but reads that it is payable on presentation or demand, the Statute of Limi- tations does not begin to run against the instrument until de- mand. For the instrument does not become due till demand is made.^'' In the case of L. S. Mitchell v. J, C. Easton, Lnpleaded, etc., 37 Minn. 335, the court holds that, where a certificate of deposit is issued, in the following form: '' Mower County Bank, Austin, Minn., March 29, 1876. " L. S. Mitchell, Esq., has deposited in this bank seven hundred fifty and no-100 dollars, payable to the order of himself, in current bank notes, on the return of this certifi- cate properly indorsed, with interest at the rate of ten per cent, per annum. " Smith, Wilkins & Easton." it is due immediately and no actual demand is necessary in order to set the Statute of Limitations running. But see Civil Code Cal., §§ 3132-3135. Banks are accustomed to receive their own certificates of de- posit as payment. They pass between banks as equivalent to cash, though they are not issued or intended to circulate as money, but, like a cashier's check or draft, they pass between persons in trade and take the place of money in commercial transactions. 19 Birch r. Fisher, 51 Mich. 36; N. Y. 265; Bellows Falls v. Rutland Munger v. Albany City Nat. Bank, Co. Bank, 40 Vt. 377. 85 N. Y. 580; Pardee v. Fish, 60 320 Certificates of Deposit. [ch. xxiii. § 224. Interest. The rate of interest fixed and agreed to be paid on certifi- cates of deposit continues after maturity.^ If a certificate of deposit becomes payable only on pres- entation and demand, interest will begin to run upon said cer- tificate after demand, at the rate prescribed by the statute of the State. Interest on a general deposit \vill only begin to run against the bank from the date of the demand and refusal or failure to pay. § 225. Authority of banks to issue certificates. Any banking association may issue certificates of deposit unless prohibited by statute or by provision of their charter and by-laws. The Legislature of the State of California, assuming that a savings and loan corporation had no authority inherent to issue certificates of deposit, deemed it advisable to enact a pro'^'ision of law, giving such corporation the right to issue special certificates of deposit. The provision of the statute enables the corporation bank to conduct a branch of banking, construed generally as commercial banking. The statute reads: " Savings and loan corporations may issue general certifi- cates of deposit, which are transferable as in other cases, by indorsement and delivery; may issue, when requested by the depositor, special certificates, acknowledging the deposit by the person therein named of a specified sum of money, and ex- pressly providing on the face of such certificate that the sum so deposited and therein named may be transferable only on the books of the corporation. Payment thereafter made by the corporation to the depositor named in such certificate, or to his assignee named upon the books of the corporation, or, in case of death, to the legal representative of such person, of the sum for wdiich such special certificate was issued, discharges the corporation from all further liability on account of the money so paid." The statute gives authority to a particular kind of bank, 20 Cordell r. First Nat. Bank of Kansas Citv, G4 ilo. 600. CH. XXIII.] Eankiistg. 321 namely, — a savings bank, a privilege or power wliicli tlie Legislature assumed it did not or could not possess without the aid of a statute. The necessity of such a statute may be apparent, but a savings bank unless restricted by its charter or a statute is possessed with incidental and implied power au- thorizing it to issue certificates of deposit in lieu of pass- books, or any other lawful contract as to the receiving and re- payment of deposits without the aid of a statute. National banking associations may issue certificates of deposit. There is no special statute of the United States enacted, authorizing such associations to issue certificates of deposit, but they are endowed with such incidental and implied powers, and may issue certificates without the aid of a statute. The right to issue certificates of deposit is regarded as an incidental right to banking. The courts have never ques- tioned or denied this right, and all banking corporations and associations throughout the United States are endowed with incidental power to issue certificates of deposit. A certificate of deposit, when issued, is evidence of so high and satisfactory a character as to the sum therein named and deposited, that to escape its effect and the amount claimed therein, the bank must overcome it by clear and satisfactory evidence. See First ISTat. Bank of Lacon v. Myers, 83 111. 507. It is also held by the same authority, that, where the testimony, aside from the certificate, is balanced as to the amount deposited, the certificate will turn the scale. § 226. Payment of certificate. The bank must pay the certificate when due on presentation and demand, but a certificate of deposit fijiing a future time of payment cannot be presented for payment before the due date, and the issuing of such a certificate is not in violatio:^ of the National Banking Act. Revised Statutes (U. S.), section 5183, reads: " Xo national banking association shall issue post notes, or any other notes to circulate as money, than such as are authorized by the provisions of this title." This section only applies where instruments are issued and intended to circulate as money. It does not forbid the issuing of certifi- cates of deposit.^^ 21 William P. Hunt, appellant, 141 Mass. 515. 21 122 Certificates of Deposit. [cii. XXIII. It must be paid to the owner. The instrument being trans- ferable if presented for payment by a person other than the person named in the certificate as payee, the bank must, before payment, satisfy itself that the transfer and assignment is genuine ; that the signature is the signature of the payee named in the certificate. The bank is held to the same degree of care in payment of a certificate as it is in payment of checks. If it pays a forged check the money is not transferred. If the assignment on the certificate is a forgery, the true owner of the certificate can recover. "Where a bank issued a certificate of deposit in the following language — " Samuel Stein has deposited in this bank one thousand dol- lars, payable to the order of himself or Ellen Stein on the return of this certificate." "J. II. BAXDEX, '' Per Smith, Cashier.''^ The court held: " First. That the certificate of deposit did not authorize the payment of the money to Ellen Stein after the death of Samuel Stein. " Second. That notice to the paying teller of the bank of the death of S. S., received prior to the payment by him to E. S. of the amount of the deposit, was notice to the bank. " Third. That if he, in making the payment after such no- tice, mistook the law, the bank whose agent he was must suffer the consequences."^^ The death of either party and notice to the bank stops pay- ment. But the bank could lawfully pay to either party during the lifetime of both and it would discharge the debt. 22 Second National Bank of Baltimore v. Thomson S. Wrightson, execu- tor of Samuel Stein, 63 Md. 81. CHAPTER XXIV. BANK LOANS. § 227. Nature of loans. The principal assets of a bank are its loans, personal and real estate. 'Personal loans are those where the maker of the note guarantees the payment by the act of executing the same. lie thereby becomes the maker of the note, agreeing to pay the same at the place and time specified. Such an obligation is a personal agreement and does not carry with it any security of whatsoever nature or kind other than a personal obligation. But the bank may at the time of taking the note and before the transaction is closed require that the same shall be secured, and this may be done by the maker delivering to the bank personal property, and when delivered and once in possession of the bank, it can be held as a pledge until the debt is paid. The bank's claim to the security or property either becomes a general or special lien. If the property is pledged to secure a particular debt, the law generally provides that the pledge shall be sold. If the security delivered to the bank is an assigned certificate of shares of stock in a corporation, in order that the bank may hold the same free from any claims of creditors of the maker, the stock should be by the bank pre- sented to the secretary of the corporation for transfer to the bank, either as trustee or pledgee. Until this is done, the stock is subject to attachment by creditors. Eeal estate loans are those secured by mortgage. A deed made and delivered to the bank to secure a debt is in equity a mortgage and the title to the property remains in fact in the grantor, and to divest him of the title the deed must be fore- closed. As deeds in such cases are always declared to be mort- gages, it is advisable in the first instance to take a mortgage. All commercial State banks, and national banks, are duly authorized to make personal loans. Savings banks, by pro- vision of law, may be restricted by the statute of the State wherein they may be organized in taking personal security [323] o2-i Baxk Loans. [cii. xxiv. loans. Where the statute provides that savings banks may invest their money, or any portion thereof, in personal security loans, their business becomes more in the nature of commercial transactions. They are usually restricted by statute and are limited to making loans upon real estate security, or in the purchase of such bonds of municipal and other corporations as the law of the State may provide. § 228. Liabilities of any person, etc., to national banks'. Section 5200, Revised Statutes (U. S.), provides that: " The total liabilities to any association, of any person, or of any company, corporation, or firm, for money borrowed, including in the liabilities of a company or firm the liabilities of the several members thereof, shall at no time exceed one- tenth part of the amount of the capital stock of such associa- tion actually paid in. But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be regarded as money borrowed." The purpose of this section is to prohibit any bank from loaning its funds in large amounts to any one person. But the rule does not apply " in the case of all discounts, and an excep- tion is made in favor of ' bills of exchange ' drawn agaiust actually existing values." The exception also applies to " com- mercial or business paper owned by the person negotiating the same." In the case of Second National Bank v. Burt, 93 E". Y. 244, the court says: " The object of this provision of the Currency Act w^as to guide national banks from the hazard of loaning money in improvident amounts upon speculative and accommodation paper, but it contemplated and permitted to an unlimited amount, the discount of paper used and required in facilitating the transfer of property and money in the transaction of the legitimate business of the country." Where a person is already an indorser on paper discounted by the bank to the full amount of one-tenth of its capital stock, it is not a violation of the banking laws to dis- count additional paper actually owned by him. Another ques- CH. XXIV.] Baxkixg. 325 tion of importance arising under this section of the statute, is, does the bank violate the provisions of the statute in makinp:; a loan in excess of one-tenth of the capital stock where such loan is secured by collaterals? It is clear that the adding of or securing of a loan by col- lateral security does not enlarge the power of the bank. The only penalty, however, which may be enforced against the bank for violation of this section of the statute, is the liability which the bank may incur of a forfeiture of its fran- chise, and this action can only be brought by the government. The loan, though in excess of the amount prescribed by the statute, can be recovered in full from a borrower.-^ Section 5201, Revised Statutes of the United States, pro- vides that " no association shall make any loan or discount on the security of the shares of its own capital stock nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt pre- viously contracted in good faith." This section iDrohibits a national bank from acquiring a lien on its own stock against its stockholders, and a provision in the by-laws or in the certificate of stock, prohibiting a transfer until the liability of the stockholder to the bank is paid, is declared wholly void.^ It is held in Bank v. Lanier, 11 "Wall. 369, that where a bank takes a pledge of its own stock which has been made to secure a deposit with another bank, the transaction is a lending of money upon the security of its stock within the meaning of the law. Section 5137, Revised Statutes of the United States, provides that: "A national banking association may purchase, hold, and convey real estate for the following purposes and no others : "First. Such as shall be necessary for its immediate accom- modation in the transaction of its business. 1 Gold Mining Co. 17. Rocky Moun- Maryland, 2 Abb. (U. S.) 424; tain Nat. Bank, 96 U. S. 640; Cor- Smith r. First Nat. Bank, 45 Nebr. coran f. Batchelder, 147 Mass. .541 ; 444. Wyman r. Citizens' Nat. Bank oi 2 Conklin r. The Second Nat. Faribault. 29 Fed. Rep. 7-34; Stew- Bank, 45 N. Y. 655. art V. The Nat. Union Bank of o26 Bank Loans. [ch. xxiv. " Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted. " Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. " Fourtli. Such as it shall purchase at sales under judgments, decrees, or mortgages held by the association or shall purchase to secure debts due to it, but no such association shall hold the possession of any real estate under mortgage or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years." This section of the statute expressly prohibits a bank from making loans and concurrently with the making of such loans, the taking of real estate as security. Real estate security can only be taken by national banks to secure a debt which has been in good faith previously con- tracted. The law expressly prohibits the bank from taking real es- tate or any mortgage or lien thereon, as security for con- temporaneous loans. The bank has no right to take a mort- gage to secure a note which has been discounted at the same time. In the case of Xational Bank y. Matthews, 98 U. S. 621, it is held that where "'A.' executed a promissory note to 'B.,' and to securp the payment thereof a deed of trust of land, which was in effect a mortgage with the power of sale thereto annexed. A national hank on the security of the note and deed loaned money to ■' B.' who thereupon assigned them to the bank. The note not having been made at maturity, the trustee was pursuant to the power proceeding to sell the lands when ' A.' filed his bill to enjoin the sale upon the ground that, by sections 5136 and 5137 of the Revised Statutes, the deed did not inure as a security for a loan made by the bank at the time of the as- signment of the note andT deed. Held, that the bank is en- titled to enforce the collection of the note by a sale of the land." Mr. Justice Miller dissented from this opinion of the court. He says: " I am of the opinion that the IsTational Banking Act makes void every mortgage or other conveyance of land as a security for money loaned by the bank at the time of the transaction CH. XXIV.] Baxeing. 327 to whomsoever the conveyance may be made ; that the bank is forbidden to accept snch security, and it is void in its hands. " The contract to pay the money and the collateral convey- ance for security are separable contracts, and so far independ- ent that one may stand and the other fall. " In the present case, the money was loaned on the faith of the deed of trust, and that instrument is void in the hands of the bank, but the note, as evidence of the loan of money, is valid against Mrs. Matthews, personally. With this latter con- tract the State court did not interfere. It enjoined proceedings under the deed of trust against the land and did no more. " Its judgment in that matter ought, in my opinion, to be affirmed." * The rule is well settled that a national bank may take mort- gages on real estate to secure the payment of debts which have been previously contracted.'* It is also held, in Howard Xational Bank v. Loomis, 51 Vt. 349, that the bank does not violate the statute by an agree- ment to renew the notes and hold the mortgage as seciirity for the renewals. § 229. Restrictions against savings banks. The express restrictions placed against savings banks, pro- hibiting them from loaning the money of the depositors, are those which are enumerated in the charter of the coi^Doration or the statute laws of the State where the bank is incorporated. Where the statute of the State expressly prohibits a savings bank association from investing the funds of its depositors on personal security loans, a loan made by the bank in violation of such a provision of the statute, is a direct violation of law, and the bank's charter may be taken away from it by the State, but no person other than the State has authority to bring suit to" have its franchise forfeited; and where it has loaned money upon securities other than those enumerated by the statute, the debtor cannot defeat the debt by pleading a Adola- tion or restriction of the statute. A statute of a State which provides that it shall be unlawful 3 Crocker v. Whitney, 71 N. Y. 4 First Nat. Bank of Skowhegan v. 161. " Maxfield, 83 Me. 576. 328 Bank Loans. [ch. xxiv. for any savings and loan society or savings bank to purchase, invest; or loan its capital, or the money of its depositors, or any part of either in mining shares or stock, and which de- clares that if any president or managing officer who knowingly consents to a violation of such provisions, shall be deemed guilty of a felony, is held to be a constitutional law and can be enforced. A law which forbids that any director or officer of any sav- ings bank from directly or indirectly borrowing any of its de- posits or other funds of such corporation, may provide also that the office held by any such director or officer shall become immediately vacant, if the officers borrow any of such funds. § 230. Power to make loans. Where a State bank has made a loan to one person of a sum in excess of one-tenth part of its capital, and the bank is thereafter converted into a. national bank, the bank may, after conversion, extend the time for payment of such loan without violating the law.*^ Where a party is sued by a national bank for moneys it loaned him, he cannot set up as a bar its right to collect, upon the ground that the amount exceeds one-tenth of the capital paid in.^ Though a national bank may be restricted and prohibited from taking its own stock as security for a loan, it may take the stock of another national banking association.^ A national banking association may also take a pledge of personal chattels as security for a loan.* It may also take as collateral security for a loan a ware- house receipt for merchandise.® A national bank may also take and hold as collateral se- curity for a loan, a locomotive. ^^ A national bank may also take a mortgage upon a stock of goods.^^ 5 Allen r. First Nat. Bank of n Cleveland. Brown & Co. r. Shoe- Xenia, 23 Ohio St. 97. man, 40 Ohio St. 176. 6 Gold Mininsf Co. r. Roekr Moun- lO Pittsburg Locomotive & Car tain Nat. Bank, 96 U. S. 640. Works r. State Nat. Bank, U. S. Cir. 7 National Bank r. Case, 99 U. S. Ct. 187.'): Thompson's Nat. Bank 628. Cases, 315. 8 Pittsburg Locomotive & Car n Spoffard r. First Nat. Bank of Works V. State Nat. Bank of Keo- Tama City, 37 Iowa, 18L kuk, 2 Cent. L. J. 692. CH. XXIV.] Baxkixg. 329 While a national bank has no anthority to hold or retain certain bonds coming into its possession by purchase under a contract, it has the right to hold the bonds as security for the return of the consideration paid for them, but when such an amount is returned or tendered back to it and the surrender of the bonds is demanded, its authority to retain them no longer exists. ^^ Where a stockholder borrows money from a national bank and gives as security for such loan, certificate of his shares of the bank's stock, he cannot recover when, on nonpavment of the loan the bank sold his stock and applied the proceeds of the sale to his credit. ^^ Where bonds are pledged to a national bank as collateral securfty for the payment of a note discounted by the bank ; held, that the bank is bound to take only ordinary care of the same.^^ When shares of stock in a private corporation are pledged as collateral security for a debt and default is made in the pa;\Tnent of the debt at maturity, the pledgee may file a bill in equity to foreclose the pledge by a sale under the order of the court, or he may exercise the implied power to sell without resorting to judicial proceedings, but if he elects to pursue the latter remedy, the sale must be at public auction in the absence of a special agreement, and reasonable notice must be given to the pledgor, and if he sells privately without notice, becoming himself the purchaser, the relation between him and the pledgor is not thereby dissolved. ^^ Where the debt for which a note was pledged is paid, pend- ing an action on the note by the pledgee ; held, that the latter may continue the action subject to all equitable defenses, hold- ing the proceeds as trustee for the pledgor. ^^ Where a national bank holds collaterals as security for a debt due at a certain time, and under the terms of the contract is authorized to sell the property on maturity of the debt, the bank need not demand payment before selling. -^^ 12 Losan Co. Nat. Bank v. Town- is Sharp r. Xational Bank of send, 1.30 U. S. 67. Birminrrham. 87 Ala. 644. 13 First Xat Bank of Xenia r. 16 First Xat. Bank r. Mann. 27 Stewart. 107 U. S. 676. S. W. fTenn.) 101.5. 14 -Jenkins r. Xational Village 17 Franklin Xat. Bank r. Xew- Bank of Bowdoinham, 58 Me. 275. combe (Sup.), 37 X. Y. St. 271. 330 Bank Loaxs. [ch. xxiv. Where collateral security is held for a debt, it is the duty of the pledgee to use reasonable diligence to j^rotect the security and see that it does not become outlawed/* A bank has the power to loan money and discount notes, de- ducting the interest in advance. ^^ It has the power to transfer by indorsement or delivery ne- gotiable notes.^*^ An officer of a bank who makes loans has the authority to arrange for security for the same, the security being incidental to the making of the loan itself.^^ Commercial banks have the right to take and hold stock and bonds as collateral security.^ To hold the collateral or pledged propertv until the debt is paid.23 Stock of a corporation when pledged, does not become the property of the pledgee, but the title remains in the pledgor, and he has the right to vote the same at a stockholder's meet- ing, and is entitled to antecedently accrued dividends which have been declared on the stock. The pledgee has no title to the same under the assignment. The profits and dividends which have accrued and have been declared by the corpora- tion and carried to the credit of the owner of the stock before assig-nment, cannot be claimed by the pledgee whose assign- ment is subsequent. The mother bank has authority to collect the payment of any debts due the branch.^ A commercial State bank can receive and hold its own stock as collateral security, unless a statutory enactment inten^enes, and can purchase the same at a sale to protect itself from loss.^^ It may then sell the stock purchased at such sale and take the purchaser's note with tlie stock as c'ollateral security."* 18 Northwestern Nat. Bank r. J. =2 5S Me. 27.3, 44 Md. 47, 2 N. J. Thompson & Sons Mfg. Co. (C. C. Eq. 117. A.). 71 Fed. 113. 2.373 Cal. 302. i9Fleckner r. Bank. 8 \Yheat. 24 Smith v. Law.son, 18 W. Va. 338: Bank r. Collector. 3 ^Yall. 495. 212. 20 12 X. Y. 223, 30 Me. 488, 25 Union Nat. Bank r. Hunt, 7 21 .Jennings r. Bank of California, Mo. .App. 42. 79 Cal 323 20X'nion Nat. Bank r. Hunt, 7 Mo. App. 42. CHAPTER XXV. BANKS BORROWING MONEY. § 231. National bank, extent of power. To what extent and for what purposes can a "bank borrow money ? Banks are not organized for tlie purpose of bor- rowing money. It is their business to loan and not to borrow. The power conceded by some of the courts that they may bor- row money for the purposes of reloaning is repugnant to bank- ing. It is, if permitted, as a privilege, a dangerous practice and an incidental power which may be used, is only one which should be exercised with great discretion and care, and never without the expressed authority of the board of directors. If the authority of the board of directors is obtained, there can be no question raised afterward that the officers acted on their own responsibility. That a banking corporation may borroANl money is not de- nied, but this power is not an expressed power granted to a national bank. The statute does not enumerate this privilege and expressly authorize it. A national bank is only clothed with incidental power to borrow money. Being, therefore, only an incidental power, it is one which should only be exer- cised in extreme emergencies. That such emergencies may arise are not questioned. For example, when a run sets in against the bank, and it becomes necessary to meet the demand made upon it, the bank being solvent, has the implied author- ity to borrow money to such an extent as may (if possible) be necessary to tide the bank over. A national banking corporation it has been held, may bor- row money for the express purpose of loaning it out again in order to make a margin or profit on the interest paid and that received. It is very difficult to accept this principle or privi- lege as the law or authority given to national banks. The case of oSTational Bank of Commerce v. Xational Bank of Missouri, Fed. Cas. Xo. 18,310, broadly lays down the rule that a national bank may borrow money for the sole pur- [331] 332 Banks Borkowixg Moiniey. [cii. xxv. pose of lending tlie same again to others with a view to making a profit. The case is of snch importance npon this subject, it is deemed advisable to here give it in full: Statement of facts. " This was an action at law by the National Bank of Com- merce of New York against the National Bank of Missouri, of St. Louis, which suspended in June 1877, to recover $400,000, and accrued interest, the remainder of a loan of $1,000,000, made by the plaintiff to the defendant. In 1866, James B. Eads, James H. Britton, John J. Roe, Charles K. Dickson, Amos Cotting, Barton Bates, and John A. Ubsdell, the di- rectors of the National Bank of Missouri, borrowed $1,000,000 of the circulating notes of the National Bank of Commerce. The claim for the unpaid balance was presented to the re- ceiver of the defunct bank and he declined to allow it, on the ground that the bank had not borrowed the money but that it was borrowed by the above-named directors and used by them for their individual benefit, and that the bank did not enjoy the advantage of the loan. An attempt was also made to show that the defendant had no right to borrow money to loan again, and that a loan of this character was illegal, and kno'wn to the plaintiff to be illegal when made. It was shown, in effect, that wdien the negotiations with the Baidv of Commerce were opened, Mr. Eads and the other gentlemen named were not directors of the State bank, but by large pur- chases of the stock became possessors of a majority and elected themselves directors October 31, 1866, and that tlie loan was completed in the name of the bank by contract, dated December 26, 1866, by the newly-elected directors. Testimony was given to show that the loan was made only for the use of the directors, because the bank itself had at the time $1,000,000 in cash and $680,000 in bonds on deposit with the Bank of Commerce, and it was part of the contract that this deposit should remain as security until this loan was paid. " The testimony adduced in the case shows tliat the $1,000,- 000 loan was made by the defendant a special account entered in a book entitled ' Bank of Commerce, No. 3.' The directors gave their checks on the funds of the pool and drew out money CH. XXV.] B.VXKIXG. 333 till it "U'!as all exhausted except $3,000, which stands to-daj to their credit on the books of the suspended bank. These directors returned to the pool the amount that was paid back to the jSTew York bank — namely $600,000 — but had paid back none 'of the balance of $400,000." The opinion of the Court by Justice Dillon, Circuit Judge (charging jury) : " Opinion. Under the pleadings, the defendant's counsel conceded at the opening of the trial that the plaintiff was en- titled to the sum of $-iOO,000 with 6 per cent, interest, amount- ing in all to the sum of $445,582.10, unless the defendant es- tablished one or both of its special defences to the action, and accordingly the defendant assumed the burden of proof to make out such defences. The defendant has accordingly produced its evidence, and at its close the plaintiff's counsel moves the court for a direction to the juiy that such e^ddence has failed to establish these or either of them, and that, notwithstanding the defendant's evidence, and all inferences which the jury can legitimately or properly draw from it, the plaintiff is en- titled to a verdict. " The defences relied on are two: "1. That the contract of December 26, 1866, between the de- fendant bank and others, and which is the basis of this suit, and under which the $1,000,000 was lent by the plaintiff bank, is ultra vires the lawful power of the defendant bank ; that is to say, that this contract was one which the defendant bank had no power, under its charter, to make under any circum- stances, or, at all events, had no power to make except in case the situation and exigency of its affairs required it to borrow money, and that its situation was such that it did not need to borrow this large sum of money, or any other sum of money, and that knowledge of this fact is, by the evidence, fairly brought home to the plaintiff bank. I am of opinion that a national banking association has, under the National Banking Act (13 Stat. 99), the power to borrow money, and that the de- fendant bank, in the absence of fraud brought to the knowledge of plaintiff bank, had the power to enter into the contract of December 26, 1866, which is the foundation of this action. The legal poiver of the hmilc to horrow money does not depend upon any exigency or upon the existence of a critical coyidi- 33-i Banks Bokrowikg Money. [ch. xxv. Hon of its affairSj or upon an actual necessity for the immediate use of the sum borrowed. It may borrow money to conduct and carry on the business of banking, and it may borrow for the express purpose of lending the same, either by discounting tlic notes, bills, etc., of others or on personal security, ivith a view lo profit by the transaction. The loan of money to a national bank is not invalid because the lender may know or have reason to believe that the borrowing bank intends to lend it, when re- ceived, to others. "A national bank may lends its money to its directors as well as to other persons, provided it acts in good faith and does not exceed the limitation to any one person or director of " one- tenth part of the amount of the capital stock of the association actually paid in." There is no claim that this limitation was exceeded in this case, as the capital stock of the bank was $3,410,000 actually paid in. -If the law were that a national bank could not boiTow money for the purpose of lending the same again to its directors, and that if the lender knew that such was the purpose of the borrowing bank, the transaction would necessarily be invalid. I admit that the evidence in the case is such as to justify the court to submit the question of the plaintiff's knowledge of such a purpose to the jury. But I am of opinion that where no fraud is intended, a national bank may lend its money to its directors, and the fact that the lender knows, or has reason to believe, that when the money he lends is received it will be lent to the directors, does not, unless he knows, or has good reason to believe, that a fraudu- lent use or disposition of it is contemplated by the directors 'when received, invalidate the transaction. " The directors had no more power over the $1,000,000 ob- tained under the contract in suit than they had over the $1,000,- 000 which the defendant bank had on ordinary deposit with the plaintiff bank, or over the $3,000,000 of capital actually paid in. A lender cannot knowingly aid an intended fraud, l>ut he is not required not to lend because the borrowing bank may misuse their powers. " 2. The second defence is that the money was procured by the defendant's directors (who signed tlie contract in suit pro- fessedly as sureties), not for the bank, but for their own pur- poses, and that they fraudulently made use of the name of CH. XXV.] , Baxkixg. 335 the defendant bank as principal, intending all the time illegally to approj)riate the money, when received, to their own use, and that the plaintiff bank had knowledge of such intended illegal appropriation of the money. These facts, as established, would constitute a defence, but after carefully considering all of the evidence touching this matter, I think that while it would jus- tify the jury in finding that the directors of the defendant bank, when the money was received, intended to borrow the same from the bank of which they were directors, and thus get the use of it, I can see no basis in the evidence which would justify the juiy in finding that the plaintiff bank knew that the directors of the defendant bank, when the money was received, intended to make any fraudulent use or disposition of it. If the jury should so find, I shall deem it my duty to set aside their verdict, and hence there is no propriety in uselessly sub- mitting this question to them. " I therefore instruct you, gentlemen of the jury, that the defences relied on have failed, and that you shall return a ver- dict for the plaintiff." This case is cited in full and sustains the principle and au- thority of the bank to borrow money for speculative purposes. The Court says : " The legal power of the hanh to borrow money does 'not depend upon any exigency or upon the existence of a critical condition- of its affairs, or upon actual necessity for the im- mediate use of the sum borrowed. It may borrow money to conduct and carry on the business of banlcing, and it may bor- row for the express purpose of loaning the same by discount- ing the notes, bills, etc., of others or on personal security with a view to profit by the transaction." It may be stated that the language of the court can be easily understood. It is plain and sets forth the principle clearly. Is it the law upon this subject governing a national bank? Are the incidental and implied powers such powers which are authorized to be used without limitation, and to the extent held by the court ? These questions demand a careful and impartial consideration. The common-law restriction is, that a bank cannot borroiu money except for banking necessities. Borrowing money to reloan for a profit is not a banking ne- cessity. The Revised Statutes of the United States, § 5136, 336 Ba^^ks Bokeowiis'g Moxey. [ck. xxv. defining the corporate powers of a national bank, in article seven, reads: ^"Toexercisehy its Board of Directors or didij authorized offi- cers or agents, suhject to Jaw, all such incidental poivers 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 debt, etc.'' It will be found that no express power is here granted and that the incidental power to borrow money is derived from the language "^ to exercise, etc., all such incidental powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes." The language used in the Statute implies that the borrowing of money must be incidental to the carrying on of the business of banking. The question reduces itself to this ; — is the bor- rowing of money for profit and to be re-loaned for that pur- pose, a part of the legitimate business in banking ? It is a well defined principle in banking that the borrowing of money is not an ordinaiy practice or occurrence usually indulged in. But the Court says: ii~ * * it may borrow money to conduct and cariw on the business of banking." If money can be borrowed to carry on the business of bank- ing in one instance, there would be no limitation in others. The principle, if authorized in one locality certainly is lawful in all others. While a bank may discern an opportunity to make a profit through its loans, it cannot loan all its funds or deposits. The Statute imposes a restriction upon it in this respect and requires that it shall retain or hold a fixed reserve. The business of a bank is generally conceded to be conducted upon its capital, deposits, surplus and reserve fund ; and the investment or loaning by the bank of a greater portion of these sums than the law specially provides may be loaned, is a violation of law, and this act is immediately called into ques- tion by the Comptroller of the Currency. It is the business of the bank to use all its capital and deposits permitted to be used by law, to tlie very best advantage possible by loaning the same under the restrictions of the law. This is carrying cii. XXV.] Bax^kixg. 337 on the business of banking and conducting it ^vitliin the law and to the limit of its privileges. Monev borrowed by a bank for purposes of profit, and to be re-loaned again, is not an ordinary power or privilege. Bankers deem such an act, if practiced or permitted, as dan- gerous, directing danger. Where an exigency does not arise and money is borrowed, it is a privilege purely speculative ; and this power should be denied to banking corporations, both national and State. They are permitted in the exercise of such acts only as are necessary in the clue attainment of their objects, and conse- quently can perform no acts, enter into no contracts or trans- actions, and incur no liabilities but such as spring out of, or are otherwise incidental to the purpose for ivhich they are created} That a banking corporation is endowed with, and has implied power to borrow money is not denied. But it is a broad con- struction of the statute to hold that a banking corporation is organized for and has the authority of borromng money to speculate on. If it could borrow money to carry on and con- duct the business of banking, the paid-up capital would not be a necessity. A bank is organized for the purpose of receiving money on deposit, keeping the deposits safely, investing them in loans allowed by law and enumerated by the statute, and returning the money to depositors when demanded. It is held that the broadest implied power given to a bank is, that a corporation does not exceed its corporate powers by entering into such obligations or contracts absolutely essential for its purposes and for the transaction of its ordinary affairs. The Supreme Court of the United States has not laid down any binding mle upon tlie question, but has decided such cases coming before it upon the law and the facts surrounding the case. The court does not sanction the doctrine laid down in the case of Xational Bank of Commerce v. National Bank of Missouri, Fed. Cas. Xo. 18,310, which authorizes national banks "to borrow money to conduct and carry on the busi^iess of banl'ing." This rule seems very broad. If this is the law, it would give the bank such latitude as would lead to serious abuses and results. 1 Brice ultra viros, p. 28. 22 338 Banks Borrowing Money. [ch. xxv. The case of First Xational Bank of Charlotte v. Xational •Exchange Bank of Baltimore, 92 U. S. 122, 127, raises the question indirectly and disposes of the general question as to the implied and incidental powers of a bank in the following language : "Authority is thus given to transact such a banking business as is specified, and all incidental powers necessary to carry it on are granted. These powers are such as are required to meet all the legitimate demands of the authorized business, and to enable a bank to conduct its affairs, within the general scope of its charter, safely and prudently. This necessarily implies the right of a hank to incur liabilities in the regular course of its business, as well as to become the creditor of others. Its o\YTi obligations must be met, and debts due to it collected or secured. The power to adopt reasonable and appropriate measures for these purposes is an incident to the power to incur the liability or become the creditor. Obligations may be as- sumed that result unfortunately. Loans or discounts may be made that cannot be met at maturity. Compromises to avoid or reduce losses are oftentimes the necessary results of this condition of things. These compromises come within the gen- eral scope of the powers committed to the board of directors and the officers and agents of the bank, and are submitted to their judgment and discretion, except to the extent that they are restrained by the charter or by-laws. Banks may do, in this behalf, whatever natural persons could do under like circumstances." The question of the power of the bank to borrow money was not the direct question before the court in the case above cited; but the court in this case emphasizes the law and inci- dental powers of a bank, to be only those Avhich necessarily may be used to carry out the express powers and incidental powers necessary to carry on the business of banking. In the case of The Western j^ational Bank v. Armstrong, 152 U. S. 346 (appeal from the Circuit Court of the United States for the Sourthern District of Ohio), the question of borrowing money and power of a national bank to do so is directly discussed by tlie court. The opinion of the court in tliis case is as follows: Mr. Justice Sliiras, delivering the opinion of the court, says: CH. XXV.] Backing. 339 'MVhether the transaction of May, 1887, was a discount by the "Western National Bank of Xew York in favor of E. L, Harper of the four notes made by A. P. Gahr and indorsed by Harper, or was a loan by said bank to the Fidelity Xational Bfcnk, is the question principally discussed in the briefs and oral arguments of the respective parties. " In disposing of the case we are not assisted by any findings or opinion by the court below, and we are left to conjecture the grounds upon which that court proceeded in dismissing the bill of complaint. " The theory that the case was that of a single discount by the Xew York bank of four promissory notes, made by Gahr and indorsed by Harper, and secured by the assigimient by Harper of certificates of 1,600 shares of the stock of ihe Fidelity Xational Bank, comports with the form of the notes themselves. Such a transaction would have been an ordinary one, and in the course of the usual business of such a bank. The letter of May 16, 1887, in which the proposition was made to the Xew York bank to make the loan, was signed by E. L. Harper in his own name, without any official designation. That the $200,000 were placed on the books of the Xew York bank to the credit of the Ohio bank was no+ inconsistent wi^h this version of the case, because it appears that this was done at the request of Harper. " On the other hand, it is claimed that because the letter of May 16, 18S7, was written on the letter paper of the Fidelity Xational Bank, and because the proceeds of the discount were placed to the credit of the Ohio bank, and were drawn out by drafts of that bank, the transaction was thereby shown to have been made on behalf of the Ohio bank. And C. X. Jordan, vice-president of the Xew York bank, testified that he under- stood the proposition to come from the Ohio bank for a loan to it. and that he would not have submitted the matter for approval to the board of the Xew York bank had he not so understood it. " There are other features of the correspondence that are pointed to by the parties as making for their respective conten- tions. It may be conceded that the Xew York bank acted upon the theory that the loan was to the Ohio bank, and took the notes and certificates of stock as collateral. But the liability of the Ohio bank is not a necessary consequence of such a con- o40 Banks Borrowing Money. [en, xxv. cession. It has further to be shown that the Ohio bank was reallv a party to the transaction, either by having autliorized Harper to effect the loan on its behalf, or by having ratified his action and having accepted and enjoyed the proceeds of the discount. '' There is no evidence whatever that the board of directors of the Fidelity National Bank gave any authority to Harper to borrow money on behalf of the bank, much less to borrow so enormous a sum on so long a time. In this respect the com- plainant's case stands barely on the assertion in the bill that ' Harper was the vice-president and general manager of the Fidelity iSTational Bank, with full authority to make said loan on its behalf.' The only evidence we find in the record tending to support such averment is found in the answer by J. Harvey Waters, the general book-keeper of the Fidelity National Bank, on cross-examination, wherein he stated that E. L. Harper was the vice-president and managing officer, and that by ' managing officer ' he meant that Harper was ' the general manager of the business of the bank.' ISTo such office as that of ' general manager ' is known or named in the National Bank Acts, nor does any such office exist by usage. The most that can be claimed in this case is that Harper acted as the principal executive officer of the bank. It cannot be pretended that, as such, he had power, without authority from the board, to bind the bank by borrowing $200,000 at four months' time. " It might even be questioned whether such a transaction Avould be within the power of the board of directors. The powers expressly granted are stated in the eighth section of the National Bank Act (Rev. Stat., p. 5136, par. Y). A national bank can ' exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental 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 debt; by receiving deposits; by buying and selling exchange^ coin, and bullion; by loaning money on personal security, and by obtaining, issuing, and circulating notes.' " The power to borrow money or to give notes is not ex- pressly given by the act. The business of the bank is to lend, not to borrow, money; to discount the notes of others, not to CM. XXV.] Bai^kixg. 341 get its own notes discounted. Still, as was said by this court, in the case of First National Bank v. l^ational Exchange Bank, 92 U. S. 122, 127, ' authority is thus given in the act to transact such a banking business as is specified, and all incidental powers necessary to carry it on are granted. These powers are such as are required to meet all the legitimate demands of the au- thorized business, and to enable a bank to conduct its affairs, within the general scope of its charter, safely and prudently. This necessarily implies the right of a bank to incur liabilities iji the regular course of its business, as well as to become the creditor of others.' " Nor do we doubt that a bank, in certain circumstances, may become a temporary borrower of money. Yet such trans- actions would he so much out of the course of ordinary and legitimate hanhing as to recjuire those making the loan to see to it that the officer or agent acting for the hank had special authority to horroiv money. " Even, therefore, if it be conceded that it was within the power of the board of directors of the Fidelity National Bank to borrow $200,000 on time, it is yet obvious that the vice- president, however general his powers, could not exercise such a power unless specially authorized so to do, and it is equally obvious that persons dealing with the bank are presumed to know the extent of the general powers of the officers. " Without pursuing this part of the subject further, we think it evident that Harper had no authority to borrow this money, and that the bank cannot be held for his engagements, even if made in behalf of the bank, unless ratification on the part of the bank be shown. It is scarcely necessary to say that a ratification, to be efficacious, must be made by a party who had power to do the act in the first place ; that is, in the present case, the board of directors; and that it must be made with knowledge of the material facts. There is not the slightest evi- dence shown in this record that the board of the Fidelity National Bank, by any act, formal or informal, undertook to ratify Harper's action in the premises, or that they ever had any knowledge of the transaction. " It is true that a corporation may become liable upon con- tracts assumed to have been made in its behalf by an unauthor- ized agent by appropriating and retaining, with knowledge of oi'2 Baxks Bokkowixg Moxey. [ch. xxv. tlie facts, the benefits of the contracts so made on its behalf. But there is no room for such a contention in the present case. The money advanced by the New York bank was, indeed, at Harper's request, placed to the credit of the Ohio bank, but it was shoM'n that it was withdrawn partly by Hopkins, the assist- ant cashier, and partly by Harper himself, by drafts in the name of the bank, but that the moneys thus drawn never came into the actual possession or use of the bank. The moneys were appropriated by Harper to his own use, or, at all events, it does not appear that the bank ever got a penny of the bor- rowed money or any benefit or advantage whatever by reason of the transaction. The mere placing of the money in the name of the Ohio bank involved no ratification by the bank unless it was so placed with their knowledge and assent, nor did the withdrawal of the money by drafts drawn by Harper or by his direction in the name of the bank, constitute a receipt by the bank of such money, unless it was in point of fact, re- ceived and used by the bank or for its benefit. Not this, but the contrary was shown. " So far, then, as the case of the plaintiff in error depends on the alleged loan of money to the Fidelity National Bank, we find no error in the decree of the court below in dismissing the bill. '' This brings us to the consideration of the other phase of the ease, namely, that Avhicli arose on the claim of the New York bank as the holder of 1,600 shares of the stock of the Fidelity National Bank, transferred to it as security by Harper, to be subrogated to the supposed right of Harper to be repaid the moneys paid in by him on account of his subscription for an increase of stock, not voted for by the stockholders, and not approved by the Comptroller of the Currency. '' The court below sustained the demurrer to this portion of the bill. Two grounds were asserted in the demurrer — one, the insufficiency of parties, in that neither the Fidelity National Bank nor Harper were made parties; the other, that of multi- fariousness. It is now contended before us that Harper was not a necessary party because, as is averred in the bill and admitted by the demurrer, he had pledged and assigned this stock to the complainant bank, and it is argued that the bank thereby became vested with whatever rights Harper had to cii. XXV.] Banking. 343 have his money returned to him as a special deposit. It is also contended that asserting such a right of subrogation is so far within the equities of the bill, and so necessary an incident of the transaction, as to relieve the bill of the charge of being multifarious. " It is not easy to see why, if the complainant were really entitled to be subrogated to the rights of Harper in respect to the hypothecated stock, such a claim might not be set up in the same bill in which it seeks to be allowed, as a lender of money to the Fidelity Xational Bank, to participate in the payments made by the receiver. " But, however that may be, it seems to us that Harper, having procured an issue to himself of certificates of paid-up stock, was in no position, when the bank became insolvent, before the necessary steps to legitimatize the increase of stock had been taken, to demand back his money, as if it were trust money, or constituted a preferred claim against the assets of the bank in the hands of the recei\"er. The utmost that he could claim would be to be treated as a general creditor, and entitled as such to participate in the payments made by the receiver. " In the case of Winters v. Armstrong, Armstrong v. Stan- age, 37 Fed. Rep. 508, which was the case of a suit by the re- ceiver of the Fidelity Xational Bank to recover, from a sub- scriber to the preferred increase of stock of that bank, the amount of a promissory note given in payment of such sub- scription, it was held by Mr. Justice Jackson, then circuit judge, that, as the necessary steps had not been taken to legitimatize such increase of stock before the bank became insolvent, there was a failure of consideration, and the receiver could not enforce payment of the note. We, however, agree with the court below in thinking that such a question could not be raised in the present case, to which Harper was not a party. Harper had paid in the full amount of his subscription, and had pro- cured the issue to himself of certificates for his stock, and had parted wath the legal title to the stock by transferring the cer- tificates to the Xew" York bank. In such circumstances it might be claimed with some appearance of justice, that Harper and his transferee were precluded from opening up the transaction and procuring a recission of the subscription. If that were so. 344 BaXKS BoKRGWI>rG MOXEY. [CH. XXV. the holder of such stock, whether Harper or the Xew York bank, might have been compelled to contribute to the payment of the indebtedness of the insolvent bank.^ " So, too, even if it were held that Harper was not precluded from surrendering his stock and recovering back the money paid on account of it, it might yet be made to appear that Harper, if he were answerable for the mismanagement which resulted in the bank's insolvency, could not, in a court of equity, and as against the creditors of the bank, recover back his sub- scription money. But it is plain that such questions as these could not be adjudicated in the absence of Harper as a partv, and we therefore think the court below did not err in sustaining the demurrer for that reason. " Upon the whole, we are of the opinion that the decree of the court below, in sustaining the demurrer, and in dismissing the bill, should be affirmed." The court does not here expressly hold that the transaction Avas a loan, but says that: " " * * j^ may be conceded that the Xew York Bank acted upon the theory that the loan was to the Ohio Bank, and took the notes and certificates of stock as collateral." And further says: « * * * ]3^-j^ ^l^g liability of the Ohio Bank is not a necessary consequence of such a concession." The court further says, in laying down the principle of an executive officer of a bank as to his power and authority to contract indebtedness: " * * * The most that can be claimed in this case, is, that Harper acted as principal executive officer of the bank. It cannot be pretended as such that he had power without au- thority from the board, to bind the bank by borrowing $200,000 at four months' time." And further says: « * * * j|. i^-iiglit even be questioned whether such a transaction would be within the power of the board of directors." The court here cites Revised Statutes IT. S., section 513G. It then proceeds to lay down the principle of restrictions upon 2 National Bank r. Case, 99 U. S. 628. CH. XXV.] ■ Banking. 345 a bank to borrow money or give notes, as the privilege is not expressly provided for under the statutes. The court says: " The power to borrow money w to give notes is not expressly given by the act. The business of a bank is to lend, not to borrow money; to discount the notes of others, not to get its ovm notes discounted." The last quotation is thrown into italics to enforce the fact that the court has not bound itself by a general rule, and laid down the doctrine to be that a national bank can borrow money under any and all circumstances, for the pui-pose of carrying on and conducting a banking business. The court proceeding, then cites from its former opinion in the case of First National Bank V. National Exchange Bank, 92 U. S. 122, 127, which has previously been quoted. The court then proceeds and lays down the principle that circumstances may arise when a bank would be justified in becoming a temporary borrower of money, and uses the following language: "Nor do ive doubt that a bank in certain circumstances may become a temporary borrower of money, yet such transaction would be so much out of the course of ordinary and legitimate banking as to require those making the loan to see to it that the officer or agent acting for the bank had special authority to boiTOW the money." This quotation is also thro^^^l into italics to enforce the fact that the court has reserved itself, and does not authorize the principle or privilege of a bank to borrow money to carry on the business of banking, but holds that certain circumstances may arise when the bank would be justified in borrowing money. The power to borrow money by discounting notes is again discussed by the Supreme Court in the case of Auten v. U. S. National Bank of New York, 17-4 U. " S. 125-143. The syllabus of this case is as follows: " In June, 1892, the United States National Bank of New York, by letter, solicited the business of the First National Bank of Little Eock, Arkansas. The latter, through its presi- dent, accepted the proposition, and opened business by enclos- ing for discount, notes to a large amount. This business con- tinued for some months, the discounted notes being taken up as maturing, until the Arkansas bank suspended payment, and 340 Banks Bokrowixg Mo:n^ey. [ch. xxv. went into the hands of a receiver. At that time the Xew York bank held notes to" a large amount, which it had acquired bj discounting them from the Arkansas bank. These notes have been duly protested for non-payment and the payment of the fees of protest made bv the Xew York bank have been charged to the Arkansas bank in account. The receiver re- fused to pay or allow them. At the time of the failure of the Arkansas bank there was a slight balance due it from the Xew York bank, which the latter credited to it on account of the sum which was claimed to be due on the notes after the re- fusal of the receiver to allow them. The Xew York bank commenced this suit against the receiver to recover the balance which it claimed was due to it. The receiver denied all lia- bility and asked judgment in his favor for the small balance in the hands of the Xew York bank. It was also set up that the notes discounted by the Xew York bank were not for the benefit of the Arkansas bank, but for the benefit of its presi- dent, and that the Xew York bank was charged \\'ith notice of this. The judgment of the trial court, which was affirmed by the Circuit Court of Appeals, was for the full amount of the notes, less the set-off. In this court motion was made to dismiss the writ of error on the, ground that jurisdiction below depended on diversity of citizenship, and hence was final. Held: 1st. That the receiver, being an officer of the United States, the action against him was one arising under the laws of the United States, and this court had jurisdiction. 2nd. That it was competent for the directors of the Arkansas bank to empower the president or cashier, or both to indorse the paper of the bank, and that, under the circum- stances, the Xew York bank was justified in assuming that the dealings with it were authorized and were executed as au- thorized. 3rd. Tliat the set-off ha^dng been allowed by the Xew York bank in account, the receiver was entitled to no other relief. It should l)e noticed that the First Xational Bank of Little Rock was not a direct borrower from the Xew York bank. The Xew York bank was its correspondent, and, as is the usual custom, accepted the Little Rock bank notes executed to it in the usual course of business, and these notes were forwarded CH. XXV. J Ba2s"kixg. 347 to the New York bank and by it discounted. The Little Rock bank afterwards failing, was placed in the hands of a receiver. It was found that there was a balance due the New York bank upon notes which it had discounted for the Little Rock bank, which had not been paid. The receiver denied the liability and claimed the notes were not discounted for the benefit of the Little Rock bank, but for the benefit of the president, and that the Xew York bank was charged with notice of this. But the facts showed that the transactions were authorized by the directors and the judgment was in favor of the L'nited States National Bank. There is nothing in this case to show that the Little Rock liank borrowed money on demand or on time, by executing its note for the purpose of conducting or carrying on the busi- ness of banking; but it was discounting notes which is usual in the transactions of banking. The usual and customary transactions of banking and those which occur daily between banks, such as discounting and re- discounting notes, comes \\ithin the legitimate powers of banking. This may be called " borrowing and loaning money," and such transactions which occur daily and hourly between banks are not characterized as unlawful acts. But there is a wide difference between such common and usual transactions, and those which are unusual and out of the ordinary. As, for example, the borrowing of money to conduct and carry on the business of banking for the purpose of profit. Discounting and re-discounting notes is specially provided for and allowed by the statute and is an ordinary transaction as before stated. But borro'\\ang money is an unusual, extraordinary necessity seldom resorted to, and should not be allowed to be abused, and only used in cases of exigency and under critical conditions which may arise from the business of banking. The court in discussing the subject generally, says: " The very object of banking is to aid the operation of the laws of commerce by serving as a channel for carrying money from place to place, as the rise and fall of supply and demand require; and it may be done by re-discounting the bank's paper, or by some other power of borrowing money." The court further says: 34S Baxks Bokeowing !Moxey. [ch. xxv. "A power so useful cannot be said to be illegitimate, and declared as a matter of law to be out of the usual course of business; and to charge everybody connected with it with knowledge that it may be in excess of authority, it Avould seem if doubtful, more like a question of fact to be solved in the particular case in the usage of the party or the usage of the community." The court here again leaves such cases to be determined upon the facts, usage of the parties or the usage of the com- munity where they may arise. The question of power of a national bank to borrow money was again brought before the Supreme Court of the United States in the case of Aldrich v. Chemical Xational Bank, 176 II. S. 618, where this case and Western National Bank v. Armstrong, 152 U. S. 3-46 is disting-uished. The court in its opinion says: '^ "We have then, a case in which a national bank ha-^dng used in its business, money which a vice-president obtained as a loan from it to another national bank, denies all liability to account for the same upon the ground that the loan was not negotiated by it or by its directors, as well as upon the ground that it could not itself have legally borrowed the money from the other bank. " Do the statutes relating to the Xational Banking Associa- tion require that such a defense be sustained? This question is recognized by the court as one of great importance and has received careful consideration in the light of adjudicated cases. We proceed to the further examination of these cases." The court, citing many cases, then concludes its opinion in the following language: " Without further citation of cases we adjudge, both upon principle and authority, that as the money of the Chemical Bank was obtained under a loan negotiated by the vice-presi- dent of the Fidelity Bank who assumed to represent it in the transaction, and as tlie Fidelity Bank used the money so ob- tained in its banking business and for its own benefit, the latter bank having enjoyed the fruits of the transaction cannot avoid accoimtability to the jSTew York bank, even if it were true as contended that the Fidelity Bank could not consist- ently with the law of its creation have itself borrowed the CH. XXV.] Baxkixq. . 349 money, "When, as the result of its arrangement with Harper as vice-presendent, the Chemical Bank credited the Fidelity Bank on its books with the sum of $300,000, the former thereby undertook to pay the checks of the latter to the extent of that credit. And, as already stated, that credit was fully exhausted by the payment of the checks of the Fidehty Bank drawn in the ordinary course of its business. If the latter bank in this way used the money obtained from the Chemical Bank, it is under an implied obligation to pay it back or ac- count for it to the Xew York bank. It cannot escape lia- bility on the ground merely that it was not permitted by its charter to obtain money from another bank. Suppose the Fidelity Bank by its check upon the Chemical Bank, had drawn the whole $300,000 at one time and now has the money in its possession unused ? It would not be allowed to hold the money even if it were without power under its charter to have borrowed it from the Chemical Bank for use in its business. " Or suppose a national bank, in violation of the act of Congress, takes as security for a loan made by it, a deed of trust of real estate, and subsequently causes the property to be sold and the proceeds applied in payment of its claim against tlie borrower, a surplus being left in its hands, which it uses in its business or in discharge of its obligations. If sued by the borrower for the amount of such surplus, could thie bank successfully resist payment upon the ground that the statute forbade it to make a loan of money on real estate security? Common honesty requires this question to be answered in the negative. But it could not be so answered if it be true that the Fidelity Bank could use in its business and for its benefit, money obtained by one of its officers from another bank under the pretence of a loan, and be discharged from liability there- for upon the ground that it could not itself have directly bor- rowed from the other bank, the money so obtained and used. There is nothing in the acts of Congress authorizing or per- mitting a national bank to appropriate and use the money or property of others for its benefit without liability for so doing. " If the Fidelity Bank did not itself borrow this money from the Chemical Bank, although the latter bank in good faith believed that it did, then the crediting of the fonner Dn 350 Banks Borrowing Money. [cii. xxv. the books of the hitter with $300,000 was a mistake of which the Fidelity Bank was not entitled in equity and good con- science to take advantage, and from which it should not be per- mitted to derive profit to the prejudice of the other bank. So, if the Fidelity Bank took the benefit of that credit with knowl- edge of all the facts, then its defence is without excuse and immoral If it innocently availed itself of that credit with- out knowledge of the facts, the principles of natural justice demand that it be held accountable for the money of another bank which it used in its business without giving any con- sideration therefor. " The fact that, after the Fidelity Bank had been credited on the books of the Chemical Bank with the $300,000, Harper fraudulently caused himself to be credited on the books of the Fidelity Bank with a like sum, is a matter with which the Chemical Bank, had no connection and cannot affect its right to demand a return of the money which went (as the Chemical Bank in good faith supposed it would) into the treasury of the Fidelity Bank and was by it used in meeting its obliga- tions. The dishonesty of Harper in his management of the affairs of the Fidelity Bank, did not discharge that bank from the obligation under which it came, by using in its business the money obtained by its vice-president under the guise of a loan to the ])ank. " It is no defence to the claim of the Chemical Bank to say that the directors of the Fidelity Bank were unaware of the fraudulent acts of Harper. We do not rest our conclusion in the present case, upon any question as to diligence or want of diligence upon the part of the directors. We rest it upon the fact and the implied obligation arising therefrom that the Fidelity Bank used in its business and for its benefit, the money which the Chemical Bank placed to its credit in consequence of a loan negotiated by Harper, who assumed to represent it. Independently tlierefore of any Cfuestion as to the scope of the power of a national bank to borrow money to be used in its hnsiness, we hold that the Fidelity banh became liable to the Chemical Bank by using the money obtained front the latter, under the arrangement made by Harper in Jiis capacity as vice- president; consequently, the decree recognizing the claim, of the Chemical Bank for the amount of the loan of March, 1887, ^ras right." CH. XXV.] Baxkixg. 351 This is an adjudication of the question to the present time and it may again be stated that the court decides this case independentllj of the question as io the scope of the power of a National Bank to horroiv money to he used in its husiness; not declaring that a national bank cannot borrow under certain circumstances, nor establishing a precedent that it may do so as an ordinary power and that* such a power is an incident to the bank. The court decides that the Fidelity Bank became liable because it obtained money from the Chemical Bank and used it in its business, and that the mode of obtaining the money, while not regular upon its face, the bank received it, deriving a benefit from its use and should therefore be re- quired to pay it back. A national bank may then borrow money to an extent not to exceed its capital paid up, when duly authorized by its direc- tors, and this may occur as an ordinary transaction in the course of rediscounting notes personally made to it in the ordinary course of business, and such transactions may be per- formed by the duly appointed and authorized officers. But the borrowing of money by executing the note of the bank to bring it within the power of the corporation, the transaction not being authorized by statute, nor a customary or an ordi- nary or usual one, an exigency should exist, and the transaction should he authorized hy the Directors at the time. If not, it should afterwards be ratified by them. The rule that a National Bank can borrow money for the ex- press purpose of re-loaning it again for profit or speculation, seems too broad. Borrowing money is only an incidental power not being expressly authorized, and therefore should not be exer- cised as an express power. The power to horroiv moneij is not expressed and authorized hy the statute because evidently it was considered a dangerous privilege and one that ivoidd he abused. And for the further reason the power is not authorized, because it is not considered a part of the ordinary business of banking. The transactions are considered so much outside of the general scope of the bank's power, that the officer acting in behalf of the bank should, in each case, have special authority. 352 Banks Boreowing Money. [ch. xxv. § 232. State banks borrowing money. State banking corporations being creatures of the law, their powers and rights are derived from the Constitution and stat- utes of the various States under which they are incorporated. They have only such powers as are granted to them by con- stitutional and legislative authority, together with such im- plied powers as are necessary to put into execution and use those powers which are expressly enumerated in the law, and set forth in their charter. A banking corporation is an artificial person when incor- porated under the general laws of a State, and may be en- dowed "^vith capacity to enter into any obligation or contract essential for its purpose, and for the transaction of its ordinary affairs. The statute may give it power to issue evidences of debt; to borrow money to carry on the business for which it was incorporated, and this right may be used although not reserved by its charter. As has been stated, banking corporations are not incor- porated for the purpose of borrowing money to speculate in business. It is their purpose rather, to receive on deposit and to loan money. The power of borrowing money by a State bank, where not specially authorized hj statute or by the bank's charter, is governed by the same law and rules that govern ■national banks and should be limited to cases of extreme emergency. Such an emergency can only arise where funds are required to meet the urgent and unexpected demands made on the bank. In the case of Tuttle v. National Bank of the Republic, 48 IlL (App.) 481, the court says: " It has been suggested that the debt was incurred without lawful power on the part of the Edwards County Bank, in whose charter there is no specific authority to borrow money; but we understand that is an incidental or implied power possessed by banking corporations generally, unless especially denied or restricted. " Of course it is not a part of the continuous practice of any bank to borrow, but it is often necessary in the reasonable exercise of express power, and hence it is usually regarded as a necessary incident. Aloise on Banks and Banking, section 63. Certainly the borrowing must be incidental to the usual CH. xxv.J Banking. 353 and legitimate business of a bank, otherwise the act is ultra vires; but it is not apparent that there was anything extraor- dinary or illegitimate in this loan. " Other questions suggested in the briefs need not be dis- cussed, as in the view we are inclined to take of the case, the foregoing considerations require us to affirm the judgment." The court sustains the reasonable rule that, the borrowing of money is always lawful under a power expressed; but where the power is used as an incidental power, it must only be used in the usual and legitimate business of banking. And this business is not the borrowing of money to speculate on. The Supreme Court of the State of Indiana, in the case of James, Administrator v. Rogers, 23 Ind. 451, in discussing the power of a banking corporation to issue promissory notes, says: " No corporation has authority to issue its promissory notes, except, as it received such authority through its charter, either expressly conferred, or as an incident to the purpose for which it was created." In Xew York, in the case of Coats v. Donnell, et al, 94 jS^. Y. 168, the court, in discussing the powers of a bank through its cashier to borrow money, says: " There can, we apprehend, be no serious doubt of the proposition that the agreement of June 10, 1878, was one which the cashier of the bank was authorized to make, first, as incident to his office of cashier, in the absence of any special authority to enter into the particular transaction, and second, by reason of the by-laws of the bank defining the authority of the cashier, which declares that " he shall have the imme- diate charge and supervision of the bank; shall attend to the making of loans, discounts and other active business trans- actions of the bank, exercising his own judgment as to all such matters, when not otherwise directed by the finance committee or board of directors." The drafts in question, were drawn and negotiated for the purpose of procuring money for the use of the bank and to enable it to carry on its legitimate and usual business. The cashier of a bank is its executive officer, and it is well settled that as incident to his office, he has au- thority, implied from his official designation as cashier, to borrow money for, and to bind the bank for its repayment, 23 354 Banks Borrowing Money. [ch, xxv. and the assumption of such authority by the cashier, ^^^ll con- clude the bank as against third persons who have no notice of his want of authority in the particular transaction, and deal with him upon the basis of its existence.^ The negotiation of the drafts in this case by the cashier, was within his authority. The power to borrow being ad- mitted, the power to secure the loan by pledge of the property or funds of the bank (in the absence of any statutory restraint), in the ordinary course of business, would seem to be a neces- sary inference from the primary powers, and this is recog- nized in the cases to Avhich we have referred. The exigency of the han^c ivhen the agreement in question was made, ren- dered it of the utmost importance to its interests to prevent the protest of the drafts, and the authority of the cashier to make the agreement of June 10, 1878, giving to Donnell, Laivson & Co., a lien upon any deposit in their hands, for their security, if at all doubtful, irrespective of the by-laws, was ample under the comprehensive grant of authority thereby conferred." The authority to borrow money, while generally recognized, in the opinion of the court in the above case, was authorized because it was a necessity. Where a run threatens the bank or its drafts are liable to go to protest, its cashier has the power when authorized by the directors to temporarily borrow money to pay depositors or to protect the credit of the bank. ■ Where the statute of a State restrains a banking corpora- tion, prohibiting it from borrowing money, its officers have no authority, impliedly or otherwise, to enter into such contracts. A bank may, by statute, be prohibited from borroAving money of another bank, payable at a future day certain.'* Where the Constitution or the statute of a State provides that a corporation shall not create a debt in excess of its capital paid up and where a banking corporation derives all its au- thority through incorporation under such general laws, the directors have no authority to create a debt in excess of its paid up capital. 3 Curtis r. Leavitt, 15 N. Y. 9, 4 Commonwealth t\ Bank of Mu- Barnes r. Ontario Bank, 19 id. 152. tual Redemption, 4 Allen (Mass.) 1. CHAPTER XXVI. BANKS DEALING IN STOCKS AND BONDS. § 233. National banks, power limited. A national bank has no power to deal as an agent in stocks and bonds. It is also prohibited from buying or selling them upon commission. Such transactions and operations are not deemed incidental to the national banking business. A national bank has no charter, statutory or incidental powers to act as a broker or agent in the purchase of bonds and stocks. Mr. Justice Mercur, in Bank of Allerton v. lioch, 89 Pa. St. 324,-says:— " It is a well recognized law, that a national bank is not, by its charter, authorized to act as a broker or agent in the purchase of bonds and stocks. Its specified powers given by Statute nor its incidental powers necessary to carry on the business of banking, do not extend to the transaction of such business.^ When the paper on its face shows the transaction not to be within the usual course of business of the bank, it is not bind- ing on the bank, although signed by the president thereof, as such officer. He is the executive agent of the board of di- rectors within the ordinary business of the bank, but cannot bind it by a contract outside thereof, without special authority. I do not understand these general rules to be denied," The power to deal in stocks is not expressly prohibited by the Statute, but such a prohibition is implied from the failure to grant the power. The Supreme Court of the United States, in the case of First National Bank of Charlotte v. National Exchange Bank of Baltimore, 92 U. S. 122, holds that a national bank may accept stock in payment and satisfaction of a doubtful debt, with n view to a subsequent sale or conversion into money of said stocks so as to make good or reduce an anticipated loss. 1 First National Bank of Cliar- S.) 122; Fowler r. Scully, 22 P. F. lotte I'. Exchange Bank, 2 Otto (U. Smith, 456. [355] 356 Banks De.vxing ix Stocxs and Bonds. [ch. xxvi. The Court savs: '' Dealing in stocks is not expressly prohibited ; but such a proliibition is implied from the failure to grant the power. In the honest exercise of the power to compromise a doubtful debt owing to a bank, it can hardly be doubted that stocks may be accepted in pa^mient and satisfaction, Avith a view to their subsequent sale or conversion into money so as to make good or reduce an anticipated loss. Such a transaction would not amount to a dealing in stocks. It was, in eilect, so decided in Fleckner v. Bank of the United States, 8 Wheat. 351, where it was held that a proliibition against trading and dealing was nothing more than a prohibition against engaging in the ordi- nary business of buying and selling for profit, and did not in- clude purchases resulting from ordinary banking transactions. For this reason, among others, the acceptance of an indorsed note in payment of a debt due, was decided not to be a " deal- ing '' in notes. Of course, all such transactions must be com- promises in good faith, and not mere cloaks or devices to cover unauthorized practices." A National haul- has incidental poii'er to loan money on 'personal security and accept stock of another corporation as collateral, and thus becomes subject to liability as other stock- holders. In the further discussion of this subject, the Supreme Court of the United States, in California Bank v. Kennedy, says : " The Federal questions which therefor arise on the record may be thus stated: "1st. Do the Statutes of the United States, Rev. Stat. p. 5136, et secj., relating to the organization and powers of national banks, prohibit them from purchasing or subscribing to the stock of another corporation ? "2d. If a national bank does not possess such power, can the want of authority be urged by the bank to defeat an attempt to enforce against it the liability of a stockholder ? " As to the first question. — It is settled that the United States Statutes relative to national banks, constitute the measure of the authority of such corporations, and that they cannot right- fully exercise any powers except those expressly granted, or en. XXVI.] Banking. 357 which are incidental to carrying on the business' for which they are established.^ " Xo express power to acqnire tlie stock of another corpora- tion is conferred upon a national bank, but it has been held that, as incidental to the power to loan money on personal security, a bank may in the usual course of doing such business, accept stock of another corporation as collateral, and by the enforce- ment of its rights as pledgee, it may become the owner of the collateral and be subject to liability as other stockholders.^ " So also, a national bank may be conceded to possess the incidental power of accepting in good faith, stock of another corporation as securit^^ for a previous indebtedness. It is clear, however, that a national bank does not possess the power to deal in stocks. The prohibition is implied from the failure to grant the power." Where a national bank takes by purchase, stock in another corporation, the law is settled that the corporation may plead its lack of power. The act is an ultra vires act.^ The Revised Statutes of the United States, § 5201, provides that national associations must not hold their own stock, taken as security for a debt beyond a period of six months. The Court says, in discussing this question, and in analyzing said section: " So, while a bank . is expressly prohibited from loaning money upon, or purchasing its own stock, special authority is given for the acceptance of its shares as security for and in payment of debts previously contracted in good faith ; but all shares purchased under this power must be again sold or disposed of at private or public sale, within six months from the time they are acquired." The law is well settled that a national bank has power to take evidences of debt from its customers and other persons, 2 Logan Co. Bank v. Tovvnsend, I ; Pittsburgh, Cincinnati, etc.. Rail- 139 U. S. 07, 73. way v. Keokuk & Hamilton Bridge 3 National Bank v. Case, 99 U. S. Co., 131 U. S. 371; Central Transp. 628. Co. r. Pullman's Car Co., 139 U. S. 4 California Bank v. Kennedy, 167 24; St. Louis, etc.. Railroad t;. Terre U. S. 3i*2 ; Thomas v. Railroad Co., Haute & Indianapolis Railroad, 145 101 U. S. 71; Pennsylvania Railroad U. S. 393; Union Pacific Railway v. V. St. Louis, Alton, etc.. Railroad, Chicago, etc.. Railway, 163 U." S. 118 U. S. 290; Oregon Rv. & Nav. ,564; McCormick v. 'Market Nat. Co. i\ Oregonian Ry. Go.,*130 U. S. Bank, 165 U. S. 538. 358 Ba^-ks Dealing ix Stocks axd Bon^ds. [en. xxvi. and send them to distant places for collection and pay over the proceeds when collected to the person entitled thereto ; re- taining or receiving, in some form, a compensation for its services rendered. The bank, therefore, may enter into an agreement with a customer to exchange for him, non-registered United States bonds for registered bonds. The Court says: " The exchange of the bond wonld, in a broad sense, have been a negotiation of them. It would, as commonly under- stood have been a legitimate business for a bank to do. We may take judicial notice of the fact that government bonds are usually bought and sold through banks; and that all the transactions in reference to them with the government, are usually comducted through banks and persons doing banking business. They are moneyed securities, and the collection or exchange of them, is a financial transaction in no sense foreign to the business of banking."^ A national bank can properly and legally engage in the business of dealing in and exchanging government securities.^ The State courts universally endorse the principle that na- tional banks have the incidental power to deal in government bonds, receiving them on deposit, being of one class, and ex- changing them for those of another class. The Supreme Court, in the case of Leach v. Hale, 31 Iowa 69, says: " We think the bank, under .the provisions of the Act above cited, was clothed with authority to pursue either course in order to convert the bonds of its customers." § 234. Liability of national bank holding stock as security. The Supreme Court of the United States, in the case of Xational Bank v. Case, 99 U. S. 628, states the law as es- tablished, " that one to whom stock has been transferred in pledge or as collateral security for money loaned, and who ap- pears on the books of the corporation as the owner of the stock, is liable as stockholder for the benefit of creditors.^' SYerkes v. National Bank. 69 N. QCornolius "M. Van T-*uvon, Re- Y. 382. spondent, r. TIip First Nat. Bank of Kingston, Appellant, 54 N. Y. 671. CH. XXVI.] Banking. 359 § 235. Commercial and savings banks dealing in stocks and bonds. All commercial and savings banks organized under State laws have the incidental power to deal in stocks, bonds, etc., unless specifically restricted bv the Statute. They maj pur- chase stocks of another corporation, buy and sell the same as individuals may do. But where the Statute of a State pro- hibits a banking corporation from investing in stocks or bonds of a particular class, they have the incidental and implied power, whether authorized by law or not, to deal in all other stocks and bonds ; to buy and sell notes and securities of like nature. The right of a State banking corporation to deal in stocks, directly or indirectly, in buying or selling, where the power is not restricted by Statute, is held to be a common-law right. It is a power incident to every corporation.''^ The power to buy and sell stocks and bonds should not be construed as a right to traffic in them. A bank may buy such securities as an investment for the purpose of investing the surplus fund it may possess. To traffic in such security, that is, buy and sell with a view to an anticipated advance in price, is a violation of the principle of legitimate banking. A bank has no authority, incidental or otherwise, to speculate in securities. Its investments and dealings should always be made with a view to profit, safety, and security. Where a Statute does not intervene and prohibit a bank from taking its o^vn stock as security for a debt contracted, it may take and hold the same as securitv for such debt ; and on failure to pay, it may proceed to sell the stock and may buy the same, and after purchase, sell the stock and take the purchaser's note in payment therefor. 7 Farmers and Mechanics' Bank V. Champlain Transp. Co., 18 Vt. 131. CHAPTER XXVII. BANK DISCOUNTS. § 236. Power to make, vested in directors. The power to discount notes is one which is vested exclusively in the board of directors. Tt is a power which cannot be delegated by them and given over without reserve to an officer or agent of the bank. The execution or the doing of the act may be performed by an officer of the bank, but the authority and direction arises and comes from the board of directors. The board of directors, it is held, may, by a single resolution, passed by them, give the power to a financial officer of the bank, with general authority to make discounts. Again it is held, that such a resolution must designate the person or persons to whom the loans are made. As all loans must be made by direction and under the authority of the board of directors, it is questionable whether a general resolution di- recting a financial agent of a bank to make loans, would give him the power to do so. This power, however, and privilege is by a very great num- ber of the banks, assumed by the president or cashier, and the business of making discounts is entirely left with them without any direction or authority whatever. Banking corporations, both State and national, are clothed v:ith the power to rediscount bills receivable. A rediscount is the taking of a note which has been duly executed to the bank, calling for a certain sum of money, payable at a future date, which note is by the bank indorsed either with or without recourse to another bank or person. A rediscount by a bank of its bills receivable, though i( indorses the same by a general indorsement only becomes con- tingently liable for the payment, and it is not a borrowing of money by the bank; but has more the characteristics of a sale. The right of a bank to discount and " re-discount " paper cannot be questioned. [360] cii. XXVII.] Banking. 361 The Federal Court, in the case of the United States jSTational Bank v. First National Bank of Little Rock, 79 Fed. Rep. 296, holds that an officer of a bank has the authority to indorse negotiable paper owned by the bank; and that such transac- tions come within the ordinary transaction of the business of the bank. Such transactions are of hourly occurrence in all banks located in large business centers. The court says: " There is an obvious difference between a transaction where a bank goes into the market as a borrower, giving its own notes, bills or other obligations for the money borrowed, and a trans- action where it disposes of the notes and bills of third parties which it has previously discounted. In the former case, it becomes primarily bound; it is the principal debtor; while, in the latter case, if it indorses the paper, it only incurs a co7i- iingent liability which may never ripen into an absolute obliga- tion to pay. The latter transaction has more, if not all of the characteristics of a sale, and it is generally regarded as a sale whereby assets of a certain kind are converted into cash, * * * but we can see no propriety in characterizing the transaction as a borrowing of money, when a person or corporation sella commercial paper made by third parties, which they happen to own." The court, in further discussing this subject, says: " We think the weight of reason and authority is in favor of the view that it is within the scope of the implied power of the I>resident of a bank to indorse negotiable paper in the ordinary transaction of the bank's business; and that a special authority to that end need not be conferred by the board of directors. Such implied power is generally conceded to the bank cashier, and we know of no sufficient reason why the implied power of the chief executive officer of a bank should be more limited in this respect than those of its cashier." ^ The rule laid down and announced by the court, in the case of the Western National Bank v. Armstrong, 152 U. S. 346, that the president or cashier of a national bank is devoid of 1 Bank v. Smith, 23 C. C. A. 80, Cooke r. Bank, 52 N. Y. 96; Bank 77 Fed. 129, 135; Fleckner v. Bank, v. Wheeler. 21 Ind. 90; Merchants' 8 Wheat. 338, 360; Wild r. Bank, Bank v. State Bank, 10 Wall. 604, 3 Mason. 505. Fed. Cas. No. 17.646; 650. Bank v. Perkins, 29 N. Y. 554, 569; 362 Baxk Discounts. [ch. xxvii. power to borrow money or re-discount notes unless duly authorized to do so by the board of directors, it is claimed does not apply where a general usage is sho"v\Ti between cor- respondent banks. This rule can be supported on no other theory than that the usage and custom was condoned and acquiesced in by the directors. It is interesting in this connection, to read the opinion of the court in the case cited, namely the Western Xational Bank V. Armstrong, and to note the close distinctions made by the court in the application of the rule between re-discounts and borrowing money by a bank. "While the practice of discounting bills receivable is lawful and comes Avithin the scope and authority, impliedly and inci- dentally given to bank officers, and is a usage which may be recognized between banks in certain localities, and is daily practiced, it may be carried to a dangerous degree and extent. It should be guarded with a degree of conservatism and there- fore the wisdom of the law is seen in making of discounts an inalienable function and power of the directors. CHAPTER XXVIII. DEALING IN COMMEECIAL PAPER. § 237. Distinction between " discount " and " purchasing." It is the principal business of a bank to acquire commercial paper. The law does not require, and it is not held that all its promissory notes should be drawn payable and executed di- rectly to the bank. The greatest portion of the bank's business in some localities, is in the discounting of negotiable notes. The statutes relating to national banks, expressly confer to them, the power, "^0/ discounting and negotiating promissory notes." Discounting notes is not held to be "purchasing." The subject has frequently been before the courts and it is held that there is a distinction between " discounting " and " purchasing outright." In the case of the First Xational Bank of Rochester v. Pierson, 24 Minn. 140, the court holds that, where it was shown by the evidence that the bank was the " purchaser " of the note in question, it was an act clearly in violation of the statute. The court, in discussing the question, says: " As a conclusion of law, etc., etc., the plaintiff, a national bank corporation, had no right or authority to purchase or traffic in promissory notes as " choses in actions " and did not in law acquire by the supposed purchase, any title to the notes in question, and cannot recover upon it in this action." This is a strict construction of the statute as it does not, in expressed words, directly authorize national banks to purchase promissory notes. It is also held in the Maryland case, Jessie Lazear v. The Union Bank of Maryland, 52 Md. 78, that a national bank is forbidden this power. The court says that there is a plain dis- tinction between the language of the statute between " pur- chasing " and " discounting" commercial paper; that while the power is specifically recognized and given to a national bank to discount notes, drafts, bills of exchange, etc., the power is [363] 364: Dealing in Commercial Paper. [ch. xxviii. conspicuously withheld authorizing national banks the power to " purchase " promissory notes. The court here also construes the statute strictly upon the ground that there is no express provisions or power authorized hj the law, holding that there is an important distinction between '' purchasing " and " discounting " notes. The question is of sufficient importance to give other authori- ties. The Supreme Court of the State of Illinois, in the case of the First Xational Bank of Greenville v. Asa J. Sherburne, 14 111. App. 56G, has so clearly presented the question with such sound reasoning, holding that a Xational bank tnay law- fully purchase a note by the way of discount. We cite from the opinion of the court: " The power given to national banks as respects the matters here in issue, is ' to carry on the business of banking by dis- counting and negotiating promissory notes, drafts, bills of ex- change and other evidences of debt.' R. S. U. S., § 5136. It is urged the transaction involved in this case was a purchase by appellant of the note, that a national bank has no power to make such purchase, and that the bank took no title thereto and cannot recover thereon. The cases of Lazear v. National Union Bank of Maryland, 52 Md. 78; F. & M. Bank v. Bald- ^Yil\, 23 Minn. 198, and the First Xational Bank v. Pierson, 24 Minn. 140, are cited as authorities in that behalf. As we understand the facts of the case bearing upon the question under consideration, the note was executed by appellee and pay- able on the first of September, 1882, to the order of one, E. B. Wise, and was by said Wise on the 29th of June, 1882, and before maturity, indorsed in blank and delivered for value through its cashier to the appellant bank. No point was made in the court below as to the title of appellant, and the evidence does not disclose what discount was made upon the note. " The argument made here, is based upon the statement of the cashier, that he purchased the note from AVise and that it was bought in the usual course of business as he bought other notes. It may be questionable whether the words used in the statute * by negotiating ' are broad enough to include that which was here done by the bank; and yet according to the lexi- cographers, the word ' negotiate ' means not only ' to transfer,' ' to sell,' ' to pass ' but ' to procure by mutual intercourse and CH. XXVIII.] Baxkixg. 365 agreement with another.' It appears the note was taken by a national bank and ' in the nsual course of business.' " Admitting- the bank had no power to become vested with the legal title to the note otherwise than by ' discounting ' it — the fair and reasonable presumption, from the fact it was taken i]i the usual course of business of a national bank, would be tliat it was discounted. The fact the cashier in stating the transaction uses the words ' purchased ' and ' bought/ we do not deem of much importance. " In Atlantic State Bank v. Savery, 82 X. Y. 291, a similar statute was under consideration and the word ' bought ' was used by the witness and a written memorandum of the transfer was made and delivered at the time in which the word ' sold ' was used, and yet it was held it was a discount and the title to the note was valid. In the present case, the paper was pro- cured from AVise, who was both payee and indorser, and was transferred by an indorsement imposing the ordinary liability upon the indorser. " Although in form and in common parlance it was a pur- chase of the note, yet, in substance, it was a loan by way of discount made by the bank to "Wise; and the relation of debtor and creditor as between them was created. " Discount is the difference between the price and amount of the debt, the evidence of which is transferred; and the char- acter of the paper with reference to its being business or accommodation paper is immaterial as respects the transaction being properly denominated a loan.^ " Had the transfer been by delivery only, or by an indorse- ment without recourse, then, probably it might be regarded as an absolute purchase of the note. " This is sufficient upon this point for the purposes of the present controversy. We are inclined, however, in the absence of Federal or binding authority as to the construction to be given this subject, 5136 R S. U. S., to place our decision upon higher ground. A purchase may be made by way of discount equally as well as a loan may be made by way of discount. Discount means ex vi termini, a deduction or drawback made upon advances or loans of money upon negotiable paper or 1 National Bank r. Jolinson, 1041'. S. 271. 366 Dealing ix Commerclvl Paper. [cii. xxviii. ether evidences of debt, payable at a future day, which are transferred to the bank. Fleckner v. Bank of United States, 8 "Wheat. 338, 350; and in the same case Mr. Justice Story speaks of ' a purchase by way of discount.' If the party deal- ing with the bank assumes a responsibility, it is a loan; if he does not, it is an advance made to him in consideraton of the transfer ^Aathout recourse or by delivery. If a greater rate of discount is taken or reserved than the Bank Act allows, then the bank is liable to the penalties imposed by the act, but the title of the bank to the paper is not affected. The decision of the Xew York Court of Appeals in Govery's Case, 82 X. Y. 291, is much in point. See, also, the able discussion of the subject in the dissenting opinion in Lazear's Case, 52 Md. 126. TTe think the logic of the opinion of the Supreme Court of the United States in Xational Bank v. Johnson, 10-1 U. S. 271, leads to the same conclusion." The power of a national bank to buy checks drawn by indi- viduals on other banks has not been denied.^ The doctrine is settled that a draft for a sum stated drawn by a seller against a buyer in favor of a national bank, by whom it is discounted or purchased with the bill of lading attached, passes title to the goods therein mentioned to the bank.3 The power of a national bank to purchase notes, not being expressly conferred by statute, is, therefore, by some author- ities, denied. The question is discussed at length in the case of Merchants' Xational Bank of St. Paul v. Peter Hansen, 33 Minn. 40. The facts stated in the above case are given in the opinion of the court, a portion of which is here cited. The court says : " One, Luce, was doing business individually, under the name of ' The Bank of Breckinbridge.' He held several notes pay- able to himself by name, or by the name of the ' Bank of Breckinbridge.' He indorsed these notes, ' Pay G. C Power, or order, for account, and credit Bank of Breckinbridge. (Signed) E. E. Luce.' — and sent them to the plaintiff bank 2 First Nat. Bank of Rochester v. 3 Union Xat. Bank r. Rowan, 23 Horatio Harris et al., 108 ilass. 514. S. C. 3.39. CH. XXVIII.] Bankixg. 367 Avith a letter requesting the latter to discount them, and place the proceeds to his credit. The plaintiff retained the notes, crediting the Bank of Breckinbridge with their amount, less* interest to the time of maturity, and advised Luce of their action. The sum so credited was afterward paid. Before the maturity of the notes, the plaintiff sent the notes to the Bank of Breckinbridge for collection having indorsed them as follows: '' ' Pay Bank of Breckinbridge, or order, for collection, account of Merchants' Xational Bank, St. Paul. F. A. Seymour, Cashier.' '^ Luce, receiving the notes, transferred them by indorsement before their maturity, with the indorsements uncancelled upon ihem, to the defendant in payment of a precedent debt. The defendant noticed the indorsements when he received the notes, but asked no questions, and appears to have had no notice of the plaintiff's rights respecting the notes, except as it is to be inferred from what has been stated. The defendant having refused to restore the notes to the plaintiff, this action is prose- cuted to recover their value. " In First ISTational Bank of Kochester v. Pierson, 24 Minn. 140, this court decided that national banks were not authorized to purchase promissory notes, in the ordinary sense of the word ' purchase,' the transaction not being a discounting of the paper or a lending of money upon the credit of it ; and the defense of idb^a vires was sustained in an action upon a note so purchased. Since that decision was rendered, the act of Congress upon which it was based has come before the Supreme Court of the United States for construction.* The decisions of that court are to the effect that the enforce- ment in favor of a bank of securities upon real property, which securities the bank had acquired without authority, could not be opposed by the plea of ultra vires, but that it was intended hj Congress that the consequences of such violations of law should be only such as might be imposed in proceedings insti- tuted against the bank by the government. This construction of the law of Congress is authoritative, and it is our duty to follow it. In doing so, we necessarily overrule Bank v. Pier- 4Xational Bank ;;. Matthews, 98 U. S. 621; National Bank v. Whit- ney, 103 U. S. 99. 368 Dealing in Commekcial Paper. [cii. xxviii. son, supra, as to the effect of tlie plea of ultra vires in such cases. " Applying the principle established l)v these decisions to the case before us, it is not material whether the transaction through which the plaintiff acquired the notes was a purchase of the notes in the ordinary sense of the word ' purchase,' or a discount of the notes as a loan to the payee. In either case the plaintiff's right as against this defendant would be the same. That the plaintiff acquired the notes either as its absolute prop- erty or as security is conclusively shown by the evidence. The defendant claims that the case shows a simple purchase of the notes by the plaintiff. This may be conceded for the purpose of the case. The special verdict of the jury, to the effect that the plaintiff discounted the notes for the benefit of the Bank of Breckinbridge, is not inconsistent with their general verdict in favor of the plaintiff, and may be disregarded without affect- ing the result. The plaintiff was entitled to recover, unless the defendant is to be deemed as having taken the notes unaf- fected with notice of the plaintiff's rights. The court declared the indorsements sufficient to charge the defendant with notice of whatever interest the Merchants' National Bank had in the notes, and refused to submit the question of the defendant's bona fides to the jury. Whether this was error is the only remaining question to be considered." The power of national banks to purchase notes, not being expressly conferred by statute, the incidental right is denied. The question has not been fully settled by the Supreme Court of the United States; but the doctrine that a national bank may "purchase a promissory note by the way of discount," has been held lawful by the Illinois Appellate Court. There does not seem to be any good legal reason why a national bank should be excluded from purchasing outright, promissory notes. While the statute does not, in words, au- thorize it, it does not directly or expressly deny the power. I'he arguments presented by the various courts, holding that it is a violation of the statute and that banks have no power incidentally, place their conclusion upon the proposition, that, if not a])ecially authorized, the privilege is denied. The principal business of a bank is in the loaning of its money by taking ])romissorv notes. If the interest laws of the State en. XXVIII.] Banking. 369 have not been violated by the terms of the note and the note is negotiable, it is difficult to see upon what reasoning the courts hold that the bank has no incidental power. While the bank's authority is controlled by the statutes, which are the expressed provisions of the law regulating its acts, by the very nature of its business it has full power to carry into execution every lawful transaction coming under its privileges and inci- dent to banking, though the pri\'ilege is not specifically ex- pressed in the statutes. The bank loaning money directly to '' A." upon his promis- sory note is lawful. The bank buying a note from " A." executed to him by " B." is claimed to be unla^vful. Upon just what principle of reason- ing it is not clearly understood ; both are only a mode of loaning money. The statute authorizes a bank to accept checks assigmed 10 it by the payee when drawn on another bank, and it may law- fully do so, though the checks be post-dated. This is purchas- ing from " B," a check drawn by "A." The transaction may be termed a discount, but if the bank has paid out the money on the check to " B," it could as well be called a purchase of the check. § 238. State banks, power not limited. The power of State banks to purchase promissory notes when drawn negotiable, has never been questioned. The statutes of all the States make promissory notes, when drawn negotiable, a class of instruments that may be purchased and transferred from one person to another, "and the purchaser may legally hold and enforce payment thereon. The power to buy and sell promissory notes therefore is an incidental power granted to State banks. To deny this authority to a banking corporation, whether such corporation be organized under the N^ational or general laws of a State, may raise the constitutional question — " can the Legislature by a general law, which declares a note regotiable then enact a law and say that it is an instru- m.ent negotiable, but one which a banking corporation shall not purchase? " Savings banks, by special statutory provisions, may be estopped by a statute, from making loans upon personal secu- ' 24 370 Dealiis^g IX Commercial Paper. [cji. xxviii. rity; but the purchasing of a note secured by mortgage on real estate is not prohibited, and where the statute only required that a certain percentage of the loans of a savings bank must be made upon real estate security, the bank may invest the re- mainder of its loanable funds in promissory notes, and the mode of investment, whether by loaning outright or purchasing a note by the way of discount, cannot be questioned. The charter of a State bank may limit the power iu the organization and say that it shall not purchase promissory notes; but must invest its money in promissory notes made directly to the banking corporation; but in the absence of such provisions, in the bank's charter, a State bank has the power to purchase outright a negotiable promissory note. CHAPTER XXIX. BANKS HOLDING PUBLIC FUNDS. § 239. National banks depositaries — Public moneys. Section 5153 Revised Statutes U. S. provides that: ''All Xational banking associations, designated for that pur- pose by the Secretary of the Treasury, shall be depositaries of public money, except receipts from customs, under such regula- tions as may be prescribed by the Secretary; and they may also be employed as financial agents of the Government; and they shall perform all such reasonable duties, as depositaries of public moneys and financial agents of the Government, as may be required of them. The Secretary of the Treasury shall require the associations thus designated to give satis- factory security, by the deposit of United States bonds and otherwise, for the safe-keeping and prompt payment of the public money deposited with them, and for the faithful per- formance of their duties as financial agents of the Government. And every association so designated as receiver or depositary of the public money shall take and receive at par, all of the national currency bills, by whatever association issued, which have been paid into the Government for internal revenue or for loans or stocks." By the provisions of this section, national banking associa- tions which are designated for that purpose by the Secretary of the Treasury, shall be depositaries of public moneys. Public money is defined by Black as follows: " This term, as used by the laws of the United States, in- cludes all the funds of the general Government derived from the public revenues or intrusted to the fiscal officers." When a national banking association desires to be desig- nated as a depositary of public money, application for that purpose must be made directly to the Secretary of the Treas- ury. Upon receipt of such application, the Secretary of the Treasury has discretionary power to refuse or grant the ap- plication. If the application is granted, the security required will be furnished by the depositary bank. The security re- [371] 372 Banks IIoldia^g Public Funds. [ch. xxix. quired to be furnished as to amount is discretionary with the Secretary of the Treasury; but in no instance will a desig- nation be made on security less than $50,000. Where a national bank, not designated as a depositary of public money, under the permissive authority of law receives deposits made by postmasters in their official capacity, the money so deposited assumes a fiduciary relation to the Gov- ernment and the bank thereby becomes the bailee, and as such bailee, it becomes directly responsible to the Government for moneys which it knowingly or negligently alloM^s the post- master to withdraw by private check.-' Sections 3620, 4046, 3847, 4046, 5488 and 5497 Revised Statutes, TJ. S., treat upon the duty concerning disbursing officers and upon postmasters depositing with depositaries, and postmaster's deposits where made within a county where there are no designated depositaries, and also penalty where unau- thorized deposits of money and penalty for unauthorized re- ceipts or use of public money. A national bank designated as a depositary of public money does not constitute the bank an agent of the Government, and the Government, in case of failure of the bank, will not be liable for the deposit.^ A national bank does not have to be designated as a deposi- tary of public money to give it authority to receive public moneys or funds belonging to States, counties, cities and like municipalities. In the case of State of Nebraska v. First National Bank of Orleans, 88 Fed. Rep. 947, held: '' Where a State Treasurer places State funds in a national bank subject to check, the bank giving security therefor and agreeing to pay interest on daily balances, the transaction is a deposit and not a loan to the bank." State banks, unless prohibited by statute, may accept public moneys on deposit. But where the statute of a State forbids the taking and holding of such funds, they can only (if at all), be accepted as a special deposit, which is a deposit made of a particular thing, with a depositary; and when made of money which is sealed up, the title to it remains in the depositor. A deposit of public funds, when made a special deposit in a bank, 1 United States v. National Bank 2 Branch r. Tlie U. S., 1 N. B. C. of Ashville, 73 Fed, Rep. 379. 3G3. cii. XXIX.] Baxkix^g. 373 the relationship of debtor and creditor as between the depositor and the bank is not established, and the funds when so de- posited cannot be carried or intermingled with other funds of the hank. They must be kept separate and apart from the general deposits, and be turned over to the public officer or authority authorized to receive them at any time when de- manded. A State bank prohibited by statute from accepting public money on deposit in a general way, is not permitted to pay interest on a special deposit. Public funds cannot be loaned by the bank when accepted as a special deposit; but when a bank has the right by lav/ to accept public funds on deposit in a general way, it may agree to pay interest on the same and may loan the deposits. It has been held that, as between the treasury of a school district, handling school funds, where a depositor deposited such funds in the bank by a general deposit, which ordinarily creates the relationship of debtor and creditor, the banker re- ceiving such funds, knowing them to be held by the depositor in an official capacity, if the bank accepts the same, it becomes a trustee for the beneficial owner, the school district. AVhere the Constitution of a State by its provisions forbids the depositing of public moneys in a bank, to be held by it as a general deposit, the taking of such deposit is a direct viola- tion of law; and where the statute provides that it is a felony the officers of such bank become criminallv liable. CHAPTER XXX. BANKS DEALING IN REAL ESTATE. § 240. Limitations upon national banks. The Irrational Banking Act, section 5137, ReA-ised Statutes of the United States, provide: ''A national banking association may purchase, hold, and convey real estate for the following purposes, and for no others: '' 1st. Such as shall be nccessaiy for its immediate accom- modation in the transaction of its business, " 2nd. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted. '' 3rd. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. '' 4th. Such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall pur- chase to secure debts due to it. " But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years." A national banking association cannot purchase or convey real estate by conveyance executed by its officers, unless such conveyance be duly authorized by a resolution passed by the board of directors. A national bank may purchase and hold real estate, first, such as shall be necessary for its immediate accommodation in the transaction of its business. There are no restrictions or limitations imposed as to the amount that may be invested in real estate or in a banking- house to be used by the bank in the conduct of its business. The amount that it may invest is a discretionary measure to be determined only by the board of directors. "Where a banking association invests a large portion of its capital stock in real estate, and a banking house is erected [3741 CH. XXX.] Banking. 375 thereon, wliicli investment is far in excess of the requirements necessary for its immediate accommodation in the transaction of its business, such an act would certainly be bad policy, if not a violation of the statute. The bank may claim that the investment is a profitable one, but the statute restricts it and limits its power to the purchase of such real estate as shall be necessary for its immediate accommodation in the transaction of its business. The Supreme Court of the United States, in the case of McCormick v. Market Bank, 165 IT. S. 538, denies the power of a bank to contract by lease (at a large rent of) an office to be occupied " as a banking ofiice and for no otlier purpose," for a term of years, before having been duly authorized by the Comptroller of the Currency, the privilege of commenc- ing business.^ A national bank may " hold " such (real estate) " as shall be mortgaged to it in good faith by way of security for debts previously contracted." The bank is expressly prohibited from taking a mortgage to secure a debt unless the debt is one which has been pre- viously contracted. A debt previously contracted is one made at a date prior to the' date of the mortgage. The debt may be one antedating the mortgage a month or a day. If the mortgage is taken on the same day the debt is contracted, it would be tainted with saspicion, from which evidence could only relieve it. In the case of First l^ational Bank of Fort Dodge v. Haire ei al., 36 Iowa, 443, where a national bank refused to negotiate a loan upon the responsibility of a firm, but agreed to and did make the loan upon a note made by one member of the firm to the other and indorsed by the latter to the bank, the maker giving a bond and mortgage upon separate property to secure the indorser against liability upon his indorsement, with an agreement that, in case of default, the security should inure to the bank, held: That the bond and mortgage were not within the prohibition of the act of Congress creating national banks against such banks holding real estate by purchase or mortgage; that the same were, therefore, legal and binding 1 McCormick r. The Market Nat. Bank of Chicago, 162 111. 100. 376 Banks Dealing in Real. Estate. [ch. xxx. and might be enforced for the benefit of the bank. The court in construing this statute, says: ^' We would not construe this, or any other statute, strictly and by its very letter only; but would look to its object and purpose, and give to its language such just and fair interpre- tation as would most completely effectuate that purpose. Not forgetting this, let us look first at its terms. " It does not prohibit the mortgage of real property to another to be by that other held as security for a contempora- neous loan made by the bank; it says in effect that the bank may hold such real estate as shall be mortgaged to it in good faith for debts previously contracted, and that such association (bank) shall not hold real estate for any other purpose than as specified. iSTow, it will be noticed that the real estate in controversy was not mortgaged to the plaintiff and that the plaintiff does not now hold it. Hence, this case is not within the letter of the statute. " But it is claimed that the effect of the transaction, as claimed by plaintiff and as proved, is the same as a mortgage to it, and therefore, it is within the spirit or purpose of the law. When prudent officers of a bank are asked to make a loan, they look inter alia to the ability of the borrower to pay as evidenced by his property, real and personal. If he has not sufficient propert}^ they decline the loan; but if some friend of his shall convey to him in fee sufficient real estate, the same officers might make the loan. The loan, so made, would not be within the act, although the officers, in good faith, relied upon such real estate by way of security for the repayment of the loan. And, if an indorscr was offered who was thought insufficient, but when certain real estate was con- veyed to him he was regarded as sufficient, the rule would be the same. And, if instead of being conveyed absolutely, it was simply mortgaged to the indorser, and thereby he was thought to be sufficient security, the rule would not be differ- ent. In either case the reliance would be upon the real estate and the ability to pay by reason of it. Neither would be within the prohibition of the act of Congress. ISFor would it alter the case, if the borrower or indorser should say to the officers, if I fail to pay at maturity, there is the real estate and you may subject it to the payment of the debt. This they cH. XXX.] Baxkixg. 377 could do without siicli declaration. In other words, every loan or discount by a bank is made in good faith, in reliance, by way of security, upon the real or personal property of the obligors, and unless the title by mortgage or conveyance is taken by the bank or directly for its use, the case is not within the prohibition of the statute. "' The fact that the title or security may inure indirectly to the security and benefit of the bank, will not vitiate the transaction. Some of the cases upon quite analogous statutes go much further than this." Where "A" executes a promissory note to " B " secured by a trust deed on real estate, a national bank may loan money to " B " on his personal note, and take an assignment of the trust deed as security therefor ; and may foreclose the security.^ A national bank cannot take a mortgage upon real estate to secure notes thereafter to be discounted.^ In the case of Shinkle et ux v. First Xational Bank of Ripley, 22 Ohio St. 516, held: That where two or more parties were jointly indebted to one bank in two several sums of money, and also to another bank in one sum of money ; and a mutual agreement was entered into whereby the notes of the bank should be surrendered, and the several debtors give their in- dividual notes and mortgages for their portion of the indebted- ness ; all of said notes by agreement being dravm to a third person, and by him indorsed to one of the banks ; that in an action by the bank against one of the debtors upon the note and mortgage, there was a sufficient consideration to support the new notes and mortgages ; and that the bank had authority to foreclose. That it had the power to adopt reasonable and such necessary measures in collecting the debt ; that such a power was an incidental power belonging to the bank and not in violation of the statute.'* A national bank is empowered to hold real estate such as shall be conveyed to it in satisfaction of debts previously con- tracted in the course of its business. And where a national bank loaned a large sum of money to " B " to engage in the lumber business, " B " afterward becoming embarrassed, the 2 Bank r. ^Matthews. 98 U. S. 621. 4 Heath et al. r. Tlie Second Nat. 3 72 Pa. St. 4.56; Fridley v. Bank of Lafavette, 70 Ind. 106. Bowen. 87 111. 151. 378 Banks Dealing in Real Estate, [ch. xxx. bank secured a deed of trust upon the timber lands OA\nied bv " B " to secure its debt. Afterward the bank foreclosed upon said lands, purchased the property which was not redeemed, and through the bank's agent it conducted the lumber busi- ness. This being done wholly with a view of reimbursing itself out of the proceeds of the business for the money it had loaned. The court held that there is in connection with all corpora- tions, certain implied powers which are incidental to the ex- pressed powers, and without which no corporation can suc- cessfully transact business, and that the corporation lawfully exercised the right to conduct a lumber business and save its debt.^ The above case does not directly or indirectly, by implica- tion or otherwise, sanction the right of the bank to conduct a lumber business, run saw-mills and the like ; but coming into possession of lands upon which timber or crops are growing and by the marketing and selling the same, the debt to the bank can be canceled and paid, the act becomes an incidental power and one not in violation of the principles of law, which provides that a banking corporation shall not be permitted to conduct any other business than that for which it M'as in- corporated to do. It is a well settled principle that a national bank has no power to buy land for the purpose of selling it again for profit ; but it may take land in pa^mient of its claim, and '' an agree- ment by a bank to procure a release of a mortgage held by a third party upon lands on which the bank had a mortgage, is not primarily an agreement relating to banking. But when made to secure payment of the debt due to the bank, the agree- ment is not ultra vires."^ "A national bank may purchase real estate to secure satis- faction of a debt due it, even though it costs a considerable sum over and above the debt, and the title to the land is ac- quired from another than the debtor, and may take the title thereto in the name of its president for its use.'"^ A national banking association has authority to purchase 5 John A. Rooblinps. Sons Co. v. National Mohawk Valley Bank,, 104 First Nat. Bank of Richmond, Va., N. Y. 414. 30 Fed. Rep. 744. ^ Washinjjton Libbey et al. v. G Thomas McCrant, Respondent, v. Union Nat. Bank et al., 622. CH. XXX.] Banking. 379 such real estate as may be necessary in order to secure a debt due to it although in excess thereof, if the security of the debt is the real object of the jmrchaser.^ It is well settled that when a national bank legally acquires real estate, it may sell it again and take a mortgage back to secure deferred payments.^ It seems to be settled that if a national bank should take from a debtor, real estate which it clearly had no right to hold, the title would be defeasible only at the instance of the State. The Court, in the case of Mapes v. Scott, et al, 94 111. 379, says that: " Conveyances to a national bank must for all purposes be regarded as valid until called into question by a direct proceed- ing* instituted for that purpose by the Government, as held in National Bank v. Matthews, 8 Otto 621. As this decision of the Supreme Court of the United States involves a construc- tion of an act of Congress, it is paramount and must prevail." The government alone can complain that the bank has ex- ceeded its powers. ^*^ The last provision of section 5137 relating to banks hold- ing real estate, provides that such associations shall not hold the title to real estate for a longer period than five years. For a violation of this provision of the law, the government alone can complain. There being no provision of law fixing a penalty or forfeiture of lands held for a longer period, the bank may, unless complained against, sell the same after the period of five years and the purchaser would take a good title. § 241. State banks dealing in real estate. A State bank has no authority to buy and sfell real estate or deal in the same for profit. A corporation organized under a State law to conduct a bank- ing business, cannot buy and sell real estate for speculative purposes. It is limited in its purposes to conduct such business as comes within its scope and powers expressed and implied in its charter and the law. 8 Upton r. National Bank of So. lo National Bank v. Matthews, 98 Reading, 120 Mass. 153. Otto (U. S.) 621; Reynolds v. Craw- 9 First Nat. Bank r. Kidd, 20 fordsville Bank, 112 U. S. 405. Minn. 234, 380 Banks Dealing in Real Estate. [ch. xxx. The buviiig and selling of real estate for profit is purely speculative and is unlawful. Where the law of the State limits the amount that may be invested in banking premises, it is mandatory and if violated is cause for deckiring a forfeiture of its charter. But when there is no restriction upon this subject, it is a question of privilege left entirely in the hands of the board of directors. They may then invest in real estate and improve the same to such an extent as may be necessary for the use of the bank in conducting its business. To invest a large portion of the capital of a bank in real estate, and improve the same under the plea that it is to be used for banking purposes, when a reasonable investment would meet the immediate necessities of the bank, is a breach of the bank's power. When this power is grossly abused and the capital stock of the bank is in such a manner consumed to the injury of the stockholders, the directors make themselves personally liable. Their acts become gross extravagance or gross negligence of their powers and duties. As an illustration of reckless ex- travagance and improvident investment of the bank's funds in real estate, the facts in the case of Hun v. Carey, 82 IST. Y. 65, are given. Where a savings bank which was incorporated in 1SG7, up to January, 1873, its average deposits were about $70,000, and its expenses had exceeded its income. It appears in May of that year, by action of the board of trustees, the bank pur- chased a lot at a cost of $29,250. Ten thousand dollars of the purchase-money being paid in cash ; the bank covenanting to erect a buildijig thereon to cost not less than $25,000. Upon the lot the bank erected a building for a banking-house at a cost of about $27,000, and gave a mortgage thereon of $30,500. The object of the purchase and buildings was to improve the financial condition of the bank by increasing its deposit. The bank failed in 1875. The lot and buildings and other property, which produced less than $1,000, constituted all of its assets; the real estate was swept away by foreclosure of the mort- gage. At the time of the purcliase the bank occupied leased rooms ; its assets were insufficient by several thousand dollars to pay its debts, which fact was known to the trustees. By CH. XXX.] Baxki:n^g. 381 the charter of the bank, it had power to purchase a lot for a banking-house, requisite for the transaction of its business. In an action brought by the receiver of the bank against the trus- tees for damages caused bv alleged improper investment of its funds, held by the court, that the facts justified a finding that the case was not one of mere error or mistake of judg- ment on the part of the trustees, but an improvident and reckless extravagance, and that they were properly held liable. ^^ A State bank has power to take real estate under foreclosure proceedings. To buy the same to secure a debt simultaneously or previously contracted. To buy at a price over and above the amount necessary to satisfy its claim. To pay off a prior lien in order to secure or save its debt. It also has thfe right, while holding such lands, to conduct the business of farming the same, and improve the land, if necessary, by building a resi- dence thereon, building fences, dig a well, cutting timber from the land, operate a sawmill and sell the products; and do any- thing necessary to be done in relation thereto in the interest of the stockholders and the depositors. It has the power to do whatever is necessary to render productive, property that it has taken for debt. In the further discussion of this subject, the Supreme Court of Georgia, in the case of Reynolds, assignee, v. Simpson and Ledbetter, 74 Ga. 454, the court says: " "Where a banking corporation acquired possession of prop- erty, either by a lien thereon, or the purchase of the same, for the payment of the debt due to it, and expends money on it, or furnishes supplies either for its preservation or to carry on the business in which such property is employed, with a view of rendering it productive, in order to satisfy the debt it holds against the former owner of th^ property, it is not chargeable with exceeding its corporate powers by engaging in a business l)eyond the scope and purpose of its creation. It is merely exer- cising a power which is common to all corporations ; it can pur- chase and hold such property, real or personal, as is necessary to the purposes of its organization, and can perform all such acts as are necessary for the legitimate execution of such purposes." 11 Hun V. Gary et al., 82 N. Y. 65. 382 Banks Dealing in Real Estate. [ch. xxx. The Constitution of the State of California, article XII, § 9, provides that a corporation " shall not hold for a longer period than five years any real estate except such as may be necessary for carrying on its business." A banking corporation (under circumstances which it cannot prevent) may be compelled to purchase real estate at a judicial sale in order to save an advancement made by it as a loan upon the same, and it cannot by law be compelled to dispose of said real estate within a limited time ; especially so when, if forced to sell the same, the sacrifice would destroy the solvency of the bank, and cause serious loss to depositors and creditors. It might be a reasonable construction of this provision of the constitution to say that the lands purchased at a judicial sale by the bank, wherein it was the plaintiff in the foreclosure procedings, and was endeavoring to collect a debt, that the hank, if it became the purchaser at the sale and afterward obtained the title to the property, could hold the same as a necessary asset for carrying out its business, and would not be compelled to sacrifice the same at sale within the five years. CHAPTER XXXI. OFFICERS BORROWING FUNDS OF BANK. § 242. Prohibited from loaning to themselves. All banking associations, unless restricted by law, may make loans to their officers and agents; but the incidental powers vested in an officer of a bank, permitting him to loan the funds of the bank to others, does not authorize such officer or agent of the association over wdiich he presides and represents to make a loan of the bank funds to himself. His relationship as an agent of the bank may invest him with incidental power to make loans to others ; but his office prohibits him from loaning to himself the funds of the bank. He cannot certify his own check or sigTi a certificate of deposit made payable to himself. The power to loan the funds of the bank and make discounts is vested by law in the board of directors. AVhere an officer of the bank execcutes a note drawm payable to the bank over which he presides, and takes the money repre- sented by the note without first securing authority from the board of directors, his act becomes unlawful and may be treated as a felony. While acting in an official position and representing the bank, his duties are to preserve its funds and protect it in all of its transactions. He is employed for this purpose, and to execute the orders of the board of directors. To perform all the execu- tive acts necessary to carry on the business of the bank; but he has no power or authority to borrow any of the funds of the bank unless permitted to do so by the board of directors. The fact that he may have secured his note by ample col- lateral security does not authorize or legalize the act ; but where the board of directors or the financial committee appointed by the board have authorized and approved of a loan to be made to an officer of the bank, he may execute his note to the association artd borrow its funds. § 243. Restrictions and limitations. "Where the law imposes restrictions as to the amount which may be loaned to any one person, association, or company, the [383] 384 Officeks Borrowing Funds of Bank. [ch. xxxi. directors who ivillfuUy violate the law by authorizing a loan in excess of the amount specified in the law, and where by such action a loss occurs to the bank, they make themselves civilly and criminally liable. The National Banking Act, section 5:200 Rev. Stat. U. S., provides that: " The total liabilities to any association, of any person, or of any company, corporation, or firm for money borrowed, in- cluding in the liabilities of a company or firm the liabilities of the several members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association actually paid in. But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money bor- rowed." In discussing the object of this provision, Chief Justice linger of the Court of Appeals of !N^ew York, in the case of Second National Bank v. Burt, 03 K Y. 233, says: " The object of this provision of the Currency Act was to guard national banks from the hazard of loaning money in improvident amounts upon speculative and accommodation paper, but it contemplated and permitted to an unlimited amount the discount of paper used and required in facilitating the transfer of property and money in the transaction of the legitimate business of the country." The provisions of this section limit the amount that may be borrowed from the association by any one person, company, corporation, or firm. It is not a restriction prohibiting an officer or director of the bank from borrowing its funds, but limits the amount that may be borrowed. Where a loan is made to an officer or other person in violation of the statute it is not void, but can be collected. In the State of California, the Legislature has enacted the following law: " No director or officer of any savings and loan corporation must, directly or indirectly, for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation, nor must he become an indorser or surety for loans to others, nor in any manner be an obligor for moneys CH. XXXI.] Banking. 385 borrowed of or loaned by such corporation. The office of any director or officer who acts in contravention of the provisions of this section immediately thereupon becomes vacant." The Supreme Court of the State of California, in the case of Brittan v. Oakland Bank of Savings, 124 Cal. 282, in dis- cussing this subject and construing the provisions of said sec- tion, says that: "At the time of the transaction between Bowman and the bank, as already stated, he was a director in the bank. The Civil Code, section 578, declared that no director or officer of any savings and loan corporation must, directly or indirectly, for himself or as the partner or agent of others, borrow any of the deposits or other funds of such corporation, and declares that the office of any director or officer who acts in contraven- tion of this provision shall immediately thereupon become vacant. This, however, is of no advantage to the appellant, as the violation of the provision in question could only be availed of at the instance of the State sovereign power.^ " Besides, the transaction was executed. In Savings Bank v. Burns, 104 Cal. 473, the court, in answering a similar conten- tion that the transaction was void as being in contravention of the provision of the Code, says: " ' We do not think this contention can be sustained. The obvious purpose of the section of the Code invoked and relied upon was to protect savings banks and their depositors. To hold, therefore, that if the deposits or funds of such a bank should be borrowed by any of its officers, directly or indirectly, no action could be maintained by the bank to recover the money, would often work out great injustice and wrong.' '' The bank, therefore, could have sued Bo^vman to recover back the money loaned, and it can hold the pledged stock or its proceeds in a suit for the recovery of the same until such money lent on the faith of such pledge is repaid." There is no penalty fixed by the statute laws of the State of California, for a violation of section 578 of the Civil Code, other than that the office of any director or officer who acts in contravention of the pro\dsions of said section shall immedi- ately thereupon become vacant. 1 Jones r. Guaranty, etc., Co., 101 U. !S. 628; National Bank r. Mat- thews, 98 U. S. 621. 9r^ 386 Officers Borrowing Fua^ds of Bank. [cii. xxxi. The protection given to tlie bank and the depositors by the provisions of this section is valueless. It is no punishment to vacate an office after the funds of the bank have been taken. "Where the Legislature has not by the enactment of a law prohibited an officer of a State bank from borrowing money therefrom, or limited the amount which any one person may borrow, such loans are, if made in good faith and authorized by the board of directors, lawful. But a loan made by an officer of a bank to himself of the funds of the bank over which he presides, without first having such loans approved by the board of directors, is as previously stated, unlawful. The law regulating the power of officers presiding over savings banks generally prohibtits such officers or directors from borro^^^ng or becoming in any manner indebted to the association over which they preside. This inhibition is upon the principle that they are acting in the capacity as trustees. That the funds are trust funds, and are such as should be sacredly guarded by them, and when loaned or invested they must be to such persons who have no responsibility as officers or directors. Loans to officers and directors in all banking corporations over which they preside should be authorized and limited by legislation. That the Legislature is invested with power to impose such limitations, there can be no question. If the State has the power to regulate the business of banking, it is clothed with authority to protect and direct its management at least upon the lines of prudence and safety. CHAPTER XXXII. EMPLOYING COUNSEL. § 244. Authority in president or cashier. Subdivision 4 of section 5136, Eevised Statutes of the United States, provides that a national bank is endowed with the power " to sue and be sued, complain and defend in anv court of law and (or) equity as fully as natural persons." A national bank under this provision of the law has full power to employ an attorney to bring or defend suits in any court of law or equity. The by-laws of the bank may provide that the board of directors shall have the exclusive power to engage or employ counsel for the bank, or the authority may be delegated to the president. If the by-laws are silent and no provision is made delegating the authority to engage or employ counsel, the presi- dent of a bank, as its executive officer, has the authority con- ferred upon him without waiting for or first obtaining such authority from the board of directors. The agreement for compensation to be paid the counsel so employed may be made by the president, and the bank will be bound thereby. In the case of The Citizens' iSTational Bank of Kingman v. George F. Berry & Co., 53 Kan. 696, the court holds that the president of a banking corporation has the power to em- ploy counsel and manage the litigation of the bank in the absence of any order of the board of directors depriving him of such power. In the absence of the president of the bank, the cashier has the power to employ counsel and may perform this function at any time if the necessity is an emergency, without first ob- taining authority from the board of directors. Where the district attorney conducts a suit against a na- tional bank and obtains a forfeiture of its charter, it is held that he is not entitled to more than $10, the amount prescribed by section 824, Revised Statutes of the United States, there [387] 388 Employixg Cou:n'sel, [ch. xxxii. being no other law anthorizing or giving compensation to a district attorney for such service/ A district attorney cannot recover compensation for services rendered for condncting snits arising ont of the provisions of the Xational Banking Law, in which the United States or any of its agents or officers are parties.^ 1 Bashaw v. United States, 47 Fed. 2 Gibson v. Peters, Receiver, 150 Rep. 40. U. S, 342. CHAPTER XXXIII. DONATIONS BY BANKS. § 245. Power vested in stockholders. A bank cannot, through its officers or directors, donate any portion of its fnnds, sui-plus, profit, or capital, for any pur- pose whatever. Objects of usefulness or charity, however worthy of encouragement or aid, cannot in any way be sup- ported by gifts or donations from a banking corporation. This restriction seems to be a very hard one, but it is not within the power of the officers or directors of the association to give away any of its funds or earnings. The stockholders, if the consent of ail are obtained, may make donations, but the president, cashier, or directors are prohibited. A subscription in support of a church, or circulating the Bible either at home or in foreign lands, if made without the consent of all the stockholders, is unlawful. Where the president of a bank who subscribed a fund to certain j^arties, on condition that they would erect a paper mill in a certain city, held, first, that the making of dona- tions of its funds to aid in the building of a paper mill, was no part of the business for which the bank was incorporated ; second, that the act of the president was not within the scope of his authority and that the bank, in the absence of an au- thorization or ratification by it of the president's act, was not bound by the agreement made. The funds of a corporation belong to its shareholders, and an agent of the corporation has no implied authority to give away the corporate property. In Jones v. Morrison, 31 Minn. 140, it is said: " The directors of the corporation have no authority to ap- propriate its funds in payijig claims which the corporation is under no legal or moral obligation to pay ; as to pay for past services which have been rendered and paid for at a fixed salary, previously agreed on; are under a previous agreement, that there should be no compensation for them." [.389] 390 DoxATioxs BY Banks. [ch. xxxiii. To the same effect, see Salem Bank v. Gloucester Bank, 17 Mass. 1 ; Bissel v. City of Kankakee, 64 111. 249 ; Miner v. Me- chanics' Bank, 1 Pet. (U. S.) 44. See Case v. Bank, 100 U. S. 446, where the court, in discussing this question, correctly says : " If this bank can be bound by the agreement of its presi- dent to donate $200 to an individual, to aid him in building a paper mill, then the bank can be bound by the agreement of its president to donate its entire capital. Such a rule as this would confer upon the agent of a corporation greater powers than that possessed by its directory." CHAPTER XXXIV. CONDUCTING SAFE DEPOSIT. § 246. Incidental power. "Where the charter of a bank does not provide for the con- ducting of a safe deposit department, the business if entered into is an incidental power and one entirely discretionary with the board of directors. The business of conducting a safe deposit and building safe-deposit vaults, for the purpose of preserving property or money, is a discretionary power vested in the directors of the bank. When a banking corporation conducts such a business in connection with the general business of banking, and receives personal property, including money, from individuals for safe- keeping, the general rule of law is, that the bank becomes a bailee, and in case of loss is liable as such. It should be borne in mind that there is a distinction be- tween the business of conducting a safe deposit and the taking of money or personal property on special deposit. Where the bank conducts a safe deposit business for the benefit of its customers without compensation, it is liable only for gross negligence; but persons depositing valuable articles in banks for safe-keeping without reward have the right to expect that such measures will be taken as will ordinarily secure them from burglars outside and from thieves within. Where persons are engaged in the business of banking, and receive for safe-keeping a parcel containing bonds, which was put in their vaults, and they were notified that their assistant cashier who had free access to the vaults where the bonds were deposited and who was a person of scant means and engaged in speculation in stocks, and the directors made no examina- tion as to the securities deposited with them, the assistant cashier having stolen the bonds so deposited; held, that the directors were guilty of gross negligence and were liable to the o^\^ler of the bonds for their value at the time they were stolen.^ 1 Preston v. Prather, 137 U. S. 604; Gray et al. v. Merriam, 148 111. 179. [391] 092 Conducting Safe Deposit. [ch. xxxiv. In the ease of Chaflin et al v. Mever, 75 N. Y. 260, the court lays down the rule of negligence to be as follows: '' The cases agree that where a bailee of goods, although liable to their o^\^ler for their loss only in case of negligence, fails, nevertheless, upon their being demanded, to deliver them or account for such non-delivery, or, to use the language of Sutherland, J., in Schmidt v. Blood, where ' there is a total default in delivering or .accounting for the goods ' (9 Wend, 268), this is to be treated as prima facie evidence of neg- ligence.^ " This rule proceeds either from the assumed necessity of the case, it being presumed that the bailee has exclusive knowl- edge of the facts and that he is able to give the reason for his non-delivery, if any exist, other than his own act or fault, or from a presumption that he actually retains the goods and by his refusal converts them, '' But where the refusal to deliver is explained by the fact appearing that the goods have been lost, either destroyed by fire or stolen by thieves, and the bailee is therefore unable to deliver them, there is no prima facie evidence of his want of care, and the court will not assume, in the absence of proof on the point, that such fire or theft was the result of his negligence.^ '' Grover, J., in 46 X. Y., says, in delivering the opinion of the court, the question is ^ whether the defendant was bound to go further (i. e., than showing the loss by fire) and show that it and its employees were free from negligence in the origin and progress of the fire, or whether it was incumbent upon the plaintiffs to maintain the action to prove that the fire causing the loss resulted from such negligence.' And he pro- ceeds to show that the charge of the judge who tried the cause gave to the jury the former instruction, and that this was con- trary to the law and erroneous. So Sutherland, J., in 9 Wend. (supra), in the case of a warehouseman, says the onus of show- ing the negligence ' seems to be upon the plaintiff, unless there is a total default in delivery or accounting for the goods.' 2 Fairfax r. X. Y. C. & H. R. K. 3 Lamb v. Camdpn & Amboy Pv. R. R. Co.. G7 X. Y. 11 ; Steers v. Liver- Co., 46 N. Y. 271 : Schmidt r. Blood, pool Steamship Co., 57 N. Y. 1; Bur- !) Wend. 268; Piatt v. llibbard, 7 nell V. X. Y. C. R. R. Co., 45 X. Y. Cow. 497. 184. en. XXXIV.] Banking. 393 "And he cites a note of Judge C'owen to his report of Phitt V. Hibbard (7 Cow. 500), in which that very learned author says, criticising and questioning a charge of the circuit judge, ' the distinction would seem to be that when there is a total default to deliver the goods bailed on demand, the onus of accounting for the default lies with the bailee; otherwise lie shall be deemed to have converted the goods to his own use, and trover will lie (Anonymous, 2 Salk. 655), but when he has shown a loss, or where the goods are injured, the law will not intend negligence. The onus is then shifted upon the plaintiff.' " It will be seen, as the result of these authorities, that the burden is ordinarily upon the plaintiff alleging negligence to prove it against a warehouseman who accounts for his failure to deliver by showing a destruction or loss from fire or theft. It is not of course intended to hold that a warehouseman, re- fusing to deliver goods, can impose any necessity of proof upon the owner by merely alleging as an excuse that they have been stolen or burned. These facts must appear or be proved with reasonable certainty. 'Kov do we concur in the view that there is in these cases any real ' shifting ' of the burden of proof. The warehouseman in the absence of bad faith is only liable for negligence. The plaintiff must in (dl cases, suing him for the loss of goods, allege negligence and prove negligence. This burden is never shifted from him. If he proves the demand upon the warehouseman and his refusal to deliver, these facts unexplained are treated by the courts as prima facie evidence of negligence; but if, either in the course of his proof or that of the defendant, it appears that the goods have been lost by theft, the evidence must show that the loss arose from the negligence of the -warehouseman." N'ational banks have no direct legislative authority under the National Banking Act, or by any special provision of the statute, to invest any portion of their capital in the construction of a safe-deposit vault, and equip it w4th boxes for the conduct of such business; but it is claimed that the Comptroller of the Currency holds that this power or privilege is one largely within the discretion of the board of directors. Where a State bank organized under a State law does not avail itself by a provision in its charter with the power to con- duct, in connection with its business of banking, a safe-deposit 394 Conducting Safe Deposit. [ch. xxxiv. business, it becomes a privilege purely incidental to that of banking, and where the officers of such a banking corporation, without authority vested in the charter of the bank, conducts such a business and establishes a safe-deposit vault and receives property for deposit without the authority or knowledge and consent of the directors, their acts are not within the scope of their authority as agents, and are not binding upon the corporation. CHAPTER XXXV. BANKING HOURS. § 247. When binding upon the public. A banking corporation can prescribe by its by-laws reason- able hours of business during which its business with the public shall be conducted. A by-law enacted to the effect, if the hours prescribed are reasonable, is binding upon the general public. In the case of Marshall and Others v. The American Express Company (appeal from tlie Milwaukee Circuit Court), 73 Am. Dec. 381, the court says: " This term (banking hours) has acquired a meaning among bankers and merchants, but it is by no means uniform. What are banking hours in some places are not in others. In the city of Xew York banking hours are understood to be from ten o'clock a. m. to three o'clock p. m. In the city of Mil- waukee, from 9 a. m. till twelve and a half p. m., and from two till four p. m. ''All we know from the evidence in this case, in regard to banking hours in Madison, is from Mr. Hill, who says ' banks at Madison close at four o'clock.' But, however, the term may vary as to time ; what is understood by ' banking hours,' in a technical sense, is the particular hours of the day within which the banks of a city or town transact the usual banking business with the public over the counter, such as discounting bills, receiving deposits, and paying checks, etc. It is reasonable and proper that there should be a uniform hour at wdiich this kind of business should cease, in order to give the officers and agents of the bank an opportunity to write up the books and adjust its balances for the day. When these banking hours are uniform and reasonable, the law will regard them in respect to the purposes for which they are established. But these hours only have reference to the intercourse of the bank ^^ath the public at large, in relation to the exclusive business of banking. Business quite as important is always transacted after these hours have elapsed — balances [395] '.'90 Baxkixg Houks. [cii. xxxv. with other banks to be ascertained, cash account brought np, and cash counted; and many other things which will suggest themselves to the banker, which are always done after ' banking hours,' even the very business of making up and transmitting packages, as well as receiving them; not only because it can be done more conveniently after the business with the public is closed, but because until such business is closed much of it could not be done. " The convenience or inconvenience of the bank, whether serious or not, had nothing to do with the duties of the defend- ants as carriers." The court also says, in the further discussion of this question, that: " It does not follow that the vaults of the V)ank are neces- sarily closed because the hour for doing business over the counter has transpired. Xor are persons who have a right to transmit messages or packages to the bank answerable if they chance to be closed. Therefore, if it had been the habit of the bank to receive packages from the party and of the kind in question on the arrival of the train after the hour of four o'clock p. m. * * * " The State Bank at ^ladison had no more right to declare or insist that it would receive no packages after what it pleases to call ' banking hours,' than has any merchant, warehouseman or wharfinger a right to decline the reception of a valuable package of goods after a certain hour; and in that manner thrust upon the carrier the further continuance of his extraor- dinary responsibility. It would doubtless be very convenient to consignees if they were permitted to prescribe rules of de- livery from time to time as their own convenience should sug- gest. But such is not the law. It is true that it is competent for banking houses, private as well as corporate, to establish rules of business and to prescribe the time within which its peculiar business with the puldic shall be done. But this power is not an absolute or arbitrary one. * * *• "TVhile it is proper and necessary for the general conven- ience of all parties that certain hours shall be named within which the bank will receive deposits, pay bills and drafts, dis- count notes, etc., it is neither reasonable nor proper that the €11. XXXV.] Baxki:n"g. 397 same hour shall be designated for the transaction of its other business." The term '' banking hours " has reference to the time in which the ordinary business of a bank is to be done. It is competent for a banking corporation to prescribe certain bank- ing hours within which their peculiar business shall be done, but these hours must be reasonable and adapted to their pecu- liar business with the public in general. " Banking hours " are recognized bv the courts to the extent that any ordinary transactions occurring in the business of banking must be performed within " banking hours " upon that day. "While a bank may make a rule that it will not receive de- posits after three o'clock, it is held that where a carrier delivers a box of specie to the bank after the hour named for closing, it cannot refuse to accept the same. "Where the doors of the bank are closed to all kinds of busi- ness after certain reasonable hours, and no business of any nature is transacted with the general public, it may refuse to accept express packages, especially so if the doors of the A^auit are locked and the officers, who alone are authorized to transact the business of the bank, have left the place of business.^ 1 Merwin r. Butler, 17 Conn. 138. CHAPTER XXXVI. BANKS LENDING CREDIT. § 248. When prohibited by law. Banking associations from the very nature of their business are prohibited from lending credit. They cannot for compen- sation or as an accommodation for others become an accom- modation indorser. They have no authority to become or obligate the bank as a surety upon a bond for an individual. The president of a bank has no power inherent in his office to bind the bank by indorsement for others. The indorsement or giiaranty of accommodation paper will be void in the hands of any person taking the same with notice. In the case of National Bank of Commerce v. Atkinson, 55 Fed. Rep. 471, the court says: '^ There is no doubt but what the law is that a national bank cannot loan its credit or become an accommodation indorser. On that question the decisions are uniform. It is also true that the president of a bank has no power inherent in his office to bind the bank by the execution of a note in its name; yet the power to do so may be conferred upon him by the board of directors either expressly, by resolution to that effect, by sub- sequent ratification, or by acquiescence in transactions of a similar nature, and of which the directors have knowledge." In the case of Bowen v. ISTeedles National Bank, 94 Fed. Rep. 925, the circuit judge says: " It may be stated in general that no banking corporation has the power to become a guarantor of the obligation of another, or to lend its credit to any person or corporation, unless its charter or governing statute expressly permits it. Citing Farmers and Merchants' National Bank v. Butchers and Drovers' Bank, 16 N. Y. 125; Morford r. Bank, 26 Barb. 568; Thompson's Corp. § 5721. Under section 5136 of the Revised Statutes, national banking associations are given the power to ' make contracts ' and ' to exercise by its board of [398] cii. XXXVI.] Bankixg. 399 directors, or diilv authorized officers or agents, subject to law, all such incidental 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 debt; by receiving deposits ; by buying and selling exchange, coin, and bullion ; by loaning money on personal security ; and by obtain- ing, issuing, and circulating notes according to the provisions of this title.' There is in these provisions no grant of power to guarantee the debt of another, nor can such guaranty be said to be incidental to the business of banking. It has been so held in Seligman v. Bank, 3 Hughes, 647; Fed. Cas. No. 12,642; :N"'orton v. Bank, 61 K H. 589, and Bank v. Pirie, 27 C. C. A. 171; 82 Fed. Eep. 799." § 249. Where a bank may make a guaranty. In the case of Peoples' Bank v. Xational Bank, 101 IT. S. 181, the case is stated in the syllabus as follows: "A made his promissory note to his own order, duly in- dorsed it to the order of B, and delivered it to a national bank. The latter negotiated it to B, and applied the proceeds thereof t(> the cancellation of a prior debt of A. With the knowledge and consent of the president and cashier, who were also directors, but without any notice to or authority from the board, C, one of the directors and vice-president of the bank, guaranteed, at the time of the transaction, the payment of the note at maturity by an indorsement thereon to that effect in the name and on the behalf of the bank. The note was duly protested for non-payment, and the bank notified thereof. B brought this action against the bank. Held: 1. That the bank was not prohibited by law from guaranteeing the payment of the note. 2. That it is to be presumed that C had rightfully the power he assumed to exercise, and the bank is estopped to deny it. 3. That the bank by its retention and enjoyment of the proceeds of the note, rendered the act of O as binding as if it had been expressly authorized." In the case of Seeber v. Commercial Xational Bank, 77 Fed. Rep. 957, it is held that a contract by a national bank to in- demnify one for loss incurred as surety on an attachment bond, is not void on the ground of public policy; the loss having occurred, though the bond is not given for the benefit of the bank. 400. Ba.nks Lending Ckedit. [cii. xxxvi. A written guaranty of the payment of a note " with all legal or other expenses of or for collection " executed by the in- dorser before maturity of the note, covers reasonable attoniey fees incurred in the collection of the debt.^ § 250. Guaranty of bank — Acts ultra vires. The act of Congress authorizing the organization of na- tional banks confers upon them no authority, by expressed terms or by implication, to guaranty the payment of debts contracted by a third person and solely for his benefit. All acts of this nature executed by the cashier or the board of directors are iiltra vires.^ Where the defendant, a national bank in California, agreed v/ith the plaintiff in Xew York to pay any checks drawn upon it by one " B." Upon the faith of this promise, plaintiff honored several such checks, which Avere paid in the following man- ner : Defendant made its cashier's checks upon the " C " ^STational Bank in Xew York, at which bank it had no fund, and sent them to plaintiff, at the same time sending the " C " K'ational Bank drafts on " B " to cover its checks. Later, certain of these cashier's checks proved worthless — the drafts not being collectible, and were not presented to " C " Xational Bank, but no prejudice to defendant by reason of such nonpre- sentment was shown. Held, the promise of the defendant bank was ultra vires and void as to the plaintiff, he being chargeable, under the circumstances, "with notice of the fact giving rise to the illegality.^ 1 INIoGliee r. Importers & Traders' 3 Bowen v. Needles Nat. Bank, 87 Nat. Bank, 93 Ala. 192. Fed. Rep. 430. 2 Commercial Nat. Bank r. Pirie, 82 Fed. Rep. 799. CHAPTER XXXVII. NOTES AND ACCEPTANCES. §251. When note made payable at bank — Duty of bank. The general rule laid down in the case of Indig v. National City Bank, SO X. Y. 100, is that when the note of a de- positor is made payable at a bank where he does business, that when the note falls due, if the bank is in funds, it is the duty of the bank to pay the same. It is the duty of the bank to pay checks when drawn upon it by its depositors, but unless the maker of the note has authorized the bank to pay the same when presented, the later and better rule is that the bank is not bound to do so, neither is it the duty of the bank to pay the same. If the bank is made the agent of the maker of the note, the authority exists, and then it is bound to pay a note when pre- sented, if it is in funds. In Illinois the Supreme Court in the case of Ridgely Bank V. Fatten & Hamilton, 109 111. 479, says that a banker has no right to apply money on deposit to the payment of a note of the depositor payable at the bank without the order or check of the depositor. Citing Wood & Co. v. Merchants' Savings Loan and Trust Co., 41 111. 267. In Indiana, in the case of the Second National Bank of Lafayette v. Hill et ah, 75 Ind. 223, the courts holds that: Syllabus. " In an action by a bank upon a promissory^ note, the sure- ties answered, alleging that the note was given for money borrowed from the bank by their principal, and that they were sureties only therein, which the bank knew at the time the note was executed ; that prior to its maturity the principal consented and directed the bank to allow and pay the note after its maturity, out of his general deposits therein; that after its maturity the bank had, of the funds of the principal on deposit, more than sufficient to pay the note and interest ; that the bank failed to apply the funds of the principal so 26 [4011 402 XoTEs AXD Acceptances. [ch. xxxvii. deposited in payment of the note, bnt subsequent to its ma- turity suffered the principal to check his funds out of the bank. Wherefore, they claim that they are released. " Held, on demurrer, that the answer was insufficient. " Held, also, that the failure of the bank to apply to the payment of the note the money which the principal had on general deposit in the bank at and after the maturity of the note did not discharge the sureties, " Held, also, that the bank had a right to apply the money which the principal had on general deposit after the maturity of the note, to its payment, with or without j;he consent or direction of the principal, but that the checks subsequently dra\\ii by him were a withdrawal of his previous directions upon the subject." A leading case and one reviewing many of the authorities discussing this subject, is the case of Grissom v. The Bank, 87 Tenn. 350. A summary of the court's opinion in this case may be stated as follows : " The fact that a note is made payable at a bank does not (without more) confer authority upon the bank to pay the note when due to and presented by a third person out of funds standing on deposit to the credit of the maker at maturity of the note.^' Custom. " Custom to authorize such payment must be general, uni- form, and certain and known to both parties. They are pre- sumed in such case to contract with reference to such custom." § 252. Set-off — Estoppel. " Where a bank has without authority paid a note on which its depositor is accommodation indorscr, it is estopped to claim such payment as is set off against the depositor, where by rea- son of the bank's failure to give notice of the payment, the indorser is deprived of effectual recourse against his principal." In the case of Bank v. Peltz, Appellant, 176 Pa. St. 513, the court lays down a modified or optional rule and states it as follows: " The bank may apply the deposit to the payment of the note, yet it is not in general bound to do so, but where the cii. XXXVII.] Baxkixg. 403 bank holds funds of the maker when the note matures it is bound to consider the interests of the indorser or sureties, and if it allows the maker to withdraw his funds after protest and the indorsers are losers thereby, the bank is liable to them." The court then proceeds to justify its opinion and says : '' The reason of the rule is that the maker is the principal debtor and liable to all the indorsers whose undertaking is to pay if he does not." The court, in further discussion of this question, says: " While a bank which is the holder of a note and has on de- posit at the time of maturity a sum to the credit of any party liable to it on the note sufficient to pay it, and not previously appropriated by the depositor to be held for a diiferent pur- pose, may apply the deposit to the payment of the note, yet it is not in general bound to do so. The cases where the right becomes a duty on the part of the bank rest on the special equity of the party, usually the indorser, to have the payment enforced against the depositor as the one primarily liable. Commercial Xational Bank v. Ilenninger, 105 Pa. St. 496. And even in these cases all the circumstances enumerated must exist. Thus the deposit must be sufficient at the time of ma- turity of the note. Subsequent deposits will not raise the duty. People's Bank v. Legrand, 103 Pa. St. 309 ; First Xa- tional Bank v. Shreiner, 110 Pa. St. 188. And the deposit must not have been previously appropriated to any other use. Cases cited, supra, and German Xational Bank v. Foreman, 138 Pa. St. 474, Avhere the principle was conceded, though an exception of doubtful coiTectness was made against a mere notice from the depositor not to pay, unaccompanied by a specific appropriation to a diiferent purpose. And lastly the deposit must be to the credit of the partv primarily liable. The rule is thus stated by our brother, "Williams, in the latest case on the subject. Mechanics' Bank v. Seitz, 150 Pa. St. 632. ' The general rule is well settled that, while the bank may ap- propriate funds in its hands belonging to any previous party to the note, to the payment of it, * * * yet it is not bound to do so. The note may be treated as, in effect, an order or check authorizing the bank to apply the deposit to the pav- ment, but the deposit is not payment in law. ^-^ * * B\it where the bank holds funds of the maker when the note 404 XOTKS A^v'D ACCEPTA^'CES. [CH. XXXVII. matures, it is bound to consider the interests of the indorsers or sureties, and if it allows the maker to withdraw his funds after protest, and the indorsers are losers thereby, the bank is liable to them. The reason of this rule is, that the maker is the principal debtor and liable to all the indorsers, whose un- dertaking is to pay if he does not.' " This subject is again discussed in the case of Xational Mahaime Bank v. Peck, 127 Mass. 298. Where the rule we believe is correctly stated. The court, in its opinion, says: "Money deposited in a bank does not re- main the property of the depositor, upon which the bank has a lien only, but it becomes the absolute property of the bank, and the bank is merely a debtor to the depositor in an equal amount. Foley v. Hill, 1 Phil. 399 and 2 TI. L. Cas. 28; Bank of Republic v. Millard, 10 Wall. 152; Carr v. Xational Security Bank, 107 Mass. 45. So long as the balance of ac- count to the credit of the depositor exceeds the amount of any debts due and payable by him to the bank, the bank is bound to honor his checks and liable to an action by him if it does not. When he owes to the bank independent debts already due and payable, the bank has the right to apply the balance of his gen- eral account to the satisfaction of any such debts of his. But if the bank instead of so applying the balance, sees fit to allow him to draAv it out, neither the depositor nor any other person can afterward insist that it should have been so applied. The bank being the absolute owner of the money deposited and being a mere debtor to the depositor for his balance of account, holds no property in which the depositor has any title or right of which a surety on an independent debt from him to the bank can avail himself by way of subrogation, as in Baker v. Briggs, 8 Pick. 122, and American Bank v. Baker, 4 Met. 164, cited for the defendant. The right of the bank to apply the balance of account to the satisfaction of such a debt is rather in the nature of a set-off, or of an application of payments, neither of which, in the absence of express agreement or appropriation, will be required by the law to be so made as to benefit the surety. Glazier v. Douglass, 32 Conn. 393 ; Field v. Holland, 6 Cranch, 8, 28 ; Brewer v. Knapp, 1 Pick. 332 ; Upham v. Lefavour, 11 Met. 174; Bank of Bengal v. Radakissen Mitter, 4 Moore P. C. 140, 162. cii. XXXVII.] Baxkixg. 4:05 '' The general rule accordingly is that where moneys drawn out and moneys paid in or other debts and credits are entered by the consent of both parties in the general banking account of a depositor, a balance may be considered as struck at the date of each payment or entry on either side of the account, but where by express agreement or by a course of dealing between the depositor and the banker, a certain note or bond of the depositor is not included in the general account, any balance due from the banker to the depositor is not to be ap- plied in satisfaction of that note or bond, even for the benefit of a surety thereon, except at the election of the banker. Clay- ton's Case, 1 Meriv. 572, 610; Bodenham v. Purchas, 2 B. & Aid. 39, 45 ; Simpson v. Ingham, 2 B. & C. 65 ; S. C, 3 D. & Pt. 2-19; Pemberton v. Oakes, 4: Russ 154, 168; Peas© v. Hirst, 10 B. & C. 122 ; S. C, 5 Man. & Eyl. 88 ; Henniker v. Wigg, Dav. & Meriv. 160, 171; S. C, 4 Q. B. 792, 795; Strong v. Foster, 17 C. B. 201 ; Martin v. Mechanics' Bank, 6 Ilarr. & J. 235, 244; State Bank v. Armstrong, 4 Dev. 519; Commercial Bank v. Hughes, 17 Wend. 94; Allen v. Culver, 3 Den. 284, 291; Xewburgh Bank v. Smith, 66 X. Y. 271; Yoss v. Ger- man-American Bank, 83 111. 599." . § 253. Makers right of set off. While the rule is that the bank may apply the deposit in payment of the matured note, especially when authorized so to do, the maker of a note can compel it to do so, and an as- signment by the bank of a note before its maturity does not prevent the depositor and maker of the note from claiming the right of set-off.^ § 254. Special deposit, when accepted to pay note. When a customer makes a special deposit in a bank, of funds for the purpose of paying notes made by him, and which may be from time to time presented to the bank for payment, it becomes a deposit which cannot be used by the bank for any other purpose. Such funds are held by the bank more in the nature of trust funds and must be applied as directed by the debtor. A special deposit cannot be used to pay a note due the 1 McCagg c. Woodman, 28 111. 84. 406 XoTEs AXD Acceptances, [cii, xxxvii. bank unless when the deposit was made it was understood and intended to be used for such purposes.^ § 255. Money deposited with bank to pay note is not payment. In the ease of St. Paul Xational Bank v. Cannon, 48 X. W. Rep. 520, it appears that money due on a note which was payable at a certain bank was deposited in the bank at the maturity of the note with directions to pay it ; held, that the deposit is not a payment. The court, in discussing the question, says: " It is alleged in the answer that at maturity Loeffelholz did pay the note at the Bank of Minnesota '' by depositing and leaving with said bank a sum of money sufficient to pay said note and mortgage, and then and there instructing said bank to pay said money to the la'v^'ful owner thereof." " It is admitted that the money was paid to the Bank of Minnesota by Loeffelholz. The note was not at the bank, but was then held by the plaintiff as collateral security. Although the note was by its terms payable at the Bank of Minnesota, the mere depositing the money in that bank, in order that it might be applied in pa^^Ilent of the note, did not constitute a payment of it. In such a case the bank receiving the money is to be regarded as the agent of the person paying it, the holder of the note not having deposited it at the designated place for collection or pa^Tuent. The law is well settled. Adams v. Improvement Commission, 44 X. J. L. 638 ; Hill V. Place, 48 X\ Y. 520; Caldwell v. Cassidy, 8 Cow. 271; Gas Co. V. Pinkerton, 95 Pa. St. 62 ; "Wood v. Savind, etc., Co., 41 in. 267; Caldwell v. Evans, 5 Bush (Ky.), 380; Ward V. Smith, 7 Wall. 447; Freeman v. Curran, 1 Minn. 169 (Gill, 144); 3 Rand Com. Paper, § 1119, and cases cited." § 256. Application of deposit on note. It has been held that where a bank holds a note of a de- positor it is not bound to immediately upon the maturity of the note apply the funds of the depositor in payment of the same. A bank having money on open account to the credit of a maker of a note, which it holds, is not obliged to apply the 2Stebbins r. Lardner, 48 N. W. 847: Hall v. Marston. 11 Mass. 575. CH, XXXVII.] Bankixg. 407 money thereon before bringing suit, even if it has the right to make such application without consent.^ Where the depositor has authorized the bank to pay his note when presented and the bank acting under such directions pays the same, applying all of the funds to his credit then in the bank and advancing an amount in addition thereto necessary to pay the same, the amount so advanced is like an over- draft and may be recovered from the maker of the note. 3 Doctor and others v. Riedel and another, 96 Wis. 158. CHAPTER XXXVIII. COLLECTIONS BY BANKS. § 257. Subject treated — Duty of bank. In the presentation and treatment of this subject the object directly in view is to give general direction and the rules of law as to the duties and liabilities of the bank in accepting and making collections. If it receives the collection it becomes responsible and must return the same or the proceeds derived therefrom, or render a good and sufficient cause in failing to do either. The first question presented to the banker after receiving the collection, is to determine what are his duties. This is established by the indorsement and instructions accompanying the collection. § 258. Kelationship existing between the parties. As between the parties, a deposit of commercial paper for collection, and the bank receiving it, the position is held, by a number of leading authorities to be that of bailor and bailee. This position, however, is by many of the courts denied, and the relationship arising by the deposit of commercial paper with a bank for collection, is held to be that of principal and agent. The first question presented to the banker by the deposit of commercial paper for collection, is the practical one : '■ How are collections received ? " - The contract entered into between the parties at the time of receiving the collection, which prescribes the duties of the collecting bank, governs and establishes their relationship. A colloction may come into the possession of the bank either by the owner personally presenting the same or it may be re- ceived through the mail from a person or bank transmitting the same. In either case, when received by the bank, the first duty of the bank is to scutinize every such instrument carefully before its entry upon the bank's collection register. [408] cii. xxxviii.] Baxkixg. 409 The jnirpose of this close scrutiny is to determine if pos- sible whether the note or instrument has been disfigured or in any way changed after its issue by the drawer. If, upon examination (the collection being a note), it appears that it is irregular, it should not be accepted and entered upon the col- lection register. If notes or collections are presented by strangers they should be held for investigation l)efore acceptance and entry and at the time and before the acceptance they must be properly indorsed. § 259. Indorsement. Tlie language used controls, governs and directs the bank and establishes its relationship with the owner of the paper. The form of the indorsement either makes the bank a bailee of the collection or an agent representing the o^\Tier. In commercial law an indorsement is defined to be ''that w'hich is written on the back of the instrument in writing and Avhicli has relation to it." The indorsement does not necessarily have to be made upon the back of the instrument. It may be made upon the face of the instrument and this does not in any way affect or destroy its legality. The indorsement is made primarily for the purpose of trans- ferring the rights of the holder of the instrument to the bank. It is sometimes made for additional security, and conse- quently there are several kinds of indorsements. They are defined as follows: " First. An indorsement in full or a special indorsement is one in which mention is made of the name of the indorsee. " Second. A conditional indorsement is one made separate to some condition, without the performance of wdiich the instru- ment will not be or remain valid. " Third. A blank indorsement is one in which the name of the indorser only is written upon the instrument. " Fourth. A qualified indorsement is one which restrains or limits or qualifies or enlarges the liability of the indorser. " Fifth. A restrictive indorsement is one which restrains the negotiability of the instrument to a particular person or for a particular purpose." 410 Collections by Banks, [ch, xxxviii. The note or instrument bearing an indorsement which may be one of the above described, the bank receiving the same should examine the indorsements carfully and mark on each note the date of its maturity. This is very important, for if the due date of the note should be entered or marked a day too late, the drav^er failing to pay, the bank would be held by the error, as the notice of protest to the indorser would be too late to hold him. The notes after being " timed," as stated, are recorded or should be recorded in what is known as the " collection regis- ter," and usually from this book the notes are copied into the '' tickler." A bank may have what is called a " foreign collection regis- ter," in which all notes, checks or drafts which are payable in another place are registered. The collection having been duly indorsed, and the bank receiving and accepting it, assumes the duties imposed upon it by law to undertake to make the collection. The bank, as previously stated, is governed as to its duty, as to the treatment of the instrument by the nature of the indorsement, and the law which imposes certain obligations upon it. § 260. Nature of relationship between the parties. As previously stated, when a collection is received and ac- cepted by the bank, the relationship between the parties is fixed by the indorsement of the instrument. In such a case the law defines the duty of the bank. A special agreement may be entered into at the time of the acceptance of the collection specifically defining by instructions the duty of the bank, which agreement, in relation to the col- lection, must be strictly complied mth. § 261. When a bank becomes bailee. A bailment, as defined by Professor Joel Parker, " is a de- livery of something of a personal nature by one party to another, to be held according to the purpose or object of the delivery, and to be returned or delivered over when that pur- pose is accomplished." CH. XXXVIII.] Banking. 411 A bailment is generally defined as a deposit or commission without recompense. A bank does not usually, however, perform collections gratuitously; and the courts do not construe and regard the undertaking of a bank to collect commercial paper gratuitously. The United States Circuit Court of Appeals, discussing this questions, says : " AVhere the statement of facts shows that a city treasurer deposited checks in the bank indorsed by him for deposit, and the checks were immediately credited to him, but had no agreement that his checks should be treated as cash, or that he could draw against them before collection, and the bank became insolvent before the checks were collected, and their proceeds passed into the hands of the receiver, held, that no title passed to the bank, except as a bailee, and that the depositor was entitled to the proceeds."^ A bank becomes a bailee when it is accustomed to keep securities, whether authorized to do so by its charter or not, and is held liable for their loss by gross negligence. A bank becomes a bailee when it receives personal property, agreeing with or without a consideration to keep the property and return it to its bailor, and is liable for gross negligence when the keeping of the property is gratuitous,^ Bailment may include the performance of services upon the part of the bailee, as, for example: A delivery of a thing (a negotiable instrument) in trust (to a bank) upon a contract expressed or implied that it collect the same. If the bank accepts the note only for collection, it becomes a bailee of the instrument and must execute the trust, and, if possible, make collection of the paper, for which the court Avill allow it a reasonable compensation. The bank is a bailee until the note is collected. When the position changes, and after collection, the proceeds or funds, when authorized by the owner, may be placed to the credit of the owner of the collection, who then becomes a depositor of the proceds, and the bank a debtor to him for such proceeds. A bailment being defined strictly is the acceptance of per- sonal property to be held according to the purpose or object 1 Beal, Receiver, v. City of Sonier- 2 Edwards on Bailment, § 78. ville, 50 Fed. Rep. 647. 412 Collections by Banks. [cii. xxxviii. of the delivery and returned again \\hon that purpose is accomplished. The placing of a nofe for collection with a bank where the indorsement is a restrictive one, for example, " Endorsed for collection," the placing of the note and acceptance bv the bank i?- held to be a bailment of the instrument. The duty of the bank, having accepted the instrument, is to proceed to the collection of it. If the bank, under the instructions, collects the note, the proceeds belong to the owner and must be held by the bank as a special deposit and returned to the owner upon demand, less the reasonable expenses which may be allowed for collection. AVhen the collection is made and the funds are in the possession of the bank, as before stated, the legal position of the bank may be changed from that of bailee to one of debtor; but the bank has no right to change its position and establish this relationship, unless authorized by the owner of the collection. If the indorsement of the instrument, when delivered to and accepted by the bank, reads as follows : " Endorsed for col- lection and credit," the bank, upon collection of the instru- ment, has the direct authority to place the funds so collected to the credit of the owner, and in such a case the bank may be considered the agent of the owner and the position be changed by the nature of the indorsement of the instrument from that of bailor and bailee to that of agent. The case of Scott v. The Ocean Bank in the City of Xew York, 23 X. Y. 289, seems to be directly in point. The opinion of the court is as follows: " The facts found by the learned justice, who tried this case v.'ithout a jury, do not justify his conclusions of law that the bill in question on the receipt thereof by the Ohio Life Insur- ance and Trust Company became, as between it and James Lyell, on whose account it was received, the property of the company and could be used by it as its other funds were used. It is not shown nor claimed that there was an express agree- ment between the company and Lyell that he should, on the receipt by it of the bills remitted, be entitled to have a credit in the account between them for the amount thereof; nor is it found that in the course of the dealings between them any cii. XXXVIII.] Bankixg. 413 credit was in fact ever given to him for any of such bills till the proceeds thereof were realized and received. All that is found in relation to such dealings is that Lyell, who was a hanker at Detroit and kept an account with that company at its office in the city of Xew York, made from time to time, hetween June, 1857, and the 24tli of August in that year, remittances to it and drew drafts upon it; that he was a large depositor with it of money and bills; that there was an arrange- n;ent between him and it that he should be allowed interest at the rate of 4 per cent, per annum on his average balances, and that on the said 24th day of August, on which day the company failed and suspended payment, Lyell had standing to his credit on the books of the company a cash balance of $108,483.50, exclusive of the bill in question; that such bill was received by the company in the usual course of business on the 20th day of August for account of Lyell, who had been in the habit of remitting in the same way that this was; that the bill was on the • day of its receipt accepted by the drawees on presentation and returned to the company, in whose possession it remained till its transfer to the defendant on the twenty-fourth day of the same month, and that Lyell had at that time not been credited with said bill by the company; but after the commencement of this action the bookkeeper of the assignees of the company, without the knowledge of Lyell or the plaintiff, credited Lyell with the proceeds thereof in his account with the company. " The only other fact bearing on this point is that after the stoppage of the company in Xew York it continued to do business in Cincinnati, Ohio, and that Lyell drew his drafts on it from, time to time during the month of September, 1857, to the amount of $98,236.84. This course of dealing, and the arrangement referred to for the allowance of interest to Lyell on his average balances, would, it is conceded, create the ordi- nary relation of debtor and creditor between the company and Lyell in respect to the money received by it; but no inference can be legally drawn therefrom, that the bills so remitted were credited, or were intended to be credited, as cash on the re- ceipt thereof, or that the company ever paid or were bound to honor drafts on account of the same until paid. Lyell was a depositor of money as well as of bills, and although ' ho made 414 Collections by Banks. [cii. xxxviii. remittances to the said companv and drew drafts npon it,' it does not follow from those facts alone that the drafts were drawn on acconnt of or were limited to the remittances, nor if thev were, that thev might be made for the bills remitted before collection, as well as the money. Xo reasons are dis- closed in the case from which it can be reasonably inferred that the company would consent, or had any inducements to consent to treat as cash, and make itself debtor for, every bill that might be remitted to it, without reference to the standing and responsibility of the parties, which in many cases might be unknown, especially when Lyell himself, as in the case of the bill in question, was not a party to such bill. It is more reasonable to assume that it would at least reserve the right to elect, whether to give credit absolutely or not be- fore the proceeds were realized; and until such election was made, and credit was in fact given therefor, the bill would be held by it as the property of Lyell, and not its own. AVhen, therefore, it appears that the bill in question was retained in the possession of the company after its acceptance, and that no credit had been given for it at the time it was passed to the defendants, and when nothing is disclosed in the whole course of dealings between the parties to show that any bill was ever credited or agreed to be credited in account before its col- lection, or that Lyell ever drew, or was entitled to draw, iipon the company, or that it was bound to accept drafts other- wise than upon and for fupds actually received in cash, it must be considered that the company at the time of the trans- fer stood in the relation of agents for its collection merely. There is no ground based on those dealings (and no other is claimed), for the conclusion that the ordinary relation of debtor and creditor between the company and Lyell, in re- lation to the bill in question, existed, or that it had become as between them the property of the company. LyeU consequently continued to he the owner of it at the time of its transfer, and the defendants never acquired any right to it as against him or the plaintiff icho had succeeded in his title. The facts found by the court below show that they received it, with other securi- ties, to secure a precedent indebtedness of the company to them, and that they neither advanced nor paid any new con- CH. XXXVIII.] Banking. 415 sideration on receipt of this bill, and they only gave credit for its proceeds after it was paid, in extingnishment of so much of the defendant's account against the company. The defend- ants, therefore, were not bona fide holders thereof for value, and are not entitled to its proceeds as against the plaintiff. It follows, that the judgment of the Superior Court at special term was erroneous, and that the order for a new trial was properly granted, and the plaintiff under the stipulation is entitled to judgment absolute." The court, in the case of Jones et al. v. Kilbreth, 49 Ohio St. 413, holds that: " When paper is deposited for collection, the relation be- tween the depositor and bank is that of principal and agent. If an agent for that special purpose, collects or sells the paper of his principal, he becomes a fiduciary, and w^ill hold the pro- ceeds in trust for the principal, and if the agent fails, there \vill be no reason why his general creditors should invade such proceeds to satisfy their claims, if the principal can trace or ascertain his property in the substituted form. Whether, in a given case, the proceeds have been sufficiently traced and identified, must rest in the judgment of the chancellor who is called upon to declare the proceeds subject to a distinct trust." The court here declares that the relation, where drafts were deposited mth a bank for collection, is that of principal and agent, and then contends that the agent collecting the funds holds them in trust for his principal and that if the agent fails while holding such funds, his creditors should not invade such proceeds to satisfy their claim. In this case, drafts were in- dorsed for " collection," which language, under the theory that the relation is one of principal and agent, would allow the agent to place the funds in the bank to the credit of the owner, which position would make the bank a debtor. The language of the court seems more clearly to establish the i:elation between the parties as one of bailor and bailee. Yqx the court holds that the funds are trust funds, and the law holds that the bailee must either return the thing bailed or its value. The law defines the duties of a collecting bank, and where a special contract by assignment of the instrument or other- 416 Collections by Baxks. [cii. xxxviii, wise, in relation to the collection is entered into, the bank is bound to obey instructions.^ § 262. Paper payable at a specific bank. Where a note is made payable at a bank and is placed or left there with instructions from the owner to collect and credit him, the bank, after collecting, becomes a debtor to the owner of the collection. When the bank makes the collection and places the pro- ceeds to the credit of the owner, its duties and responsibilities are ended. AVhere an instrument payable at a bank is placed with it by the owner for collection, the bank becomes the agent of the payee and is authorized to receive payment. If, however, the note is payable at the bank but is not left there for collection, a payment to the bank is not payment of the note. The bank in this case acts as the agent of the payor. The naming of a bank as the place of payment desig- nated in a promissory note does not create an agency and give the bank power to collect the note; but if the bank accepts pay- ment, having no authority to collect, it acts only as agent for the payor, and in receiving the money and canceling the note without authority first received from the payee it becomes liable to the payee in case of loss.* A bank is not authorized to receive the money for the payee by reason simply of the fact that the note is payable there.^ If a bank accepts money in payment of a note which is made payable at its place of business, it acts as the agent of the payor and the money so received becomes a special deposit, and in case of loss through gross negligence, of a special de- posit made in it with the knowledge and acquiescence of its officers and directors, it becomes liable.^ In the case of Bank of Montreal v. Ingerson, 10.") Iowa, 3-10, it is held that where a bank had secured its indebtedness to a creditor bank by putting up notes signed by third persons and payable to and at debtor bank, that the debtor bank had no .38.5; Wingate v. :Mechanics' Bank, 5 Chenev r. Libby, 134 I'. S. 68. 10 Pa. St. 107: Power r. First Nat. 6 National Bank v. Graham, 100 Bank. Mont. 2.50, U. S. 699. 3 Mechanics' Bank r. East, 4 Rale, 4 Ward r. Smith, 7 Wall. 447. CH. XXXVIII.] Banking. 417 autlioritv to receive payment for notes in the hands of creditor bank. Where a bank is named as the phice of payment of a prom- issory note, if the debtor was ready at the time and place named to pay it and the bank refused to accept payment, such readi- ness is equivalent to a tender and an answer pleading that fact and payment of the money then due into the court, will be a bar to the recovery of interest and cost but not to the cause of action.^ § 263. Law of place governs relation. It is laid down as a general rule that the law of the place of tlie performance of a contract for collection governs it. In the case of Kent v. Dawson Bank, Fed. Cas. iSTo. 7714, the court says: " The place of performance of a contract is generally a controlling consideration by which to determine the lex loci contractus, and where, as here, the contract is both made in Xorth Carolina and was to be performed there, it is clear that the case must be controlled by the law of that State." ® § 264. Usage and custom. A custom is not binding upon the parties affecting collec- tions unless it is general as to place. It must also be certain and uniform. It must be known to both parties. It may be so general that both parties are presumed to know it. A custom which is contrary to public policy cannot prevail. In the State of California the courts hold that where one gives a draft to a bank to collect, he is held to have an im- pliecl hnoidedgc of its usage in making collections so far as such usage does not contravene any rule of law.^ In the case of Jefferson County Sav. Bank v. Commercial Xat. Bank, 39 S. W. 338, the court holds, that in the absence of special directions where a principal selects a bank as his collecting agent, he is bound by a reasonable usage prevailing and established among the banks at the place where the col- lection is to be made. Knowledge of the usage may not be 7 Hills r. Place, 48 N. Y. .'520. 9 Davis v. First Nat. Bank of 8 St. N. Bank i'. S. N. Bank, 128 Fresno, 118 Cal. 600. N. Y. 26. 27 418 CoLLECTioisrs BY Banks. [ck. xxxviii. known to the principal but as the law is applied in California he is bonnd by such nsage. The effect of local nsage and the question of reasonableness are so very clearly presented in the opinion of the conrt, it is cited in full: Opinion. " This cause was tried upon a statement • of agreed facts. Those essential to its present determination are as follows, to- wit: The complainant and defendant were coi-jiorations en- gaged in general banking operations — the one in Birmingham, Ala., and the other in Nashville, in this State. They were at the time of the transaction, out of which this controversy arose, and had been for a considerable period antecedent, engaged in a mutual correspondence, as the exigencies of their business required or suggested. In the course of this correspondence, the complainant bank, as owner and holder, forwarded to the defendant bank for collection, a note for $940, dra^^^l by Loventhal & Son, to the order of and indorsed by J. C. Marks & Co., and also a draft for $1,352, drawn by J. C. Marks & Co., and accepted by Sulzbacker Bros., both due and payable on Saturday, June 20, 1891. At 2 p. m. of the day of its ma- turity, the maker of the note and the acceptor of the draft tendered in pajTnent thereof, to the teller of the Commercial iN'ational, their checks for the respective amounts due thereon, drawn on and properly certified by the Nashville Savings. Bank (a banking corporation of good standing in Nashville) ; and these checks were accepted by this officer of the defend- ant, and the note and draft, after being stamped " paid," were delivered into the hands of the parties respectively entitled to them. This was done in accordance with a well-established usage or custom of the various banks of Nashville. The checks thus received were carried over to Monday, June 22d, on which day, at the hour of 11 a. m., they were presented to the Nash- ville Savings Bank for payment, this being the day and the hour, according to the custom and usage of the banks of Nash- ville, for their presentment. These checks were left with the Nashville Sa^nngs Bank for examination, according to another custom or usage of these banks, and at 2 p. m., of June 2 2d, they were returned unpaid to the defendant bank. At that cii. XXXVIII.] Banking. 419 hour the Xashville Savings Bank closed its doors, and the Commercial Xational Bank at once caused the checks to be presented and protested for non-payment. It is agreed that the Jefferson County Savings Bank had no nowledge of any of these local customs or usages of the banks of Xashville, and was igniorant of the methods pursued by the defendant bank in regard to this paper, until informed thereof by subsequent correspondence. Efforts made to collect the amount of these checks out of the drawers having proved abortive, the result is that the draft and note have been wholly lost to their owner. The bill in this cause seeks a decree against the Commercial National Bank covering this loss, upon the ground that it had no right, in the absence of express authority, to receive in pay- ment of this paper anything but money, and tnat it cannot excuse itself from liability for doing otherwise, by setting up a local custom or usage of which the complainant was wholly ignorant. The Court of Chancery Appeals held to this view, and accordingly entered a decree in favor of complainant for the full amount of the note and draft, with interest added. " In this decree there was error. The rule which that court invokes as decisive of this case — that is, that an agent, in the want of express authority, cannot accept anything in discharge of the principal's debt except money — is well settled, and has been frequently announced in such cases as Walker v. Walker, 5 HeisJ^. 425, but it does not control in a case like the present. A principal who selects a bank as his collecting agent, thus availing himself of the facilities which it holds out, in the absence of special directions, is bound by any reasonable usage prevailing and established among the banks at the place where the collection is made, without regard to his knowledge or want of knowledge of its existence. Sahlien v. Bank, 90 Tenn. 221, 16 S. W. Eep. 373; Howard v. Walker, 92 Tenn. 452, 21 S. W. Rep. 897. This rule regailating the relations of collecting banks to parties who take advantage of the means which they offer in this respect, is founded on sound reason. Every business man knows that in the constantly increasing volume and variety of banking transactions, the larger number of which are settled or disposed of by a simple exchange of credits, methods have been adopted bv bankers to economize labor, reduce risks, and simplify dealings with one another, 420 COLLECTIOXS BY EaXKS. [cII. XXXVIII. and "with, their customers. Some of these methods are of a general character, while others are dictated by local con- venience or necessity. That these methods prevail is a fact of snch public notoriety that no business man can well affect to be ignorant, and least of all, a banking institution. It is in ^-iew of this we have held that, in choosing a bank as a collecting- agent, the principal impliedly agrees that the agency may be performed in accordance with such reasonable methods as sanctioned by experience, have ripened into usage, when such usage is not in contravention of a general law, and in this hold- ing we are well supported by authority, as will be seen by reference to the cases already cited. The usages which were observed in the unsuccessful effort to collect the paper in con- troversy, and which are shown to have been established among the banks of Xashville, we find were reasonable and proper. It follows that tlie complainant was conclusively affected by tliem, although actually ignorant of their existence. The de- cree of the Court of Chancery Appeals is reversed and the bill is dismissed." Where a customer has for a considerable length of time been dealing with a bank, indorsing to it for collection, checks, drafts, etc., and where such indorsements were general and not restricted, the bank, it has been held, may mingle the funds so collected with the general funds of the bank, and such a usage and custom has been sustained, but where a party not a regular customer of the bank and a stranger to the usage and custom prerailing in the place, indorses to the bank a collection with- out consideration, the bank has no implied authority or au- thority by usage and custom, when such collection is made by it, to place the funds with the general funds of the bank. The funds should be held by the bank as a collection or a special fund until authorized by the owner to be placed to hia credit in the general funds of the bank.-^^ § 265. General rule as to title of paper. TJir r/eneraJ nilr is fliaf ihc iitjp of paper deposited with a hanl' for collection does not pass to it, hut remains in the depositor. The general ndo, tlierefore, sustains the bailment theory. 10 Freeman's Bank r. National Tube Works, l.ll ^Mass. 413. cii. XXXVIII.] Baxkixg. 421 In the case of the First National Bank of Fort Worth, Texas, v. Payne, 42 S. W. Rep. 736, the court holds that where a note has been assigned to a bank for collection only, the bank cannot recover upon it. It is generally understood that a mere deposit of a collec- tion to a bank by the owner, does not pass the title or make the bank the purchaser of the paper. The general rule as laid down by the Supreme Court in the State of Georgia is, that '' where a promissory note was in- dorsed by the payee to another for collection " for the account of the payee, the indorsee had such a legal title as would au- thorize him to bring suit upon the paper in his own name.^^ In the State of Iowa, in the case of ]\Ierchants' Xational Bank v. Mci^ulty, 36 Iowa, 229, the court says: " If the note was obtained without consideration as alleged, the payees could not recover thereon. The indorsee. Burton, and the subsequent holder, Hill, constitute the firm of Burton, Hill & Company, the payees, and hence held the note subject to the same defenses which might have been interposed against it in the hands of the payees. The plaintiff, if not a bona fide purchaser stands in no better position." It is generally understood between the parties that a mere deposit " for collection " does not make the bank the purchaser of the paper or relieve the depositor where credit has been given. There has been considerable contention and litigation upon this subject, but the weight of authorities supports the theory that it is a gratuitous favor and is not a banking custom. In Georgia, a negotiable instrument deposited in a bank indorsed " for collection " remains the property of the de- positor, which supports the bailment theory, and the same rule holds when the written indorsement appears unrestricted, but as a matter of fact evidence by express collateral agreement or understanding may be reasonably inferred from the course of dealing between the parties, the instrument is taken by the bank not as a purchase but for collection simply. Where the bank gives the depositor credit for the amount of a negotiable instrument indorsed to it, the giving of credit 11 Wilson et al. r. Tolson, 79 Ga. 137. 422 CoLLECTioxs BY Baxks. [ch. xxxviii. is not conclusive evidence that the bank had purchased the paper and was not a mere bailee thereof. The authorities hold that where a depositor is given credit upon checks, drafts, and negotiable instruments, indorsed to the bank for collection and he is allowed to draw checks against the same, but where such collections as are not paid and are deducted from the next deposit, such a course of dealing stamps the transaction with reference to the title to instruments so indorsed, as being unmistakably a bailment for collection simply and no greater title is vested in the bank.^^ If, by the nature of the transaction, the bank becomes re- sponsible to the depositor for the amount of the collection, the title of the paper vests in the bank. In the case of Gibson v. City of Erie, 196 Pa. St. 7, the owner of municipal bonds who made a special deposit of them "\vith the bank, which bank was the agent of the municipality, it is held, he does not lose his title thereto by reason of the bank collecting and paying over to him the proceeds of the interest coupons, and where the bank failed after using the money deposited with it by the city for the payment of the principal, held, that the owner is not estopped from recovery against the municipality. § 266. Form of indorsement controls title to collections. If the owner of paper desires to retain the title to the col- lection, he should place a restrictive indorsement upon it. Such an indorsement would read " indorsed for collection." This kind of an indorsement destroys the negotiability of the paper. The Supreme Court of the United States, in the case of The Commercial Bank of Pennsylvania v. Armstrong, 148 U. S. 50, says: " The words '' for collection ' evidently had a meaning. That meaning was intended to limit the effect which would have been given to the indorsement Avithout them and warned the party that contrary to the purpose of a general or blank in- dorsement, this was not intended to transfer the ownership of the note or its proceeds." And in White v. l^ational Bank, 102 TJ. S. 658-661, where 12 Armour Packing Co. r. Davis, Butcliers & Drovers' Bank V. Hub- Receiver, 118 N. C. 548; National boll, 117 N. Y. 384. CH. XXXVIII.] Banking. 423 the indorsement was "for account," the same justice, speaking of the indorsement, said: " It does not purport to transfer the title of the paper or the ownership of the money when received. The plaintiff then, as principal, could have control of the paper at any time before its payment, and this control extended to such time as the money was received by its agent." The court here cites: 117 X. Y. 38-1; 148 Mass. 553; 151 Mass. 413; 14 S. W. Rep. 411; 76 Ind. 561. Where the paper is controlled by such a restrictive indorse- ment, the courts emphatically hold that it does not transfer the title of the paper or the ownership of the money when received. Sustaining the doctrine that a collection made by a bank upon paper indorsed to it by restrictive indorsement cannot place the money so collected in the general funds of the bank, but must retain the same as previously stated as a special de- posit or collection for the benefit of the owner. ^^ ^yhere a iiegotiable instrument, then, is indorsed to a hanh for collection and a restrictive indorsement is placed upon the paper, the hanh does not become the owner of the paper, hut receives the same for the purpose of collection only. Where an instrument in the following language: " Pay S. V. White or order, for account Miner's National Bank, Georgetown, Colorado. " J. L. BROWisrELL, President." Which directs that the proceeds when collected shall be paid to a certain person, does not pass the title. The Supreme Court of the United States, in the case of White V. National Bank, 102 U. S. 658, says: " The language of the indorsement is without ambiguity and needs no explanation either by parole proof or by resort to usage. The plain meaning of it is, that the acceptor of the draft is to pay to the indorsee for the use of the indorser. The indorsee is to receive it on account of the indorser. It does not purport to transfer the title of the paper or the owner- ship of the money when received." The Appellate Court of the State of Illinois, in the case of 13 Evansville Bank v. German American Bank, 155 U. S. 556. 424: Collections by Banks. [ch. xxxviii. Fawsett V. Xational Life Ins. Co. of U. S., 5 111. App. 272, where an instrument indorsed: " Pay to the Second Xational Bank of Monmouth, for col- lection, for account of George F. Harding, executor of Abner C. Harding, deceased. A. F. FAWSETT." Held, that where a note is indorsed in a form showing an intention to pass all interest in the note, such indorsement imports a consideration, and wherever that is the case, the property in the instrument will be deemed to have passed absolutely to the assignee. § 267. Blank indorsement. It may be stated that the general nile is that a blank indorse- ment by the payee or holder of a negotiable instrument carries the title to the bank. The rule in i^ew York and most of the States is, that where a customer doing business with a bank and having a general account therein, deposits a check, indorsing the same in blank and receives credit on his pass-book, the title to the check so indorsed passes to the bank. Hoivever, where the customer understands mid has notice of the fact that the paper was in- dorsed and delivered to the hank for collection only, the title ivill remain in the depositor}* § 268. Power to collect may be revoked. The owner of the paper at any time before the bank takes action, may revoke the authority of the bank from proceeding in the collection. This is upon the analogy that the bank is acting as an agent. If the bank persists in the collection, it may be restrained by an order of the court. The power to revoke the collection cannot be enforced, how- ever, if the bank has acquired a lien upon it. The lien gives the bank an interest in the property, and if the collection has matured it is the duty of the bank to collect. If the bank becomes insolvent, its power to collect is revoked. 14 ■Metropolitan Nat. Bank v. low. 142 Mass. 0; Bank of Republic Lovd, 90 N. Y. 530; Brooks v. Bige- v. Millard, 10 Wall. (U. S.) 152. CH. XXXVIII.] Baxkixg. 425 But where a bank has brought suit and has entered upon the process. of collecting, its authority cannot be revoked unless it is shown that it obtained authority unla^\"fully. It is claimed that the authority of the bank may be revoked after it has entered on t'he process of collection if it fails to take the steps necessary to recover the coUection.-^^ § 269. Bank lien upon collections. The Supreme Court of the State of Michigan, in the case of Gibbins v. Hecox, reported in 63 X. "W. 519, lays down the general rule to be that a bank has a lien on all money, notes and funds of a customer in its possession for any indebted- ness of a customer to the bank which is due and unpaid. The court says: " The reason given for allowing the lien is, that any credit which a bank gives by discounting notes or allowing an over- draft to be made, is given on the faith that money or securi- ties will come into the possession of the bank in the due course of future transactions." The court, in its opinion, cites the case In re Farnsworth, 5 Biss. 223, Fed. Cas. Xo. 4673, stating: " Judge Blodgett of the United States Circuit Court of Illinois held that, a bank holding a customer's demand note has a lien upon the proceeds of drafts delivered to it, for col- lection after the giving of the note, though collected after the filing of petition in bankruptcy and can apply such proceeds upon the note." The court then cites from the case of Muench v. Bank, 11 Mo. App. 144, which court says: " The general lien of bankers is part of the law merchant. That bankers have a lien on all money and funds of a depositor in their possession for the balance of the general account is undisputed. A banker's lien does not arise on securities de- posited with him for a special purpose, otherwise we have no doubt that when a discount has been made by the bank, and the note has matured, so as to create an indebtedness from the depositor of the bank, all funds of the depositor which the bank has at the date of the maturity of the discounted note, or M'hich it afterward acquires in the course of business with 15 Bank of INIobile v. Huggins, 3 Ala. 206. -126 Collections by Banks. [en. xxxviii. him, may be applied to the discharge of his indebtedness to the bank; and this is trne not only of the general deposit of the cnstomer, but the rule applies to any commercial paper be- longing to the depositor in his own right and placed by him with the bank for collection." A corresponding bank receiving a collection with the state- ment that the collection belongs to ''A." and not to the bank remitting the same, the correspondent bank cannot acquire a lien against the collection for a debt which the forward- ing bank may owe to it.^^ But if the correspondent bank has no notice, but receives the collection as the property of the remitting bank, the cor- respondent bank has a lien for a debt that may exist between them, the rule may then be safely stated that a bank holding a collection as between the owner and itself, it cannot acquire a lien upon the collection or proceeds unless the debt existing from the o^^^ler of the security to the bank was, at the time the collection was made, a matured debt. And, as between the correspondent bank and its agent, the agent cannot acquire a lien where the collection is sent and indorsed " for collection." A letter accompanying a collection (which collection bears a general indorsement) which explains a blank indorsement, would also be held as notice to the collecting bank. The rule may be again stated that a bank cannot acquire a lien against a collection in any instance where the title of the paper remains in the owner. § 270. Authority of bank to make collections. AVhen a collection is received by a bank, it not only has the implied authority to collect which is granted to it in the general power to do a general banking business, but it may be said that it becomes a duty. The principle that the power is implied requires no dis- cussion. The character of the business of a commercial bank sug- gests and requires it to perform the business of making col- lections. The National Banking Law does not specifically designate 16 Bank of ^letropolis v. New England Bank, 1 How. 234. CH. XXXVIII.] Bankixg. 427 the business of making collections a pro^-ision of the statute, but the business itself forms a large branch of the banking business and its power is not denied. Held, in case of First Xat. Bank of Fort "Worth, Texas v. Payne, 42 S. W. 786, that plaintiff bank can not recover upon a note assigned to it merely for the purpose of collection. But see First Xat. Bank v. Hughes (Cal.), 46 Pac. 272. The rule as laid down by the Supreme Court of the United States as to the liability and duty of the collecting bank where it receives drafts and other collections from its customers and for defaults! of its agents, the court after discussing the de- cisions of the various States presents the rule to be as fol- lows: " The question involves a rule of law of general application. AVhatever be the proper rule it is one of commercial law. It concerns trade between different and distant places, and, in the absence of statutory regulations or special contract or usage having the force of law, it is not to be determined ac- cording to the views or interests of any particular individuals, classes, or localities, but according to those principles which will best promote the general welfare of the commercial com- munity. Especially is this so when the question is presented to this tribunal, whose decisions are controlling in all cases in the Federal courts. "^ The agreement of the defendant in this case was to collect the drafts, not merely to transmit them to the Xewark bank for collection. This distinction is manifest; and the question presented is, whether the Xewark bank, first receiving these drafts for collection, is responsible for the loss or damage re- sulting from the default of its Xewark agent. There is no statute or usage or special contract in this case, to qualify or vary the obligation resulting from the deposit of the drafts with the Xew York bank for collection. On its receipt of the drafts, under these circumstances, an implied undertaking by it arose, to take all necessary measures to make the demands of acceptance necessary to protect the rights of the holder against previous parties to the paper. From the facts found, it is to be inferred that the Xew York bank took the drafts from the plaintiff, as a customer, in the usual course of busi- ness. There are eleven drafts in the case, running through 428 Collections by Banks. [ck. xxxviii. a period of over three months, and the defendant had pre- viously received from the plaintiff two other drafts, accept- ances of which it had procured from Conger, at Newark, through the Xewark bank. The taking by a bank, from a customer, in the usual course of business, of paper for collec- tion, is sufficient evidence of a valuable consideration for the service. The general profits of the receiving bank from the business between the parties, and the accommodation to the customer, must all be considered together, and form a con- sideration, in the absence of any controlling facts to the con- trary, so that the collection of the paper cannot be regarded as a gratuitous favor. Bank of Utica v. Smeads, 20 Johns. 372, and 3 Cowen, 662; McKinster v. Bank of Utica, 9 AVend. 46; affirmed in Bank of Utica v. McKinster, 11 AVend. 473. " The contract, then, becomes one to perform certain duties necessary for the collection of the paper and the protection of the holder. The bank is not merely appointed an attorney, authorized to select other agents to collect the paper. Its undertaking is to do the thing, and not merely to procure it to be done. In such case, the bank is held to agree to answer for any default in the performance of its contract; and, whether the paper is to be collected in the place where the bank is situated, or at a distance, the contract is to use the proper means to collect the paper, and the bank, by employ- ing sub-agents to perform a part of what it has contracted to do, becomes responsible to its customer. This general prin- ciple applies to all who contract to perform a service. It is il- lustrated by the decision of the Court of King's Bench, in Ellis V. Turner, 8 T. R. 531, where the owners of a vessel carried goods to be delivered at a certain place, but the vessel passed it by without delivering the goods, and the vessel was sunk and the goods were lost. In a suit against the owners for the value of the goods, based on the contract, it was contended for the defend- ants that they were not liable for the misconduct of the master of the vessel in carrying the goods beyond the place. But the plaintiff had judgment. Lord Kenyon saying that the defend- ants were answerable on their contract, although the mis- conduct M'as that of their servant, and adding: ' The defend- ants are responsible for the acts of their servant in those things that respect his duty imder them, though they are not cii. XXXVIII.] Baxking, 429 answerable for liis misconduct in those things that do not respect his duty to them.' " The distinction between the liability of one who contracts to do a thing and that of one who merely receives a delegation of authority to act for another is a fundamental one, appli- cable to the present case. If the agency is an undertaking to do the business the original principal may look to the im- mediate contractor with himself, and is not obliged to look to inferior or distant under contractors or snb-agents, when de- faults occnr iiijnrions to his interest. " "Whether a draft is payable in the place where the bank receiving it for collection is situated, or in another place, the holder is aware that the collection must be made by a com- petent agent. In eith-er case, there is an implied contract of the bank that the proper measures shall be used to collect the draft, and a right, on the part of its owner, to presume that proper agents will be employed, he having no knowledge of the agents. There is, therefore, no reason for liability or exemption from liability in the one case which does not apply to the other. And, while the rnle of law is thus general, the liability of the bank may be varied hy consent, or the bank may refuse to undertake the collection. It may agree to re- ceive the paper only for transmission to its correspondent, and thus make a different contract, and become responsible only for the good faith and due discretion in the choice of an agent. If this is not done, or there is no implied understanding to that effect, the same responsibility is assumed in the under- taking to collect foreign paper and in that to collect paper payable at home. On any other ride, no principal contractor would be liable for the default of his own agent, where from the nature of the business, it was evident he must employ sub- agents. The distinction recurs, between the rule of merely personal representative agency and the responsibility imposed by the law of commercial contracts. This solves the difficulty and reconciles the apparent conflict of decision in many cases. The nature of the contract is the test. If the contract he only for the immediate services of the agent, and for his faithful con- duct as representing Jtis principal, the responsihiliiy ceases with the limits of the personal services undertaken. But where the contract Joolcs mmnly to the thing to he done, and the undertak- 430 Collections by Banks, [cir. xxxviii. ing is for the due use of all proper means to performance, the responsibility extends to all necessary and proper means to ac- complish the -object, by whomsoever used. " "We regard as the proper rule of law applicable to this case, that declared in Van AVart v. AVoolley, 3 B. tt C. 430, where the defendants, at Birmingham, received from the plaintiff a bill on London, to procure its acceptance. They forwarded it to their London banker, and acceptance w^as refused, but he did not protest it for non-acceptance or give notice of the re- fusal to accept. Chief Justice Abbott said: 'Upon this state of facts it is evident that the defendants (who cannot be dis- tinguished from, but are answerable for, their London cor- respondent) have been guilty of a neglect of the duty which they owed to the plaintiff, their employer, and from whom they received a pecuniary reward for their services. The plaintiff iy, therefore, entitled to maintain his action against them, to the extent of any damage he ma}' have sustained by their neglect.' In that case there was a special pecuniary reward for the service. But, upon the principles we have stated, we are of opinion that, by the receipt by the defendant of the drafts in the present case for collection, it became, upon gen- eral principles of law, and independently of any evidence of usage, or of any express agreement to that effect, liable for a neglect of duty occurring in that collection, from the default of its correspondent in Xewark. " What was the duty of the defendant, and what neglect of duty was there ? An agent receiving for collection, before maturity, a draft payable on a particular day after date, is held to due diligence in making presentment for acceptance, and, if chargeable with negligence therein, is liable to the owner for all damages he has sustained b}' such negligence, Allen v. Suydam, 20 Wend. 321; Walker v. Bank of the State of Xew York, 5 Seld, 582, The drawer or indorser of such a draft is, indeed, not discharged by the neglect of the holder to present it for acceptance before it becomes due. Bank of Washington V. Triplett, 1 Pet. 25, 35; Townsley v. Sumrall, 2 Pet, 170, 178. But if the draft is presented for acceptance and dis- honored before it becomes due, notice of such dishonor must he given, to the drawer or indorser, or he u'ill be discharged. 3 Kent's Com. 82; Bank of Washington v. Triplett, 1 Pet, 25, cii. XXXVIII.] Banking. 431 35; Allen v. Siiydam, 20 Wend. 321; Walker v. Bank of the State of Xew York, 5 Seld. 582 ; Goodall v. Uolley, 1 T. R. 712; Bayley on Bills (2d Am. ed.), 213. " Moreover, the o^^^ler of a draft payable on a day certain, though not bonnd to present it for acceptance in order to hold the drawer and indorser, has an interest in having it presented for acceptance without delay, for it is only by accepting it that the drawee becomes bonnd to pay it, and on the dishonor of the draft by non-acceptance, and due protest and notice, the owner has a right of action at once against the drawer and indorser, without waiting for the maturity of the draft; and his agent to collect the draft is bound to do what a prudent principal would do. 3 Kent's Com. 91; Robinson v. Ames, 20 Johns. 116; Lenox v. Cook, 8 Mass. 460; Ballingalls v. Gloster, 3 East. 481; AMiitehead v. Walker, 9 M. k W. 506; Walker v. Bank of the State of Xew York, 5 Seld. 582. " In view of these considerations, it is well settled that there is a distinction between the owner of a draft and his agent, in that, though the owner is not bound to present a draft pay- able at a day certain for acceptance, before that day the agent employed to collect the draft must act with due diligence to have the draft accepted as well as paid, and has not the dis- cretion and latitude of time given to the owner, and, for any unreasonable delay, is responsible for all damages sustained by the owner. 3 Kent's Com. 82; Chitty on Bills (13th Am. eil.), 272, 273." Where a bank receives a collection with instructions, it must discharge its duties, follow the instructions, if reasonable, and exercise reasonable diligence and care. As to what is reason- able diligence, is a question of fact to be determined by the 17 jury. Whre the draft is lost through negligence, the measure of damages prima facie is the amount of the bill.^* § 271. Bank suing in its own name. Rule. The statute of the State, ichere suit is brought, con- trols. The qeneral rule is, that if the indorsement upon the instrument is in blank, the bank can sue in its own name. The blank indorsement implies title to the instrument. n National Bank i;. City Bank, 18 Allen r. Suydam, 20 Wend. 319. 103 U. S. 668. 432 COLLECTIOXS BY BaNKS. [ciI. XXXVIII. The rule is carried further in many of the States and it is held that the bank as an " indorsee for collection " mav sue in its own name. The States of California, Rhode Island, Oregon, Georgia, Nebraska, Missouri, Illinois, Tenessee, Florida, Michigan, and Xew York hold that a transfer of a note to a bank for collection gives it such an ownership thereof that it can sue the maker in its own name. The States that have adopted the' new negotiable instrument laws enlarge the rule and confer upon the bank receiving col- lections, the right to sue in its own name upon a restrictive indorsement. Where a statute provides that an action shall be prosecuted in the name of the real party in interest, an agent cannot be for the purpose of collection, the real party in interest. In the State of California, the code provides that every action must be prosecuted in the name of the real party in interest, except that an executor or administrator or trustee of an express trust or person expressly authorized by statute, may sue without joining with him, the persons for whose bene- fit the action is prosecuted. A real party in interest is defined by the court, in the case of Giselman v. Starr, 100 Cal. 651, as follows: The court says: " But where the plaintiff shows such a title as that a judg- ment upon it satisfied by defendant, will protect him from future annoyance or loss ; and wdiere, as against the party suing, defendant can urge any defenses he could make against the real owner, then there is an end of the defendant's concern and with it of his right to object ; for, so far as he is interested, the action is being prosecuted in the name of the real party in interest." In the case of Lanier v. Xash, 121 U. S. 404, it is held that a bank holding a note and mortgage as trustee for collection for another, may sue to foreclose in its own name. For a leading case denying the right of a bank to sue in its own name, see First ISTat- Bank of Evansville v. Fourth Nat. Bank of Louisville, 56 Fed. Rep. 967. CH. XXXVIII.] Baxkixg. 433 The court savs, in discussing the question that the authorities are decidedly in favor of the law as given, but under special circumstances as where delay to bring suit (the collecting bank being the indorsee) would operate to discharge a surety, and there was not time to wait for advises from the owner of the paper, it would be the duty of the collecting bark to bring suit. § 272. When bank may renounce its authority to collect. A bank is not permitted to renounce its authority or refuse to make a collection af-ter the collection has been received and accepted by it from the owner. The bank mus;t take all the steps necessary and imposed upon it by law to enforce the collection. A draft, however, which has been by the collecting bank, presented for acceptance after dishonor, may be returned to the owner within a reasonable time, and the act will be con- sidered and construed as a renunciation of authority and the bank will be relieved of liability. But the return of the instru- ment must be done promptly. The retention of a dishonored draft for any length of time, which, during the time, if in the hands of the owner, collection could have been made, would make the bank liable for the loss sustained. In the case of Paint Company v. Xational Bank, -1 Utah, 353, where : " The defendant l)ank received from the plaintiff, for col- lection, a sight drafr on B. & S., the draft was accepted and the plaintiff notified thereof; the defendant, without further notification or taking any steps to collect the draft, held it for forty-seven days and then returned it as uncollectible. During all this time B. tt S. were known by defendant to be insolvent, but had jDroperty worth more than the amount of the draft which was covered by an invalid deed of trust. " Two days after the return of the draft, B. & S. made an assignment for the benefit of creditors to L. The vice-presi- dent and a director of the defendant, preferring a debt due defendant; held, that defendant was guilty of such neglect of duty in respect to the draft as to render it liable for the amount thereof." 28 434 Collections BY Banks. [cii. xxxviii. The rule fixing the liability, attaches to the bank when it receives the collection; if received and before any loss may occur to the owner, it may renounce its authority by an imme- diate return of the collection. If, however, the bank receives the collection, and undertakes ^^^th its depositor to collect for him the collection, and, upon indorsement thereof by the owner, the bank gives him credit for the amount upon his pass-book, it cannot then arbitrarily return the draft but must use reasonable diligence to collect the same. The credit and entry in the pass-book operates as a closing of the transaction and implies a contract upon the part of the bank to make the collection.^" § 273. Duty of collecting bank — Care — Diligence. The general rule is again stated that the bank in receiving a collection must use ordinary care and diligence toward its collection. The diligence and care required depends largely upon the circumstances arising in each case. A bank may contract against liability for negligence of its agents or correspondents, especially so if the agent or corre- spondent is known to and accepted by the owmer of the col- lection. But this rule is not good where the bank selects a correspondent without the consent or knowledge of the o^^^ler that proves to be irresponsible and incompetent. When the collecting bank assumes the responsibility, its duty is to employ responsible correspondents.^^ The Supreme Court of the State of Illinois, in the case of Fay V. StraAATi, 32 111. 295, has held that a bank has the right to stipulate against ordinary liabilities of collecting paper. The opinion of the court is very interesting and instructive upon this question. Opinion of the Court. " It is insisted that the finding of the jury is clearly against the weight of the evidence, and that the court below erred in not granting a new trial. The witness, Fay, testified that ap- pellants, when first applied to, positively refused to undertake 20 Kirkham i'. Bank of America, 21 Fay r. Strawn, 32 III. 295. 165 N. Y. 132. cii. xxxviii.] Banking. 435 the collection of the draft. That when they were applied to a second time for the same purpose, they only agreed to send the draft forward, upon the condition that they were to incur no liability. That it was agreed it should be sent to Burch & Co., for presentation, and when paid to be sent to appellants by express. That the draft was thus sent with these instruc- tions. This evidence stands uncontradicted by any other testi- mony in the record. It was, however, attempted to destroy its force by proving the usual course of business of this and other banks of Ottawa. And much stress was placed upon the fact that when collected, Burch & Co. placed the money to the credit of appellants. " If a special agreement was entered into at the time, the usage of this or other banking-houses could not in the least affect the liability of appellants. Proof of usage can only he received to show the intention or understanding of the parties in the absence of a special agreement. The parties have the right to stipulate against the ordinary liahilities of the busi- ness, and appellants did clearly provide by express agreement against any supposed liability growing out of their undertak- ing. When the draft was sent forward by appellants to Burch & Co., in accordance w^ith the agreement, they became the agents of appellee for the collection of the money. We are unable to see anything in the evidence that overcomes Fay's testimony. " It appears from appellant's letter remitting the draft to Burch 6: Co., that they gave directions to collect and at once to send the money by express, as it had been agreed between appellants and appellee. The clerk of Burch & Co. testified that when the money was collected it was by mistake passed to the credit of ap- pellants and against their instructions. Xothing can be in- ferred against appellants from this act, done without their sanction or consent. And it will be remembered it was not by their agents, but those of tlie appellee. It is also urged that appellants were guilty of negligence in sending the draft to an irresponsible banking-house for collection. The evidence shows that in Chicago, where Burch & Co. did business, their character for solvency was good. It, however, appears that Warner had suspicions of their solvency 436 Collections by Ban^ks. [ch. xxxvih. and communicated them to appellants, but he states no facts, except that he had heard persons predict that Corning would break Burch in their litigation. It also appears that some depositors withdrew their funds previous to that time from Burch & Co.'s banking-house. But it does not appear that appellants were aware of the fact, nor that the withdrawal was occasioned by want of confidence in the solvency of Burch & Co. The appellants transacted their business through this banking-house and seem to have had confidence in its solvency. This evidence is not sufficient to establish the liability of the appellants. " It was lastly urged that appellants were guilty of negli- gence in taking no steps to correct the mistake in passing the money to their credit. It does not appear that they had any notice of the mistake until they heard of the failure. But it is insisted that when the money failed to come by express, they should have written to have learned the reason, and that had they done so the money might have been saved. The draft was received by Burch ct Co. on the 30tli of May, and it was paid on the next day. On the 3d of June, three days afterward, Burch &■ Co. failed and made an assignment. There were, then, but two days between the collection and the failure, within which to receive the money. Suppose appellants had become apprehensive that something Avas wrong, by failing to receive the money by express on the 1st of June and had written on the second, does any one suppose the money could have been thus obtained, or information that Avould have led to its receipt ? It will hardly be contended that because the money was not received on the 1st of June, appellants should have gone in person or sent a messenger the next day ; and even if they had, it is not probable anything could have been obtained. " We think the verdict is clearly against the evidence and that tlie court below erred in refusing to set it aside. The judgment is, therefore, reversed, and the cause remanded. Judgment reversed." § 274. Duty to present — Collection. "When the bank receives a collection, when presentment is necessary, it becomes the duty of the bank at the proper time oil. XXXVIII.] Baxkixg, 437 in order to charge the drawer and mdorsers to present the same for acceptance or payment as the case may be. The absence of special instructions (which instructions if contrary to law) will not relieve it of liability. The act of presentment is performed by exhibiting the paper and requesting its acceptance or payment ; and when presented, the person presenting the same must be in possession of the instrument. The reason for and requirement of an exliibit of the in- strument is that the maker may judge of the genuineness of the same, and if paid, he may receive immediate possession of the bill. If the drawee refuses to accept the bill when presented or refuses to pay, the bill is dishonored. Where a note is payable at a particular bank and at a speci- fied time, it is dishonored if, at the time it became due and payable, the instrument was in the possession of the bank for collection. In such a case, the bank is not liable for not making a formal presentment of the instrument. § 275. Presentment of checks. The rule as stated in a previous chapter, in discussing the law of checks relating to presentment or payment is, that when a check comes into the possession of a bank for collec- tion it should be presented for payment with all dispatch and diligence. It must be presented within a reasonable time after its re- ceipt for collection. And as to what constitutes a reasonable time, depends upon the circumstances of each case.^ The court, in the case of Montelius v. Charles, 76 111. 303, says: " The general doctrine in each case must depend on its own peculiar facts and be judged accordingly." Presentment should be made during usual and reasonable hours, with banks presentment at a bank should be during banking hours. The Supreme Court of the State of Vermont says, that when a note is payable at a bank where its business is transacted 22 Loyd V. Osborn, 92 Wis. 9.3. 438 Collections BY Banks. [ch. xxxviii. during certain specified hours of the day, the note may be presented during any of those hours, and it is the duty of the maker to provide for its payment whenever the presentment i^ made. If the note is not paid when presented, the holder is at liberty to treat it as dishonored, and it is sufficient to charge the indorser. In Xew York where a promissory note was made payable at a bank, it appeared that, upon the day the note fell due, the indorser being ready to pay it, sent the maker to the bank during banking hours to see if the note was there and to as- certain the amount. In this case the note was not presented for payment uutil an hour after the close of the customary banking hours, then the holder was admitted into the bank and found the cashier and demanded payment. Payment was refused on the ground that no funds had been left with the bank to pay. The court held that the demand was sufficient to charge the in- dorser. § 276. Protest — Bank's duty. The collecting bank is bound to protest paper when pro- test is necessary to preserve the owner's recourse against the parties liable to him. The Statute of a State provides how, where, and when pro- test must be made. Protest may be waived upon a foreign bill of exchange by language or words on the face of the instrument, waiving protest. § 277. Bank accepting payment for collection. A bank is authorized to receive money only. If it receives checks, drafts, or other evidences of debt by doing so it takes them at its own risk and will be held responsible in money to the owner of the collection.^ This rule that the bank is authorized to receive money only is denied by the Supreme Court of the State of Kentucky, in the case of the Citizens' Bank of Paris, Ky. v. Houston, 98 Ky. 139. 23 Essex Co. Nat. Bank v. Bank of Montreal, 7 Biss. 193 Fed. Cas. Nos. 4532, 5359. CH. XXXVIII.] Banking. 439 Judge Lewis delivered the opinion of the court : "Joseph Houston, about September 22, 1891, delivered to, and Citizens' Bank of Paris, Kentucky, received for collection an order or check for $129, which one Griffith had drawn on the Cynthiana Xational Bank at Cynthiana, payable September 30, 1S91, to his order. In proper time it w^as sent to the latter bank, but returned, duly protested for non-payment, of which fact written notice was immediately mailed to both appellee and Griffith. " October 6, 1891, Griffith drew an order on the Bourbon Bank of Paris, for $131.66, being the amount of the original one and protest fees added, and payable to order of Brent, cashier of Citizens' Bank of Paris, which, upon representation that he had there deposited money to meet it, was accepted by the bank instead of the original, then canceled and given up. But payment of that check was likewise refused, although presented for that purpose to the Bourbon Bank of Paris, on the day it was given and other days. " October 22, 1891, Griffith made a deed of assignment for the benefit of creditors generally, and March, 1893, Houston brought this action to recover of Citizens' Bank of Paris, amount of original check and interest, for which, under peremp- tory instruction of the court, the jury returned a verdict, fol- lowed by judgment now appealed from. " The alleged cause of action is that defendant, without consent or knowledge of plaintiff, canceled and gave up that check and accepted in lieu of it a check from Griffith, the debtor, on another bank, made payable to the order of its own cashier. " Up to that time defendant/ had performed its undertaking with due diligence and in good faith, and the original check was plainly worthless, for Griffith Avas, as seems to be conceded, insolvent. But, where strictly required to do or attempt to do more in an effort to collect the debt, it is plain defendant accepted the new and gave up the old check in good faith, and as the only then practicable or possible way of subser^ang tlie interest of plaintiff. And that it intended and could pos- siblv profit by assuming ownership of the debt and becoming liable to Houston, therefor, is wholly imreasonable. We know of no rule of right that would, under such circumstances, make 440 Collections by Banks, [cii. xxxviii. an agent liable to his principal, for such was the relation of the parties throiig-hout the transaction. '^ It may be that when an agent acts without or beyond the line of his authority, and the principal incurs thereby an injury, he may be held liable ; but here no injury was done to plaintiff by cancellation of one and acceptance in its place of another check, nor, according to the evidence, was the transaction either without implied authority of plaintiff or such as he would or could have reasonably objected to if present. " The testimony of Griffith introduced bv plaintiff, shows that after the cheek on ISTational Bank of Cynthiana had been protested for non-payment, he, by letter, informed and prom- ised plaintiff he would go to Paris and ' fix it up,' and that plaintiff after being notified of the protest and return of the check to the Citizens' Bank of Paris, remained away four or five days, making no effort to collect it himself, is convincing that he expected and intended defendant, as his agent, to attend to the matter of having Griffith fix it up. " The fact of the new check being made payable to the cashier of defendant is no evidence of its intention to assume ownership of the check or become liable to plaintiff therefor, because, he being absent, it had to be drawn in that way in order to procure proper presentation and payment. " It seems to us, as this record stands, defendant incurred no liability to plaintiff, and the jury ought to have been so instructed." It is held that a collecting bank is not authorized to receive in payment for collection, a claim against itself ; and in the case of Francis v. Evans, 69 Wis. 115, the court holds that a bank is not authorized to receive in payment for a collection, its own certificate of deposit, but certificates of deposit by universal custom between banks are treated as cash ; and where a custom becomes universal, it is recognized by the courts as a law and the courts will take judicial notice of a universal custom. In the State of Iowa (at least) the court has taken judicial notice of a custom prevailing where the banks have treated certificates of deposit as cash. cii. XXXVIII.] Bankixg. 441 § 278. Duty of bank to collect interest, when. A bank cannot accept payment of a note not due and re- lease the maker for interest for the unexpired time. It is bound bv the terms set out in the collection, and a failure upon the part of the collecting bank to enforce the provisions of the note or other instrument left for collection, makes the bank liable. Where a certificate of deposit is left with the bank for col- lection, which certificate is payable on demand but would have borne interest if the deposit had remained in the bank up to a certain time and no instructions were given to the bank as to the time of collection, the bank having accepted payment of the principal, it is held that it was not guilty of negligence nor any violation of agreement or instructions and that it was not liable for the interest.^ § 279. Collecting bank's liability as indorser. A bank receiving paper for collection which requires it, the initial bank, to transmit the collection to another or the collecting bank, should not make itself a general indorser. A general indorser is one who warrants to all subsequent holders in due course, that the instrument is genuine, and that he has title to the paper, and that all prior parties had power to contract. It is held, in the case of Ferguson v. Staples, 82 Me. 159, that the indorsement of a transfer of an over-due toA\m order by the payee for value, raises a contract on his part that the order is genuine and is the legal promise of the town that it purports to be; and even after it has been adjudged void, may elect to sue the indorser upon his contract and recover on the order according to its tenor. The meaning of an indorsement, as defined by the court of Minnesota, is, that an indorser of a promissory note engages unconditionally that it is in every respect genuine ; — that it is the valid instrument it purports to be, and that the ostensible parties were competent.^ The bank should qualify its indorsement, using such lan- guage as would negative a general indorsement. 24lde. ex'rx, r. 'ihe Bremer Co. 25 Crosby r. Wright, 70 Minn. 251. Bank, 73 Iowa, 58. 442 Collections by Banks. [cii. xxxviii. It is also the dutv of the bank receiving a collection, if it has specific instructions from the owner of the paper directing the initial bank in its course and duty, to transmit such in- structions to its agent, the collecting bank. In the case of Borup v. Mininger, 5 Minn. 417, the court held that it was the duty of the initial bank to convey the instructions received by it from the OAvner to its correspondent ; and no custom could absolve the bank from this duty, as the fixing of the liability of the indorser was the vei'v essence of the undertaking. It is also held that the initial bank should notify its corres- ponding bank in a foreign State, of the laws governing protest.^*' The above authority also holds that a failure to furnish the corresponding bank the law governing such protests in the place or State where the contract is made, and by reason thereof the corresponding or collecting bank fails to comply with such law, that the initial bank is liable. In the States where the new negotiable instrument laws are in force, a bank receiving paper which has been indorsed restrictively for collection, it is held that it is liable as a general indorser if it subsequently indorses the paper without qualifi- cation. This rule is in contravention to the rule adopted by the Federal Court. The law as laid down by this court is given in the case of United States v, American Exchange National Bank, 70 Fed. Rep. 232. " This was an action by the United States against the American Exchange National Bank to recover the amount of a pension draft which defendant had collected, as collecting agent of another bank; it appearing that the name of the payee had been forged upon the draft after her death." "Opinion of the Court. The pension draft in this case was paid to the defendant bank by the Sub-treasui^^ upon the forged indorsement of the payee's name after her death. The Bellaire Bank of Ohio had previously cashed the draft upon the forged indorsement, and thereupon indorsed it ' for col- lection ' to tlie defendant bank at l^ew York. The latter was the collecting correspondent of the Bellaire Bank as re- 26 Allen V. Merchants' Bank, 22 Wend. (N. Y.) 215. c'H, XXXVIII.] Banking. 443 gards its funds in ISTew York. The collection was made in good faith by the defendant bank and the proceeds remitted to the Bellaire Bank some months before the discovery of the" forgery. The indorsement of the forged draft by the Bellaire Bank showed npon its face that the defendant was to act as collecting agent only. The defendant never had any prop- erty in the draft or its proceeds. The later anthorities sus- tain the proposition that in any case where the collecting agent pays over the funds before any notice of irregularity or fraud, the remedy is against the principal alone. (Bank v. Arm- strong, 148 U. S. 50; White v. Bank, 102 U. S. 658; Sweeny v. Easter, 1 Wall. 166; Wells, Fargo & Co. v. United States, 45 Fed. 337; National Park Bank v. Seaboard Bank, 114 :N'. Y. 28, 20 X. E. 632.) " In such cases the indorsement by the collecting agent, who has no proprietary interest, does not import any guaranty of the genuineness of all prior indorsements, but only of the agent's relation to the principal, as stated upon the face of the draff; and as this relation is evident upon the draft itself, the payor cannot claim to have been misled by the indorse- ment of the agent, or any right to rely upon that indorsement as a guaranty of the genuineness of the payee's indorsement. " In the case of Onondaga Co. Savings Bank, 12 C. C. A. 407, 64 Fed. 703, as I find upon examination of the record on appeal, no question like the present arose. The Onondaga Bank was in the same situation as the Bellaire Bank in the present case. It had cashed the forged draft and was collect- ing the money for its o^vn benefit as owner of the draft. Its indorsement imported a guaranty of the prior signatures; and the defendant's remedy here is against the Bellaire Bank. " The direction of a verdict for the defendant upon the undisputed facts was, I think, correct, and the motion for a new trial should be denied." § 280. When bank liable for fraud or mistakes. Where a party places in the hands of a bank a draft for collection with instructions to hand the collection to an at- torney, the bank failing to do so, and in the meantime the drawee became insolvent, the bank is liable for the losa.^'^ 27 Finch r. Karste, 56 N. W. 123. 444: Collections by Baxks. [cii. xxxviii. The measure of damages for such negligence is prima facie the amount of the paper with interest.^* A bank is liable for a careless mistake, for example: where a note is plainly dated and it mistakes the date and fails to give notice, protest and the like. The Supreme Court of the State of Pennsylvania says: " Certainly, when the bank accepts this note for collec- tion, it became its duty to use reasonable care and skill in attending to it: yet herein it is chargeable with a remarkable blunder in treating the date 15th December as if it were the 5 th. There can be no doubt that the 15th is there, for any- body can see it who looks, and the court could commit no error in saying that much. But the first figure was not so strongly marked as the other, and therefore the bank's officers interpreted it out rather than overlooked it, and thus made a mistake and had the note presented for payment ten days too soon, and not at the proper time, and thus discharged the en- dorser. This was clear carelessness; for, if there was any doubt about the date, the bank ought to have refused the col- lection of it, or to have got the holder to state what was the true date, or to have presented it on both days. To guess a meaning contrary to the expression, is not careful." "Where a bank holding a note for collection receives the amount necessary to pay the same from an agent of the maker, and by mistake gave up to him a similar note of another person and returned the first note to its owner, to whom the maker paid it on demand and immediately, though four days after the payment to the bank, upon examining the note in the agent's hands, discovering the mistake, returned it to the bank and demanded back his money. Held, that he was entitled to it, although the bank liad in the meanwhile paid the amount to the owner of the other note, the maker of which was in- solvent and discharged for want of demand.^ The question of mistake or more properly negligence is one of fact. In the case of Baltimore & Ohio Railroad Co. v. Worthing- ton, 21 Md. 275, the court says: *'An absence or want of such care as the law requires in 28 Commercial Bank r. Red River 29 Andrews v. Suffolk Bank, 12 Valley Nat. Bank, 79 N. W. 859. Gray (Mass.) 461. cir. XXXVIII.] Baxkixg. 445 the performance of anv given undertaking, * * * is a fact the finding of which is for the jury." The rule is that if there is no dispute as to the fact, the question of negligence is one of law.^*^ § 281. Liability of initial bank for default of its agents. As previously stated, a bank must use reasonable care in selecting and employing its correspondents, notaries and other agents to assist in or make collections for it. Where a collection is received by a bank and it agrees to undertake the obligation, it frequently becomes necessary to employ another bank, notaries and agents to perform this duty and make the collection, When the paper is payable at a distance, this duty arises. The bank then transmits the collection to its regular corres- pondent, if it has one, at the place where the paper is payable, if not, it selects a bank and sends the collection with instruc- tions, if special, how to proceed and what to do. The selec- tion having been made, and the paper forwarded, the initial bank, according to the weight of authority, makes itself liable to the owner of the paper for any failure of its correspondent in the performance of its duty. If the initial bank has no regular correspondent at the place where the collection is to be made, before employing an agent, its duty is to ascertain what bank or person at that place is responsible. Xegligence of the initial bank in this particular, makes the bank liable. If a bank is employed which is insolvent, where at the time of the employment it was ^dthin the means of the initial bank to ascertain tliis fact, and it failed to do so, the collection being made by the insolvent bank and the proceeds afterwards lost, the initial bank is held liable. The initial bank is also liable where it selects an nnsnitable and particularly incompetent person to give notice to in- dorsers. § 282. Who are suitable agents. The debtor cannot under any condition or circumstance, be regarded as a suitable agent to be entrusted with the collection 30 Selz r. Collins, .55 Mo. App. 55. 446 _ Collections by Banks. [ch. xxxviii. of an obligation owing by himself. Common sense teaches that such "a person cannot and should not be employed; bnt very frequently this common sense rule is set aside and dis- regarded, and banks send a collection direct to the bank owing the debt requesting that it remit the amount. If the debtor bank failed to do so and a loss occurs, this is gross negligence and the initial bank is liable. In the case of German Xational Bank of Denver v. Burns, 12 Colo. 539, the court veiy pertinently asks this question: " How can the debtor be the proper agent of the creditor in the matter of collections of debt ? " The court continuing, says: " If the debtor is embarrassed, there is the temptation to delay, and, if wanting in integrity, there is the opportunity to destroy and deny the evidence of indebtedness." The Supreme Court of Illinois presents the unreasonable- ness and negligence of such a practice in the follo^\'ing ques- tions and language: " Can it be said to be reasonable care in selecting an agent, to select one known to be interested against the principal ? To place the principal entirely in the hands of his adversary ? " The court further says: " Surely it could not be reasonable care and diligence in an agent holding for collection, a promissory note given by one individual to another individual to send the promissory note to the maker, trusting to him to make payment, delay it or destroy the evidence of indebtedness and repudiate the trans- action as his conscience might permit." It is a very common custom and a rule generally followed l)y banks to remit drafts and checks directly to the bank o^ving them, and request that the remitting bank be credited with the collection and that notice of such credit be immediatelv given. This custom or rule is not uncommon, and as stated is most always practiced especially between corresponding banks; but this custom although daily practiced, does not excuse or re- lieve the initial bank from liability in case of loss. It is not reasonable care in selecting an agent to collect a debt, to select the debtor himself."''^ 31 Tlie Drovers' Xat. Bank r. The riiiladolpliia r. nondman ot al., 109 Anplo-Amprican Packinfj Co.. 117 Penn. St. 422, 78 N. W. 980. 111. 100; Merchants' Nat. Bank of CH. XXXVIII.] Banking. 447 The court holds, in the case of Davis v. First iS^ational Bank of Fresno, 118 Cal. 600, that a bank where negligence is charged, shonld bo permitted to show the usage of banks in regard to the collection of paper presented by persons; and, if in making the collection it follows the course usually taken by banks under similar circumstances, it cannot be held to have been negligent; and in an action against the initial bank to recover the value of the collection on account of its negli- gence in so sending it, evidence is admissible that the conduct of the bank was in accordance with the usage of banks when making collections of paper presented by persons who were unknown to them. But a usage which is in contravention of law cannot be shown or pleaded to excuse a party in the per- formance of a reasonable duty. § 283. Banks employing notaries — Conflict of authority as to liability. A bank has the authority to employ notaries to make pro- tests, give notice, and generally to receive collections for it; and if employed by the cashier, the employment is construed to be an employment by the bank. The important question affecting the bank is the one of laches and defaults by the notary. Does the bank become liable to the owner of the collection for such defaults ? This question has received considerable attention and has been discussed by the courts of many States at considerable length. The Supreme Court of the United States, in the case of Britton V. Mccolls, 104 U. S. 757, in discussing the question as to the duty and liability of banks as collecting agents, and their responsibility for the acts of the notary to Avhom the notes sent to them for collection are delivered for present- ment, demand and protest, states the law to be as follows: " It is enough here that the notary was not, in this matter, the agent of the bankers. lie was a public officer whose duties \vere prescribed by law; and when the notes were placed in his hands in order that such steps should be taken by him as would bind the indorsers if the notes were not paid, he became the agent of the holder of the notes. For any failure on his part to perform his whole duty, he alone was 448 COLLECTIOXS BY BaXKS. [cII. XXXVIII. liable; the bankers were no more liable than they would have been for the nnskillfnlness of a lawyer of reputed ability and learning to whom they might have handed the notes for col- lection in the conduct of a suit brought upon them." The rule is undoubtedly established by a great majority of the courts of the various States and the Federal Courts, to be that if the collecting bank uses reasonable care in the selec- tion of a notary, it cannot be held liable for his acts or defaults. •'^^ § 284. Officers of bank acting as notary. Another important question to the banker upon this subject is: Can the president of a bank or other officer, who is also a notary public, act for the bank; and if so, does his laches or defaults as notary relieve the bank of liability? In the case of "Wood River Bank y. First National Bank of Omaha, 36 ^NTeb. T44, the court holds that where a note is received by the bank with instructions to protest if not paid, and the president of the bank who is a notary, receives the note, it having been delivered to him for protest, he, failing to give the notice, wdiich failure thereby operates as a discharge of the indorser, the bank is liable. The contrary doctrine is presented in the case of May v. Jones, 88 Ga. 308, 311. The court in its opinion says : " The plaintiff's theory is that, as Jones, the notary public, M'as also an employee and agent of the bank, ' the action of defendant Jones in the matter, he acting under the authority of the defendant bank, is the action of said bank.' This is all the allegation touching the bank's liability. Although there is conflict in the cases, the prevailing and better holding seems to be that a bank is not liable for the negligence or misconduct of a notary employed by it to protest negotiable paper. The reason is that the notary is not a mere agent or servant of the bank, but is a public officer, sw^orn to discharge his duties prop- erly. He is under a higher control than that of a private prin- cipal. He owes duties to the public, which must be the supreme law of his conduct. Consequently, when he acts in his official 32 First Nat. Bank of :\Ianning r. Britton r. Niccolls, 104 U. S. 7G6 ; German Bank of Carroll Co.. 107 Bank r. Butler, 41 Oliio St. 519; Iowa, .543; Belleniiro r. Bank of Isham r. Post, 141 N. Y. 100. United States, 4 Whart. (Pa.) 105; en. XXXVIII.] Banking. 449 capacity, the bank no longer has control over him, and cannot direct how his duties shall be done. * ^ * That the notary is also an employee and agent of the bank does not alter the case. There is still a sharp dividing line between his duties as agent and his duties as a public officer. When his public service comes into play, his- private service is for the time suspended." The theory of this opinion is, that he is not a mere agent of the bank, but is a public officer, and while acting in this capacity he lays aside his pri^'ate status, and that it is merged in his public office, he is not and cannot be performing the duties of his private office. This logic and reasoning seems to be sound, but it is defec- tive in this particular. The duties of his private office are not laid aside, they are not merged into those of the public office at any time. His position as the president of the bank and his office as notary public are positions which he may hold at the same time. If the bank of which he is president receives a note for collection and he, as a notary, assumes the authority or is directed to protest the note, if he acts and proceeds to protest the note (being j^resident of the bank) he acts for the bank as its agent, and at the same time performs the acts re- quired and defined of notaries by the law governing and pre- scribing their duties. If he neglects to serve the notice of protest within the time required, and the indorser is released, the bank could not deny that while acting as notary his position as president of the bank or agent, which is one and the same thing, had been suspended to allow^ him to act as notary. He is holding the dual position as agent and officer of the bank and the office of notary public, and acts in both capacities or positions at the same time. And the dual position and responsibility, if assumed, should not excuse the bank for a failure by its agent in the perform- ance of his duty while acting for it as notary public. Where a bank selects or appoints a notary to act for it for a specified time, and for it required a bond for the faithful discharge of his duties, and failing to give notice to an indorser of a note by which the indorser was discharged, the notary is 20 450 Collections by Banks. [ch. xxxviii. not, in sncli a case, an independent officer, bnt is the agent of the bank."^ The rule then ma^' be laid do^^Tl as follows: flial irherc a hank delivers a note io a notary for protest, etc., it will not he liahle for the default of the latter; hut where an officer of a hank is a notary puhlic and fails to discharge his duty as such notary, he is held to he the agent of the hank and the hanh ivill he liahle for h is negligence. § 285. Initial bank's liability for default of its correspondent — Conflict of authorities. The Supreme Court of the United States, in the case of The Exchange National Bank v. Third National Bank, 112 U. S. 276, with great care reviews the various cases of the States and finally lavs down the general rule of law to be, that the initial hank is liahle for sucJi damages as it had sustained hy the negli- gence of its agent or collecting hank. The facts in the case and opinion of the court are given in full. Statement of facts: " The facts found were these, in substance : The drafts were drawn by Rogers & Burchfield, at Pittsburgh, to the order of J. D. Baldwin, and by him indorsed, on ' Walter M. Conger, Sec'y Newark Tea Tray Co., Newark, N. J.,' and were dis- counted before acceptance, by the plaintiff, at Pittsburgh, for the drawers. They bore different dates, from June 8, 1875, to September 20, 1875, and were in all other respects similar except as to the sums payable, and in the following form: '$1,042.75. Pittsburgh. June 8, 1875. Four months after date, pay to the order ot .7. D. Baldwin ten hundred and forty-two 75/100 dollars, for account rendered, value re<-eived, and charge to account of Rogers & Burchfield. To Walter M. Conger, Sec'y Newarli Tea Tray Co.. Newark. N. .7.' 33Gerhardt v. Boatman's Sav. r. National Bank of Omalia, 36 Neb. Inst., 38 Mo. 60; Wood River Bank 744. en. XXXVIII.] Bankixg. 451 " They were transmitted for collection at different times before maturity, by the plaintiff to the defendant, in letters describing them by their numbers and amounts, and by words ' Newark Tea Tray Co.' They were sent by the defendant to its correspondent, the First National Bank of Xewark, enclosed in letters describing them generally in the same way, except that, in two of the letters they were described as drawn on ' W. M. Conger, Sec'y.' The drafts were received by the de- fendant, in New York, ^^^thin a day or two of the time of dis- counting them. They were presented by the First National Bank of Newark, to Conger, for acceptance, who, except in one instance, accepted them. by writing on the face. these words: ' Accepted, payable at the Newark National Banking Co., "Walter M. Conger.' "' When the acceptances were taken, the time of payment was so far distant, that there was sufficient time to communicate to the plaintiff the form of the acceptance, and for the plaintiff thereafter to give further instructions as to the form of accept- ance. The Newark bank held the drafts for payment, but the plaintiff was not advised of the form of acceptance until, on the 13th and 19th of October, two of them were returned to it by the defendant. xVt that time the drawers and indorser were insolvent, but the drawers were in good credit when the drafts were discounted by the plaintiff. The drafts were duly pro- tested for nonpayment, but none of them were paid. The Newark Tea Tray Company is a New Jersey corporation, doing^ business in that State, and Walter M. Conger is its secretary. " The drafts were represented to the plaintiff Ijy Burchfield, one of the drawers, who offered them for discount, to be ' the paper of the Newark Tea Tray Company,' drawn against ship- ments of iron by Rogers & Burchfield to that company, and were discounted as such by the plaintiff. He also represented that Walter M. Conger was the person who examined the ship- ments of iron and ' accepted the drafts,' and that they were drawn in this form for the convenience and accommodation of the company. On drafts of Rogers & Burchfield on the ' New- ark Tea Tray Co.,' dated May 4, 1874, May 20, 1874, and June 30, 1874, discounted by the plaintiff, and transmitted for acceptance to the defendant, and by it sent to the same Newark bank, that bank took acceptances from Walter M. Conger indi- 452 Collections by Laxks. [cir. xxxviii. viduallv, without notice to the plaintiff; and Conger, during the time drafts sent by the plaintiff" to the defendant, addressed to the ' Xewark Tea Tray Co.' and to ' AValter M. Conger, Sec'y Ne"wark Tea Tray Co., Newark, N. J.,' informed the cashier of the Xewark bank that he would not accept these drafts in his official capacity as secretary. The judgment was in favor of the i^ew York bank. The Pittsburgh bank sued out this writ of error to reverse it." Opinion of the Court: '' Mr. Justice Blatchford delivered the opinion of the court. He stated the facts in the foregoing language, and continued: " The negligence alleged consisted in not obtaining accept- ance of the drafts by the Tea Tray Company, or having them protested for non-acceptance by that company, or giving notice to the plaintiff of such non-acceptance, and in failing to give notice to the plaintiff that the company would not accept the drafts or that Conger Avould not accept them in his official capacity. " The decision of the Circuit Court proceeded on the ground that, at most, the defendant erred in judgment as to the import of the address on the drafts; that it had no information to qualify or explain such import; that for it to regard the drafts as addressed to Conger in his individual capacity was not a culpable error, because it followed decisions to that effect made by courts of the highest standing in Xew Jersey and Xew York and elsewhere; that it exercised intelligent and cautious judg- ment on the information it had ; and that the plaintiff knew who was the intended drawee, as understood between it and the drawers, and ought to have advised the defendant, but failed to do so. (-i Fed. Ecp. 20.) " The only question presented by the record is that of the sufficiency of the facts found to support the judgment. " It is contended by the defendant, that its liability, in taking at Xew York for collection, these drafts on a drawee at Xewark, extended merely to the exercise of due care in the selection of a competent agent at Xewark, and to the transmission of the drafts to such agent, with proper instructions; and that the Xewark bank was not its agent, but the agent of the plaintiff, CH. XXXVIII.] Baxking, 453 so that the defendant is not liable for the default of the Xewark Lank, due care having been used in selecting that bank. Such would be the result of the rule established in Massachusetts,^* in Maryland,^*'"* in Connecticut,^^ in Missouri,^*^ in Illinois,^" in Tennessee,^^ in lowa,^^ in Wisconsin.**^ " The authorities which support this rule rest on the propo- sition that, since what is to be done by a bank employed to collect a draft payable at another place, cannot be done by any of its ordinary officers or servants, but must be entrusted to a sub-agent, the risk of the neglect of the sub-agent is upon the party employing the bank, on the view that he has impliedly authorized the employment of the sub-agent; and that the inci- dental benefit which the bank may receive from collecting the draft, in the absence of an express or implied agreement for compensation, is not a sufficient consideration from which to legally infer a contract to warrant against loss from negligence of the sub-agent. " The contrary doctrine that a bank receiving a draft or bill of exchange in one State for collection in another State from a drawee residing there, is liable for neglect of duty occurring in its collection, whether arising from the default of its o^vn officers or from that of its correspondent in the other State, or an agent employed by such correspondent, in the absence of any express or implied contract varying such liability, is estab- lished by decisions in Xew York, Allen v. Merchants' Bank, 22 Wend. 215; Bank of Orleans v. Smith, 3 Hill, 560; Mont- gomery County Bank v. Albany City Bank, 3 Selden, 459; Commercial Bank v. Union Bank, 1 Kernan (11 JST. Y.) 203, 212; Ayrault v. Pacific Bank, 47 X. Y. 570; in Xew Jersey, Titus V. Mechanics National Bank, 6 Yroom. (35 X. J. L. 588); in Pennsylvania, Wingate v. Mechanics' Bank, 10 Pa. St. 104; in Ohio, Reeves v. State Bank, 8 Ohio St. 465 ; and in Indiana, Tyson v. State Bank, 6 Blackford, 225. 34 Fabens v. Mercantile Bank. 2.3 37 ^^tna Ins. Co. v. Alton City Pick. 330; Dorchester Bank v. New Bank, 25 Ilk 221. England Bank, 1 Cush. 177. 38 Bank of Louisville r. First Nat. 34a Jackson v. Union Bank, 6 Har. Bank, 8 Baxter, 101. & .Johns. 146. 39 Guelich v. National State Bank, 35 Lawrence v. Stoninjjton Bank, 56 lowaj 434. 6 Conn. 521; East Haddam Bank V. 40 Stacy v. Dane Co. Bank, 12 Scovill. 12 Conn. 303. Wis. 629. aeDfiiy r. Butchers' & Drovers' Bank. 50 Mo. 94. 454 Collections by Baxks [cil xxxviii. " It has been so held in the second circuit, in Kent v. Dawson Bank, 13 Blatchford, 237; and the same view is supported by Taber v. Perrot, 2 Gall. (U. S.) 565, and by the English cases of Van "Wart v. Woolley, 3 B. & C. 439; S. C, 5 D. & R. 374, and Mackersy v. Ramsays, 9 CI. & Fin. 818. In the latter case, bankers in Edinburgh were employed to obtain payment of a bill drawn on Calcutta. They transmitted it to their cor- respondent in London, who forwarded it to a house in Calcutta, to whom it was paid, but, that house having failed, the bankers in Edinburgh, being sued, were, by the House of Lords, held liable for the money, on the ground that they, being agents to obtain payment of the bill, and payment having been made, their principal could not be called on to suffer any loss occa- sioned by the conduct of their sub-agents, between whom and himself no privity existed. " The question under consideration was not presented in Bank of AVashington v. Triplett, 1 Pet. 25; for although the defendant bank in that case was held to have contracted directly with the holder of the bill to collect it, the negligence alleged was the negligence of its own officers in the place where the bank was situated. "In Hoover v. AVise, 91 L". S. 308, a claim against a debtor in Nebraska was placed by the creditor in the hands of a collect- ing agency in Xew York, with instructions to collect the debt, and with no other instructions. The agency transmitted the claim to an attorney-at-law in x^ebraska. The attorney received the amount of the debt from the debtor in Nebraska in fraud of the bankruj)t law, and paid it over to the agency, but the money did not reach the hands of the creditor. The assignee in bankruptcy having sued the creditor to recover the money, this court (three justices dissenting) held that the attorney in ISTebraska was not the agent of the creditor, in such a sense that his knowledge that a fraud on the bankrupt law was being com- mitted was chargeable to the creditor on the ground that, the collecting agency having undertaken the collection of the debt, and employed an attorney to do so, the attorney employed by it, and not by the creditor, was its agent and not the agent of the creditor; and the creditor was held not to be liable to the assignee in bankruptcy for the money. In the opinion of the court, it is said, that the case falls wathin the decisions in the cji. XXXVIII.] Banking. 455 above-mentioned cases of Reeves v. State Bank, 8 Ohio St. 465; Mackersy v. Ramsays, 9 CI. & Fin. 818; Montgomery County Bank v. Albany City Bank, 3 Seklen, 459; Commercial Bank V. Union Bank, 1 Kernan, 203, and Allen v. Merchants' Bank, 22 Wend. 215; and it is said that those cases, the first three of which are stated at length, show ' that where a bank, as a collec- tion agency, receives a note for the purposes of collection, its position is that of an independent contractor, and the instru- ments employed by such bank in the business contemplated are its agent and not the sub-agents of the owner of the note.' The court proceeds to say, that those authorities go far towards establishing the position, that the collecting agency was an inde- pendent contractor, and that the attorney it employed was its agent only, and not in such wise the agent of the defendant as to make the defendant responsible for the knowledge of the attorney in Xebraska. " The court then cites, as a case in point, Bradstreet v. Ever- son, 72 Pa. St. 124, as holding that where a commercial agency at Pittsburgh received drafts to be collected at Memphis, and sent them to its agent at Memphis, who collected the money and failed to remit it, the agency at Pittsburgh was to be regarded as undertaking to collect, and not merely receiving the drafts for transmission to another for collection, and as being liable for the negligence of its agent at Memphis. It also cites, as to the same purport, Lewis v. Peck, 10 Ala. 142, and Cobb v. Becke, 6 Ad. & El. 930. It then says that these authorities fix the rule, before stated, on which the decision is rested. So far from there being anything in that case which goes to exon- erate the defendant in the case at bar, its reasoning tends strongly to affirm the principle on which the defendant must Ix? held liable. Indeed, its language supports the view that the IS'ewark bank, in this case, would not be liable directly to the plaintiff. " If that be so, and the defendant is not liable, the plaintit)' is without remedy. " The case of Britton v. Xiccolls, 104 U. S. 757, is cited to show that the defendant is not liable. In that case, the defend- ants, bankers in Xatchez, Mississippi, received from the plain- tiff, a resident of Illinois, for collection, two promissory notes, dated at Xatchez, but not stating any place of payment. They 45G C(3LLECTioxs BY Banks. [cii. xxxviii. "srere sent to the defendants through a banking house in Bloom- ington, Illinois, with instructions to collect them, if paid, and, if not, to protest them and give notice to the indorsers. The defendants placed the notes in the hands of a reputable notary in Xatchez to make demand of payment and give notice to the indorsers. It vas held that the defendants were not liable for negligence on the part of the notary, Avhereby the liability of a responsible indorser was released. The negligence consisted in not presenting the notes to the maker at maturity and de- manding payment. The maker resided twelve or fifteen miles from Xatchez and had no domicile or place of business in Xatchez. Xo information as to his residence was given to the defendants with the notes, and the plaintiff was ignorant of it. All the instructions which the defendants gave to the notary were given on the several days the notes matured, when they handed the notes to the notary with instructions to demand pay- ment, and, if they were not paid, to protest them and send no- tice of non-payment to the indorsers. The notary knew where the maker resided and that he had no place of business in Xatchez; but he inquired for him at three public places in Xatchez, and not finding him, protested the notes for non- payment, and gave notice to the indorsers. The defendants had inquired at Xatchez as to the residence of the maker, but had not learned it and had sent notices to him through the post- ofiice there, of the amount and date of maturity of the notes, a reasonable length of time in advance. " On these facts it is apparent that the only question raised, was as to the liability of bankers in Xatchez, in respect to a note sent to them for collection, dated at Xatchez and not pay- able at any specified place there or elsewhere, for the negligence of a public notary there. The suit was not against the banking h(>use in Bloomington, which was only the agent to transmit the notes to the defendants for collection. The opinion of the court states the question to be as to ' the liability of the collect- ing bankers, for the manner in which the notary to whom the n»'tes are delivered for presentment and protest discharges his duty.' " The court says: " ' The notes being dated at Xatchez, the presumption of law, in the absence of other evidence on the subject, is, that that CH. XXXVIII.] Banking. 457 was the place of residence of the maker, and that he contem- puited making payment there. The duty of the bankers, as collecting agents, was, therefore, to make inquiry for his resi- dence or place of business in that city, and, if he had either, to make there the presentment of the notes, but if he had neither, to use reasonable diligence to find him for that purpose.' " The court then refers to the case of Allen v. Merchants' Bank, 22 Wend. 215, in the Court of Errors of New York, as declaring the doctrine that a bank receiving paper for collec- tion is responsible ^ for all subsequent agents employed in the collecth^n of the paper,' and states that, though that decision has been followed in j^ew York, and its doctrine has been adopted in Ohio, it has been generally rejected in the courts of other States. '^ The case of Dorchester Bank v. ISTew England Bank, 1 Cush. 177, is then cited, as holding that if a bank acts in good faith in selecting a suitable sub-agent at the place where the bill is payable, it is not liable for his neglect; and the opinion states that this doctrine has been followed in the Supreme Courts of Connecticut, Maryland, Blinois, Wisconsin and Mississippi. The court, however, does not adopt either of these views, or rest the decision of the case before it on the latter view\ For it proceeds to say: " ' In the New York case, in the Court of Errors, it was conceded that the general liability of the collecting bank might be varied and limited by express agreement of the parties, or by implication arising from general usage; and, in some of the cases in other States, proof of such general usage of bankers in the employment of notaries was permitted, and a release thereby asserted from liability of the bank for any neglect by them.' " The court then states that there was in the case no proof of any general usage of bankers at Natchez, as to the employ- ment of notaries public in the presentment and protest of notes left with them for collection. But, as there was a stat- ute of Mississippi, passed in 1833 authorizing notaries to pro- test promissory notes and requiring them to keep a record of their notarial acts in such cases, and making the record admis- sible in evidence in the courts, as if the notary were a ^\dtness, and, as the courts of that State had held., Tiernan v. Com- 458 Collections by Banks, [cii. xxxviii. mercial Bank, 7 How. (Miss.) G4S ; Agricultural Bank v. Com- mercial Bank, 7 Smedes & Marshall, 592; Bowling v. Arthur, 34 Mississippi, 41, under that statute, that it was a part of ths duty of the notary, when protesting paper, to give all notices of dishonor required to charge the parties to it, and that a bank receiving commercial paper as an agent for collection, properly discharged its duty, in case of non-payment, by plac- ing the paper in the hands of such notary, to be proceeded with in such manner as to charge the parties to it, and that the bank was not liable in such case, for the failure of the notary to perform his duty, the court says, that, ' judged by the law of Mississippi,' the defendants ' discharged their duty to the plaintiff when they delivered the notes received by them for collection to the notary public,' and adds : ' What more could they have done, as intelligent and honest collecting- agents, desirous of performing all that was required of them by the law, ignorant as they v\"ere of the residence or place of business of the maker of the notes, and having unsuccessfully made diligent inquiry for them ? ' " It further says: ' The notary was not, in this matter, the agent of the bankers. He was a public officer whose duties were prescribed by law; and when the notes were placed in his hands in order that such steps should be taken by him as would bind the indorsers if the notes were not paid, he became tlie agent of the holder of the notes. For any failure on his part to perform his whole duty, he alone was liable.' " On these grounds the court held that the defendants were not guilty of negligence and were not liable for the negligence of the notary. The decision was not placed on any general rule of commercial law, but rested on the fact that the notary was a public officer with duties prescribed by statute, and has no application to the case at bar. iSTo reference was made to the case of Hoover v. Wise, nor any suggestion that the views stated in the opinion in that case were doubted or dissented from. There is, in the case at bar, no negligence of a notary, or of a public officer, or of any person whose duties or func- tions are prescribed by statute ; and the question of the liability of the defendant is to be determined on principles not involved in the actual decision in Britton v. Xiccolls. til. XXXVIII.] Backing. 459 '* The question involves a rule of law of general application. Whatever he the proper rnle, it is one of commercial law. It concerns trade between different and distant places, and, in the absence of Statutory regulations or special contract or usage having the force of law, it is not to be determined ac- cording to the views or interests of any particular individuals, classes or localities, but according to those principles which will best promote the general Avelfare of the commercial com- munity. Especially is this so when the question is presented to this tribunal, whose decisions are controlling in all cases in the Federal courts. " The agreement of the defendant in this case was to collect the drafts, not merely to transmit them to the Xewark bank for collection. This distinction is manifest; and the question presented is, whether the Xewark bank, first receiving these drafts for collection, is responsible for the loss or damage re- sulting from the default of its Xewark agent. There is no statute or usage or special contract in this case to qualify or vary the obligation resulting from the deposit of the drafts with the Xew York bank for collection. On its receipt of the drafts, under these circumstances, an implied undertaking by it arose, to take all necessary measures to make the demands of acceptance necessary to protect the rights of the holder against previous parties to the paper. From the facts found, it is to be inferred that the Xew York bank took the drafts from the plaintiff as a customer in the usual course of busi- ness. There are eleven drafts in the case, running through a period of over three months, and the defendant had pre- viously received from the plaintiff two other drafts, accept- ances of which it had procured from Conger at Xewark, through the Xewark bank. The taking by a bank, from a customer, in the usual course of business, of paper for collec- tion, is sufficient evidence of a valuable consideration for the service. The general profits of the receiving bank from the business between the parties, and the accommodation to the customer, must all be considered together and form a con- sideration, in the absence of any controlling facts to the con- trary, so that the collection of the paper cannot be regarded as a gratuitous favor. Smedes v. Bank of Utica, 20 Johns. 372, and 3 Cowen, 662; McKinster v. Bank of Utica, 9 AVend. 460 Collections by Ba.xks, [cii. xxxvin. 46; affirmed in Bank of Utica v. McKinster, 11 Wend. 473. The contract, then, becomes one to perform certain duties necessary for the collection of the paper and the protection of the holder. The bank is not merely appointed an attorney authorized to select other agents to collect the pa]>er. Its undertaking is to do the thing, and not merely to procure it to be done. In such case, the bank is held to agree to answer for any default in the performance of its contract; and, whether the paper is to be collected in the place where the bank is situated, or at a distance, the contract is to use the proper means to collect the paper, and the bank, by employ- ing sub-agents to perform a part of what it has contracted to do, becomes responsible to its customer. This general prin- ciple applies to all who contract to perform a service. It is illustrated by the decision of the Court of King's Bench, in ElKs V. Turner, 8 T. R. 531, where the o^^mers of a vessel carried goods to be delivered at a certain place, but the vessel passed it by without delivering the goods, and the vessel was sunk and the goods were lost. In a suit against the owners for the value of the goods, based on the contract it was con- tended for the defendants that they were not liable for the misconduct of the master of the vessel in carrying the goods beyond the place. But the plaintiff had judgment, Lord Kenyon saying that the defendants were answerable on their contract, although the misconduct was that of their servant, and adding: ' The defendants are responsible for the acts of their servant in those things that respect his duty under them, though they are not answerable for his misconduct in those things that do not respect his duty to them.' " The distinction between the liability of one who contracts to do a thing and that of one who merely receives a delegation of authority to act for another is a fundamental one, appli- cable to the present case. If the agency is an undertaking to do the business, the original principal may look to the im- mediate contractor with himself, and is not obliged to look to inferior or distant under-contractors or sub-agents, when de- faults occur injurious to his interest. " Whether a draft is payable in the place where the bank receiving it for collection is situated, or in another place, the holder is aware that the collection must be made by a com- cii. XXXVIII.] Baxkijv'g. 461 petent ag-ont. In either case, there is an implied contract of the bank that the proper measures shall be used to collect the draft, and a right, on the part of its owner, to presume that proper agents will be employed, he having no knowledge of the agents. There is, therefore, no reason for liability or exemption from liability in the one case which does not apply to the other. And, while the rule of law is thus general, the liability of the bank may be varied by consent, or the bank may refuse to undertake the collection. It may agree to re- ceive the paper only for transmission to its correspondent, and thus make a different contract, and become responsible only for good faith and due discretion in the choice of an agent. If this is not done, or there is no implied understanding to that effect, the same responsibility is assumed in the under- taking to collect foreign paper and in that to collect paper payable at home. On any other rule, no principal contractor would be liable for the default of his o^vn agent, where from the nature of the business, it was evident he must employ sub-agents. The distinction recurs between the rule of merely personal representative agency and the responsibility imposed by the law of commercial contracts. This solves the difficulty and reconciles the apparent conflict of decision in many cases. The nature of the contract is the test. If the contract be only for the immediate services of the agent, and for his faithful conduct as representing his principal, the responsi- bility ceases with the limits of the personal services under- taken. But where the contract looks mainly to the thing to be done and the undertaking is for the due use of all proper means to performance, the responsibility extends to all necessary and proper means to accomplish the object, by whomsoever used. '^ We regard as the proper rule of law applicable to this case, that declared in Van Wart v. Woolley, 3 B. & C. 439, where the defendants, at Birmingham, received from the plain- tiff a bill on London, to procure its acceptance. They for- warded it to their London banker and acceptance was refused, but he did not protest it for non-acceptance or give notice of the refusal to accept. Chief Justice Abbott said: " ' Upon this state of facts it is evident that the defendants (who cannot be distinguished from, but are answerable for, their London correspondent) have been guilty of a neglect of 462 Collections by Banks. [cii. xxxviii. the duty Avhieli they owed to the plaintiff, their employer, and from whom they received a peciniiary reward for their ser- vices. The plaintiff is, therefore, entitled to maintain his action against them, to the extent of any damage he may have sustained hy their neglect.' " In that case there was a special peenniary reward for the serrice. But, upon the principles we have stated, we are of opinion that, by the receipt by the defendant of the drafts in the present case for collection, it became, upon ge-neral prin- ciples of law, and independently of any evidence of usage, or of any express agreement to that effect, liable for a neglect of duty occurring in that collection from the default of its correspondent in Newark. " What was the duty of the defendant, and what neglect of duty was there ? An agent receiving for collection, before maturity, a draft payable on a particular day after date, is held to due diligence in making presentment for acceptance, and, if chargeable with negligence therein, is liable to the owner for all damages he has sustained by such negligence. Allen V. Suydam, 20 Wend. 321; Walker v. Bank of the State of ISTew York, 5 Selden, 582. The drawer or indorser of such a draft is, indeed, not discharged by the neglect of the holder to present it for acceptance before it becomes due. Bank of Washington v. Triplett, 1 Pet. 25, 35; Townsley v. Sumrall, 2 Pet. 170, 178. But, if the draft is presented for acceptance and dishonored before it becomes due, notice of such dishonor must be given to the drawer or indorser, or he wall be dis- charged. 3 Kent's Comm. 82; Bank of AVashington v. Triplett, 1 Pet. 25, 35; Allen v. Suydam, 20 Wend. 321; Walker v. Bank of the State of Xew York, 5 Selden, 582; Goodall V. Dolley, 1 T. K. 712; Bayley on Bills, 2d Am. ed. 213. Moreover, the o\\Tier of a draft payable on a day cer- tain, though not bound to present it for acceptance in order to hold the drawer and indorser, has an interest in having it presented for acceptance without delay, for it is only by ac- cepting it that the drawee becomes bound to pay it, and, on the dishonor of the draft by non-acceptance, and due protest and notice, the owner has a right of action at once against the drawer and indorser, without waiting for the maturity of the draft; and his agent to collect the draft is bound to do cii. XXXVIII.] Baxkixg. 463 what a prudent principal would do. 3 Kent's Comm. 94; Robinson v. Ames, 20 Johns., 146; Lenox v. Cook, 8 Mass. 460; Ballingalls v. Gloster, 3 East, 481; Whitehead v. Walker, 9 M. it W. 506; Walker v. Bank of the State of Xew York, 5 Selden, 582. " In view of these considerations, it is well settled that there is a distinction between the owner of a draft and his agent, in that though the owner is not bound to present a draft payable at a dav certain, for acceptance, before that day, the agent employed to collect the draft must act with due diligence to have the draft accepted as well as paid, and has not the dis- cretion and latitude of time given to the owner, and, for any unreasonable delay, is responsible for all damages sustained by the owner. 3 Kent's Comm. 82; Chitty on Bills, 13th Am. ed. 272, 273. " The defendant being thus under an obligation to present the drafts for acceptance, and having, in fact, presented them, through the l^ewark bank to Conger, the secretary of the company, was found not to take the acceptances it did, but to treat the drafts as dishonored. The plaintiff was, at least, entitled to an acceptance in the terms of the address on the drafts. Walker v. Bank of the State of Xew York, 5 Selden, 582, The defendant had notice from the description of the drafts by the words ' Xewark Tea Tray Co.,' in the letters sending them for collection, that the plaintiff regarded the drafts as drawn on the company; and the defendant recognized its knowledge of the fact that the drafts were drawn on the company, by describing them by the words ' Xewark Tea Tray Co.,' in its letters to the Xewark bank, in every instance but two. If, on the face of the drafts, the address was ambiguous, it was not ior the defendant to determine the question, as against the plaintiff, by taking an acceptance which purported to be the acceptance of Conger individually, especially in view of the information it had by the words ' Xewark Tea Tray Co.,' in the letters sending the drafts to it for collection. " It appears that the drafts were discounted by the plaintiff as drafts on the company, and, if it could have had an accept- ance in the terms of the address, it would, in a suit against the company, have been in a condition to show who was the real acceptor. But, ^\'ith the information given to the Xewark 464 Collections bv Banks. [cil xxxviii. bank by Conger, while that bank bad in its hands for accept- ance drafts dra\Yn in the same form as those here in question, that he would not accept such drafts in his official capacity as secretary, the ISTewark bank chose to take acceptances individ- ual in form. This was negligence, for which the defendant is liable to the plaintiff in damages, no notice of dishonor having Jbeen given. The defendant was bound to give such notice to the plaintiff. AValker v. Bank of the State of Xew York, 5 Selden, 582. " The question as to whether the company would have been liable on the drafts, if they had been accepted in the terms of the address, is not one on tlte determination of which this suit depends ; nor do we find it necessary to discuss the question as to whether, on the face of tliQ drafts, the company or Conger individually is the drawee. The very existence of the ambiguity in the address, and of the question as to whether the company would be liable on an acceptance in the terms of the address, is a cogent reason why the defendant should not be allowed, without further communication with the holder, to do acts which may vary the rights of the holder, without responding in damages therefor. The risk is on the defendant and not on the plaintiff. " It is, therefore, plain that the judgment must be reversed. But judgment cannot be now rendered for the plaintiff for damages. There must be a new trial. xVltliough there is a special finding of facts, it does not cover the issue as to dam- ages. Xo damages are found. The action is one for negli- gence, sounding in damages. Although the complaint alleges that the drawers and the indorser are discharged for want of notice of non-acceptance, and though it is found that the drawers were in good credit when the drafts were discounted, and that the drawers and indorser had become insolvent by the 13th and 19th of October, 1875, there is nothing in the find- ing of facts on Avhich to base a judgment for any specific amount of damages. On the new trial, that question will be open, and we do not intend to intimate any opinion on the subject." The States that sustain the rule that the initial bank is liable to the owner of the paper are given in the order hereinafter cii. XXXVIII.] Baxkixg. 465 set forth, with citations of cases rendered by the courts of the various States. Xew York,^^ iSTew Jersey, ^ Ohio,*^ Georgia,^ Michigan,^'' Minnesota,**^ Montana.*^ Xorth Dakota. The statute fixes the liability in this State, but in the absence of such a statute, the court evidently sus- tains the rule.^^ Colorado,*^ Texas,^'' Indiana.'^ The general rule that the initial bank is liable for all de- faults of its agents in many of the States is modified and is stated as follows: the initial hank, if it selects as its agent one who is competent and worthy of trust, and transmits the paper to him, its duty is done, and the owner of the collection must look to the sub-agent for any default of which he is guilty. The States sustaining this rule are: California. The rule in California is not stated with the same precision and accuracy of language, but in effect it is as follows: that the initial bank is bound to exercise reasonable care and diligence in the employment of its sub-agents ; and, if in the employment and in making the collection the course usually taken by banks is followed, the initial bank is not negligent. The holding of the court substantially supports the rule stated.^" 41 Xational Revere Bank r. Na- 46 Streissgiith r. National German- tional Bank of Republic, 172 X. Y. American Bank, 43 Minn. 50. 102 ; Kirkhani v. Bank of America, 47 Power r. First Nat. Bank of Ft. 1G5 X. Y. 132, 58 X. E. 753; Castle Benton, 6 Mont. 251. r. Corn Exchange Bank, 148 X. Y. 48 Commercial Bank r. Red River 122, 42 X. E. 518; St. Xicliolas Yallev Xat. Bank, 8 N. Dak. 382, Bank r. State Xat. Bank, 128 X. Y. 79 Xl W. 759. 20, 27 X. E. 849 : Xaser r. First Xat. 49 German Xat. Bank of Denver r. Bank, 110 X. Y. 492; Commercial Burns. 12 Colo. 539. Bank of Penn. r. Union Bank of X. so Schumacher r. Trent 18 Tex. ^ Y.. 11 X. Y. 203; Allen v. Mer- Civ. App. 17. 44 S. W. 460; State chants' Bank, 22 Wend. (X. Y.) 215. Xat. Bank of Ft. Worth r. Thomas 42 Titus r. Mechanics' Xat. Bank, Mf?. Co.. 17 Tex. Civ. App. 214 42 35 X. J. Law, 588. S. W. 710. 43 Reeves v. State Bank, 8 Ohio St. 51 Tvson r. State Bank of Indiana, 466. 6 Blac'kf . ( Ind. ) 225 ; American Ex- 44 Bailie r. Augusta Savings Bank, press Co. v. Haire, 21 Ind. 4. 95 Ga. 277, 21 S. E. 717. 52 Davis. Respondent, v. First 45 Simpson r. Waldbv, 63 Mich. Xat. Bank of Fresno. 118 Cal. 600. 439, 30 X. W. 199. ' 30 466 Collections by Banks. [ch. xxxviii. Connecticut,^^ Illinois,^'* lowa,^ Kansas,^^ Maryland,^" Massa- chusetts,^* Mississippi,^^ Missouri,^*^ I^ebraska,^^ Pennsylvania,*^ Tennessee,^ Wisconsin,*^ Xortli Carolina,'^ Kentucky.®^ § 286. Review of decisions. In a re^'iew of the decisions, we find that the rule ■which is established in the State ofMassachusetts is, that when an initial bank transmits a collection with proper instructions to a rep- utable and proper agent where the collection is to be made, it has performed its duty, and is not responsible for the laches, defaults or negligence of the correspondent. This rule, as we have seen, is (with some unimportant variations in language) sustained and held to be the law in the States of California, 'Connecticut, Illinois, Iowa, Kansas, Maryland, Mississippi, Missouri, Nebraska, Pennsylvania, Tennessee, Wisconsin, Ken- tucky and Xorth Carolina. The general rule which may be said to be the Xew York rule is, as previously stated, that the initial bank is responsible for the negligence, laches and defaults of its correspondents. This rule is confirmed as the law by the Supreme Court of the United States aiid by the following States: Xew York, New Jersey, Ohio, Georgia, Michigan, Minnesota, Montana, South Dakota, Colorado, Texas, Indiana and the Federal Courts discussing the question. 53 Bank r. Scovell, 12 Conn. 303 ; 60 Daly r. Butchers' Bank, 56 Mo. Lawrence v. Stonington Bank, 6 04. Conn. 521. 61 Omaha First Xat. Bank r. Mo- 54 Fay r. Strain, 32 111. 295; line First Xat. Bank. 55 Xeb. 303; Waterloo Mining Co. r. Kuenster, First Xat. Bank of Pawnee City r. 158 111. 259, 41 X. E. 906; Drovers' Sprague, 34 Xeb. 318, 51 X. * W. Xat. Bank v. Anglo-American P. & 846. P. Co., 117 111. 100: Anderson v. 62 Hazlett r. Commercial X'at.' Alton X^at. Bank. 59 111. App. 587; Bank, 132 Penn. St. 118; Wingate i: Carlin^^lle Xat. Bank v. Wilson, 78 Mechanics' Bank. 10 Penn. St. 104; 111. App. 339, 58 X. E. 250. Bradstreet c. Everson, 72 Penn. St. sr. Guelich c. Xational State Bank, 124. 13 Am. Rep. 665. 50 Ta. 434, 9 X. W. 328. 63 Second Xat. Bank r. Cummings, 56 Linsbourg Bank V. Ober, 31 89 Tenn. 609, 35 Am. Pvep. 091 ; Kan. 599, 3 Pac. 324. Givan r. Bank of Alexandria (Tenn. 57 Citizens' Bank r. Howell, 8 Md. Ch. 1898), ,52 S. W. 923. 530. 6-1 Stacy i: Dane County Bank, 12 58 Warren Bank r. SuflTock, 10 Wis. 629." Cush. (Mass.) 582; Fabins r. Mer- 65 p]nnters & Farmers' Xat. Bank cantile Bank, 23 Pick. (Mass.) 330. of Baltimore r. First Xat. Bank of 50 Louisville Tliird Xat. Bank r. Wilmington. 75 X. C. 534. Vicksburg Bank, 61 Miss. 112. 60 Farmers' Bank & Trust Co. v. X'^ewland, 97 Ky. 464. en. XXXVIII.] Banking. 467 The Supreme Court of Xew York presents its reasons in support of the rule upon the ground " that a contract to do the business covers all the means employed." The Supreme Court of the United States embodies its posi- tion in support of the principle and the rule in the following language. It savs, "^ that the distinction between the liabilities of one icho contracts to do a thing and that of one who merely receives a delegation of authority to act for another, is a funda- mental one. * * * /^ i]iQ agency is an undertaking to do the business, the original principal may look to the immediate contractor icith himself, and is not obliged to look to inferior or distant under-contractors or sub-agents when defaults occur injurious to his interest. * * * The nature of the contract is the test.'' ■With this reasoning in view, a bank that receives a note for collection without entering into a special contract par- ticularly, specifying that it will not be held responsible for the laches and defaults of its agents who may subsequently be engaged to act, is held responsible to the owner of the collec- tion. Therefore, a bank desiring to limit its liability, located in a State where the courts uphold this rule, should, before undertaking to collect for the o-\^nier of the collection (if it desires to avoid liability as an agent), enter into a contract with the owner of the paper limiting its liability to place for collection, the paper into the hands of reputable and reliable sub-agents. A special agreement entered into, icill control the rights and liabilities of the parties.^^ The Supreme Court of the State of Michigan, in the case of Simpson v. "Waldby, 63 Mich., p. 451, says: " If I leave an indorsed note against persons in my own town for collection, and consequent demand and protest, I know that some agent or employee of the bank will do the work or some part of it, and I do not inquire who will do it. I con- tract, however, with the bank that suitable agents will be em- ployed, and hold it responsible for their acts. * * * /^ they ivish to avoid such responsibility, it is very easy for them 67Exchan£re Xat. Bank of Pittsburtih v. Third Xat. Bank of New York, 112 U. S. 27G. 468 COLLECTIOXS BY BaNKS. [cH. XXXVIII. to accept such business only upon a special agreement as to their duties and liabUities. Failing to do this, I think they must, in taking such bills and drafts, be responsible as other business men are, for the misconduct of their selected agents at home or abroad.'' § 287. When correspondent bank liable to initial bank. Conceding the rule holding the collecting or initial bank liable to the holder of the collection for defaults of its agents, to be the law, the correspondent bank, must be held liable to the initial bank for its default or negligence. The authorities supporting the general rule of the initial bank's liability apply here."^ The correspondent bank is liable to the initial bank for the negligence of the agents employed by it, and it is held in the case of N^ational Pahquioque Bank v. First ISTational Bank of Bethel, 36 Conn. 325, that where the cashier of the defendant bank received notes, drafts and checks for collection from the initial bank, that he had ostensibly power and that it was his duty to collect the same, or to protest and return them. Fail- ing to do either, he made the bank liable to the initial bank for their amount.*^ § 288. Where paper total loss. Where a draft or note is indorsed to a bank for collection by blank or general indorsement, and it undertakes to collect the same and employs an agent if the instrument is lost through negligence, by tlie agent of the initial bank, the owner may look to the initial bank; and the initial bank may look to its correspondent. The measure of recovery, when there is a total loss, is the face value of the paper. Where it appears that a note entrusted to an express com- pany was lost through negligence, the injury is the same as if it had been converted.''^^ 68 Exchange Nat. Bank of Pitts- 60 ]Merchaiits' Bank of Baltimore biirwli, r. Third Nat. Bank of Now r. Bank of Commerce use of Hofl'- York. 112 U. S. 276; Simpson r. man, 24 Md. 12. .52. Waldbv, 03 Misc. 439. 30 N. W. 70 American Express Co. r. Par- IfTO: A>Tault r. Pacific Bank. 47 N". sons. 44 111. 312': Om.^ha (Neb.) Y. ru6: Streissgulh r. National Xat. Bank r. Kiper (Neb.), 82 German-Americnn Bank. 43 IMinn. N. W. 102. .'iO: Titns r. Mpolianics' Nat Bank, :r. X. J. I,a\v, 5SS. en. xxxvni.J Baxking. 469 § 289. Eight of creditors to proceeds of collection. The rights of a creditor of the OTnier of the collection to garnishee the proceeds, while yet remaining in the initial or collecting bank, depends upon the law or the statute of the State. The general rule is, that when the collection is in the hands of the initial bank as the propcrt;^' of the o^vner of the col- lection, and such facts can be established, it is subject to gar- nishment or attachment. In the State of Georgia, the rule is laid do^\ai as follows: " where the payee of a bill of exchange by indorsing it * for de- posit to the credit of ' himself, he retains ownership not only of the bill but of its proceeds until they are so disposed." The collection of proceeds which under the rule as stated may be liable to garnishment or attachment; biit, if the initial bank has allowed the o^^^:ler to draw against the same "\vliile the collection is in the hands of a corespondent bank for col- lection, neither the bank itself or the proceeds would be liable to garnishment in the hands of the corespondent, for the reason that the initial bank has acquired a title thereto by allowing the indorser to draw against the same. § 290. Insolvency of initial or corresponding bank affecting pro- ceeds of collection. If the initial bank becomes insolvent while holding the pro- ceeds of a collection, the owner of the collection is either a general or special depositor. If the funds have been passed to his credit after collection by his instructions, he becomes a general creditor of the bank. If the proceeds of the collection are not passed to his credit under instruction, and the bank becomes insolvent wliile hold- ing such funds, they become a special deposit or trust funds and the bank or its assignee or receiver must pav the claim in full. If the collecting bank becomes insolvent while holding the proceeds of the collection, the owner of the collection in the States which hold the initial bank liable to the owner, is not affected by the insolvency of the corresponding bank. He may look to the initial bank. The rule as laid down by the Supreme Court of the State of Kentuckv, is as follows: 470 Collections by Banks. [cti. xxxviii. '' When a bank receives a draft or note for collection on ac- count or which is the same collection and credit, it does not owe the amount until collected; and though credit be given there- for prior to collection, the bank is not precluded from can- celling such credit which is regarded as only provisional, if the paper is dishonored. On the other hand, the owner of the paper is at liberty to treat the bank as an agent until the pro- ceeds are collected by the bank in money, and an entry of credit by the bank before it has actually received the money, will not bind the owner. Therefore, when the bank has entered the credit and then gone into the hands of a receiver before it has actually received the money from another bank to which it transmitted the paper for collection, the real owner may re- cover from the latter bank, the proceeds still in its hands. ]^either the receiver nor the creditors of the bank which trans- mitted the paper for collection, have any right to the money. A mere usage between banks, whereby the collecting bank credits the transmitting bank with the amount collected instead of remitting, is not sufficient to deprive the real owner of his rights." § 291. Collection completed when. A collection is not completed by the bank until the owmer is paid in money. The payment of negotiable paper can only be paid ^^'itll money. Where an agent is employed to make a collection, he cannot ■accept anything but money in payment. His principal, how- ever, may authorize him to accept something else. Where a bank holding notes for collection, without authority from the principal, accepted other notes of the maker, payable to the bank for the principal sum, and credited the bank's ac- count of the payee theremth, surrendering the notes, and no credit w^as given the account of the payer of the notes as for borrowed money, and no cash passed, and the bankers ab- sconded, and the owner of the surrendered notes brought suit against the maker, it is held that no payment had been made and the owner could recover.^^ AVhere a correspondent bank informs the initial bank, that 71 Scott V. Gilkey, 153 111. 1G8, 39 X. E. 265. en. XXXVIII.] Baxkixg. 471 a draft sent to it for collection has been paid by the drawee giving his check therefor, and the initial bank thereupon gives credit to the owner of the draft, it cannot afterward, upon fail- ure of the correspondent bank to collect the check, cancel the credit.'^ The Supreme Court of the State of Illinois, in the case of Eidgely Bank v. Patton and Hamilton, 109 111. 479, in discuss- ing the question as to the right of a banker to apply money on deposit to the payment of a note payable at the bank, "without the order of the depositor, says, '' clearly a banker has no right to apply money on deposit to the payment of a note of the depositor payable at the bank, ^^-ithout the order of the depositor." "^ Payment to the initial bank's correspondent, in .the States holding the initial bank liable directly to the holder, is payment to the initial bank to which the holder may look."'^ A case reported in 1842 by the Supreme Court of the State of New York, holds that where a bank at Troy received a note for collection, payable at Buffalo, which was sent to a bank of Orleans for collection whence it was transmitted to a bank in Buffalo, the cashier of the bank of Orleans, acting under the mistaken supposition that the money due on the note had been collected and deposited to the credit of his bank, paid the amount to the bank at Troy, which bank paid it over to the holder; the bank of Orleans having parted with the money under a plain mistake of fact, held, that it might maintain an action for it directly against the holder. >? 292. Bank's liability for negligence in failing to make col- lections. The general rule is, that an action against a bank for negli- gence in failing to collect an instrument sent to it for collection, the burden of proof rests on the plaintiff to show that the drawee was solvent, and the draft collectible; and that the loss was due to negligence. "Where a bank holds a draft according to its custom or the customary method of business for ten days without notice to the drawer, and during which time the drawee 72 Kirkham r. Bank of America, "4 Reeves. Stephens & Co. v. Stale 165 X. Y. 132, 58 X. E. 753. Bank of Ohio, 8 Onio St. 406. 73 41 111. 2G7. 472 Collections by Banks. [cii. xxxviii, makes an assignment, held, that it does not in itself, constitute snch negligence as will make the bank liable to the drawer. ^^ Such . a custom would not excuse the bank from liability, where it became necessary to bind an indorser or other party to the instrument, notice in such case is essential and must be given in a fixed time. JSTegligence must result in loss to the owner of the paper.'° "o Sahlien et al. t\ Bank of Lonoke, 76 Finch et al. v. Karste et al. 56 16 S. W. 373. N. W. 123. CHAPTER XXXIX. SAVINGS BANKS. § 293. General discussion — Nature. Savings banks were originally mutual in principle, eleemosy- nary in character. They were organized for the purpose of stimulating and fixing the habit of saving with the poor. They acted as fiduciary agents, only for those whose limited means or incomiDctency in some direction forbade the making of their own investments. Only clerical services were compensated by salaries. The lc!gislative functions and the power of making investments were lodged in a board of trustees. The members often lacking financial knowledge and experience serving without pay, the services rendered being as usual w^here the public is the recipi- ent, careless and perfunctory with the result, savings institu- tions came frequently to grief, involving considerable partial losses to depositors. In the course of time it was found that the scope of savings banks must be enlarged and that they must cease to be local, that deposits from a distance must be received, that investments must be sought away from home, and that provisions must be made for the receipt and caring for money of estates and of trust funds in considerable amounts. Then it was that the weakness of the old machinery became apparent and it dawned on the public that savings banks must be under the control and active supervision of those experienced in matters of finance, and who had a personal and j)ecuniary interest in the welfare of the institutions under their charge, beyond the question of mere employment and salaries. The result has been capitalized sav- ings banks, particularly is this the case on the western coast of America. Savings banks under the laws as previously stated are or may be of two classes, namely: Mutual associations or capital stock corporations. The mutual bank is organized without capital stock and for the sole purpose of accumulating, holding, and loaning the funds of their members. They are designated as institutions for the deposit and safe keeping of money, and the [473] 474 Savings Baxk>;, [ch. xxxix. profits, if any, arising from the investment of such deposits, are annually or semi-annually paid to the depositors. Where the statute authorizes the incorporation of such sav- ings banks (without capital stock) neither by terms or implica- tion will the law permit the bank to conduct any other than a savings bank business, l^o corporation can, by law, engage in any business other than that expressly authorized by the law and its charter. The purpose of this provision of the law is obvious. If it is a mutual savings bank it cannot derive power by impli- cation or otherwise to enter into or engage in any business except wholly in the interest of its members. And the statute when it imposes duties to be performed directing the class or kind of securities which it may hold or invest in is mandatory. The limitations and powers when imposed upon the managers or officers of such institutions by the statute must be strictly complied with, and the officers in such cases acting for such associations become trustees. The laws providing that the deposits may be loaned and in- vested (especially if it direct that they or a certain proportion of the same shall be invested in securities of a definite character) makes the managers or officers who direct and authorize such investments trustees, and as such they are held to the strictest account. If the statute making these provisions is violated, the officers or trustees become personally responsible, and they should be held to suffer. The statute directs the powers and limitations in the conduct and management of savings banks. The prohibitions and limi- tations fixed against the officers and directors of savings banks, forbidding them from borrowing any of the deposits or other funds of such corporation fully establishes the principle that they are acting as trustees, and it is a well-established principle of law that trustees cannot personally use, in any manner, either directly or indirectly, the funds of their principal, either for profit or otherwise. They cannot make profit from them. Therefore it is the duty of directors and trustees of such cor- porations to strictly comply with the law while they act in such positions and relationship with their depositors. As stated, when a savings institution is incorporated without capital stock, they are merely places of deposit where money CH. XXXIX.] Baxkixg. 475 can be left to remain or to be taken ont at the pleasure of the owner, and under such terms as may be stipulated in the by- laws and agreed upon between the parties. In such a case the assets consist in loans of money made by them for the benefit of the members or depositors from whom the money was de- rived. In case of loss, they haye no property out of which it can be paid, and the loss is apportioned pi'o rata among the depositors. A mutual sayings bank, having no stock, it receives the money of depositors for investment, and invests it in securities taken for the general benefit of all the depositors. When the bank is incorporated without capital stock, it becomes merely an incorporated agency, for receiving and loaning money on account of those to whom the money belongs. After the neces- sary expenses are paid for its management, the interest re- ceived upon the investments is to be ratably divided among the depositors. The trustees and officers, in the absence of fraud or peculation of the funds of such bank, have no personal liability. A savings bank, incorporated for the sole purpose of receiv- ing and investing the deposits and all the earnings of the bank other than those which go to the payment of the necessary expenses, belong to the depositors ratably. Such is the nature of a mutual savings association. Savings banks incorporated with capital stock are very dif- ferent from the mutual association. In such a bank the stock of the corporation becomes a security to the depositors in case of loss. The trustees or directors in a corporation organized with capital stock are also held and bound by the same law in relation to the funds entrusted to them as are the trustees in a mutual association. And if the bank is organized with a single purpose namely, to conduct a savi7igs hank business, having a capital stock does not give it power to conduct a commercial banking business. Where the statute by special act provides for the incorpora- tion of a capitalized savings bank, defining its duties and powers, it is confined in its operations and powers to the pro- visions of the law creating it. It cannot obtain through its charter greater powers than those authorized by the act or the law authorizing its creation and defining its privileges. 476 Savixgs Ba^vks. [ch. xxxix. § 294, State regulation of business. Most of the States have enacted special laws authorizing the formation l)y incorporation of savings banks. Where such laws are enacted, they generally define the duties and powers of the corporation, prescribing how investments are to be made, and the class of securities which the associations may loan money on or hold. Where the statute does not especially provide that a savings association shall have capital stock it may be incoi*porated with- out cajiital, and when incorporated in this manner, it is defi.ned to be a mutual savings association. Where the statute prescribes that no bank shall be incor- porated within a State without capital stock, and i3x;es the amount of capital which it must have to entitle it to do business in certain cities and towns, composed of a certain number of inhabitants, a mutual savings bank or association without capital stock, under the provisions of such a statute cannot exist or be incorporated. Such a law is one of prohibition, and its constitutionality may be questioned, upon the ground that no State has the right to prohibit (by imposing a capital to be used in business by) a person or any number of persons from forming themselves together for the purpose of conducting a lawful occupation or business, especially where the business to be conducted is mutual and confined to its members and purely for their benefit. Can a mutual savings bank be denied the right to do business? A lawful calling cannot be prohibited. The general rule as laid doMm by Mr. Cooley in his work on constitutional limita- tions is, " That any person is at liberty to pursue any lawful culling and to do so in his own way, not encroaching upon the rights of others." ^ A mutual sa^dngs association is not an instittition organized for the purpose of profit to stockholders, or for the benefit of a certain number of their members, and is unlike savings banks organized with a capital stock. The pui-pose of a mutual sav- ings society is to receive the money of its members for safe keeping, and return the same at such a time and in such a manner as all of the members may agree upon. If any profits 1 Cooley's Const. Lim. (7th ed.)page 889. cii. XXXIX.] Baxkixg. 477 are made by the investment of sncli funds they are to be di- vided among the members ratably. Many of the States, however, have enacted laws wdiich declare that such an institution cannot do business within the State unless it has a capital stock. The effect of the la^v is to prevent any number of persons from placing into the hands of a board of trustees their prop- erty or money for safe keeping and investment. In bank corporations which are organized purely for profit to their stockholders the deposits are not held strictly as trust fluids, but when received the bank becomes a debtor for such funds. The capital stock of such a bank is then held as a secu- rity for the return of such deposits and for the faithful per- formance of the duties required by such corporations. The Legislature is vested with the power to regulate and con- trol and fix the amount of capital required of all coi'porations of a private nature. Especially those organized for profit, where the profits are obtained by the use of moneys of others, and where it is to be distributed to the stockholders. But a mutual savings society as previously stated is eleemosynary in its purpose and character, and is not possessed of power to do any business except for persons who become members. But the right of the Legislature to regulate and fix the amount of capital required of banks of all classes is the accepted law. § 295. Depositors in mutual savings bank constitute the bank. In a mutual savings bank, that is, one which is entitled to exist, and has no capital stock, the depositors constitute the bank. The Supreme Court of the State of Xew Hampshire, in the case of Cogswell v. Bank, 59 IST. II. 43, says: " The assets of savings banks consist of loans of money made by them for the benefit of their depositors, from whom the money was derived, and correspond to the capital stock in banks of discount, and depositors in savings banks stand in the same relation to the assets of the bank as stockholders to banks of discount. Buimell v. Collinsville Bank, 38 Conn. 203; Simpson V. Savings Bank, 56 X. H. 466, 467; Osborne v. Byrne, 43 Conn. 155. They are the owmers of the funds of the bank, 478 Savings Bais^ks. [ch. xxxix. entitled to share in its profits and liable to bear its losses pro rata, and iii)on the winding up of the business of the bank each depositor is entitled to his share of the assets or property re- maining after the payment of the debts. The depositors are in fact the bank, %Yhile the corporation is but an agency for receiving and loaning the money of the depositors. Colte v. Society for Savings, 32 Conn. 173. And the trustees and offi- cers of the bank are the agents of the depositors. The claim of a savings bank depositor to his share of the earnings or deposits cannot be considered as a debt against the bank. Gushing, J. Simpson v. Bank, supra. Xeither can such share bf set off by a depositor against a debt due from him to the bank. Osborne v. Byrne, supra.'' Mr. Justice Strong, associate justice of the Supreme Court of the United States, in defining a savings bank without capital stock and in determining the rights and relationship of the depositor to the bank, says: " It is not a commercial partnership nor is it an artificial being, the members of which have property interests in it, nor is it strictly eleemosynary. Its purpose is rather to furnish a safe depository for the money of those members of the com- munity disposed to intrust their property to its keeping. It is somewhat of the nature of such corporations as church-wardens for the conservation of the goods of a parish, the college of sur- geons, for the promotion of medical science or the society of antiquaries, for the advancement of the study of antiquity. Its purpose is a public advantage, without any interest in its mem- bers. * * * It is like many other savings institutions in- corporated in England, and in this country during the last sixty years. Intended only for provident investment, in which the management and supervision are entirely out of the hands of the parties whose money is at stake, and which are quasi, be- nevolent and most useful, because they hold out no encourage- ment to speculative dealing or commercial trading. * * * Among the earliest savings banks are some in [Massachusetts, organized under a general law passed in lS34r, which provided that the income or profit of all deposits shall be divided among the depositors with just deduction of reasonable expenses. They exist also in Xew York, Pennsylvania, ]\raine, Connecti- cut and other States. Indeed until recently, the primary idea CH. XXXIX.] Baxking. 479 of savings banks has been that it is an institution in the hands of disinterested persons, the profits of which, after deducting the necessary expenses of conducting the business inure wholly to the benefit of the depositors in dividends or in a reserve sur- plus for their greater security." § 296. Depositor has no liability in capitalized saving^s bank. A depositor in a mutual savings society is declared as hold- ing the same relationship as stockholders in a capitalized bank and may be held liable for their proportion of the losses if any exist at the time of winding up the affairs of the bank. While a depositor in a capitalized savings bank has no liability at any time. § 297. Nature of deposit in a capitalized savings bank. A deposit in a savings bank may be general or special. A general deposit in a savings bank is one which loses its identity and is intermingled with other deposits. A special deposit is one which is kept separate and apart from other deposits. A general deposit may be one designated as an ordinary deposit and paid as ordinary deposits to depositors in com- mercial banks without notice. A general deposit may also bo a term deposit, where the depositor deposits his money with the bank agreeing not to withdraw the same without first hav- ing given the bank notice, which notice designates the time when the deposit is to be repaid. A special deposit when received and allowed to be received by a savings bank, the bank in the care, safe keeping and return thereof, is governed by the same law of responsibility relating to and governing special deposits held by commercial banks. § 298. Trust deposit. A trust deposit although entered on the pass-book as such, is not such unless intended to be. One making a deposit in a savings bank which is declared in the book to be in trust for'another, does not thereby create a trust if the depositor had not at the time the intention of 2 Cleveland r. Hampden Savings Bank, 182 Masj^. 110; Cunningham V. Davenport, 147 N. Y. 43. 480 Savings Banks, [cii. xxxrx. § 299. Sules regulating and coveming depositors. A savings bank may make such rules and regulations for receiving and for the withdrawal of deposits as are reasonable; and when understood by the depositor they are in the nature of a contract, and are binding upon both the bank and the depositor. A rule printed in the pass book issued by the bank vrlien properly made knowTi to a depositor, receiving the same, and in w'hich he has credit of a deposit made in the bank if lawful and reasonable is a part of the contract between him and the institution.^ § 300. Gift — Savings bank deposit in trust. ''A gift, whether in the form of a trust, or otherv/ise, always involves the intention of the donor; and when the trial court has found that there was a gift which took the form of a de- posit in a savings bank in trust for the donee, and the Appel- late Division has unanimously decided that the findings "of fact are supported by the evidence, the finding cannot be questioned in the Court of Appeals." ^ § 301. Amount of deposit received may be governed by statute. The amount received on deposit, from any one individual or firm may be regiilatecl by statute; but this privilege more properly belongs to the powers vested in the board of trustees or directors, and is made a rule by the adoption of a by-law to that effect.^ § 302. When special deposit preferred. When the by-laws of a mutual savings bank provide what classes of deposits may be received by the bank, specifying them: 1. As weekly deposits. 2. Special deposits jand 3. Dime or regular deposits, one who makes a special deposit and receives a certificate in the words and figures following: " Office of the Washington County Savings Ins. " IIagekstown, November 20, 1873. " Received from Tyron H. Edwards, one thousand and thirty dollars, on special deposit, to draw interest from July 3 Israel t'. Bowery Savings Bank, 4 Farlcigh v. Cadman, 159 N. Y. n Daly (N. Y.) .507; Eaves r. The ' 100. People's Savings Bank, 27 Conn. 228. STavlor r. Empire State Bank, GG Hun (N. Y.) 538. CH. XXXIX.] Baxkixg. 481 1, 1873, at the rate of three per cent, semi-annually, if not drawn out within one year." It is held by the court in the case of Heironimus v. Sweeney, 55 Am, St. Rep. 333, to be a special deposit and as such be- comes a debt of the bank, which must be paid before the other depositors. The opinion of the court evidently is upon the theory- that it was borrowed money, rather than a deposit, and as such became an obligation or debt and not a regular and ordinary deposit. Where a depositor is entitled to preference and the bank is a mere trustee, a court of equity has jurisdiction.*^ § 303. Notice of withdrawal, when not required. There are but few if any, savings banks that do not reser\'e the right by the enactment of a by-law of requiring depositors to give notice of their intention to withdraw their deposits. This requirement, or rule, may be waived by the bank as it generally is, except in times of a money stringency. If the bank refuses to pay on the ground that the deposit has previously been paid to another, a notice to the bank is not required.^ § 304. By-laws of savings banks. The Franklin Savings Bank of Massachusetts, by a by-law, which was enacted by the bank, for its protection and entitled ■''Security Against Fraud" and which was as follows: "As the officers of the institution may be unable to identify every depositor, the corporation will not be responsible for loss sustained, when a depositor has not given notice of his book being stolen or lost, if such book be paid in whole or in part on presentment. In all cases a payment upon present- ment of a deposit book shall be a discharge to the corporation for the amount so paid." The court in discussing this by-law and the liability of the l)ank says: 6 Commomvealth r. Bank of Penn- (Mass.) 320; Heath v. Portsmouth sylvania, .3 Watts and Serg. 184. Savings Bank, 88 Am. Dec. 194; " 7 Eaves i\ People's Savings Bank. People's Savings Bank r. Cupps, 91 27 Conn. 228, 71 Am. Dec. 59; Wall Pa. St. 315. r. Prov. Savings In.stitute, 6 Allen 31 482 SAVI^"CTS Ba^'ks, [ch. xxxix. " The plaintiff contends that the sole object of the by-law is to protect the bank against the risk of mistake as to the personal identity of its depositors, and therefore that it does not apply to a case where there has been no mistake as to identity, but the bank has paid upon a forged order purporting to be signed by the depositor. This argument would be very strong, perhaps conclusive, if this by-law had not contained the last clause. It would then have been the same, with only immaterial verbal changes, as the by-law considered in the case of Jochumsen v. Suffolk SaA'ings Bank, 3 Allen, 87, cited by the plaintiff. But the added provision, that " in all cases a payment upon presentation of a deposit book shall be a dis- charge to the corporation for the amount so paid," enlarges the by-law, and extends its operation to other cases than those in which there is a mistake as to the identity of the depositor. Unless it has this effect, it is without force and useless. The bank is obliged to deal with a very large number of depositors, most of whom must be strangers to its officers. They are unable to identify the persons of the depositors, and it is equally impossible that they should know their handwriting. The danger of fraud, by payments upon forged orders ac- companied by the book, may be as great as by payments to persons who falsely personate the depositor and present the book. In either case we think the purpose of the by-law was to authorize the bank to rely upon the presentation of the book as its security against fraud. In the case at bar, therefore, a majority of the court is of opinion that if the bank, using reasonable care, in good faith, paid a whole or a part of the plaintiff's deposit upon the pres- entation of his book it is a case provided for by the by-law, and the corporation is discharged to the amount so paid." Levy V. Franklin Sav. Bank, 117 Mass. 448. Another by-law which was enacted by the Bristol County Savings Bank of Massachusetts for the protection of the bank was as follows: ''As the officers of the institution will not be responsible for any loss sustained when a depositor has not given notice of his book being stolen or lost, if such book be paid in whole or part on presentation." The validity and effect of the foregoing by-law is discussed CH. XXXIX.] Eanking, 483 in the case of Goldrick r. Bristol County Sav. Bank, 123 Mass. 320. This is an important and valuable case, for the reason that the plaintiff, who was the depositor could not write his name, and was accustomed to make his mark, in the form of a cross. Ilis l)Ook was stolen and a large portion of the deposits were withdrawn from the bank by one impersonating the plaintiff and owner of the deposit. The court, in this case, held that the bank was not liable as it had used reasonable care and the plaintiff and owner of the book failed to give the bank notice that the book had been stolen. The bank-book contained a copy of the by-laws. The facts in this case are interesting and the opinion of the court of sufficient importance to justify the giving of it in full: " One of the by-laws of the defendant bank provides that ' as the officers of the institution may be unable to identify every depositor the institution will not be responsible for any loss sustained, when a depositor has not given notice of his book being stolen or lost, if such book be paid in whole or part, on presentation.' When the plaintiff made his deposits, he assented to the by-laws, and it thus became a part of the contract betw^een the parties. The plain object of this by-law was to exonerate the bank from loss occasioned by the ina- bility of its officers to identify the depositor, and to throw upon the depositor the risk of keeping his book safely. The presiding judge who tried the case at bar without a jury was justified in finding, upon the evidence, that the bank in good faith and wdthout negligence paid the amount which is sued for, upon presentation of the plaintiff's book, to some person who had stolen or otherwise obtained possession of it, and who fraudulently personated the' plaintiff, no notice that the book was stolen having been given to the bank. This is exactly the case w^hich the by-law was intended to provide for. and the plaintiff cannot recover wdthout a violation of tli'-i terms of the contract which the bank made with him. Wall V. Provident Inst, for Sav,, 3 Allen, 96; Levy v, Franklin Sav. Bank, 117 Mass. 448." Another important case tried by the Supreme Court of Massachusetts is the case of Kimins v. Boston Five Cent Sav. Bank, 141 MasB. 33. 484 Savings Baxks. [cii. xxxix. The facts in tins case are stated as follows: " The plaintiff was a dei^ositor in the defendant bank and liad one of its usual books of deposit. This book showed a deposit on Mav 24, 1875, one on May 24, 1880; two in 1881 and one on April 24, 1882, also various payments, the first being on May 4, 1880, and the last in 1883. All these pay- ments were made on forged orders, purporting to be signed by the plaintiff, by her mark, and witnessed directing the bank to pay the respective amounts to a certain person who was the nephew of the plaintiff. This nephew forged the orders. Pay- ments were made to said nephew on his presenting the orders and the plaintiff's deposit-book, wherein was entered the amount paid in each case, in the usual way and the book was then returned to said nephew. In each case the book was stolen, or fraudulently obtained from the plaintiff by said nephew, he knowing the place where the same was kept, and taken each time to get money on from the bank. The several deposits as they appear in the book were made by the plain- tiff' herself; and after entry thereof she received the book back again. A deposit was made on March 7, 1881. At this time the plaintiff's deposit-book showed three payments on forged orders. The plaintiff could neither read nor write, but it did not appear that the defendant had any knowledge that the plaintiff could not read, except in so far as such knowl- edge is imputable from the fact that the plaintiff instead of signing her name made her mark. Plaintiff had no knowledge that any sum had been draAvn on the forged orders until the whole had been drawn, unless such knowledge is imputable to her on the facts herein appearing. The bank had no knowledge that the orders Avere forged or the book had been stolen, or fraudulently taken from the plaintiff. The bank when it paid the several amounts on the forged orders, paid the same in good faith, and used diligence in the premises. The deposit-book presented to the plaintiff when she made her first deposit contained the by-laws as they existed upon May 24, 1875, the date of the first deposit, and the plaintiff duly subscribed at that time the rules and regulations of the bank (by making her mark, which was witnessed) in the fol- lowing form: cii. XXXIX.] Baxking. 485 '' The subscribers whose signatures appear below, or the agents of such subscribers, agree to be governed and to abide by the regulations of this institution as expressed in the by- laws of the same." Among the by-laws contained in the plaintiff's bank-book was one giving the defendant's trustees power * to alter or amend these by-laws, as the officers of the institution may be unable to identify every depositor, transacting business at the bank, the institution will not be responsible for loss sustained where the depositor has not given notice of his book being stolen or lost, if such book be paid in whole or in part on. presentment." On September 13, 1875, this by-law was amended as fol- lows: " In all cases a payment upon presentation of a deposit- book shall be a discharge to the corporation for the amount so paid." This by-law as amended, has been in force since that time. The amendment was duly made in accordance with the pro- visions in the by-laws for their amendment, hut the plmntiff had no actual knowledge of such change in the hy-laws, unless such knowledge is imputable to her from the facts herein stated, or she is presumed to have such knowledge . The bank did not give the plaintiff a new book with the by-law as amended nor did it request the surrender of the old book, and the acceptance of a new book containing the by-laws as amended; and it is not the custom of the bank to give notice to depositors of change in the by-laws, or make any change in deposit-books in such cases; and her signature was not requested to the amended by-laws, and it is not the custom of the bank to make requests for signatures in such cases. The payments on the forged orders were all made after the by-law icas amended." The court, on rendering its opinion says: " Tlie only defense is, that the defendant bank was author- ized to make the payments to the plaintiff's nephew on the forged orders and the presentation of the deposit-book. The authority, if it existed, must have been given by the plaintiff when she made the contract of deposit, or must have arisen from an estoppel worked by her subsequent conduct. The facts 486 Savings Banks, [ch. xxxix. stated do not show an estoppel, and the ruling of the court that the plaintiff could not recover must have been on the ground that the contract authorized the payments. By the contract, the plaintiff agreed to be governed by the by-laws of the bank, and the by-laws were contained in the deposit-book given to her. " By the by-laws as they existed at the time the contract was signed by the plaintiff, the bank had no authority to make the payments. They authorized a payment to one who falsely personated the depositor in presenting the stolen book, Gold- rick v. Bristol County Sav. Bank, 123 Mass. 320; but not to one who falsely claimed to act under authority from the de- positor, Jochumsen v. Suffolk Sav. Bank, 3 Allen, 87; Levy V. Franklin Sav. Bank, 117 Mass. 448. '' The defendant does not dispute its liability, if the case is to be determined on the construction of the by-law in force when the contract was made, but it contends that the by-law of 1875 became incorporated into the contract between the parties, and a part of it. If this was so, it would have given the defendant authority to make the payments. Donlan v. Provident Inst, for Sav., 127 Mass. 183. " No notice was given to the plaintiff of this by-law, and she had no knowledge of it, and the deposits made after it was passed must be taken to have been made under the original contract. " The defendant contends that the subsequent by-law bo- came part of the contract of deposit, by force of the Gen. Stats., chap. 57, § 147 (Pub. Stats., chap. 116, § 29), which provided that the deposits might be withdrawn at such time and in such manner as the corporation in its by-laws directed, and of the by-law existing when the contract was made, whicli jirovided for making changes in the by-laws, with the plain- tiff's agreement to abide by the regulations of the institution as expressed in its by-laws. The authority of the defendant to make by-laws regulating the time and manner in which deposits might be withdrawn did not empower it to change, without the consent of the plain- tiff, a contract it had made with her, nor to discharge the debt to her by payment to a stranger; nor was it any part of the cii. XXXIX.] Banking. 487 plaintiff's contract that the defendant might do this. See Donlan v. Provident Institution for Savings, uhi supra. '' The by-law in question is not one which merely concerns the regulations of the institution as to the time and manner of paying deposits to depositors. It materially affects the con- tract of deposit in the interest of the bank, and not of the de- positor; and if it applies to contracts made before it was passed, it authorizes the bank to pay the money of depositors to those not authorized by the contract to receive it, and to relieve the bank from its obligation to pay it to the depositors. Authority to make such a material change in the contract, without the knowledge of the plaintiff, cannot be inferred from her agree- ment to abide by the regulations of the institution." A still later Massachusetts case is Kingsley v. Whitman Sav- ings Bank, 182 Mass. 252. The bank had adopted a by-law, which reads as follows: ''As the officers of this institution may be unable to identify every depositor transacting business at the bank, the institution will not be responsible for loss sus- tained where the depositors have not given notice that their books have been stolen or lost, if the sums of money entered in such book shall have been paid in whole or in part on pres- entation of said book." It was held in this case that the object of the by-law was to avoid loss from inability to identify the depositor, and that it did not prevent a depositor from recovering from the bank a deposit which had been paid by the bank to another person on presentation of the bank-book with a forged order. The court in deciding this case reviews in brief the cases pre- viously before the court, namely, the case of Jochumsen v. Suffolk Savings Bank, 3 Allen, 87; also, the case of Levy v. Franklyn Savings Bank, 117 Mass. 448; also, the case of Gold- rick V. Bristol County Savings Bank, 123 Mass. 320; also, the case of Kimins v. Boston Five Cent Savings Bank, 141 Mass. 33, and the case of McCarthy v. Provident Institution for Saving, 159 Mass. 527. Affirming the law, as previously presented by the courts, and re-states by quoting from the case in 117 Mass., the law to be as follows: " By the by-laws as they existed at the time the contract was signed by the plaintiff, the bank had no authority to make the payments. They authorized the payment to one 48S Savings Banks. [en. xxxix. who falsely personated the depositor in presenting the stolen book; * * * but not to one who falsely claimed to act under authority from the depositor. " AVe have no doubt that under our decision this is a correct statement of the law, and that on the facts of the case before us the by-la\v has no application." The effect of a by-law is discussed by the Supreme Court of the State of Michigan in the case of Ackenhausen v. People's Savings Bank, 110 Mich. 175. In this case the bank had adopted the following by-laws: "3. On making the first deposit the depositor shall sign his or her name in the signature book of the institution, which contains a copy of these rules and regulations, and to which the depositor will assent before his or her deposit can be re- ceived by this institution. " 7. Money deposited in this institution will be entered in a book which will be given to each depositor. This small book will be the depositor's voucher, or evidence of his or her de- posit in the institution. When money is withdrawn, this book given to the depositor shall be brought into the bank to have the payments entered therein. Depositors can draw money themselves, or, in case of absence or sickness, it will be paid to their order, properly witnessed, and accompanied by the book. " 10. While the officers of this institution will do their ut* most to prevent fraud, yet, as they will be unable to identify every depositor, this institution will not be responsible for loss sustained when a book has been mislaid, stolen, or lost, if, before the cashier is notified thereof, such book be paid in whole or in part on being presented. " 11. If a book be mislaid, stolen or lost, the owner is re- quired to give immediate notice of the fact to the cashier of this institution." There was also in force at the time of the adoption of the foregoing by-laws by the bank, the following statutory laws of the state, which reads as follows: "All deposits in said bank shall be repaid to the depositors or his or her lawful representative when required, at such time or times, and wath such interest and under such regulations as the board of directors of the bank from time to time pre- CH. XXXIX.] Bankiistg. 489 scribes, wliieli regulations shall be printed and conspicuously exposed in some place accessible and visible to all in the busi- ness office of said bank. "A pass-book shall be issued to each depositor in the savings department, containing the rules and regulations adopted by the board of directors governing such deposits, in which book shall be entered each deposit made by, and each payment made to such depositors; and no payment or check against any such savings account shall be made imless accompanied by and en- tered in the pass-book issued therefor, except for good cause^ and on assurances satisfactory to the officers of the bank." The court says : " It is insisted that the bank complied with these provisions of the statute, and that plaintiff, because of his contract with the bank, has no cause of action against it " (the court citing the following cases): SchoenAvald v. Bank, 57 :^^. Y. 418;"Appleby v. B^ank, 62 :N'. Y. 12; Sullivan v. Lewiston Institution, 56 Me. 507; Goldrick v. Bank, 123 Mass. 320. The court then proceeding, says: '' The cases just cited undoubtedly hold that under the laws of this State, where the decisions were rendered and the by- laws in force, in those banks there was no liability; and if the savings banks, which were parties to the litigation involved in those cases, w^ere created under like laws, and possessed ^\'ith the same powers as savings banks possess in this State, the decisions would be conclusive." The court then proceeds to discuss the nature of a mutual savings society and a savings bank capitalized and organized under the general laws of a State, and finally, in determining the law in this case and the effect of the by-law adopted by the bank, says: "We think the requirement of the statute that the deposits shall be paid to the depositor or his legal representatives can- not be changed by a by-law, unless the attention, of the depositor is called to the hy-law and he assents thereto, actiialh/ or impliedly." As a conclusion upon this subject, it may be stated that the general rule laid down is as follows : '' The general rule is, that a hy-law adopted by a savings hank to regulate its business, and for the repayment of its deposits, if 490 Savixgs Banks. [ch. xxxix. reasonable and not in violation of any statutory law, if Icnown- to the party dealing with the hank, is binding between them arid as between the bank and the depositor, the by-law becomes a contract, unless the bank is negligent. ^^^ It is clearly established that a depositor is not boimd by a by-law in the beginning unless he knows of it.^ If the depositor cannot read he should get some one to read the rules to him, and it wonld seem to be the duty of the bank to aid him in this particular, and to know that the rules have b(en read to him.^'^ The rule is icell established that if a by-law however rea- sonable and in all respects made in compliance with the law, will not relieve the hank of liability, if negligent}^ § 305. Pass-books. The pass-book issued to a depositor and in which entries of deposits are made, by the reciving teller of a savings bank, are original books of entry ; and entitled to as much credit as evidence as the books retained by the bank.^^ Where a figiire in a pass-book is obscure and a disagree- ment arises between the bxink and the owner of the book, as to the sum intended to be represented, the true meaning is a ques- tion of fact for the jury.^^ A pass-book in Xew York is not negotiable and possession by a party other than the owner does not constitute proof of a right to draw money thereon. ^^ In Massachusetts a pass-book may be assigned. The deliv- eiy of the savings book with the intention of transferring 8 Heath v. Portsmouth Savings 127 Mass. 18.3, 34 Am. Rep. 358; Bank. 46 N. H. 78 ; 88 Am. Dec. Brown v. Merrimac River Savings Warhus v. Bowery Savings Bank, 21 Bank, 67 X. H. 549, 47 Am. Rep. N. H. 78; Mitchell r. Home Savings 171; Kummel r. Germania Savings Bank, 38 Hun (X. i'.) 255. Israel Bank, 127 X. Y. 488, 28 X. E. 398; V. Bowerv Savings Bank, 9 Daly Smith r. Brooklyn Sav. Bank, 101 (X. Y.) .507. * X. Y. 58, 54 Am.' Rep. 653; Wegner SAckenhausen r. People's Savings v. Second Ward Savir'-- Bank, 76 Bank. 110 Mich. 175; 68 N. W. Wis. 242, 44 X. W. 1096. 118: G4 Am. St. Rep. 338. 12 Knox v. Savings BanK, 93 Mich. 10 Burrill r. Dollar Savings Bank, 511. 92 Pa. St. 134, 37 Am. Rep. 669. 13 Kux r. Savings Bank, 93 Mich 11 Sullivan r. Lewiston Savings 511. Inst., 56 Me. 507; 96 Am. Dec. .500; 14 Kummel v. G. S. Bank, 127 Donlan r. Provident Savings Inst., X'. Y. 488. Jemison et al., v. C. S. Bank, Maryland Sav. Inst., 10 Gill & J. 122 X. Y. 135. 492 Savixgs Banks. [ch. xxxix^ "Where the bank's charter prohibits loaning upon notes, bilk of exchange, or other personal property, the loan is not void, only voidable.^*^ § 308. Insolvency of savings banks — Appointment of a re- ceiver. Where a savings bank is declared to be insolvent a receiver may be appointed, nnless the law of the State otherwise pro- vides. The application may be made by the Attorney-General of the State where the law requires him to act. In California it is the duty of the Attorney-General on a report made to him by all of the bank commissioners acting as a unit, declaring the insolvency of a bank, to immediately apply to the court for a receiver. The application where the law does not require the Attorney- General to act may be made by a stockholder.^* "When equity courts are required to protect the interest of depositors, the assets of the bank should be reduced to cash as rapidly as possible without sacrifice and "distributed among the depositors without delay .^ A receiver may not be appointed where the trustees by agreement with the depositors accept a stipulation of settle- ment and they proceed to act upon such stipulation 'and dis- tribute the assets of the bank.^^ § 309. Riglits of depositors. "When a savings bank becomes insolvent in some of the States, it is held that the depositors are general creditors like others.^^ In Xew Jersey and some other States the depositors are not paid until after all the debts for management are discharged.^' ^ 310. Depositor denied set-off. The statute may provide otherwise, but the general rule is, that a general depositor in a savings bank, when insolvent and 20Sistare, r. Best, 88 N. Y. 527. 23 Reed v. Home Sav. Bank. 130 2f'a Gorman r. Guardian Sav. Mass. 44.3. 39 Am. Rep. 408 ; Cogs- Bank. 4 Mo. App. ISO. -well r. Rockingham Ten Cent Sav. 21 Matter of Dime Sav. Inst. 29 Bank. .59 X. H. 4.3, 92 X. Y. 7. X. J. Eq. 109. 24 Stockton r. Mechanics', etc., 22 Lewis V. Lvnn Tnst. for Sav- Sav. Bank, 32 N. J. Eq. 165. ings, 148 Mass. 235. CH. XXXIX.] Banking. 493 in liquidation, is not entitled to set off his debt due the bank against the deposit due him, but must pay his debt to the bank and take his pro rata of the proceeds.^*" The law is otherwise where the deposit is a special deposit. A special deposit made to be withdrawn upon call may be set off against the depositor's debt to the bank."^ A special deposit such as above referred to by the court is in fact a commercial deposit, and when accepted by a savings bank and allowed to be withdrawn upon call, the depositor does not receive interest or any portion of the dividends which may be declared by the bank, but in lieu thereof receives the privilege of drawing against his account with notice. Upon what principle of law or equity the right of set-off is allowed, the court fails to state. The court says that it " is a claim for money not deposited according to the charter of the l>ank nor in the ordinary course of business." The court pro- ceeding, then says: " The charter of the bank gave it no power to receive and pay out money on call," and, therefore, because the bank officials had violated the charter of which probably the depositor had knowledge, it is held to be an equitable reason why such a special depositor should be entitled to the right of set-off. It is again stated that a special deposit of money made by a person in a bank is one which the banker must keep separate and apart, and not mingle it with with the other deposits of the bank. Money which is deposited in a bank subject to call is not a special deposit, and a depositor in a savings bank receiv- ing the privilege of checking against the same at any time A\athout notice, in case of failure has no greater rights than any other depositor in the bank. If the bank has in fact re- ceived a special deposit and holds it in possession as such, it must return it to the depositor ; a debt owing to the bank by such a depositor is entitled to a set-off. The correct rule governing the right of depositors in purely mutual savings banks to set off their liabilities to the bank against the debt or deposit due them by the bank, is presented 5n the case of Stockton v. Mechanics', etc.. Bank, 32 X. J. Eq. 163. 25PaATTer v. Hoag, 17 Wall. (U. 3C Hall r. Paris, 59 N. H. 71. S.) 010." 494 Savings Banks. [cii. xxxix, "A savings bank under a special charter was authorized to receive and invest deposits for the benefit of the depositors^ the income or profit to be divided among them, after reason- able deductions for necessary expenses, the principal to be re- paid to the depositors at such times and with such interest and under such regulations as the board of managers should from time to time prescribe. Under their regulations they not only received deposits, participating in the profits, and not payable except on thirty days' notice, but also another kind of deposits (called by them " special deposits "), which were not to partici- pate in the profits and were to be repaid (not redelivered) to the depositors, without any preliminary notice. Both kind of deposits were intermingled in the funds of the bank, undis- tinguishable. Under insolvent proceedings, a receiver was ap- pointed. Held: ' '^ (1) That such an institution is a mere trustee for the bene- fit of the depositors. " (2) That a depositor who borrowed money from the bank, secured by his note or mortgage, cannot offset his debt against the amount of his deposit at the time when the decree of in- solvency was made. " (3) That the so-called ' special ' depositors are not entitled to priority in payment over the other class of depositors. " (4) That debts and expenses contracted by the bank in carrying on its ordinary business are to be preferred. " (5) That a claim, under a covenant in the lease, for rent accruing after the surrender of the premises to the lessor by the receiver, cannot be maintained. " (6) That money paid to the bank in exchange for its check, given for the accommodation of the payee, which was dis- honored, presumably went into the funds, and the debt should be preferred. " (7) That checks given to depositors on account of deposits, are not to be preferred." If the depositor has deposited a special fund in tlie bank and has a contract witli bank to the effect, that he may at any time set off his debt against his deposit, such a contract is lawful and the set-off, therefore, may be equitable, but the deposit must be retained by the bank as a special deposit, and a special cii. XXXIX.] Bankixg. 495 deposit must not be mingled wnth the general funds of the bank. AMien a bank has been declared insolvent in a suit at the instance of the bank commissioners, brought bj the Attorney- General, the directors may levy an assessment against the stock for a sufficient sum to pay the indebtedness.'' 27 Union Sav. Bank of San Jose r. Leiter, 145 Cal. 696. CHAPTER XL. LIENS OF BANKS. § 311. General and special liens. "A lien is defined to be a legal claim or charge upon real or personal property for a satisfaction of some debt or duty." Under the Code of California a banker has a general lien de- pendent on possession upon all property in his hands belonging to a customer for the balance due to him from such customer in the course of business. It is a well-established principle that a bank has a general lien on all of the moneys and funds which have been placed in the bank's possession and it may use the same and cancel any matured debt owing by the debtor to the bank. The court, in Muench v. Bank, 11 Mo. App. 144, says: " The general lien of bankers is part of the law merchant. That bankers have a lien on all money and funds of a depositor in their possession for the balance of the general account, is undisputed. A banker's lien does not arise on securities de- posited with him for a special purpose; otherwise, we have no doubt that when a discount has been made by the bank and the note is matured so as to create an indebtedness from the depositor of the bank, all funds of the depositor which the bank has at the date of the maturity of the discounted note, or which it afterward acquires in the course of business with him, may be applied to the discharge of his indebtedness to the bank, and this is true not only of the general deposit of the customer, but the rule applies to any commercial paper be- longing to the depositor in his own right and placed by him with the bank for collection." A deposit of collateral security made to secure a particular debt, cannot be held by the bank after such indebtedness is paid and upon demand made by the owner must be returned to him. But a general deposit of collateral security made to secure any and all indebtedness that may be owing by the debtor, can be held until all the debtor's indebtedness is set- tled, and the lien of the bank can be enforced against said [496] cii.xL.] ' Banking. 497 property. But a bank has no lien upon the deposit of a cus- tomer for an indebtedness owing to it by him which has not matured, though he be insolvent.^ Stock certificates. The Supreme Court of the United States in the case of Hammond v. Hastings, 134 U. S. 401, in discussing the law as enacted bj the Legislature in the State of Michigan, section 4143, Howells' Annotated Statutes (1st ed.), section 17 of Act 187 (1875), which reads: "The stock of every such corpora- tion shall be deemed personal property and be transferred only on the books of such corporation in such form and manner as their by-laws shall prescribe, and such corporation shall, at all times, have a lien upon all of the stock, the property of its members invested therein for all debts due from them to such corporation," says: " The general act, Howells (1st ed.), § 4866, provides as to all corporations that a transfer of stock shall not be valid except as between the parties, unless entered on the books of the company showing the names of the parties by, and to whom transferred, the number and designation of shares and the date of the transfer. The bank was ignorant of ' Sweet's ' indebted- ness to the coi-poration when it lent its money on the security of the stock, and of course Hastings, though notified thereof at the time of the sale, succeeded to all of the rights of the bank. On these facts the circuit judge held that the purchaser took the stock discharged of any lien and submitted to the jury only the question of the value of the stock. This having been found by its verdict, judgment was entered therefor and the corporation now alleges error. The single question is, whether the corporation had a lien upon the stock for Sweet's indebted- ness as against the claims of the hank and the purchaser. This question must he ansivered in the affirmative, for tlie rule is clear and unquestioned that where by general law a lien is given to a corporation upon its stock for the indebtedness of the stock- holder, it is valid and enforceable against all the world."^ 1 Homer v. Xat. Bank of Com- .300 : Brent v. Bank of Washington, merce (Mo. Sup.). 41 S. W. 790: 10 Pet. .59G: National Bank r. Oibhons r. Hecox, 105 :Mich. 509, 63 Watsontown Bank, 105 U. S. 217, N. W. 519. 221 ; Rogers r. Huntington Bank, 12 2 Union Bank v. Laird, 2 Wheat. S. k R. (Pa.) 77; Sewall i\ Lan- 32 498 LiE^^s OF Banks. [cii. xl. The law under wliieli this corporation (referring to the case of Hammond v. Hastings) was organized was a general law ; so it has been decided by the Supreme Court of Michigan, in !N'ewberrv v. Detroit, etc., Co., 17 Mich. 141, 151, where it is said: '' The law in question is a public act, and all are charged with knowledge of its provisions." This construction bv the Supreme Court of the State of the law is conclusive in this court, as well as elsewhere, as to its character. The law in terms provides for a lien, and that being a public law, all are charged with knowledge of its provisions. Generally, wherever paper of a nature similar to this is issued under authority granted by general statute, whoever deals with that paper is charged with notice of all limitations and burdens attached to it by such statute. And this is true whether the party lives in or out of the State by which the law was enacted. It is unnecessary to enter upon the certificate any statment of the limitations and burdens which the law casts upon all such paper, and the omission to state such limitations upon the face of the paper is not a waiver by the corporation of the bene- fits thereof. The statute of the United States provides, section 5230, that: " For any deficiency in the proceeds of all of the bonds of an association (bank) to reimburse to the United States the amount expended in paying circulating notes of the association, the United States shall have a perynanent lien upon all of its assets, and such deficiency shall he made good out of such assets in preference to any and all other claims whatsoever, except the necessary costs and expenses of administering the same." The Supreme Court of the State of California, in the case of The Anglo Californian Bank (Limited), Appellant, v. Granger's Bank of California, Kespondent, 63 Cal. 350, says: " The lien, if any, must have been created by the by-law above quoted, and it seems to us that no lien could be created in that way which would affect a hona fide purchaser for value without notice to whom the stock was transferred in mode pre- scribed by the Code. We think that the by-law, which it is caster Bank, 17 S. & R. (Pa.) 285; merce, 14 Md. 271; Hartford Bank Presbyterian Confiregation v. Carl- ?\ Hartford Ins. Co., 45 Conn. 22; isle Bank, 5 Penn. St. 345. 348; Bishop v. Globe Co., 135 Mass. 132; Fanner's Bank r. Iplebart, Gill. Bohnier v. City Bank, 77 Va. 445. (Md.) 50; Reese v. Bank of Com- cii. XL.] Baxkixg. 499 claimed gives the defendant sncli a lien, is clearly inconsistent with the provisions of section 324 of the Civil Code which we Lave quoted. The provision that ' tlie transfer is not valid ex- cept between the parties thereto until the same is so entered upon the hooks of the corporation as to show the names of the parties hy and to whom transferred, the number or designation of the shares, and the date of the transfer' does not, as we con- sider it, justify the defendant in its refusal to enter upon its books the transfer from Fowler to the plaintiff any more than it would in the absence of any such bydaw as the one upon which the defendant relies for its justification in this case. If there was a valid transfer of the stock from Fowler to the plaintiff, the latter had a right to have it transferred on the books of the defendant. The defendant might make bydaws regulating the transfer of stock, but it could not, under the power to regulate the transfer of stock, create a secret lien upon it, which would adhere to it in the hands of a bona fide purchaser for value and without notice." This question was elaborately, if not exhaustively, discussed in Bullard v. Bank, 18 Wall.' 589, and in Driscoll v. West Bradley & C. M. Co., 59 K Y. 96, and the conclusion reached in both cases was that a corporation could not, under the power to make bydaws for the regulation of the transfer of stock, create or declare a lien upon the stock by by-law, nor refuse to permit a transfer until the indebtedness of the stockholder to the company be paid. It is held that the bank's lien is not only effective against the debtor, but that the bank may pursue the property in the hands of his assignee for creditors, and may be enforced as against such assignee. " Thus a bank to which paper was indorsed for collection before the maker thereof assigned for the benefit of creditors may set off the amount of the paper in a suit against it by the assignee to recover the maker's deposit in the bank." ^ A commercial State bank can, by special agreement, unless prohibited by statute, have assigned to it as security its own stock, and it may purchase the same at a sale to protect the bank from loss. It may then sell the stock purchased at such 3 Seloner on Bank Collections, p. 42; Penn. Bank V. Farmers' De- posit Xat. Bank, 130 Pa. 8t. 209. 600 Liens of Banks. [ch. xl, sale and take the purchasers' note with the stock as collateral security.^ A national bank cannot, either bv specific provisions or agreement entered into, take its own stock as security for a debt contracted bv the stockholders with the bank, but as the law provides no penalty for its violation the proceeding can only be inquired into by the United States. Bule hetiveen corespondent and initial hanli. The general rule is that, as between the correspondent hanh and the initial hanh where there have been for several years mutual and extensive dealings between two banks and an ac- count current kept between them in which they mutually cred- ited each other with the proceeds of all negotiable paper transmitted for collection when received and accounts were regularly transmitted from the one to the other and settled upon these principles, and balances remitted ivhen called for and upon the face of the paper transmitted, it always appeared to be the property of the respective banks, and the collecting bank had no notice that the transmitting bank did not own the paper, and such paper was transmitted by each of the two banks on its own account; held, there is a lien for a general balance of account no matter who may be the real owner of the paper.^ But the general rule does not hold in the absence of a previous agreement or mutual dealings between the correspond- ent and the initial bank. The court says, in Millikin v. Shap- leigh, 3 G Mo. 596: " * * * But ivhere there is no such mutual arrangement or previous course of dealing between the parties whereby it is expressly or impliedly understood that such remittances of paper are to go to the credit of the previous account when re- ceived and no advance is made and no credit is given on the basis of the particular bill or on the faith of such course of dealing or such remittances, or where the special circumstances are inconsistent with the hypothesis of such mutual under- standing, and the one bank merely bases the proceeds of pajjcr 4 Union Nat. Bank v. Hunt, 7 Mo. 440. The President and Directors of App. 42. the Metropolis, Plaintiff in Error, v. 5 Carroll v. Exchange Bank of The President, Directors, etc., of th« Wheeling, 30 W. Va. 518, 4 S. E. New England Bunk, G How. 212. en. XL,] Bankixg. 501 remitted for collection to the credit of the other on a subsist- ing indebtedness which it happens at the time to have standing against the other, there is no snch lien and no right to retain and apply the money collected in that manner, bnt the real owner of the funds may maintain an action to recover the amount." In the case of the First Xational Bank of Clarion v. Gregg & Co., 79 Pa. St. 384^ the rule as stated is as follows: "A note was made to plaintiff's order, endorsed by him and sent through the house of Brady, a banker, for collection by him, endorsed to the defendant, a bank, for collection and credit. Held, that Brady by the endorsement did not become the o^\Tier of the note and had no right to pledge it, or direct its proceeds to be credited to him in payment of his indebted- ness to the defendant." Mr. Justice Williams, in delivering his opinion, says: " Brady & Co. did not become the owmers of the note by the plaintiff's endorsement and delivery of it to them for collection, and they had no right to pledge it or direct its proceeds to be placed to their credit in payment of their indebtedness to the bank. It is true that they were the apparent owners of the note, and in the absence of notice of the plaintiff's title the bank had the right to treat them as the real owners. If it had made advances or given new credits to Brady & Co., on the faith of the note, it would undoubtedly be entitled to retain the amount out of the proceeds, but just at this point the defense wholly fails. The affidavit of the cashier does not show that the bank made any advances or gave any new" credits on the faith of the note, nor does it show that it incurred any liability or did anything by which its condition is worse than it could have been if it had not received the note for collection and credit, or that it will suffer any loss or damage if the credit is not allowed. If so, the bank has clearly no equity wdiich entitles it to withhold the proceeds from the owners of the note." In the case of Lawrence and Another v. The Stonington Bank, 6 Conn. 521, the court holds that: " * * * a custom among banks of transmitting bills and notes from each to the other for collection, and when paid of passing the avails to the credit of the bank so transmitting ^>02 LiExs OF Banks. [cii. xl, tbem, and to the debt of the bank so receiving them, cannot affect the ch^im of a third person to the avails of a bill which he has committed to one of them for collection." The court in the above case, in discussing a banker's lien, says: " In Jourdaine v. Lefevre et al., 1 Esp. Rep. 66, it was said Ly Lord Kenjon that a banker had a lien on a note paid into his house and, of course, a right to retain it for his general balance. The doctrine more clearly appears from the case of Davis and Al. Bowsher, 5 Tenn. Rep. 488: 'A customer lodges liills of exchange in the hands of his banker generally, and when the banker advances money to him he applies it to the discount of such of the bills as happen to be nearest in value to the sum advanced, but without any special agreement to that effect. This does not invalidate the banker's general lien upon all of the other bills in his hands, but he may retain them in order to secure the payment of his general balance.' " A bank cannot acquire a lien against a specific or special deposit.^ A bank holding securities assigned to it by a partnership cannot in any event apply money belonging to one of them, to the satisfaction of a debt due by the other, without the con- sent of the former.^ The deposit of funds in the name of a person as trustee can- not he apportioned or applied by the bank to the payment of liif-. individual indebtedness to the bank.^ In the case of Hodgins v. Bank, 124 N. C. 540, the rule as to the right of the bank to apply the deposits of a surviving partner to cancel the debts of the former is stated as follows: "A bank has the right to apply the debt due by it for de- posits to any indebtedness by the depositor in the same right to the bank, provided such indebtedness to the bank has matured." 6Fitzjjerald v. State Bank, 64 Ferry v. Home Savings Bank, 114 Minn. 4G9 ; Bank v. Ins. Co., 104 Mich. 321. IT. S. 54 ; Judy r. Farmers' and » Bundy r. Town of Monticello, 84 Traders' Bank, 81 Mo. 404. Ind. 119;" National Bank r. Ins. Co., 7 Bank of Lajirange r. Calter, 101 104 IT. R. ,54; Clemer r. Drover.s' Oa. 1.34; Dawson et al. r. Real Es- Xat. Bank. 157 111. 206; Preston r. tate Bank, 5 Pike (Ark.), 283; Prather, 137 U. S. 604. CHAPTER XLI. STATUTE OF LIMITATIONS. § 312. Runs against checks, when. In the absence of a statute of a State declaring that the statute of limitations shall not run against money deposited in the bank, the rule is that the statute begins to run against the liability of the bank from the time a demand for payment is made.^ A delay to call for a deposit for a period of six years from the time the money was placed in the bank is not a bar to a right of action against the banker.^ Where a bank holds funds of a depositor subject to call, the contract is one to pay on demand, and the statute does not begin to run until demand.^ A certification of a check by the bank does not change the rule. The statute does not begin to run until after demand. It is also claimed that the statute does not begin to run until demand is made by owner of bank stock for dividends. § 313. Runs against certificates of deposits, when. A certificate of deposit is, by the courts, declared to be in legal efitect a promissory note; and the statute of limitations, if such is the law, begins to run immediately, and no demand is necessary. In the case of Mitchell v. Easton, 37 Minn. 335, the court says, in discussing the question of the statute of limitations in a suit brought upon an instrument designated as a certificate of deposit which is in the words and figures following: " Mower County Bank, Austin, Minn., March 29, 1876. " L. S. Mitchell, Esq., has deposited in this bank seven hun- dred fifty and no-100 dollars, payable to the order of himself, in current bank notes, on the return of this certificate properly indorsed, with interest at the rate of ten per cent, per annum. " SMITH, WILKIIn^S & EASTOX." 1 39 Pa. St. 92. 3 Starr v. Stiles, 19 Pac. Rep. 225. 2Girar(i Bank v. Bank of Penn Township, 39 Pa. St. 92. [503] 504: Statute of Limitations. [cii. xli, " The defendants received the money of the jDlaintiff, and, by the instrument sued on, promised and agreed to repay it, with interest, and by placing their obligation in this form they manifest an intention to change the character of the transaction from that of an ordinary deposit to that of a debt or loan evidenced by an instrument construed to be a promissory note payable on demand. If the parties desired to place any other or further limitation upon the rights or obligations of either, it should have been expressed upon the face of the instrument. " Upon the question under discussion it is admitted that the authorities differ. In Xew York the cases indicate much con- flict of opinion. Some of them hold that such certificates are promissory notes; others mere receipts or written evidences of a deposit, and as such continuing securities, which, though negotiable, are not dishonored until after an actual demand. See Xational Bank of Fort Edward v. AVashington County Bank, 5 Hun, 605. But if they are promissory notes payable on demand, then, under the statute above referred to, they would be dishonored after sixty days. But this could not con- sistently be the case if the paper was not due until an actual demand. But it is manifestly the better rule in practice to hold that such demands become stale and outlawed unless col- lected or sued within six years. Brummagin v. Tallant, 29 Cal. 503 (89 Am. Dec. 61); Tripp v. Curtenius, 36 Mich. 494; Cur- ran V. Witter, 68 Wis. 16 (31 N. W. Kep. 705)." The general rule is that a certificate of deposit, if a promis- sory note and payable on demand, is due immediately without any actual demand, and that the statute begins to run at once.'* The statute begins to run when a right of action accrues.^ Where the courts hold that a certificate of deposit is not in legal effect a promissory note, the certificate becomes due (un- less a date is fiixed) from the date of demand, and the statute does not begin to run until demand is made. The Supreme Court of the State of Massachusetts, in the case of Shute v. Pacific :N"at. Bank, 136 Mass. 487, holds that a certificate of deposit issued by a national bank is not a 4 Brummagin r. Tallant, 29 Cal. § 29; Angell on Limitations. § 59; 503; Cousins v. Partridge, 79 Cal. Wood on Limitations, § 124. 228; Story on Promissory Notes, 5 Jones r. Nicholl, 82 Cal. 32. cii. xLi.] Banking. 505 promissory note within the meaning of the General Statutes, chapter 53, section 10. It is also held by the same anthority, that a certificate of de- posit is not due until a demand is made and the certificate re- turned or tendered.^ § 314. Statute runs against stockholder's liability, when. In a suit by a receiver of an insolvent national bank to col- lect an assessment authorized by the Comptroller of the Cur- rency, upon the stock from a stockholder who has made a fraudulent transfer of his shares, is based upon the statutory liability of the stockholder, and the statute begins to run from the date the assessment becomes due. The statute begins to run from the accrual of the liability."^ When a bank fails and its assets are insufficient to pay off all of its liabilities, the stockholders become liable for such deficiency to the extent provided (if a national bank by the statute of the United States, if a State bank by the statute oi the State), and no limit of time being prescribed by the Federal Statutes within which an action must be brought to enforce an assessment against a stockholder, such an action is governed, as to limitation, by the statute of the United States. But see Aldrich v. Skinner, 98 Fed. Rep. 345. The court here holds that the statute of the State where the action is brought governs. In a very late case the Supreme Court of the United States has decided that the Statute of Limitations of a State is no defense to an action brought by the receiver of a failed na- tional bank against its stockholders. Chief Justice McKenna, in rendering the opinion of the court in the case of Rankin, Receiver of the Hutchinson N^a- tional Bank v. Edward E. Bartin, — a stockholder, says: " We think the Kansas Supreme Court overlooked the of- ficial character and power of the Comptroller of the Currency and the decisions of this court declaring them. A national bank is an instrumentality of the United States, its circulating notes 6 Bellows Falls Bank v. Rutland 7 Thompson v. German Ins. Co., 77 County Bank, 40 Vt. 377 ; Monger i'. Fed. Rep. 258 ; Godfrey r. Terry, 97 Albany City Bank, 85 N. Y. 580. U. S. 171. 506 Statute of Limitatioxs. [ch. xli. are guaranteed bv the United States, and if the United States should be compelled to pay them the United States has a para- mount lien on the assets of the bank for reimbursement. The administration of the bank's assets is, therefore, vested in the Comptroller as an officer of the United States. He appoints the receiver and directs his acts. Individual liability of a stockholder can only be enforced by his order. ''As the power of the Comptroller is derived from a statute of the United States, it cannot be controlled or limited by State statutes." § 315. When State statute does not govern. In actions for the recovery of usurious interest, a State statute limiting the time within which an action to recover ex- cessive interest may be brought does not apply.® In the State of California it is held in the case of Wells v. Black, that the Statute of Limitations commences to run against the liability of the stockholders of a savings bank from the time when the debt was created and the liability incurred upon the acceptance of each deposit, and at the expiration of three years thereafter, the right to enforce the stockholder's liability is at an end. The court says: " Since the relation of debtor and creditor existed between the bank and its depositors it follows that the debt was created and the liability incurred at the time of the acceptance of each deposit. At the expiration of three years the right to enforce the stockholder's liability was at an end. (Code Civ. Proc, § 359; Hunt v. Ward,' 99 CaL 612, 37 Am. St. Rep. 87; Bank v. Pacific Coast S. S. Co., 103 Cal. 594.) Whatever divergence of views may be found in the earlier adjudication?, the cases above cited contain the last expressions of the court upon the question. It follows, therefore, that plaintiff's cause of action is barred as to all deposits made more than three years before the commencement of the action. " The judgment is ordered modified to conform to these views, appellants to have their costs upon appeal." 8 Lucas r. Government Nat. Bank of Pottsville, 1 N. B. C. 872. cii. XLi.] Banking. 507 § 316. Fraudulent act by officer of bank — Statute runs when. Where an officer of a bank has committed a fraudulent act causing loss or injury to the bank, which act is unknown to the directors of the bank, in an action brought against him (the officer) for money had and received, the Statute of Limi- tations does not begin to run until the knowledge of the act lias been discovered by the directors.^ 9 Atlantic Nat. Bank v. Nathaniel Harris, 118 Mass. 147. CHAPTER XLII. FORFEITURE OF BANK'S FRANCHISE. § 317. Acts of banks which may forfeit charter. The Xational Banking Act, section 5239, Revised Statute? of the United States, provides: '^ If the directors of any national banking association shall knowingly A'iolate, or knowingly pennit any of the officers, agents, or servants of the association to violate, any of the provisions of this title, all the rights, privileges, and franchises of the association shall be thereby forfeited. Such violation shall, however, be determined and adjudged by a proper cir- cuit, district or territorial court of the United States, in a suit brought for that purpose by the Comptroller of the Cur- rency, in his own name, before the association shall be declared dissolved." § 318. Acts constituting liability. A franchise of a national bank is liable to forfeiture when the acts are committed by the directors knowingly, and the information brought must charge that the act was done by the directors^ or that they knowingly permitted it to be done.^ If the action is not brought within a period of five years it is barred by the Statute of Limitations.^ By the provisions of the foregoing statute the Comptroller of the Currency is given discretionary power to bring the ac- tion. The authority is vested in him. 'No other person can complain or institute proceedings. The statute in some of the States has enacted laws declar- ing that if a bank shall violate any of the laws of the State or its charter by doing acts in excess of its powers, or failing to comply with express provisions of the law directing it to per- form certain acts, its charter may be forfeited in a suit insti- tuted by the Attorney-General of the State. The charter of a State corporation, whether obtained under 1 Trenliolm. Comptroller of the 2 Welles r. Graves^ 41 Fed. Rep, Currency, r. Commercial Xat. Bank 459. of Dubuque, 38 Fed. Rep. 323. [508] cii.xLii.] Bankixg. 509 a special or general law, cannot be forfeited only by an ac- tion brought under the direction and authority of the Attorney- General of the State. A complaint may be laid l)y any indi- vidual before such officer, but the power to bring the action is discretionary and rests with him. But where a public officer, who is empowered by law to perform an act which concerns the public, and affects the public interest, the execution of the power where the officer fails to perform his duty may be en- forced by writ of mandate. In the State of California the writ of mandate is issued only to enforce an act especially enjoined by law as a duty re- sulting from an office, trust, or station.^ Unintentional acts committed by the officers or directors of a bank, though violations of the law and the charter of the bank, but which do not result in serious harm to the stockhold- ers or depositors, should not be urged and is not sufficient grounds for declaring a forfeiture of the bank's charter. But acts which are knowingly committed by the directors, or with their knowledge are committed by any of the officers or agents of the bank, with a purpose to avoid or violate a law, and which, when done, cause loss o,r injury to any person dealing with the bank, are acts which, when proven, present sufficient grounds and authority for declaring the charter forfeited. |< 319. Failure to comply with statutory provisions. — Grounds for forfeiture. Where the law requires that a banking corporation shall have a capital stock, a portion of which may be paid up when the charter is granted, the remainder to be paid within a time fixed by the statute, upon a failure to pay in the remainder at such time, works a forfeiture of the charter; and in such cases, it at once becomes the duty of the Attorney-G-eneral of the State to institute an action for that purpose. The failure of the corporation in the performance of an act required by law to be performed at a certain time, cannot be extended. § 320. Nonuser of charter. Where the statute provides that a corporation shall organize within a certain period of time, and shall perform certain ■".Price V. Riverside L. & I. Co.. 56 Cal. 431; Priet v. Reis, 93 Cal. 85; Code Civ. Proc. (Cal.), § 1085. 510 Forfeiture OF BA^'K's Franchise. [cii. xlii. other acts at times fixed by the law, such as the election of a board. of directors, or if after its organization, and commence- ment of its business, it shall lose or dispose of, all of its prop- erty, and shall fail for a period fixed by the statute to trans- act in regidar order, the business of said corporation, its cor- porate powers shall cease and the corporation may be dissolved at the instance of a creditor at the suit of the State on the in- formation of the Attorney-General.* It is held in the case of the People of the State of X. Y. v. The President, Directors, etc., of the Bank of Hudson, 6 Cow. (X. Y.) 216, that an information in the nature of a quo ivarranto against an incorporated company, seeking to de- prive it of its franchise, on the ground of forfeiture by non- user, may be against the company in its corporate name. The judgment is a judgment of seizure, and the court holds in this case that the corporate rights may be forfeited by a nonuser or misuser. Suffering an act to be done, which destroys the end and object for which a corporation was instituted, the court holds is equivalent to a surrender of its coi*porate rights^ as where an incorporated bank becomes involvent, and assigns so much of its property to trustees, for the purpose of paying its debts as to prevent its resumption of banking business. §321. Willful violation of law or bank's charter cause for for- feiture. Any willful violation of law, the creating of a debt in ex- cess of the amount provided by statute, paying dividends out of the capital stock, failing to comply with the law, which re- quires the bank to make official reports to the proper authority of the State or knowingly making false reports, are such of- fenses as would justify an action by the proper authority to forfeit the bank's charter. In the case of People v. Oakland County Bank, 1 Doug. (Mich.) 282, where the bank under the provisions of the law and its charter is located in one county, in the absence of a statute authorizing it to establish an agency in another county, and where it establishes such an agency, receives deposits, and buys and sells exchange, held by the court that it thereby 4 Civ. Code of Cal., § 358. Cii. xLii.] Banking. 511 violates its charter. But the court, in discussing the facts and the question presented in this case, says: " In view of all the circumstances disclosed in the case made, seeing that the agency in question was probably established without any deliberate intention to violate the law and that the same has been discontinued, we shall not feel disposed, as at present advised, to declare judgment of forfeiture against the defendants, but in the exercise of that broad discretion with which we are clothed, to adapt the judgment to the circum- stances bf the case ; admonishing those interested in the bank to see to it, that in the meantime, and for all time to come, they so conduct the affairs of the institution as not to render them- selves obnoxious to legal proceedings. The public demand of us and of all concerned in the administration of the law, the greatest vigilance in detecting and inmishing in the most ex- emplary manner those who can and do wield so much power, when that power is so exerted as to be productive of evil in- stead of good. And, while the judgment in this case may not deprive the defendants of important privileges, a repetition of the offense will be visited with the severest penalties of the law.^' The court very discreetly in this case looked into the motive and intention of the directors of the bank, and when it found that there was no willful violation of the law, it withheld its power of punishment. In a very early case reported in 5 Ohio St., the court held that it was in violation of the act which was passed by the Legislature to incorporate the State bank of Ohio, etc., for one of the independent banks chartered by the original bank, to • make loans to a director before the adoption by the stock- holders of by-laws to regulate the liabilities of directors, and that such violation was a cause for forfeiture of the bank's charter.^ § 322. Taking usurious interest held to be a violation of charter. In the case of Fleckner v. United States Bank, 8 Wheat. 338, the court holds, that the statute incorporating the bank of the United States does not avoid securities on whicli usurious 5 The state ex rel. the Attorney-General v. Seneca County Bank, 5 Ohio St. 170. 512 FORFEITUKE OF BaNk's FRANCHISE. [CII. XLII. interest may have been taken, and the usury cannot be set up as a defense to a note on which it is taken, it is merely a vio- lation of the charter, for which a remedy may be applied by the Government, § 323. Bank may be indicted for taking usurious interest. In the case of State v. First Xational Bank of Clarke, 51 ]Sr. W. Rep. 587, it is held, that a national bank may be in- dicted by the State for taking usurious interest, also that the State law which makes the taking of illegal interest a" misde- meanor, and in case of a corporation punishable by the im- posing of a fine, is not necessarily an interference with the proper discharge of the banks' duties to the Government as will make such requirement invalid. Where the statute of a State prescribes that all the capital stock of a coi-jDoration shall be subscribed, a bank has no au- thority to commence doing business until said stock has all been subscribed. And the State may bring an action to forfeit a charter Avhere the corporation commences business before the full capital stock is subscribed.^ § 324. Directors embezzling funds of bank — Mismanagement. In the case of the Bank Commissioners v. Rhode Island Central Bank, 5 R. I. 12, where the commissioners brought an action to enjoin the bank from further doing business on the ground averred in the application, that the bank '' is so managing its concerns that the public or those having funds in its custody are in danger of being defrauded thereby." The court upon the hearing of the case found that there was gross and illegal management and danger of fraud growing out of such mismanagement, and it, therefore, entered a decree ap- pointing a receiver and perpetually enjoined the bank from further exercising the powers and franchises conferred by its charter. § 325. Wrongful act of a single director. The wrongful act of a single director or officer of the bank does not constitute an offense upon which an application will lie upon the part of the State. e People v. Nat. Sav. Bank, 129 III. CIS, 11 N. E. 170. CH, xLii.] Banking. 513 But where the board of directors sanction and have knowl- edge of the facts of an officer or a director, which are in vio- lation of law, it is imputed to and becomes the act of the bank. § 326. Bank doing business not authorized. A bank incorporated to conduct a commercial banking busi- ness is restricted by the law to that class of business and cannot conduct a savings bank business, or a mercantile business, or a real estate business. Likewise a savings bank incorporated for the single purpose of conducting a savings bank business, with no other power provided for by its charter, cannot conduct a commercial banking business or buy and sell commercial paper. It is confined by the law in the conduct of its business to the purpose for which it is incorporated. And a corporation that conducts a business not authorized, its charter may be revoked.'^ AYhere the statute requires that a certain number of persons must sign and acknowledge the articles of incorporation, and wdiere a corporation attempts to do business, not having com- plied with the law, the State may forfeit its charter.® § 327. Directors liable for losses resulting from violation of law. The directors of a national bank are liable in an action for damages on account of their personal acts, resulting in a vio- lation of a law, and a suit may be brought, though the Comp- troller of the Currency has not procured a forfeiture of the charter.^ But where a receiver has been appointed to take charge of the affairs of the bank, it is held that the action should be brought by him.^° Where the receiver neglects or refuses to bring an action against such directors it may be brought by a shareholder." T The People v. Utica Ins. Co., 15 if> Bailey r. Mosher, 63 Fed. Rep. Johns. 357. 488. 8 People V. Montecito Water Co., n Brinkerhoif v. Bostwick, 88 97 Cal. 276. N. Y. 52. 9 Stevens v. Overstolz, 43 Fed. Rep. 465. 33 CHAPTER XLIII. INSOLVENCY. § 328. Insolvency defined. '* Insolvency means, simple inability to pay, as debts should become payable, whereby the debtor's business ^vould be broken up." The deposits in a commercial bank are held to be debts due by the bank and are payable upon demand. Therefore, under the above definition, any commercial banking corporation upon failure to pay a deposit upon demand made upon it, would be declared insolvent. The general rule is laid down that a bank is insolvent when unable to meet its liabilities as they become due in the ordinary course of business, and when it cannot pay its deposits on de- mand in accordance with its promise. The rule is supported and held to be the law by many of the States. In Illinois, the court holds '^ insolvency, as applied to a per- son, firm, or corporation, engaged in trade, is its inability to pay debts as they fall due in the usual course of business." ^ In Indiana, the court in its construction of a statute, which makes it embezzlement for a banker to receive a deposit when insolvent from anyone not indebted to the bank, whereby the deposit so made shall be lost to the depositor, says: " When a deposit of money is made, the banker in con- templation of law, has money on hand to the full amount of the sum deposited, ready to deliver when called for, and his contract ^\'ith the depositor is to refund that same amount on demand. When it is not paid back on demand, as contemplated by the agreement between the banker and the depositor and this because of the insolvency of the banker, and his conse- quent inability to refund the amount of the sum deposited then, within the true intent and meaning of this statute, which is entitled, An Act for the protection of bank depositors, the deposits so made, or in other Avords ot the statute, the sum 1 Atwater v. American Express Bank, 152 111. 605. [514] CH. xLiii.] Banking. 515 fraudulently taken, is lost to the depositor. The crime created bv the statute is consummated "when the insolvent banker fraudulently receives the deposit, for the statute declares that such banker so receiving such deposit shall be deemed guilty of the embezzlement of the sum so fraudulently taken.'' In Xew York, the court in the case of Levingston v. The Bank of New York, 26 Barb. 305, says: ^' The bank we are told is insolvent, but how is that shown? The plaintiffs' ' information and belief ' is surely no evidence, especially when in direct contradiction to the regular official reports of the bank, which being made under oath and pub- lished by express direction of law are, it is presumed, entitled to at least as much weight, judicially, as the unkno\\Ti and unsworn informant of the plaintiff. *' We are left then to the mere legal inference of insolvency, resulting from the suspension of specie payments by a bank of issue. " Is such the necessary inference from suspension, no mat- ter what the bank's assets may amount to, in cases where sus- pension is general and nearly universal throughout the State and every other section of the Union ? It seems to me that it is not. The statute of 1849, which being subsequent in time and especially directed to the case of banks of issue and cover- ing precisely the same ground, would seem to supersede on these points the older enactments. This statute provides that, upon proof by the abortive return of an execution or by other satisfactory evidence before it is returned, that an execution for ' any debt or liability exceeding $100 ' cannot be satisfied out of any property of the bank thus sued, the judge ' shall at once make an order declaring the insolvency of such cor- poration or association ; ' to be followed, of course, by the appointment of a receiver to wind up its business. Under an- other section, however, a creditor without waiting the first twenty days or the subsequent sixty days, if his demand ex- ceeds $100, may at any time after ten days from the refusal of payment, apply for an order enjoining the bank and declar- ing it insolvent, and on such application the judge, ' if in his opinion on the facts presented it be expedient, in order to prevent fraud or injustice,' may grant an order for a tem- porary injunction. After which, on hearing of the parties on 516 IXSOLVEXCY. [CH. XLIII. short notice, he shall determine whether the bank be ' clearly solvent or other\\ase.' And even if he determine it be clearly solvent, he is required to continue the temporary injunction, if one has been granted, until full payment of the debts and costs. But if he determine that it is ' not clearly solvent,' he must not only continue the injunction, but appoint a receiver. " Eeading these provisions, can anyone say that, by a true, interpretation of the law of M-hicli they form a part, the mere suspension of specie payments of itself and by itself, settles the question of insolvency ? If so, why require under one section the issuing of an execution and proof of inability to satisfy it, and under another, first a delay of at least ten days, and then a hearing on further notice and an examina- tion of the ' officers ' books, papers, accounts, assets, and ef- fects ? ' Banks of issue in this State are the creatures of the law. The same law assumes that while accommodating the public they will yield an income to the stockholders ; and how is such income to be realized unless they are allowed to loan, not only their capital, but a portion at least of their deposits, and that too, not returnable on demand, but on time ? It as- sumes, therefore, in the very organization of such institutions, that in case of a panic or sudden rush, the banks, although amply able and clearly solvent, may not have specie enough o^li hand immediately to satisfy all claims. Hence the Act of 1849, instead of authorizing a permanent injunction upon a mere refusal to pay in specie, expressly requires further ' proof satisfactory to a justice of the Supreme Court,' that the demand of the plaintiff ' cannot be satisfied out of any property of the defendant,' or that after a full hearing of the parties, it shall appear, and be so determined, that the institution is ' not clearly solvent.' " In the present case it is now admitted that the bank has property not only sufficient, but in every respect more than sufficient to satisfy all demands. Within the meaning of the statute, therefore, it is ' clearly solvent,' and, of course, not a subject for the extraordinary decree prayed for in the com- plaint. For that reason, as well as for the reason that no ' fraud or injustice ' is alleged or pretended, it is, in my ' opin- ion, on the facts presented,' not only ' not expedient,' but on the contrary hightly inexpedient, to grant a ' temporary in- CH. XLiii.] Banking. 517 jimction,' or an order to show cause why such an injunction should not be issued." The more liberal rule and one which in justice should be applied to all debtors and particularly to a banking corpora- tion, is that a bank is solvent when it possesses sufficient solvent assets to pay all its liabilities within a reasonable time. Upon a construction of the statute and Constitution of the State of Missouri, rendered by the Supreme Court of the United States, in the case of Dodge v. Masten, the court in defining the word '' solvent " and the phrase " in failing cir- cumstances," says: " I will proceed next to define the meaning of the word ' solvent ' and the phrase ' in failing circumstances,' used in the statutes and Constitution. In the ordinary acceptation of the term ' insolvent ' when applied to a bank, means inability to meet liabilities in the usual course of business. But a bank may be solvent and yet, from temporary causes, over which its officers have no control, suspend until these causes can be overcome. But they must be causes for which prudence and foresight cannot provide or over which the bank or its officers had no control or could have none. Such causes when they do occur are usually soon overcome. The bank again takes up its business and proceeds with it in the usual way. The failure of the First Xational Bank of Kansas City, Missouri, on the 29th of January, 1878, would not have been a good cause for suspension, for that could have been, and as we have seen, was overcome by means, however, which may aid you in de- termining the solvency of the Mastin Bank at the time of its failure. As much of what I shall say upon the phrase ' in fail- ing circumstances ' applies also to solvency and insolvency of a bank, I pass to this branch of the case with the declaration that a bank is solvent, within the meaning of the Constitution and statutes we are considering, when it possesses sufficient of assets to pay within a reasonable time all its liabilities through its own agencies, and is insolvent when from the uncertainty of being able to realize on its assets, in a reasonable time, a sufficient amount to meet its liabilities, and, therefore, makes an assignment by which the control of its affairs and property passes out of its hands. The phrase ' in failing circumstances,' used in the Constitution and statutes, when applied to a bank, 518 Insolvency. [cii. xlih. must be taken to mean a state of uncertainty, whether the bank will be able to sustain itself, depending on favorable or unfavorable contingencies, which in the course of business may occur and over which its officers have no control. Thus, for instance, an individual may be said to be in failing circum- stances when he is put to unusual shifts to meet his liabilities, such as borrowing money at unusual rates of interest, makes sacrifice in the disposition of his property, which he would not do but for his condition. Such a condition of things may exist regarding a bank, and when this is the case, a bank, like an individual, may be said to be in failing condition. The funds of banks are supposed to be ready at hand to meet the wants of commercial, trading, and manufacturing communities in which they are located. Anything interfering with the avail- ability of its funds, such as the carrying of large debts upon which nothing can be realized, except after long delays, in- vestments in real estate which it may take time to turn into current funds — and all of these things when they occur, may or may not tend to show whether a bank is in failing circum- stances." In California, the Civil Code provides that " a debtor is insolvent, within the meaning of this title, when he is unable to pay his debts from his own means as they become due." The Supreme Court of the State of California in the case of Sacry v. Lobree, 8-i Cal. 41, in discussing the meaning and definition of an insolvent under this statute, says (quoting the testimony of Lobree, the defendant) : " ' 1 think the account of ]\ruri)hy, Grant ct Co., held by Crawford & Tabor, was $160. I was owing them at the time. Their debt was then due. I could have paid them in a few days. I was not able then to pay it. I can't say whether I owed any other creditors, whom I was unable to pay as their accounts became due, or not. * * * I did not pay my bills as they became due, because I did not have the money. I had no bank account. I was attached at 9.30 o'clock Saturday night, and I made the assignment and conveyance to Lobree about 8 o'clock Monday morning. The keeper Avas in charge then of these goods that had been attached. At the time I made the assignment and conveyance I did not know that I was owing more money than I could pay, but I knew that I could not pay all at once what CH. XLiii.] Banking. 519 I owed then. There was more monej due my creditors then than I coiikl have paid if they had demanded immediate pay- ment. I did not have money enough in my hands to pay my debts as they became due. I had merchandise. Only one side of the store was attached. * * * j j^^d property enough to pay everybody, and I wanted to pay everybody. I did not have money enough at the time to pay them. I had made no proposition to my creditors for a settlement.' " It is claimed that this testimony shows a clear and distinct confession of insolvency, but we do not think that this claim can be maintained. '^ It has been held, under the United States Bankrupt Act, that a trader is insolvent when he is unable to pay his debts as they become due in the ordinary course of business. (Toof v. Martin, 13 Wall. 10; AVager v^ Hall, 16 Wall. 581.) In the case first cited the district judge had ruled that 'if the bank- rupts could not pay their debts in the ordinary course of busi- ness, that is, in money, as they fell due, they were insolvent.' Speaking of this the Supreme Court, by Mr. Justice Field, said: '^ ' The rule thus laid down may not be strictly correct as applied to all bankrupts. The term insolvency is not always used in the same sense. It is sometimes used to denote the insufficiency of the entire property and assets of an individual to pay his debts. This is its general and popular meaning. But it is also used, in a more restricted sense, to express the inability of a party to pay his debts as they become due in the ordinary course of business. It is in this latter sense that the term is used when traders and merchants are said to be insol- vent; and as applied to them, it is the sense intended by the act of Congress. It was of the bankrupts as traders that the district judge was speaking when he used the language which is the subject of criticism by counsel. With reference to other persons not engaged in trade or commerce, the term may, per- haps, have a less restricted meaning. The Bankrupt Act does not define what shall constitute insolvency, or the evidence of insolvency, in every case.' " It was further said : ' In the present case the bankrupts were insolvent in both senses of the term at the time the con- ^veyances in controversy were made.' 520 I^'SOLVENCY. [CH. XLIII. '' In Bump's Law and Practice of Bankruptcy (5tli ed.), page 469, it is said: ' Perhaps no precise rule can be laid down which will be applicable to all cases, inasmuch as the determina- tion of each case rests largely upon its own peculiar facts. It is generally held by the bankrupt courts that a trader who is not able to pay all his debts in the usual and ordinary course of business, as persons carrying on trade usually do, is insol- vent, within the meaning of the Bankrupt Law, and there is no better general rule to govern courts when they are consider- ing the facts of a case. It is neither too broad or too narrow, while it would be quite too narrow and restricted to hold that failure to pay some one debt when due is evidence of insol- vency in all cases under the act. AVhether a single instance of non-payment of a debt at maturity would be evidence in a given case of insolvency depends somewhat upon the magnitude of the debt, the locality of the debtor, and what is the ordinary course of business and custom, in that respect, of the locality where the debtor resides, and upon such other facts and cir- cumstances as bear upon the question of insolvency. * * * The question is whether the debtor or trader is able to pay his debts in the ordinary course as persons carrying on trade there usually do. Hence, it may be, and undoubtedly is, true that insolvency in commercial centers is not insolvency in small country towns. In the former places, if the debtor's paper is dishonored, his credit is gone, and he is prima facie insolvent; whereas, in the latter localities, it is not so. Insolvency is a fact and not a matter of definition or rule of law; and what is evidence of insolvency in London or Paris or New York is not evidence of insolvency everywhere.' (Citing cases.) " The Insolvent Act of this State provides that a debtor may be put into involuntary insolvency if he, ' being insolvent, has suffered his property to remain under attachment or legal process for four days ' (§ 8), but it nowhere defines what shall constitute insolvency. The Civil Code, however, in the title in regard to assignments for the benefit of creditors (§ 34:50), says: ' A debtor is insolvent, within the meaning of this title, when he is unable to pay his debts from his own means as tlicy become due,' and it has been held that this is the correct CH. XLiii.] Baxkixg. 521 definition of insolvency under the Insolvent Act of 1880. (AVaslibnrn v. Hnntington, 78 Cal. 573.) ""What is meant by the words ' from his own means? ' The definition of the word ' means/ as given by "Webster, is ' re- sources or income.' But ' resources ' does not necessarily mean money in hand. A debtor may have ample resources to pay all his debts as they become due, and yet have no money in his pocket or in bank. Is such a debtor insolvent? Suppose a wheat buyer should have a thousand tons of wheat in a ware- house, worth $25,000, which he is holding for better prices, and is indebted in the sum of a thousand dollars. Is he insol- vent unless he sells the wheat at whatever price he can get, and pays the debt as it becomes due? "We do not think he is, under the Insolvent Law of this State. " In Bell V. Ellis, 33 Cal. 620, it was held that a trader is insolvent when he is not in a condition to meet his engage'ments, 01- to pay his debt in the usual and ordinary course of business; but he is not so merely because his assets, at a given date, may not satisfy all the demands against him due and to become due. I"he court said : ' The test question is not, will his effects realize enough to pay his debts due and to become due? but, are his affairs in such a condition as to enable him, in the usual and ordinary course of his business, to make his payments as they fall due? and the question is to be answered by the jury in view of all the circumstances affecting the business of the trader, including the value of his effects, the extent and char- acter of his business, the manner in which it was being con- ducted, whether upon a speculative or legitimate and safe basis, the amount of his profits, the extent of his liabilities, whether kept within a safe limit, and generally his credit, ac- companied by the benefit or advantage which lie has, outside of the mere value of his property and the debts due him, arising from the good will of the business.' " § 329. Means may exist in another State. Keferring to the California statute, it is not essential that the means from which the debts are to be paid must exist in this State; nor is the debtor to be considered insolvent, merely because he has not means in this State to pay his creditors here.^ 2 Cook V. Cockins. 117 Cal. 140. 522 Insolvency. [ch. xliii. § 330. Officer taking deposit with knowledge of bank's insolv- ency — liable when, A leading case determined by the Supreme Court of the State of Iowa, holding an officer liable for receiving money when he had knowledge of the insolvency of the bank, is re- ported in the case of the State of Iowa v. Eifert, 102 la. 188. The facts in this case briefly stated are as follows: A bank- er's son and employee received a deposit when the insolvency of the bank Avas known, and an hour or two before it finally closed. He received this deposit contrary to a telephone mes- sage from the banker " to take no more deposits," When the banker reached home he, having knoAvledge that the deposit had been received, made no effort to, and failed to, return it, and four days later included the same in a general assignment for the benefit of his creditors. The defendant Avas indicted and convicted of fraudulent banking and sentenced to be confined in the State penitentiary for two years and six months, and to pay costs. The defendant was tried and convicted under a statute of the State, which reads as follows: " If any such bank, banking house, exchange broker or de- posit office, firm, company, corporation, or party, shall receive or accept on deposit any such deposits, as aforesaid, when in- solvent, any officer, director, cashier, manager, member, party or managing party thereof, knowing of such insolvency, who shall knowingly receive or accept or be accessory to or permit or connive at the receiving, or accepting on deposit therein or thereby any such deposit as aforesaid, shall be guilty of a felony, and upon conviction shall be punished by imprisonment in the State prison for a term not to exceed ten years, or by imprisonment in the county jail not to exceed one year, or both fine and imprisonment, the fine not to exceed ten thousand dollars." In the absence of a statute which prescribes no remedy, a common-law action may be resorted to.^ § 331. Officer must have actual knowledge of insolvency. Actual knowledge of insolvency must be shown; and in order to sustain a conviction it must be shown that the defendant had some direct personal connection with the receipt or accept- 3 Cummings r. Winn, 89 ]Mo. 51. CH. xLiii.] Banking. 523 ance of the deposit; being in the bank, and in a room other than where the deposit is received by the bank, is not knowledge/ It is held in the case of Stout v, Lusk, 9 Kas. App. 694, that the provisions of a State statute providing a penalty are not applicable to national banks and their officers. The contrary doctrine is that in the State of Iowa the statu- tory provisions as to fraudulent banking applies to national banks as well as to State banks.^ In the State of Minnesota the law holds the directors of a bank liable for accepting through its teller a deposit, where they have knowledge of the bank's insolvency, and where the depositor is ignorant of such insolvency. The acts of the teller in such cases are held to be the acts of the directors.® § 332. Insolvency — National banks. Section 918, Eevised Statutes of the United States (1879), provides that " any bank officer who violates the provisions of section 918, Revised Statutes, by receiving deposits for his bank, or by assenting to the same with knowledge that the bank is insolvent or in failing circumstances, is individually responsible for such deposits so received, and the depositor may maintain an action against such officer for the amount of his deposit." The depositor, and not the assignee of the bank, is the proper party to institute the suit authorized by the foregoing section.^ By the provisions of section 3 of the Act of March 2, 1897, entitled "An Act authorizing the appointment of receivers of national banks, and for other purposes," it is provided that the shareholders may manage the liquidation of the bank. § 333. Deposits may be recovered, when. The general rule, as laid down in a j^ew York case, is that a depositor may recover funds deposited in a bank, if at the time of making the same, the officer accepting the same had knowledge of the fact that the bank was hopelessly insolvent. The reasoii of the rule is,, that the deposit is obtained by fraud.^ 4 The Slate v. Warner, CO Kan. 6 Baxter r. Couphlin, 70 Minn. 1. 94. V Cummings v. Winn, 89 Mo. 51. 5 State V. Fields, 62 N. W. 65.3. 8 Cragie v. Hadley, 99 X. Y. 131. 52-i Ix.solve:xcy. [ch. xliii. Where an endorser paid a note to a bank and took the bank- er's receipt therefor, but the bank failed to make the proper application of the money, and afterward went into insolvency, it is held that the money may be recovered.^ It is held in the case of Citizens' Xat. Bank v. Dowd, 35 Fed Rep. 340, that a creditor of an insolvent national bank, Avhere his demand grew ont of a fraudulent transaction, perpe- trated by the bank, and in contemplation of wrecking the same, that he does not become a preferred creditor.^*^ The general rule as laid down by the Illinois courts is that " one who deposits a check in a bank, and receives credit therefor, is not entitled after the check has been paid by the drawee bank and the proceeds thereof so mingled with other money of the bank in which it was deposited, as to lose their identity as a fund, to be made a preferred creditor for the amount of the check, upon the voluntary assignment of the latter bank, a few days after receiving the check, although the officers then knew the bank was insolvent." The court in the case of Lanterman y. Travous, 174 111. 459, further says: "It has frequently been announced as the law of this State that even in a case where a definite and ac- tual trust fund which possesses all the attributes of a separate and distinct identity has been so mixed and mingled with other funds as to render identification impossible, the cestui que trust in the event of the insolvency of the trustee is remitted to the position and the rights of a general creditor." The rule, as laid down in Xebraska, is that a creditor may follow his money while he can trace and distinguish it or the proceeds thereof, but not after it has passed into the hands of the assignee, and is mingled with the other funds of the bank, and the fact, that the bank is insolvent within the knowl- edge of its officers and receives the money of the depositor which amounts to a fraud upon him, is not of itself sufficient to entitle the latter to a pj-eference from the funds of the bank in the hands of an assignee. The court, in the case of Higgins v. Hayden, says: '" AVhere »:Massev v. Fisher. 62 Fed. Rep. lo Citizens' Xat. Bank r. Dowd. 3.5 958; Lake Frie & Western R. R. Co. Fed. Rep. 340. r. Indianapolis Xat. Bank, 65 Fed. Kep. 690. CH. XLiii.] Ba^stkixg. 525 a bank remains open, holding itself out as ready to transact business, this is an implied representation of solvency, and for it to receive a deposit when its insolvency is known to its officers is a fraud upon the depositor. * * * The depositor may, therefore, at his election rescind the contract of deposit and recover back the mone}' or property, but he must do so before the deposit has become commingled with the general assets of the bank.^^ § 334. Special deposits recoverable. The rule is well settled, that a special or specific deposit ivliich has actually been I'ept separate antd not intermingled with the general deposits of the hanh, and which can he identi- fied, may he reclaimed}^ § 335. Insolvency demonstrated. The Supreme Court of the United States in the case of Roberts v. Hill, 23 Blatchf. 312, says that " insolvency as ordinarily defined is that condition of affairs in Avhich a mer- chant or business man is unable to meet his obligations as they mature in the usual course of business, * * * J^^ act of insolvency takes place when this state of affairs is demonstrated and the merchant has actually failed to meet some of his obligations. A bank is in contemplation of in- solvency when the fact becomes reasonably apparent to its officers that the concern will presently be unable to meet its obligations, and will be obliged to suspend its ordinary opera- tions." §336. Set-off. The rule is laid down that "the right to set-off must he governed hy tire state of things existing at the moment of a hank's insolvency." ^^ The provisions of section 5242, Revised Statutes of the United States, does not prohibit any legal or equitable set-off which a debtor of a bank may have against any obligation owing by him, to it at the time of the bank's insolvency. 11 Higgins r. Hayden. .53 Neb. 61. la Cook County Nat. Bank. v. 12 American Express Nat. Bank v. United States, 107 U. 8. 445 ; Ains- Tlie Lorietta Gold & Silver Mining worth r. Bank of California, 119 Co., 165 111. 103; Vail r. Newark Cal. 470; Stephens v. Schiichmann, Sav. Inst., 32 N. J. Eq. 631. 32 Mo. App. 333. 526 IxsoLVE^^CY. [ch. xliii. The Supreme Court of the United States in the case of Scott V. Armstrong, 146 U. S. 499, defines the rule to be '^ that ■where the mutual obligations have grown out of the same transactiens, insolvency, on the one hand, justifies the set-off of the debt on the other." Equitable set-off. The deposit of a depositor (in an insolvent commercial bank) may be set off against his note, matured or immatured,^* A depositor cannot purchase a debt after insolvency for the purpose of set-off against a debt owing by himself. Xeither can the maker of a note which is sued upon by the cashier set off certificates of deposit purchased by him for that purpose after the bank became insolvent.^^ Interest. The rule is that the debt of the creditor as against an in- solvent bank continues to draw interest. Where a share- holder is liable for the debts of the bank, he is liable for in- terest to the extent to which the bank would have been liable not in excess of the maximum liability fixed by the stat- ute.^^ Dividends. The Supreme Court of the United States, in the case of Merrill v. National Bank of Jacksonville, very fully discusses the rights of a secured creditor of an insolvent national bank to prove and receive dividends upon the face of his claim as it stood at the time of the declaration* of insolvency. Mr. Chief Justice TuUer, in delivering the opinion of the court, says: " Our conclusion is that tlie claims of creditors are to be de- termined as of the date of the declaration of insolvency, irre- spective of the question whether particular creditors have secu 14 Armstrong, Receiver, r. Warner 15 Dver v. Sebrell. 135 Cal. 597; et al., 49 Ohio St. 376; Camden Davis \-. Knipp, 92 Hun (X. Y.) ; Nat. Bank v. Green, 45 N. J. Eq. Storth r. George, 150 Mo. 1. 546: Kentucky Flour Co. v. Mer- 16 Richardson r. Irons, 121 U. S. 27. chants' Nat. "Bank, 90 Ky. 225; Mercer v. Dyer, 15 Mont. 317. CH. XLiii.] Bankhstg. 527 rity or not. "When secured creditors have received payment in full, their right to dividends, and their right to retain their security ceases, but collections therefrom are not otherwise material. Insolvency gives unsecured creditors no greater rights than they had before, though through redemption or subrogation or the realization of a surplus thev may be bene- fited." ^^ Debts due savings hank. A State statute which provides that deposits made by a savings bank in a national bank, which becomes insolvent, shall be first paid, is in conflict with the National Bank Laws.^® Ride — Set-off — Insolvent savings hank. The general rule is that a debtor to the bank for money borrowed can not set-off the amount of his deposit against his indebtedness.-^^ This rule applies to mutual savings hanks, such as are purely mutual and have no capital stock ; but where savings banks are incorporated institutions wutli a capital stock, in the absence of a special statute, a depositor in such a bank, especially if the relationship created by the deposit becomes one of debtor and creditor, the general rule and right of set-oif existing would prevail. 17 Merrill v. Jacksonville Nat. Bank. 101 U. S. 275; Auburn Sav- Bank, 173 U. S. 131. iiigs Bank v. Hayes, 61 Fed. 911. 18 Davis r. The Elmira Savings 19 Hannon r. Williams, 34 N. J. Eq. 255. CHAPTER XLIV. DISSOLUTION. § 337. Voluntary liquidation. The Xational Banking Act, section 5220, provides that "Any association may go into voluntary liquidation and be closed by the vote of its shareholders owning two-thirds of its stock." A meeting of the stockholders mnst be held and notice of the date and purpose of the meeting must be given to all the stockholders. It requires two-thirds of all the stock of the bank, voting in the affirmative, to place the bank in liquidation. The rights of the minority stockholders are not considered. Their wishes and interests, although affected adversely, can- not be heard.^ § 338. Authority of officers in charge. " Without express authority from the shareholders in a national bank, its officers, after the bank goes into liquida- tion, can only bind them by acts implied by the duty of liquidation." ^ The stockholders' rights cannot be affected by the acts of the president done after the bank is placed in liquidation.^ § 339. Liquidation does not dissolve corporation. It continues as a body corporate under the provisions of law governing national banks until its affairs are closed, and may sue and be sued for the purpose of winding up its busi- ness.* A State bank, unless the statute expressly provides that its charter shall be dissolved by the act of liquidation, can liquidate all of its affairs, i. e., pay all of its debts and afterward re- organize and again do a banking business. 1 ^Yatkins r. Nat. Bank, 51 Kan. 3 Schrader r. Manufacturers' 2.54. Bank, 1.33 U. S. 67. 2 Richmond v. Irons, 121 U. S. 27. 4 Xational Bank r. Insurance Co., 104 U. S. 54. [528] cir.xLiv.] Banking. 529 A banking corporation maj fail in business and its affairs be liquidated bv a receiver appointed by the court and if its debts are all paid the stockholders remain the owners of the charter and may, after a compliance with the provisions of law as to the repayment into the bank of the capital required before the commencement of business, again conduct a banking busi- ness. Liquidation does not dissolve the charter in the absence of a statute to that affect. The charter of a corporation can only be forfeited by a suit instituted by the State, and the act of liquidation is not one which would authorize the forfeiture of a charter. § 340. Liquidation dividends. "'Liquidation di\'idends of a national bank belong to the holder of the shares, whether those shares be recorded upon the books of the bank or not and must be paid to the holder of such shares on demand." '^ 5 Savings Institution v. National Bank, 89 Me. 500. 34 CHAPTER XLV. EXTENSION OF CORPORATE EXISTENCE. § 341. National banks. The act of July 12, 1882, provides that national banks may extend their charter in accordance with said act, which reads as follows: " Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assembled, that any national banking association organized under the Acts of February 25, 1863, June 3rd, 1864, and February 14th, 1880, or under Sections fifty-one hundred and thirty-three, fifty-one hundred and thirty-four, fifty-one hundred and thirty-five, fifty-one hundred and thirty-six and fifty-one hundred and fifty-four of the Revised Statutes of the United States, may, at any time within tw^o years next previous to the date of the expiration of its coiporate existence under the present law, and with the approval of the Comptroller of the Currency, to be granted, as hereinafter provided, extend its period of suc- cession by amending its Articles of Association for a terra of not more than twenty years from the expiration of the period of succession named in said Articles of Association, and shall have succession for such extended period, unless sooner dis- solved by the act of share holders owning two-thirds of its stock, or unless its franchise becomes forfeited bv some vio- lation of law, or unless hereafter modified or repealed." The application to extend the corporate existence is made by the president of the bank and is addressed to the Comp- troller of the Currency. For form of application, see Ap- pendix. The powers of attorney, signed by the shareholders, should be sent to the Comptroller, with the amendment to the article of association on which their names, signed by their authorized attorney, appear. It preferred, a shareholders' meeting may be called in order to vote for the extension and to sign the necessary papers. [530] CH. XLV.] Banking. 531 Proper notice of the meeting should be given to the share- holders. At this meeting the shareholders may appear in per- son or by attorney. In executing and forwarding the papers the following intsructions should be strictly observed: " The certificate of the president or cashier certifying that shareholders owning at least two-thirds of the stock having consented, in ^^a■iting, to the amendment, should be executed in duplicate and one copy transmitted to this office, together with the letter applying for approval of the Comptroller,, at least two months prior to the expiration of the corporate exist- ence of the bank, in order that the Comptroller may have suffi- cient time to cause the special examination to be made, as re- quired by section 3 of said act. " If any shares of the bank stand in the name of admin- istrators, executors, trustees, or guardians, and it becomes necessary to have the votes of these shares to make up the majority required to authorize the amendment, duly certified copies of the legal appointment of such administrators, exec- utors, trustees, or guardians should be sent to the Comptroller. In the case of stock held by a corporation, a certified copy of a resolution of the board of directors authorizing the president or other officer to consent to the amendment, is required. When stock voting for an amendment stands in the name of an assignee, there must be evidence showing that the shares of stock have been regularly transferred to him, as such as- signee, on. the books of the bank. When the amendment is signed by an attorney acting for shareholders, properly exe- cuted powers of attorney must be furnished." Upon the receipt of the papers in due form, the Comp- troller will order the special examination required by section 3, which must be paid for by the bank, and if the report of the examiner is favorable, the Comptroller will, at the date of expiration of charter, issue his certificate of extension. With but few exceptions there is no provision made by the laws of the various States for extending the charters of banks. When the life of the charter expires, if the bank desires to continue in business it must proceed to reincorporate and comply with the law in force at the time of its reincorporation. CHAPTER XLVI. CLEARING-HOUSE. § 342. History of the clearing-house. The origin or history of the clearing-house as given by Bouvier is presented as follows: " The origin of the system is said to have been in Edin- burgh ; at least the bankers of that city so claim, but the earliest record of one (and that is not clear as to date) is that of Lon- don, founded in 1775, or possibly earlier. It was started in the alehouse of those times, the general resort of ^proprietors of new enterprises. The system, however, increased in use- fulness so much as to require rooms, which were procured in Lombard street, and a system was rapidly developed of ex- changing checks and other securities to reduce the amount of actual money required for settlements. In this country such associations were established in Xew York, in 1853, Boston, in 1856, Philadelphia, Baltimore, and Cleveland, in 1858, \Yor- cester, in 1861, Chicago, in 1865, and since that date the num- ber increased rapidly to thirty-one in 1884 (Bolles, Proct. Bkg.), and the system is now extended to most of the cities in which there are several banks. They also exist in Australia, France, Germany, Switzerland, Italy, and other continental countries of Europe. Most of these associations are unincor- porated, but in Minnesota there is an act (March 4, 1893) for their incorporation. The Clearing-house Association of Xew York consists of all the incorporated banks — private bankers not being admitted as in London. Two clerks from each bank attend at the clearing-house every morning, where one takes a position inside of a counter at a desk bearing the number of his bank, the other standing outside the counter and holding in his hand parcels containing the checks on each of the other banks received the previous day. At the sound of a bell, the outside men begin to move, and at each desk they deposit the proper parcel, with an account of its contents — until, having walked arotmd, they find themselves at their own desk again. At the end of this process the representative of each bank has [532] cii. xLvi.] Banking. 533 handed to the representatives of every other bank, the demands against them, and received from each of the other banks their demands on his bank. A comparison of the amounts tells him at once whether he is to pay into or receive from the clearing- house a balance in .money. Balances are settled daily. In London the practice of presenting checks at the clearing-house has been held a good presentment to the banker at law. It is not usual to examine the checks until they are taken to the bank, and if any are then found not good they are returned to the bank which presented them, which settles for such re- turned checks. In this country when a check is returned not good through the clearing house, it is usually again presented at the bank." § 343. Character and object. The character and object of a clearing-house, as formed by the co-operation of a number of bankers in the city of Phila- delphia some years ago, is very correctly defined by the court in the case of Philler v. Patterson, 47 Am. St. Rep. 896. The court after examining the constitution or articles of association adopted by the banks, then says: " In substance these articles amount to an agreement with each other by thirty-eight national banks in the city of Phila- delphia to facilitate and simplify the settlement of daily balances between them for their mutual advantage. This agreement substitutes a settlement made at a fixed time and place each day, by representatives of all the members of the association, in the place of a separate settlement by each bank with every other made over the counter. No other object is contemplated or provided for. The association does not pro- vide for any united action for any business purpose. It does not contemplate the employment of capital or credit in any enterprise. It proposes and provides for co-operation to ex- pedite and simplify the transaction by each member of the as- sociation of its own proper business in one particular, viz., the settlement of daily balances with the other national banks doing business in the city. Incidentally, co-operation in this particular would tend to bring the banks belonging to the association into closer relations, enable them to become more familiar with the volume of business and the actual condition 534 Cleaeixg-House. [cii. xlvi. of each other, and open the way to make them mutually help- ful in times of financial stringency, but these results are in- cidental only. The Clearing-house Association is nothing more nor less than an agreement among thirty-eight national banks to make their dailv settlements at a fixed time and place each day." The mode of putting the agreement or articles of associa- tion of the clearing-house into operation, is then given by the court in the following language: " To carry this agreement into operation it became neces- sary to determine the place and hour at which the settlement should be made. A suitable room was secured, fitted up with desks and other necessary appliances at the expense of the associated banks, and a manager chosen to preside over it and direct the action of the clerks and runners wdien in session. This room is the clearing place, or in the language of the con- stitution of the association, the clearing-house. It is the place where the representatives of the several banks meet and where all balances are struck and settled daily between the banks composing the association. ''At the close of each meeting the amount due to and from each bank is definitely ascertained. The debtor banks then pay over to the manager the gross balance due from them to settle their accounts with all the members of the association, and he makes distribution of the sum so received among the creditor banks entitled to receive them. The clearing-house is, therefore, not a business organization, a corporation, a part- nership, or an artificial person of any sort, but a place in which the members of the association settle with each other daily. We come now to consider the committee and the position in the general scheme occupied by it. Among the economies in time and labor contemplated by the banks was a settlement of daily balances without the necessity for handling and counting the cash in every case. To pro^nde for this the banks agreed that they would deposit in the hands of certain persons, to be selected by them and to be called the clearing-house commit- tee, a sum of money or its equivalent in good securities, at a fixed ratio upon their capital stock, to be used for payment of balances against them. For these sums the committee was to issue receipts or certificates in convenient sums, and these CH. xLvi.] Baxkixg. 535 receipts or certificates were to be used in lieu of the cash they represented, which remained in the hands of the com- mittee pledged for the payment, when payment became neces- sary, of the certificates. The committee held the funds and securities deposited with them in trust for the special purpose of securing the payment as far as they would reach of the balances due from the bank making the deposit. '* On September 24, IS 73, the associated banks entered into another agreement with each other by which, ' for the purpose of enabling the banks, members of the Philadelphia Clearing-house Association, to afford proper assistance to the mercantile and manufacturing community and also to facilitate the interbank settlements resulting from the daily exchanges,' they authorized the committee to receive from any member of the association additional deposits of bills receivable and other securities and issue certificates therefor ' in such amount and to such percentage thereof as may in their judgment be advisable.' The additional certificates, if issued, they agreed to accept in payment of daily balances at the clearing-house on the condition that the securities deposited therefor should be held by the committee ' in trust as a special deposit pledged for the redemption of the certificates issued thereupon.' The committee were made, both by the original articles of associa- tion and by the aditional contract of 1873, trustees or agents for all the members of the association, with authority to accept deposits in money 'or securities and to issue their own receipts therefor, the money or securities remaining in their hands in pledge for the redemption of the receipts or certificates so is- sued by them. When a bank to which certificates had been issued under the original plan or the contract of 1873 failed to redeem them when their redemption became necessary, it was the duty of the committee to collect the securities in their hands and apply the proceeds to the payment of the holders of the cer- tificates. The deposits were made and the certificates issued un- der an unconditional pledge of the securities to the committee for the payment of the certificates, and their title could only be divested by the payment of the sums for which the securities were pledged. The entire plan on which the settlements are made' is, therefore, a device adopted by the banks to facilitate their legitimate business as banks, and involves no element 536 Cleakiisig-IIouse. [ch. xlvi. of speculation, and no business undertaking by or on behalf of the associated banks." The method of puting into operation the business of the clearing-house formed in Philadelphia in 1873, may differ in detail from that followed in other cities, but the character and object of all are the same. The principle and prime purpose of the clearing-house is to settle daily the accounts between members, and at the same time and place make paj^uents of balances resulting from the exchanges. § 344. Organization — Not a corporation. A clearing-house association is a voluntary organization which, as we have found, may be created by any number of banks or bankers doing business in the particular city or place where formed. Its affairs are governed by a constitution and rules adopted by agreement between the banks forming such association. It has been said that a clearing-house association may be in- corporated. Where corporations are formed, they are governed as to their purpose and power, by the law of the State or the law under which they are created. A clearing-house may be incorporated, but its members or stockholders can only be persons or corporation banks which are authorized by law to subscribe for and hold stock in other corporations. The l^ational Banking Law prohibits a national banking association '' from purchasing or subscribing to the stock of another corporation."^ It will be seen, therefore, that the law excluding a national bank from purchasing or subscribing to stock of another cor- poration, would prevent it from membership as a stockholder in a clearing-house association, if incorporated with a capital stock; and where the law of a State prohibits a State bank from subscribing or holding stock by purchase in another cor- poration such inhibitions would also prevent a State bank from membership in an incorporated clearing-house association. It will be seen, therefore, that it must be a voluntary asso- ciation in order that national banks may become members. 1 California Bank v. Kennedy, 167U. S. 362. en. XLvi.] Banki:!^g. . 537 A volinitarv clearing-house association is not an institution in violation of the Statutes of the United States relating to national banks. See Philler v. Patterson, 47 Am. St. Rep. 896, but if it became an incorporated association, it might be a violation of the statute. The association as it now exists is not in conflict with law. It may organize by adopting a constitution and by-laws or rules for its guidance. § 345. Rules of association. The rules or by-laws adopted by the association must be such are are reasonable and not in violation of any law. The Supreme Court of the State of Massachusetts in the case of Manufacturers' Xational Bank v. Thompson, 129 Mass. 4.38, declares that the rules of the clearing-house association are adopted solely for the purpose of facilitating exchanges among the banks ; and where banks in a city form themselves into a voluntary association for the purpose of making clear- ings and for their mutual benefit, they are governed and bound by the rules of the association.^ In the case of Preston and others v. Canadian Bank of Com- merce, 23 Fed. Rep. 179, the court, in discussing the rule of the Chicago Clearing-house, which reads as follows: "All checks received in the morning exchanges, not found good, are to be returned the same dav received before one and a half p. m. to the member from whom received, who shall immediately reimburse the holder of the same," holds that it is entirely com]ietent for members of a clearing-house associa- tion, who are dealing with each other, to make an agreement binding upon the members. § 346. Non-member bank not aifected by clearing-house rules. In the case of Overman v. Hoboken City Bank, 2 Vroom. CN. J. L. Rep.) 563, the court in discussing the question of a bank representing as an agent parties who are not members, says : " Moreover the entire system on which the business of the clearing-house is transacted is inconsistent with the theory 2 0'Bripn et al. r. Grant, 146 N. Y. 1G3, 17.3; Exchange Bank v. Bank of North America, 132 Mass. 147. 538 Cleaking-House. [cii. xlvi. that any of the members, in their transactions with each other, are the- agents of parties who are not members. They trust each other as principals, and hence the facility with which that immense business is transacted. If each member were bound, as in ordinary business, to stop to inquire into the fact of agency, and the responsibility of principals, the association could not profitably live a day. Besides, if the several members have the power, in any given transaction in the clearing-house, of acting for a stranger to the institution, and in his behalf and name, such stranger, 'pro liac vice, would stand in the posi- tion of a member — a circumstance repugnant to the nature of the organization of the association, as it is represented to this court in the evidence." A custom or special usage of trade which may confuse the operations of the general rules of law, should be construed strictly and should not be extended to persons who are not clearly proved to have acted under them. As between a bank and the drawers and payees of checks which have been drawn thereon, the relation is controlled by the well-settled principles of the law merchant ; which rules cannot be altered or modified by a rule or custom passed by a clearing-house.^ § 347. Settling daily exchanges. The mode of settling daily exchanges through the clearing- house is accomplished by the following method: "At the hour named a runner and a settling clerk represent- ing each bank met at the clearing-house. These representa- tives of the respective banks brought with them, in separate sealed packages, the checks which the banks they represented held against other banks. The runner of each bank thereupon delivered to the settling clerk of the others these packages, taking receipts therefor, so that at the common place of meet- ing the clerk of each bank received from every other bank the checks drawn against the bank he represented. The mak- ing up of these packages for exchange is thus provided for in the rules: " ' Kule TTI. Sealed packages, well gummed and sealed with wax and endorsed with ink or indelible pencil, sliall be used 3 People V. St. Nicholas Bank, 77 Hnn (N. Y.), 160. CH. XL VI.] Baxki::^g. 539 exclusively in the morning exchange in the runners' exchange, and the amounts stated thereon shall be the basis of settle- ment. These packages, with the seals unbroken, shall be delivered by the messengers of the several banks to their re- spective institutions ; other^nse, no responsibility shall attach to the sender.' " After these packages had been received the settling clerk of each bank made up from the indorsements on the packages delivered to him the debts, and stated the credits arising from the sum of the packages delivered by the iTinner of his bank to the settling clerks of the other banks. The sheets thus made up were then turned over to the manager of the clearing- house, by whom they were verified and consolidated. The manager's balance sheet hence, necessarily, contained a state- ment itemizing the aggregated debts and credits of all the banks concerned in the clearing. Where any fractional sum was due by a bank in consequence of the clearing, this frac- tional sum was paid to the manager by a due bill, the manager treating this due bill as cash, deposited it in the bank where his account Avas kept and the sum of this due bill became a credit item in favor of the bank holding it in the clearing of the next morning." § 348. Presentment of collection through clearing-house. The Supreme Court of the State of Massachusetts says that a note sent through a clearing-house to a bank at which it is payable, is not a demand for immediate payment made during business hours, but was equivalent to leaving the note at the bank for collection from the maker on or before the close of banking hours; and that the payment of such a note at the clearing-house, was a provisional payment only which became complete when the note was paid in the usual and ordinary course of business.* Where there has been due presentment of a check to the drawee and payment demanded and refused, the drawer, if otherwise liable, is not discharged because of failure to present the check at the clearing-house in accordance with a universal usage, though it would have been paid had it been so presented.' 4 National Exchan Kleekaup v. Myer, 5 Mo. App. of North America, 132 Mass. 147. 444. 540 Clearing-House. [ch. xlvi. § 349. Effect of clearing-house customs between member banks. In an action hj one bank against another, where both were members of a clearing-house, to recover the amount of a note Avhich was inchided in the account in the clearing-house of the defendant bank against the plaintiff bank at which the note was payable, and returned by the plaintiff to the defendant after the close of business hours, if there is evidence of a universal cus- tom among the members of the association which choose to clear their notes through the clearing-house in place of presenting them for payment at the bank where they are payable; and where notes included in clearing-house settlement, which turn out to be not good and are not returned to the paying bank before its time of closing, the conditional payment becomes absolute.^ § 350. Settlement between banks members of clearing-house. A settlement made by two banks through the clearing-house, in which checks are presented and exchanged, and the balance between them is struck, will be final and conclusive if either fails to give notice of maturity to meet the balance against it on the general adjustment, before the hour when banks usually pass credit to the checks of their depositors. The mutual credit thus given cannot be recalled by either one to the detriment of the other.^ If by any mistake of fact a check so paid but not good was retained until after the hour fixed, the payment is held to be treated as payment made under a mistake of fact to the same extent and subject to the same right of reclamation as if it had been made without the intervention of the clearing-house. § 351. Rules in Massachusetts where check was paid under mis- take of fact. Where a check has been paid under a mistake of fact, the rule that the bank paying it can recover the amount from the bfiuk to which it was paid, is good, provided that the latter had not changed its position between the hour named for return and the return of the check.® 6 Atlas Nat. Bank r. National Ex- Ann. 251: Mercliants' Nat. Bank i\ change Bank, 176 Mass. .300; National Eafrle Bank, 101 Mass. 281. O'Brien et al. v. Grant, 146 N. Y. 8 Merchants' Nat. Bank r. Na- 163. tional Bank of Commonwealth, 1.39 TBlaffer et al v. Bank, 35 La. Mass. 513. €11. xLvi.] Banking. 541 The Federal Court, in the case of Preston v. Canadian Bank of Commerce, 23 Fed. Rep. 182, in discussing the law and rule as laid dowTi by the Massachusetts court, says: " It seems to me that the Boston case has gone to the very verge of the application of the rule that inoney voluntarily paid under a mistake can be recovered back; and it is noticeable that the next succeeding case in the volume of Massachusetts Reports in which the case relied upon by the plaintiffs is re- ported, was where a bank sued to recover on the ground they had paid a check by reason of having made a mistake of fact as to the amount to the credit of the drawer, and the court held that no such recovery could be allowed, because it was laches to make such a mistake of fact. " If parties competent to contract within what time they may correct mistakes in their dealings with each other have so con- tracted, it seems to me the courts have no right to override or disregard such an agreement. If a mistake which is discovered within an hour, or within ten minutes, after the expiration of the time limited by the agreement for its correction may be corrected, I can see no reason why it cannot be corrected a week afterward, or whenever it is discovered. The Massachusetts court puts its decision on the ground that you may correct a mistake of this kind at any time after it is discovered, if it places the party to whom the check is returned, in no worse con- dition than it would have been if it had been returned within the stipulated time ; thus, overlooking the rule that parties may agree that they shall not have the right to correct mistakes unless done within a limited time." § 352. Forged checks passing through clearing-house — Bank's liability — Negligence. The facts presented in the case of Commercial and Farmers' Xational Bank v. First Xational Bank of Baltimore, reported in 30 Md. 11, are, as the court says, " of considerable interest to the public and of importance to the banking institutions;" and by reason of the importance of these questions and the dis- cussion, we feel justified in giving the opinion of the court in full, which opinion states also the facts: " This case presents questions of considerable interest to the public, and of importance to the banking institutions of 542 Cleaeing-House. [ch. xlvi. the State. The material and undisputed facts, which must be stated somewhat in detail, are these: On the 20th of December, 1SC6, about 2 o'clock p. m. an individual, well dressed and of respectable appearance, but a stranger unknown to any of its officers, came to the counter of the receiving teller of the Com- mercial and Farmers' Xational Bank, said he wished to open an account, and presented a check on the First Xational Bank of Baltimore for $4,600 15/100, purporting to be drawn by Horace Abbott, dated the 18th of December, and payable to the order of John S. Hillan. The teller, who knew Mr. Ab- bott's financial standing to be good, and had seen his checks before, produced the signature book in which the man put the name 'John S. Hillan, ^^o. 50-4 AV. Fayette Street,' and in- dorsed the check at the counter in that name. The teller then gave him a customer's small bank book, in which the amount o^ the check was put to his credit as cash ; but on the same day the teller was directed by the cashier not to allow the account to be drawn upon until the deposited check was known to be good or was paid. On the morning of the next day, the 21st, this with other checks was sent by the Commercial and Farmers' Bank to the clearing-house, its amount being noted on the lists which were there balanced and settled. From thence it was taken to the First Xational Bank, where it was passed as genuine by the proper officers of that bank, charged to Mr. Abbott's account, and credited to the Commercial and Farm- ers' Bank. By the custom and usage of all the banks in the city of Baltimore, proved by all the witnesses, where a check is sent through the clearing-house to the bank on which it is drawn, and is not heard from before eleven o'clock on the day on which it is so sent, the bank sending it has the right to assume it was good or had been paid, and to act accordingly. On the following day, the 2 2d, after the check had thus been accepted as genuine and paid by the First Xational Bank, the same person presented himself at the counter of the paying teller of the Commercial and Farmers' Bank Avith his bank book, and said lie wanted to draw some money; a blank check was given him which he filled up for $4,.500, payable to self or bearer, and signed the name ' John S. Hillan.' The teller ascertained from the books the amount to bin credit, and from the receiv- ing teller his identity with the individual who had previously CH. xLvi.] Banking. 543 made the deposit, compared the signature of the check with that on the signature book, asked him how he wanted the money, and whether he was going to use it in Baltimore, with a view of indorsing the check good, if he wished to use it in the city among the merchants; but the man replied he wanted to take the money to Washington, and the teller then paid him the $4,500 in small notes of fiyes and tens, making quite a large bundle. Mr. Abbott was a large customer and depositor of the First Xational Bank, and was absent from Baltimore, from the 14th to the 22d of December. His account charged with this check was overdrawn by him on Monday the 24th, to the amount of $372 48/100, and the overdrawing continued during the week until Saturday the 29th, when his account was overdrawn $2,297, and after bank hours of that day, he was for the first time informed by the bank officers of such overdrawing. This information led to an immediate examination of his account and checks, when he discovered the check in question, pro- nounced it a forgery, and stated he never knew such a man as Juhn S. Hillan, and had never drawn such a check. The forgery of his name was very skillfully executed and difficult of detection, and the check itself was in printed form, exactly similar to those used by him from his check book. Xotice of the forgery was given by the First Xational Bank to the Com- mercial and Farmers' Bank, on Monday the 31st, and re-pay- ment of the money demanded, but the latter denied its liability beyond the $100 15/100 still remaining to Hillan's credit. Xo such person as John S. Hillan could be discovered or traced. " The First Xational Bank having refunded to Abbott, brought this action against the Commercial and Farmers' Bank to recover back the money the former had thus paid on this forged check. The declaration contains the common counts for money paid by the plaintiff for the defendant, at its re- quest; for money received by the defendant for the use of the plaintiff; and also special counts for money paid by the plain- tiff to the defendant, at its request, on this forged check. " It is our first duty to determine what principles of law are to govern the decision of the case upon the conceded fact? above stated. In arriving at a just conclusion upon this sub- ject, we are without the aid of any express adjudication of our 544 CLEARIISfG-HoUSE. [cn.xLvi. own courts, for no case similar in its circumstances has hereto- fore arisen in this State. The case of the Merchants' Bank v. The Marine -Bank, 3 Gill 96^ is materially different in that there was there a genuine instrument upon which there was a forged endorsement of the payee's name, whereas here the check is a forgery throughout. We think, however, the legal principles which must guide and control our judgment have been settled by decisions elsewhere of the highest authority. '* In the early case of Price v. Neil, 3 Burr. 1354, where an action of assumpsit was brought to recover back from the en- dorsee and holder, money which had been paid to him by the drawee on two bills of exchange, one of which was paid with- out acceptance, and the other accepted and then paid, and on both of wdiich it was afterward discovered the drawer's name had been forged, Lord Mansfield, after adverting to the form of action as one in which the plaintiff could not recover the money unless it be against conscience in the defendant to retain it, said: ' But it can never be thought unconscientious in the defendant to retain the money when he has once received it upon a bill of exchange endorsed to him for a fair and valuable consideration, which he had bona fide paid without the least privity or suspicion of the forgery. Here was no fraud, no wa-ong. It was incumbent on the plaintiff to be satisfied that the bill drawn upon him iras the drawer's hand before he accepted or paid it; but it was not incumbent on the defendant to inquire into it.' The authority of this case so far as it proceeds upon the ground that the drawee is bound to know the handwriting of his correspondent, and as appli- cable to the case of a bill accepted or paid by the drawee, where the drawer's name has been forged has never been questioned, but has been uniformly and abundantly sustained. It is be- cause the acceptor is bound to this knowledge that in an action against him the handwriting of the drawer need not be proved. The same rule has been extended to bank notes and bank checks and for precisely the same reason. A bank which re- ceives money on deposit, and thence derives profit is justly held to the obligation to know the signatures of its depositors to their checks, and if it pays in mistake a forged check, there is no reason why the loss should be shifted to anotlier innocent party upon whom the law casts no such obligation, and who, €11. xLYi.] Baxkixg. 545 upon the faith of such pa^^nent, has parted with his own money €r been phiced in a worse position than he would have been but for such payment. "Another instance of the application of the same principle is found in Smith v, Mercer, 6 Taunton, 76. There the accept- ance was forged, and the bill paid at maturity to a holder for Talue, by the bankers of the acceptor where he kept his cash, and where by the forged acceptance it was made payable. The forgery was discovered a week afterward and notice given to the defendant, but it was held that the bankers were not entitled to recover. The strongest instance perhaps of the enforcement of the rule is that of Levy r. Bank of the United States, 1 Binney, 27, and 4 Dallas, 234, Avhere one Thomas, passed to the plaintiff, Levy, a check for $2,600 on the bank, purporting to be drawn by Charles T\''harton, in favor of Thomas or bearer. The plaintiff sent his clerk to the bank with the check, and it was received by the teller and entered to Levy's credit in his bank book as cash. A few hours after- ^\'ard on the same day, it was discovered that "Wharton's name had been forged by Thomas, and notice thereof was given to Levy^ and yet the loss was thrown upon the bank. " In every stage of the case which underwent three several arguments in different courts, the decisions were in favor of Levy. The entry in his book as cash was treated as payment of the check by the bank, and upon the authority of Price v. N^eal, it was held to be the duty of the bank to know the hand- writing of its depositor, and having paid the check to a holder for value, who had no suspicion of the forgery, it must bear the loss. " In another case (United States Bank v. Bank of Georgia, 10 Wheat. 333), bank notes issued by the Bank of Georgia, which had been fraudulently altered in course of circulation, found their way into the Bank of the United States, and the latter presented them to the former who received them as genuine and placed them to the general account of the latter as cash by way of general deposit. The forgery was dis- covered nineteen days thereafter, and it was decided by the Supreme Court of the United States the loss must fall on the Bank of Georgia, whether the transaction be regarded as a payment or an acceptance of the notes. Mr. Justice Story, 35 546 Clearing-IIouse. [cii. xlvi. who delivered the opinion of the court in that ease, reviewed all the authorities and held that the receipt by a bank, of forged notes purporting to be its own, must be deemed an adoption of them as it has the means of knowing whether they are genuine or not : ^ and in respect to persons equally innocent where one is hound to Jcnow and act upon his knowledge, and the other has no means of knowledge, there seems to be no reason for burdening the latter with any loss in exoneration of the former. There is nothing unconscientious in retaining the sum received from the bank in payment of such notes, which its own acts have deliberately assumed to be genuine.' '' In a more recent case (Bank of St Albans v. Farmers' and Merchants' Bank, 10 Vermont, 141), the same doctrine has been affirmed and enforced by the Supreme Court of Ver- mont. There, a check upon the Bank of St. Albans in favor of one Wilson, or bearer, was purchased by another bank from the alleged payee, an entire stranger, who endorsed it in the name of Wilson, and it was paid on presentment by the bank on which it was drawn. It was subsequently discovered that the name of the maker, who was the president and a customer of the bank, was a forgery, and a like result attended the effort to recover back the money. We may also refer to the case of Bernheimer v. Marshall, 2 Minn. 78, for a very clear and well reasoned decision upon the same subject and to the same effect. " The facts, as well as the principles of these cases, have been cited with some particularity, because of their close re- semblance in many instances to those of the case at bar. In our opinion, the ease before us falls within the general doc- trines settled by these authorities, and is distinguishable from that class of cases, where forged securities of third persons have been received in payment, as well as from those which have established the rule, that if a party pays money under a mistake of the real facts, and no laehes are imputable to him, in respect of his omitting to avail himself of the means of knowledge within his power, he may recover it back. jSTor is the rule of commercial law, that no title can be acquired through a forged endorsement, which was specially relied on by the appellee's counsel in argument, and was the ground upon which the court below proceeded in granting the plain- cii.xLvi.] Baxki^^g. • 54:7 tiff's first prayer applicable here. The nile as stated, is no doubt clearly settled, but its very statement shows it can have no bearing- on such a case as the present. It presupposes a genuine negotiable instrument, the title to which can be trans- ferred by a valid endorsement; but it is a solecism to say, any title can be acquired to that which has in fact no existence. The endorsee of a check or note to which the maker's name is forged, of course acquires no title from an endorsement, and no rights as against any one where the endorsement is made to him directly by the forger or his accomplice, and it matters not in such case what may be the form of the forged instrument, whether payable to order or bearer. It is there- fore perfectly immaterial to the rights of the parties to this suit whether the name John S. Hillan, the payee in the check, was a fictitious name inserted by the forger and endorsed thereon by the person who deposited the check with the de- fendant, or was the genuine name of the criminal thus acting. In neither case could the defendant have derived any title by such endorsement, and in the sense of acquiring title from one capable of transferring the paper, it cannot be pretended the defendant was a bona fide holder. The appellant's de- fence does not rest upon this ground. Its legitimate defence is, that in entire innocence and without suspicion of the forgery, it received in the course of business a forged check on deposit, and sent it through the regular channel of com- munication, for payment to the plaintiff, on whom it purported to be drawn and upon whom the law cast the duty and obliga- tion of knowing the maker's signature; that the plaintiff adopted it as genuine and actually paid it to the defendant, and after such recognition and payment, and on the faith thereof, the defendant paid over a large part of the money to the same party who had made the deposit. Apart from any other facts or considerations than these, there is in the language of the authorities cited nothing unconscientious in the defendant's retaining the money, and no reason why the loss as between parties thus equally innocent and equally de- ceived, but where one is bound to know and act upon his knowledge, and the other has no means of knowledge, should be thro^\^l upon the latter in exoneration of the former. The safest rule for the commercial public, as well as that most 548 • Clearixg-House, [ch. xi-vr. consistent with justice, is to allow the loss to remain where by the course of business it has been placed. Xor is the argu- ment sound, that the defendant was placed in no worse posi- tion in consequence of the plaintiff's payment of this check, because by receiving and treating it as a deposit in cash, it assumed to take the risk of its genuineness as between itself and the depositor, or parties whom he might have induced to advance money, or give him credit upon the faith of the state- ment in the bank book delivered to him, at the time the deposit was made. How far the defendant might have been estopped from denying its responsibility, to those who might have dealt with the party calling himself Hillan, on the faith of this re- presentation of a deposit to his credit as cash, it is not neces- sary to inquire. Such a case might depend on a variety of considerations, and will be seasonably decided when it arises. It is sufficient for our present decision to say, that no such question is presented by this record. The payment here was in fact made to the same party who made the deposit, the forger himself or his confederate, and in our judgment it i* very clear the defendant had the right as between itself and this party to instruct its officers, notwithstanding the entry to his credit as cash, not to allow the account to be dra^^^l upon, until it was first ascertained that the deposited check was good or had been paid. Having done so and having in fact paid to such party, after the check had been paid by the plaintiff, it is impossible to say the defendant has not been placed in a worse position in consequence of such payment by the plaintiff. " It follows from these views there was error in granting the plaintiff's fi.rst prayer, and for this error the judgment must be reversed. The remaining inquiry is, ought the case to be sent back for :i nc;v tri^l? Upon this question we have already, in a measure, indicated our opinion. It has been the unifonu practice of this court to refuse a procedendo where it is appa- rent from the record the plaintiff is not entitled to recover, in. view of the law of the case pronounced by the appellate tri- bunal. What that law in the present case is upon the undis- puted facts, we have already determined. The two grounds upon which it is supposed the plaintiff i^; entitled to recover independently of the law thus announced, are stated in it^ CH. xLYi.] Banking. 549 second and third prayers, Avlilcli were rejected by the court below. The first, phices the ph^intiff's rig'ht to recover solely upon the ground that the jury might find, from the evidence, that there was a general and well-established usage of the banks in Baltimore, to the effect that where one bank sends to the clearing house a check on another bank, payable to order and purporting to be indorsed by the payee, the bank sending it guarantees the indorsement of the check to be the genuine indorsement of such payee. We need not stop to inquire whether there is evidence proper to be submitted to the jury of the existence of such usage, because we have shown it was immaterial to the rights of these parties whether the indorse- ment of Hillan's name was genuine or fictitious, the drawer's name being a forgery. The proposition that the plaintiff could recover in this case upon the basis of such supposed guarantee, assumes that the obligation of knowing the handwriting of Abbott was thrown as much upon the defendant, who had no means of such knowledge, as upon the plaintiff who had the means and who w^as in law presumed to know his signature, and is in direct conflict with the authorities before cited. " The second ground proceeds upon the theory that there was a general and well-known usage among the banks in the city of Baltimore, not to receive on deposit a check drawn upon, another bank from the alleged payee, unless he is known to some of its officers or is introduced or identified by some person so known, that the party calling himself Hillan, the forger or his confederate, was entirely unknown to the officers of the defendant, and they did not take the .precaution of requiring any evidence of identity; that the defendant's cashier, on hear- ing the fact that the check had been received from a stranger, directed the teller not to permit the party to draw on the de- posit until the check had been paid by the plaintiff, and then sent the check through the clearing house in the usual way without notice to the plaintiff of the circumstances under which it was received and held, and it is insisted that if the jury found this usage and these facts in connection with those stated in the first prayer, and that by this negligence of the defendant in so receiving the check and sending it to the clearing house for payment, the forger was enabled to consummate his intended . fraud, the plaintiff is entitled to recover. 550 Cleaeixg-House, [cii. xlvi. '' In our opinion, the question of negligence as affecting tlie rights and determining the responsibility of these two banks in this transaction, must stand on grounds entirely independent of the supposed usage not to receive deposits from strangers Avithout identification. The defendant's officers do not admit l-noirledge of any such custom, and aver that no such uniform practice has been adopted by their bank. But the whole object and purpose of this practice in each bank where it prevails, is obviously protection and security for itself and not of other banks with which it has dealings. The defendant had a clear legal right to receive this check on deposit as it did, and if it acted negligently in so doing, or had cashed the check at once instead of receiving it on deposit, it certainly would have in- curred the risk of loss to itself, but w^e cannot perceive how this could help the plaintiff's case or excuse its own negligence in law, or enable it to escape the consequences of its failure to detect the forgery of its customer's name, when the check was presented to it for payment. It certainly would be very unsafe to decide that a bank can be excused for the negligent perform- ance of the duty imposed by law of examining its customer's signature to a check, because the innocent holder happening to be another bank has merely failed in receiving it, to observe a usage or practice adopted for its ow^n security. Their own interests wdll prompt banks to adopt proper precautions in re- ceiving deposits as well as in paying out money, but something more is required than the mere non-observance of the usage here attempted to be set up, in order to throw the loss in this case upon the defendant in exoneration of the plaintiff. So that at last the question presented resolves itself into this: Can it be said, as matter of law, that the sending of this check through the clearing house and the failure to communicate to the plain- tiff the fact that it w^as received from a stranger, amount to sr.ch negligence as will throw the loss upon the defendant, or onght a jury to be permitted, from these facts or any circum- stances disclosed in evidence, to infer such negligence and find a verdict for the plaintiff for tlie full amount claimed. " It was at one time held in cases where bills, notes, or other securities, transferable by delivery, were lost or stolen, that it was a sufficient defence to an action by the holder for value. €11. XLvi.] Bankixg. 551 tliat he had received them under circumstances which ought to have excited the suspicion of a careful and prudent man, but the English decisions following that of Gill v. Cubitt, 3 Barn. . [cil. XLVIII. prevented by an officer of the law, or the prohibition of the law itself. The largest and most dangerous failures are those produced by the bank's officers falsifying the books and robbing the " tills." These conditions or acts usually occur during the interim of examinations, and therefore could not be detected. The difficulty is that examinations are made too hurriedly, and the Avork which the law requires to be done A^thin a given time, compels the examiner to rapid efforts, and some seemingly small matter may be overlooked which, if sufficient time was allowed, could and would have been detected and a great failure averted. The value of an examination made by a person that has no knowledge of local conditions cannot be wholly relied upon. An examination being made by a stranger who cannot be familiar A^^ith the business paper of the place, does not make discounts and assets good which are worthless. The inspection should be thorough and should amount to an auditing of the entire business of the bank. This would re- quire the appointment of expert accountants. The examina- tions also should be more frequent and could be more success- fully performed if the examiner had full power to call in the beard of directors, requiring them to remain in session while the examination was in progress. The directors, if required to be present, could verify the authority for making and dis- counting loans and be called upon to report upon each trans- action, loan, or discount, and its value as a resource of the bank. To make a thorough and complete examination of the condi- tion and all the affairs of the bank, the examiner should enter the bank either immediately after the close of business for the day, or at such an hour before commencement of the business of the day, as would permit him to take possession of the entire assets of the bank. The first thing to be done is to place the officers or officer in charge of and manag-ing the bank under oath, requiring them to truly answer all questions that may be put to them by the commissioner or commissioners, concerning the affairs of the bank, the character and value of its assets, and amount of its liabilities, neither misrepresenting nor concealing anything relative to the true conditon of the bank. en. xLviii.] Baxking. 569 The cash in the hands of the teller or tellers should then be immediately counted, the amount found to be in the hands of each one should be noted as cash in the hands of first, second, and third paying or receiving teller, etc., and at the same time an itemized list of all cash items held by them should be separately taken and carefully examined, as these form a part of and (if solvent) are added to and counted as cash. Cash items, checks, including- clearing-house certificates, in the hands of the tellers liaving been taken, separately listed, ard carefully compared with the ledger statement, each item having been found to be regular, these added to the tellers' cash, together with the cash in the hands of the cashier or casli in the vault, which has been counted, make up the total cash on hand and as shown per general ledger. If one examiner is making the examination, the bills receiv- able, together with the stocks and bonds, are immediately after counting of cash taken into his possession, and are placed under seal of the commissioner until such a time, as he may be able to list every piece of paper and loan held by the bank. The commissioner may then take a skeleton proof from the general ledger of all resources and liabilities and the subsequent examinations can be based upon this statement, taken item by item. The assets may then be examined and proved as they appear upon the skeleton statement. The real estate owned by the bank taken for debt, including that used as bank premises, should be listed. Title abstract should accompany each piece of property, and these will show the cost of the same, and date when taken by the bank, and if carried above its value the excess should be charged off. The stocks, bonds, and warrants, are also listed. This should be done so the examiner may deter- mine whether the bank, if it is a savings bank, has violated the law in owning or holding securities which are prohibited by law. The loans usually are the most important part of the assets of the bank, and a full and complete list should be taken, to- gether with a list of indorsers and collaterals. Each piece of paper should receive the personal examination of the commis- sioner, and during the investigation and listing one or more of the officials of the bank, who have a personal knowledge of the 570 INSPECTION AND EXAMINATION OP" BaNKS. [cH. XLVIII. genuineness, and value of the same, should be present that the commissioner may have such facts verified. There are many instances of extensive frauds which have been committed, by means of loans that were never authorized by the board of directors, and during the process of listing the notes, questions directed to the officer as to their genuineness — the unauthorized or forged loans may be brought to light. The examiner cannot detect forged paper where the same appears to be regular upon its face, but he can do his duty In- placing the officer in charge of the same, and who had authority in the first instance to accept or make loans, upon oath as to tJieir value and genuineness. By listing the loans and dis- counts, the examiner can ascertain the amount borrowed by the officers and directors, and for which they are personally liable. From the list it can also be ascertained whether or not the bank (if a savings bank) has complied with the law in making its investments in securities authorized by law. The stocks, l)onds, and w^arrants when listed, their character, value, and genuineness should be determined. Xational banks are prohibited by law from purchasing, and holding as an in- vestment stocks of other corporations; likewise savings banks are prohibited by law, from investing in certain stocks and bonds. Overdrafts as a resource are a dangerous class of loans. The authority for their creation may also be a question, which the examiner should carefully investigate; for example, wdiere a firm or corporation doing business with a bank, overdraws its account, the examiner should in every instance ascertain the authority for creating the same. All overdrafts should be listed; the date of the overdrafts and the amounts drawn; and the person creating the same should be called into the bank to verify the correctness of the account, and be required to secure the bank against the sums so drawn, as overdrafts are unlawful, unless granted upon collateral security deposited with the bank. Resources, due from banks, are assets that may be accurately verified and proved by writing, or wiring, correspondents; stat- ing the balance shown to be due from them on a certain day, and requesting a verification. When all of the bank's assets have been listed, proven, and verified, with the books, and the sum total of th-eir value is CH. XLVIII.] Ba>,kixg. 571 fixed and determined hx the examiner, the bank's liabilities are to be checked and pro^'en. The liabilities consist first, of capital stock, which can be proven by listing the stock issued, taking the certificate book and checking from it (the stnb) the number of the certificate, name of party to whom issued, together with the number of shares, and the amount paid on each share. The deposits, or the amount due depositors, can only be proven accurately by balancing and checking up each indi- vidual account, and proving the same with the ledger. This practice is not followed; and the ledger account showing a total of deposits due, is usually accepted as correct. Quite frequently the examiner will call in a number of pass books, and balance them, verifying the accuracy of the ledger to that extent; but farther than this the examiner seldom extends this branch of the examination. Certificates of deposit can be proven in several ways; but the one usually followed is to list by number all outstanding certificates, showing the amount due upon each certificate, cheeking back from the ledger and cer- tificate book all paid certificates previously issued by the bank. Due banks, as a liability, consists of all moneys borrowed and received from all sources. Liabilities of this nature can only bo proven correctly by wiring for a verification of the account. N"otes and bills rediscounted, are under the national banking rules held to be liabilities. They are, however, not construed by the Federal courts as immediate liabilities of the bank, as they may never ripen into a debt, and rediscoimts are classed as notes or bills sold. They arc, however, listed as a liability, and are required to be reported by the Comptroller of the Cur- rency in all reports made to him. Bills payable represent money borrowed by the bank. Such liabilities should receive a careful investigation, in order to determine the authority for, and the necessity for, borrowing money. This authority should emanate from the board of directors, money borrowed by the president, or cashier, of the bank, unless authorized, is unlawful. Dividends unpaid are a liabilitv of the bank until distributed, unless they have been unlawfully declared. A dividend cannot be declared only from the profits arising out of the business, and after all the expenses and other requirements of the law 572 l^-sPECTIox axd Examixatiox of Banks, [en. xlviii. have been first complied with. A dividend cannot be declared out of the capital stock, and if npon an examination of the bank, it is found that the capital stock is impaired, no dividend can be declared until it has been made whole. Surplus fund. Where the law requires that a certain por- tion of the earnings of the bank shall at stated periods be car- ried to a surplus fund, a dividend cannot be declared from the earnings until this has been done. Undivided profits are all of the net earnings of the bank, which mav be declared as a dividend, and then distributed to the stockholders. When all of the liabilities have been discovered, and listed, in order to determine the condition of the l)ank. the question of determining its solvency or insolvency is one which is re- duced to the sound judgment of the examiner. He must pass upon many important matters. The main question to be de- termined, is seemingly simple, in its statement; but more diffi- cult and complicated when a report is to be made which must show the bank's actual contition. If the assets as scheduled, and shown by the books of the bank, are solvent, and the balance is found to be equal to all of the liabilities no doubt can exist, but frequently the assets are scaled down mitil it becomes a question of serious import to the examiner, and when such a close crisis is reached, it becomes a matter of opinion, and experts and persons of extremely sound judgment may then differ. But it is always best if error is made, to make it rather in favor of the creditors of a bank, and if a bank's solvency hangs in the balance, the judgment of the commissioner, rather than that of the officers of the bank should prevail. § 360. Reports required of hanks. The law authorizing and governing national banks requir- ing reports, is set out in the Revised Statutes of the United States as provided by section 5211, which requires that, " Every association shall make to the Comptroller of the Cur- rency not less than five reports during each year, according to the form which may be prescribed by him, verified by the oath or affirmation of the president or cashier of such associa- tion, and attested by the signature of at least three of the CH. XLviii.] Banking. 573 directors. Each report shall exhibit, in detail and under ap- propriate heads, the resources and liabilities of the associations at the close of business on any past day by him specified, and shall be transmitted to the Comptroller within five days after the receipt of a request or requisition therefor from him, and in the same form in which it is made to the Comptroller shall be published in a newspaper published in the place where such association is established, or if there is no newspaper in the place, then in one published nearest thereto in the same county, at the expense of the association; and such proof of publica- tion shall be furnished as may be required by the Comptroller. The Comptroller shall also have power to call for special reports from any particular association whenever in his judg- ment the same are necessary in order to a full and complete knowledge of its condition." And section 5212 requires, that every such association shall within ten days after declaring a dividend, the amount of the same, and the amount of the net earnings in excess of the same, shall be reported to the Comptroller of the Currency. These reports must be attested by the president or cashier of the association. Section 5213 provides, that for a failure to make reports as called for by sections 5211 and 5212, such associations shall be liable to a penalty of one hundred dollars for each day after such period. "When a call is made by the Comptroller of the Currency for a report; a form printed by the Comp- troller is usually furnished, if not, an application should be immediately made to him for such printed form, as all written forms used will be rejected. When the report is completed it must be. signed and sworn to by the president or cashier, and attested as correct by not less than three of the directors of the bank, and when so com- pleted, it must be forwarded to the Comptroller. The report forwarded, or an exact copy thereof, must be published as required by law, and proof of publication forwarded to the Comptroller. In addition to the reports above mentioned section 5210 of the statute requires that " The president and cashier of every national banking association shall cause to be kept at all times a full and correct list of the names and residences of all the 574 Inspection and Examination of Banks, [en. xlviii. sbareliolders in the association, and the nnniLer of shares hehl by each, in the office where its business is transacted. Such list shall be subject to the inspection of all the shareholders and creditors of the association, and the officers authorized to assess taxes under State authority, during business hours of each day in which business may be legally transacted. A copy of «uch list, on the first Monday of July of each year, verified by the oath of such president or cashier, shall be trans- mitted to the Comptroller of the Currency." There is no uniform law of the States requiring State banks to make and publish reports, but the value of such a law, re- quiring such reports can not be overestimated. The form and plan adopted by the United States, which is required to be made by national banks, is very complete, and every State in the Union should have enacted a law requiring reports to be made and published. The verification of the report should be made by the board of directors, or a majority of them, and attested by the presi- dent or cashier. Bj' the adoption of this rule the directors would be required to expert the affairs of the bank, and not rely upon the examination and report made by the officers. Such a law would insure the examination of the bank by the board of directors, and would compel them, under penalty, to perform a duty which is impliedly their duty to perforin by Anrtue of their office. The reports should be called by the bank commissioners, or authority in control of the banks, as to the condition of the banks at the close of business on some date prior to the date of the call. There should be not less than six calls during the period of one year. It has been found that through the sys- tem of frequent calls, the banks which are required by law to exhibit the full amount of reserve can not so easily violate this provision. Monthly reports have been recommended by some authori- ties, but the necessity of such frequent reports does not seem to be apparent, except between banks having mutual accounts, or clearing-house banks, Avhich are required by the rules in most cities, to make weekly reports which are furnished for the benefit of the members. cii. xLviii.] Ba^-kixg. 575 § 361. Suggestions to examiners. Tlie examinations made of banks fail in many instances to disclose the real conditions existing and avert failures. The best accountants and experts are frequently deceived, as the record of failures which occur fully demonstrate. It is a lamentable fact, that the most serious failures are those caused directly by the officers who preside over, and have the management of the bank's affairs. These failures occur, as a rule, in banks where the board of directors are mere " dummies," and where they have grossly neglected to perform their duties. The most notable bank failures may be traced to one or two causes; the principal cause is the result of illegitimate use of the bank's funds, taken by some officer of the bank and used in speculation. This is the rock upon which has been, wrecked many of the strongest banking institutions, and bank examiners should be able to discern and observe the danger signals. They can be discovered by a careful investigation into the personal habits and business enterprises engaged in by the officers and employees of the bank. It should be an important part of the duties which are im- posed upon the examiner to quietly and judiciously make in- vestigations along this line. If upon a thorough examina- tion into the life, and habits, or business, of an officer in charge of and handling the funds of the bank, the examiner becomes satisfied that the bank is endangered, being in pos- session of the facts, he should call a meeting of the board of directors and disclose to them his information, together with the possibility of danger. AVhen this duty is performed, it then becomes the personal duty of the board of directors to make a full and complete investigation of all the facts pre- sented to them, and if they find that the bank's property or the funds and deposits belonging to others, are being en- dangered by and through the business acts or personal habits of any of the bank's officers or employees, it becomes their duty (being in possession of such knowledge) to take action at once to protect the bank from the possible occurrence of loss and damage to the bank; failing to do this and loss occur- ring, which by their action could have been prevented, they themselves become personally liable. APPENDIX. The iSTatioxal Banking Act as Amended^ with Other Laws Relating to National Banks. [Note. — The following are the acts relating to national banks.] THE CURRENCY BUREAU. 1. The national-bank act. 7. Office clerks. 2. Comptroller of the Currency. 8. Seal of office. 3. His appointment, term, and 0. Offices, vaults, etc. salaiy. 10. Annual report. 4. His qualification. 11. \Mien report is printed. 5. Deputy Comptroller. 12. Number of copies to be printed. 6. Interest in national banks pro- hibited. 1. The JSTational-Bank Act. — Sec. 1 of the act of June 20, 1874, provides that the act entitled "An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemj)tion thereof," approved June third, eighteen hundred and sixty-four, shall hereafter be known as the -'Xational-Bank Act." 2. Comptroller of the Currency. (Sec. 324.) There shall be in the Department of the Treasury a Bureau charged with the execution of all laws passed by Congress relating to the issue and regulation of a national currency secured by United State bonds, the chief officer of which Bureau shall be called the Comptroller of the Currency, and shall perform his duties under the general direction of the Secretary of the Treasury. 3. Appointment, Term, and Salary. (Sec. 325.) The Comptroller of the Currency shall be appointed by the Presi- dent, on the recommendation of the Secretary of the Treasury, by and with the advice and consent of the Senate, and shall hold his office for the term of five years, unless sooner removed l)y the President, upon reasons to be conunimicated by him to ■the Senate; and he- shall be entitled to a salary of five thousand dollars a year. zi [577] 578 Appendix. 4. His Qualificatiox. (Sec. 326.) The Comptroller of the Currency shall, within fifteen days from the time of notice of his appointment, take and subscribe the oath of office; and he shall give to the United States a bond in the penalty of one hundred thousand dollars, with not less than two responsible sureties, to be approved by the Secretary of the Treasury, con- ditioned for the faithful discharge of the duties of his office. 5. Deputy Compteoller. (Sec. 327.) There shall be in the Bureau of the Comptroller of the Currency a Deputy Comp- troller of the Currency, to be appointed by the Secretary, who shall be entitled to a salary of two thou-and eight hundred dollars a year, and who shall possess the power and perform the duties attached by law to the office of Comptroller during a vacancy in the office or during the absence or inability of the Comptroller. The Deputy Comptroller shall also take the oath of office jirescribed by the Constitution and laws of the United States, and shall give a like bond in the penalty of fifty thou- sand dollars. 6. Interest in jSTational Banks Prohibited. (Sec. 329.) It shall not be lawful for the Comptroller or the Deputy Comp- troller of the Currency, either directly or indirectly, to be in- terested in any association issuing national currency under the laws of the United States. 7. Office Clerks. (Sec. 328.) The Comptroller of the Currency shall employ, from time to time, the necessary clerks, to be appointed and classified by the Secretary of the Treasury, to discharge such duties as the Comptroller shall direct. 8. Seal of Office. (Sec. 330.) The seal devised by the Comptroller of the Currency for his office, and approved by the Secretary of the Treasury, shall continue to be the seal of office of the Comptroller, and may be renewed when necessary. A description of the seal, with an impression thereof, and a certifi- cate of approval of the Secretary of the Treasury, shall be filed in the office of the Secretary of State, 9. Offices, Vaults, etc. (Sec. 331.) There shall be as- signed, from time to time, to the Comptroller of the Currency, by the Secretary of the Treasury, suitable rooms in the Treasury building for conducting the business of the Currency Bureau, containing; safe and secure fireproof vaults, in which the Comp- troller shall deposit and safely keep all the plates not necessarily Banking. 579 in the possession of engravers or printers, and other valuable things belonging to his department ; and the Comptroller shall from time to time furnish the necessary furniture, stationery, fuel, lights, and other proper conveniences for the transaction of the business of his office. 10. Annual Keport. (Sec. 333.) The Comptroller of the Currency shall make an annual report to Congress, at the commencement of its session, exhibiting — First. Condition of national hanks.— A summary of the state and condition of every association from which reports have been received the preceding year, at the several dates to v.hich such reports refer, with an abstract of the whole amount of banking capital returned by them, of the whole amount of their debts and liabilities, the amount of circulating notes outstand- ing, and the total amount of means and resources, specifying the amount of lawful money held by them at the times of their several returns, and such other information in relation to such associations as in his judgment Tiiay be useful. Second. Closed banJiS. — A statement of the associations whose business has been closed during the year, with the amount of their circulatinn redeemed and the amount outstanding. Third. Amendments proposed. — Any amendment to the laws relative to banking by which the system may be improved and the security of the holders of its notes and other creditors may be increased. Fourth. Condition of other hanl's. — A statement exhibiting under appropriate heads the resources and liabilities and con- dition of the banks, banking companies, and savings banks organized under the laws of the several States and Territories, such information to be obtained by the Comptroller from the reports made by such banks, banking companies, and savings banks to the legislatures or officers of the different States and Territories, and, where such reports can not be obtained, the deficiency to be supplied from such other aut'.rr-ntic sources as mav be available. Fifth. Employes and expenses. — The names and compensa- tion of the clerks employed by him, and the whole amount of the expenses of the banking department during the year. 11. When Annual Eeport is Printed. (Sec. 3811.) "When the Annual Report of the Comptroller of the Currency 580 Appejstbix. upon the national banks and banks under State and Territorial laws is completed, or while it is in process of completion, if thereby the business may be sooner dispatched, the work of printing shall be commenced, under the superintendence of the Secretary, and the whole shall be printed and ready for delivery on or before the first day of December next after the close of the year to which the report relates. 12. Number of Copies to be Printed. — The act of Janu- ary 12, 1895, provides that there shall be printed of the Annual Report of the Comptroller of the Currency ten thousand copies ; one thousand for the Senate, two thousand for the House, and seven thousand for distribution by the Comptroller of the Currencv. ORGANIZATION AND POWERS OF NATIONAL BANKS. 13. Articles of association. 14. Oragnization certificate. 15. Execution of organization cer- tificate. If). Coi-porate powers. 17. Amount of capital stock re- quired. 18. Shares of stock. 19. Payment of capital stock. 20. Enforcing- pa^inent of capital. 21. Restoration of capital. 22. Examination of orjjanization proceedings. 23. Certificate of officers and di- rectors. 24. Deposit of United States bonds. 25. Comptrollers certificate of authority. 26. Piiblication of certificate of authority. 27. Number and election of direct- ors. 28. C^ialifications of directors. 2f). Qualifications of directors in Oklahoma. 30. Qualifications of voters at elections. 31. Oaths of directors. 32. Failure to hold annual election. 33. Vacancies in board of directors. 34. President shall be a director. 35. Organization of gold banks. 36. Conversion of gold banks. 37. Conversion of State banks. 38. Capital of State banks. 39. Converted banKS may retain branches. 40. Personal liability of share- holders. 41. Exception for trustees, etc. 42. Amendment of articles restrict- ed. 43. Increase of capital stock. 44. When increase becomes valid. 45. Reduction of capital stock. 4G. Change of title and location. 47. Statvis of national banks or- ganized under the act of February 25, 18G3. 13. Articles of Association. (Sec. 5133.) Associations for carrying on the business of banking under this Title may be formed by any number of natural ])ersons, not less in any case tlian five. They shall enter into articles of association, which shall sjiocifv in general terms the object for which the association is formed, and may contain any other provisions, Banking. 581 not inconsistent with law, which the association may see fit to adopt for the regiihition of its husiness and the conduct of its affairs. These articles shall be signed by the persons uniting to form the association, and a copy of them shall be forwarded to the Comptroller of the Currency, to be filed and preserved in his office. 14. Okganization Certificate. (Sec. 5131.) The per- sons uniting to form such an association shall, under their hands, make an organization certificate, which shall specifically state — First. Title. — The name assumed by such association ; which name shall be subject to the approval of the Comptroller of the Currency. Second. Location. — The place where its operations of dis- count and dej^osit are to be carried on, designating the State, Territory, or District, and the particular county and city, town, or village. Third. Capital stoch. — The amount of capital stock and the number of shares into which the same is to be divided. Fourth. Shareholders. — The names and places of residence of the shareholders and the number of shares held by each of them. Fifth, Object of certificate. — The fact that the certificate is made to enable such persons to avail themselves of the advan- tages of this Title. 15. Execution of Okganization Certificate. (Sec. 5135.) The organization certificate shall be acknowledged before a judge of some court of record or notary public, and shall be, together with the acknowledgment thereof, authenticated by the seal of such court or notary, transmitted to the Comptroller of the Currency, who shall record and carefully preserve the same in his office. 16. Corporate Powers. (Sec. 513C.) ITpon duly making and filing articles of association and an organization certificate, the association shall become, as from the date of the execution of its organization certificate, a body corporate, and as such, and in the name designated in the organization certificate, it shall have power — First. Seal. — To adopt and use a corporate seal. Second. Term of existence. — To have succession for the 582 Appendix. t period of twenty years from its organization, unless it is sooner dissolved according to the provisions of its articles of associ- ation, or by the act of its shareholders o^^^ling two-thirds of its stock, or unless its franchise becomes forfeited by some violation of law. Third. Contracts.-— To make contracts. Fourth. Suits. — To sue and be sued, complain and defend, in any court of law and [or] equity, as fully as natural persons. Fifth. Ojficers. — To elect or appoint directors, and by its })oard of directors to appoint a president, vice-president, cash- ier, and other officers, define their duties, require bonds of them and fix the the penalty thereof, dismiss such officers or any of them at pleasure, and appoint others to fill their places. Sixth. By-laws. — To prescribe, by its board of directors, by-laws not inconsistent with law, regulating the manner in which its stock shall be transferred, its directors elected or appointed, its officers appointed, its property transferred, its general business conducted, and the privileges granted to it by law exercised and enjoyed. Seventh, Incidental powers. — To exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the lousiness of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits ; by buying and selling exchange, coin, and bullion ; by loaning money on personal security ; and by obtaining, issuing, and circulating notes according to the pro- lusions of this Title ; but no association shall transact any busi- ness except such as is incidental and necessarily preliminary to its organization until it has been authorized by the Comp- troller of the Currency to commence the business of banking. 17. Amount of Capital Stock Required. (Sec. 513S, as amended by act of March 14, 1900.) 'Ro association shall be organized with a less capital than one hundred thousand dollars, except that banks with a capital of not less than fifty thousand dollars may, with the approval of the Secretary of the Treas- ury, be organized in any place the population of which does not exceed six thousand inhabitants, and oxccjit that banks with a capital of not less than twenty-five thousand dollars may, with Baxkixg. 58r> the sanction of the Secretary of the Treasury, be organized in any place the population of which does not exceed three thou- sand inhabitants. Xo association shall be organized in a city the population of which exceeds fifty thousand persons with a capital of less than two hundred thousand dollars. 18. Shakes of Stock. (Sec. 5139.) The capital stock of each association shall be divided into shares of one hundred dollars each, and be deemed personal property, and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association. Every per- son becoming a shareholder by such transfer shall, in proportion to his shares, succeed to all the rights and liabilities of the prior holder of such shares. 19. Payment of Capital Stock. (Sec. 5140.) At least fifty per centum of the capital stock of every association shall be paid in before it shall be authorized to commence business; and the remainder of the capital stock of such association shall be paid in installments of at least ten per centum each, on the whole amount of the capital, as frequently as one installment at the end of each succeeding month from the time it shall be authorized by the Comptroller of the Currency to commence business ; and the payment of each installment shall be certified to the Comptroller, under oath, by the president or cashier of the association. 20. ExFORCiNG Payment of Capital. (Sec. 5141.) When- ever any shareholder, or his assignee, fail to pay any install- ment on the stock when the same is required by the preceding section to be paid, the directors of such association may sell the stock of such delinquent shareholder at public auction, having given three weeks' previous notice thereof in a newspaper pub- lished and of general circulation in the city or county where the association is located, or if no newspaper is published in said city or county, then in a newspaper published nearest thereto, to any person who will pay the highest price therefor, to ]>e not less than the amount then due thereon, with the ex- penses of advertisement and sale ; and the excess, if any, shall be paid to the delinquent shareholder. If no bidder can be found who will pay for such stock the amount due thereon to the association, and the cost of advertisement and sale, the amount previously paid shall be forfeited to the association, 6S4 Appe^sDix. and sucli stock sliall lae sold as the directors maj order, within six months froin the time of such forfeitiu-e, and if not jold it shall be canceled and deducted from the capital stock of the association. 21. Restoration of Capitae. (Sec. 5141.) If any such cancellation and reduction shall reduce the capital of the association below the minimum of capital required by law, the capital stock shall, within thirty days from the date of such cancellation, be increased to the required amount ; in default of which a receiver may be apj^ointed, according to the provisions of section fifty-two hundred and thirty-foiu', to close up the business of the association. 22. ExAMiXATiox OF Oegaxizatiox Peoceedings. (Sec. 5168.) Whenever a certificate is transmitted to the Comji- troller of the Currency, as provided in this Title, and the association transmitting the same notifies the Comptroller that at least fifty per centum of its capital stock has been duly paid in, and that such association has complied with all the pro- visions of this Title required to be complied with before an association shall be authorized to commence the business of banking, the Comptroller shall examine into the condition of such association, ascertain especially the amount of money paid in on account of its capital, the name and place of residence of each of its directors, and the amount of the capital stock of which each is the owner in good faith, and generally whether such association has complied with all the provisions of this Title required to entitle it to engage in the business of banking. 23. Cebtificate OF Officers Aj5ri> Directors. (Sec. 5168.) And shall cause to be made and attested by the oaths of a majority of the directors, and by the president or cashier of the association, a statement of all the facts necessary to enable the Comptroller to determine whether the association is lawfully entitled to commence the business of banking. 24. Deposit of U^fiTED States Bonds. (Sec. 5159.) Every association, after having complied with the provisions of this Title, preliminary to the commencement of the bank- ing business, and before it shall be authorized to commence banking business under this Title, shall transfer and deliver to the Treasurer of the United States, as security for its circu- lating notes, any United States registered bonds bearing inter- Bx\NKING. 585 est, to an amount where the capital is one hundred and fifty thousand dollars or less, of not less than one-fourth of the capital, and fifty thousand dollars where the capital is in ex- cess of one hundred and fifty thousand dollars. (Note. — As amended by sec. 8 of the act of July 12, 1882.) 25. Comptrollee's Certificate of Authority. (Sec. 51G9.) If, upon a careful examination of the facts so reported, and of any other facts which may come to the knowledge of the Comptroller, whether by means of a special commission ap- pointed by kim for the purpose of inquiring into the condition of such association, or otherwise, it appears that such associ- ation is lawfully entitled to commence the business of banking, the Comptroller shall give to such association a certificate, under his hand and official seal, that such association has complied with all tlie provisions required to be complied with before commencing the business of banking, and that such assocation is authorized to commence such business. But the Comptroller may withold from an association his certificate authorizing the commencement of business whenever he has reason to suppose that the shareholders have formed the same for any other than the legitimate objects contemplated by this title. 26. Publication of Certificate of Autjiority. (Sec. 5170.) The association shall cause the certificate issued under the preceding section to be published in some newspaper printed in the city or county where the association is located, for at least sixty days next after the issuing thereof; or, if no newspaper is published in such city or county, then in the newspaper published nearest thereto. 27. Number and Election of Directors. (Sec. 5145.) The affairs of each association shall be managed by not less than five directors, who shall be elected by the shareholders at a meeting to be held at any time before the association is authorized by the Comptroller of the Currency to commence the business of banking, and afterward at meetings to be held on such day in January of each year as is specified therefor in the articles of association. The directors shall, hold office for one year, and until their successors are elected and have qualified. 586 Appendix. 28. Qualifications of Dieectoes. (Sec. 5146.) Every director must, during his whole term of service, be a citizen of the United States, and at least three-fourths of the directors must have resided in the State, Territory, or District in which the association is located for at least one year immediately pre- ceding their election, and must be residents therein during their continuance in office. Every director must own, in his own right, at least ten shares of the capital stock of the associ- ation of which he is a director. Any director who ceases to be the owner of ten shares of the stock, or who becomes in any other manner disqualified, shall thereby vacate his place. 29. Qualifications of Dieectoes in Oklahoma. — Sec. 17 of the act of May 2, 1890, provides "that the provisions of Title sixty-two of the Revised Statutes of the United States relating to national banks, and all amendments thereto, shall have the same force and effect in the Territory of Oklahoma as elsewhere in the United States : ** Provided, That persons otherwise qualified to act as di- rectors shall not be required to have resided in said Territory for more than three months immediately preceding their elec- tion as such." 30. Qualifications of Votees at Elections. (Sec. 5144.) In all elections of directors, and in deciding all questions at meetings of shareholders, each shareholder shall be entitled to one vote on each share of stock held by him. Shareholders may vote by proxies duly authorized in writing; but no ofiicer, clerk, teller, or bookkeeper of such association shall act as proxy ; and no shareholder whose liability is past due and unpaid shall be allowed to vote. 31. Oaths of Dieectoes. (Sec. 5147.) Each director, when appointed or elected, shall take an oath that he will, so far as the duty devolves on him, diligently and honestly ad- minister the affairs of such association, and will not know- ingly violate, or willingly permit to be violated, any of the pro- visions of this Title, and that he is the owner in good faith, and in his own right, of the number of shares of stock required by this Title, subscribed by him, or standing in his name on the books of the association, and that the same is not h^qiothe- Banking. 587 cated or in any way pledged as security for any loan or debt. Such oath, subscribed by the director making it, and certified by the officer before whom it is taken, shall be immediately transmitted to the Comptroller of the Currency, and shall be filed and preserved in his ofiice. 32. Failure to Hold Annual Election. (Sec. 5149.) If, from any cause, an election of directors is not made at the time appointed, the association shall not for that cause be dis- solved, but an election may be held on any subsequent day, thirty days' notice thereof in all cases having been given in a newspaper published in the city, town, or county in which the association is located; and if no newspaper is published in such city, town, or county such notice shall be published in a newspaper published nearest thereto. If the articles of association do not fix the day on which the election shall be held, or if no election is held on the day fixed, the day for the election shall be designated by the board of directors in their by-laws, or otherwise ; or if the directors fail to fix the day, shareholders representing two-thirds of the shares may do so. 33. Vacancies in Board of Directors. (Sec. 5148.) Any vacancy in the board shall be filled by appointment by the remaining directors, and any director so appointed shall hold his place until the next election. 34. President shall be a Director. (Sec. 5150.) One of the directors, to be chosen by the board, shall be the president of the board. 35. Organization of Gold Banks. (Sec. 5185.) Associa- tions may be organized in the manner prescribed by this Title for the purpose of issuing notes payable in gold. 86. Conversion of Gold Banks. — The act of February 14, 1880, provides that any national gold bank organized under the provisions of the laws of the United States may, in the manner and subject to the provisions prescribed by sec- tion fifty-one hundred and fifty-four of the Revised Statutes of the United States, for the conversion of banks incorporated under the laws of any State, cease to be a gold bank and be- come such an association as is authorized by section fifty-one hundred and thirty-three, for carrying on the business of bank- ing, and shall have the same powers and privileges, and shall 5S8 ArPEXDix. be subject to the same duties, responsibilities, aud rules, in all respects, as are bv law prescribed for such associations: Pro- vided, That all certificates of organization -which shall be issued under this act shall bear the date of the original organization of each bank respectively as a gold bank. 37. CoNVEESiox OF State Baxks. (Sec. 5154.) Any bank incorporated by special law, or any banking institution or- ganized under a general law of any State, may become a national association under this Title by the name prescribed in its or- ganization certificate ; and in such case the articles of associa- tion and the organization certificate may be executed by a ma- jority of the directors of the bank or banking institution ; and the ceitificate shall declare that the o^^'ners of two-thirds of the capital stock have authorized the directors to make such certificate, and to change and convert the bank or banking in- stitution into a national association. A majority of the directors, after executing the articles of association and organiza- tion certificate, shall have power to execute all other papers, and to do whatever may be required to make its organization per- fect and complete as a national association. The shares of any such bank may continue to be for the same amount each as they were before the conversion, and the directors may continue to be the directors of the association until others are elected or appointed in accordance A\*ith the provisions of this chapter ; and any State bank which is a stockholder in any other bank, by authority of State laws, may continue to hold its stock, although either bank, or both, may be organized under and have accepted the provisions of this Title. When the Comjitroller of the Cur- rency has given to such association a certificate, under his hand and ofiicial seal, that the provisions of this Title have been com- plied with, and that it is authorized to commence the business of banking, the association shall have the same powers and privileges, and shall be subject to the same duties, responsibili- ties, and rules, in all respects, as are prescribed for other asso- ciations, originally organized as national banking associations, and shall be held and regarded as such an association. But no such association shall have a less capital than the amount pre- scribed for associations organized under this Title. / Baxki2^g. 589 3S. Capital of State Banks. (Sec. 3410.) The capital of any State bank or banking association whicli has ceased or shall cease to exist, or which has been or shall be converted into a national bank, shall be assumed to be the capital as it existed immediately before such bank ceased to exist or was converted as aforesaid. 39. CoxvERTED Banks May Retain Branches. (Sec. 5155.) It shall be lawful for anv bank or banking association, organized under State laws and having branches, the capital being joint and assigned to and used by the mother bank and branches in definite proportions, to become a national banking association in conformity with existing laws and to retain and keep in operation its branches, or such one or more of them as it may elect to retain, the amount of the circulation re- deemable at the mother bank and each branch to be regulated by the amount of capital assigned to and used by each. 40. Personal Liability of Shareholders. (Sec. 5151.) The shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such association to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares, except that shareholders of any bank- ing association now existing under State laws having not less than five millions of dollars of capital actually paid in and a surplus of twenty per centum on hand, both to be determined by the Comptroller of the Currency, shall be liable only to the amount invested in their shares ; and such surplus of twenty per centum shall be kept undiminished, and be in addition to the surplus provided for in this Title ; and if at any time there is a deficiency in such surplus of twenty per centum such associa- tion shall not pay any dividends to its shareholders until the deficiency is made good; and in case of such deficiency the Comptroller of the Currency may compel the association to close its business and wind up its affairs under the provisions of chapter four of this Title. 41. Exception for Trustees^ etc. (Sec. 5152.) Persons holding stock as executors, administrators, guardians, or trus- tees shall not be personally subject to any liabilities as stock- 590 Appendix. holders ; but the estates and funds in their liands shall be liable in like manner and to the same extent as the testator, intestate, ward, or person interested in such trust funds would be if living and competent to act and hold the stock in his own name. 42. Amendment of Articles Restkicted. — Sec. 5139 provides that no change shall be made in the articles of as- sociation of a national bank by which the rights, remedies, or security of the existing creditors of the association shall be impaired. 43. Increase of Capital Stock. (Sec. 5142.) Any asso- ciation formed under this Title may, by its articles of associa- tion, jorovide for an increase of its capital from time to time, as may be deemed expedient, subject to the limitations of this Title. But the maximum of such increase to be provided in the articles of association shall be determined by the Comptroller of the Currency. Sec. 1 of the act of May 1, 18S6, provides that any national banking association may, with the approval of the Comptroller of the Currency, by the vote of share- holders owning two-thirds of the stock of such association, in- crease its capital stock, in accordance with existing laws, to any sum approved by the said Comptroller, notwithstanding the limit fixed in its original articles of association and determined by said Comptroller ; and no increase of the capital stock of any national banking association either within or beyond the limit fixed in its original articles of association shall be made except in the manner herein provided. 44. When Increase Becomes Valid. (Sec. 5142.) And no increase of capital shall be valid until the whole amount of such increase is paid in, and notice thereof has been trans- mitted to the Comptroller of the Currency, and his certificate obtained specifying the amount of such increase of capital stock, with his approval thereof, and that it has been duly paid in as part of the capital of such association. 45. Reduction of Capital Stock. (Sec. 5143.) Any association formed under this Title may, by the vote of share- liolders owning two-thirds of its capital stock, reduce its capi- tal to any sum not l)clo\v the amount rofiuired by this Title t.'i authorize the formation of a'^sociations, but no such reduc- tion ^diall be allowable which will reduce the capital of the as- Banking. 591 sociation below the amount required for its outstanding circu- lation, nor shall any such reduction be made until the amount of the proposed reduction has been reported to the Comptroller of the CuiTency and his approval thereof obtained. 46. Change of Title and Location. — Sees. 2, 3, and 4 of the act of May 1, 1886, provide: Sec. 2. That any national banking association may change its name or the place where its operations of discount and de- posit are to be carried on to any other place within the same State, not more than thirty miles distant, with the approval of the Comptroller of the Currency, by the vote of shareholders owning two-thirds of the stock of such association. A duly authenticated notice of the vote and of the new name or loca- tion selected shall be sent to the office of the Comptroller of the Currency, but no change of name or location shall be valid until the Comptroller shall have issued his certificate of ap- proval of the same. Sec. 3. That all debts, liabilities, rights, provisions, and powers of the association under its old name shall devolve upon and inure to the association under its new name. Sec. 4. That nothing in this act contained shall be so con- strued as in any manner to release any national banking- association under its old name or at its old location from any liability, or aifect any action or proceeding in law in which said association may be or become a party or interested. 47. Status of I^ational Banks Organized under the Act of February 25, 1863. (Sec. 5156.) That nothing in this Title shall affect any appointments made, acts done, or pro- ceedings had or commenced prior to the third day of June, eigh- teen hundred and sixty-four, in or toward the organization of any national banking association under the act of February twenty-five, eighteen hundred and sixty-three; but all associa- tions which on the third day of June, eighteen hundred and sixty-four, were organized or commenced to be organized under that act shall enjoy all the rights and privileges granted, and be subject to all the duties, liabilities, and restrictions imposed by this Title, notwithstanding all the steps prescribed by this Title for the organization of associations were not pursued, if such associations were dulv organized under that act. >92 Appendix. BANK CIRCULATION. 4S. United States bonds defined. 65. Worn-out or mutilated circula- 49. Security for circulation. tion. 50. Relation of bond deposit to G6. Provisions for redeeming circu- capital. lation. 51. Exchange of bonds. 67. Withdrawing circulation. 52i Bonds lield by Treasurer. 68. General provisions for with- 53. Record of bond transfers. drawing circulation. 54. Notice of transfer. 69. Circulation of extended banks. 55. Examination of bonds and rec- 70. Circulation of liquidating banks. ords. 71. Circulation of closed banks. 56. Annual examination of bonds. 72. Regulations for redemption rec- 57. General provisions respecting ords. bonds. 73. Redeemed notes to be canceled. 58. Amount of circulation obtain- 74. Redemption in United States able. notes. 59. Preparation of bank circulation. 75. Disposition of redemption ac- 60. Circulation shall bear charter covmt. number. 76. Redemption of incomplete cir- 61. Control of plates and dies. dilation. 62. Examination of plates and dies. 77. Banks take circulation at par. 63. Circulation, for Avhat receivable. 78. Issue of other notes prohibited. 64. Circulation of gold banks. 79. Fraudulent no.tes to be marked. 48. Unitkd States Bonds Defined. (Sec. 5158.) The term " United States bonds," as used tliroughout this chapter, shall be construed to mean registered bonds of the United States. 49. (Sec. 5159 as amended by section 8, act of July 12, 1882.) Every association, after having complied with the pro- visions of this Title, preliminary to the commencement of the banking business, and before it shall be authorized to commence banking business under this Title, shall transfer and deliver to the Treasurer of the United States any United States registered bonds, bearing interest, to an amount not less than one-fourth of the capital, the capital being $150,000 or less, as security for their circulating notes. Such bonds shall be received by the Treasurer upon deposit and shall be by him safely kept in his office until they shall be otherwise disposed of in pursuance of the provisions of this Title. Section 4, act of June 20, 1874, provides in part that the amount of bonds on deposit for circulation shall not be reduced below $50,000. This determines the amount of bonds required tn be deposited by banks organizing with capital stock of over $150,000. Baxkixg. 593 (See sec. 5159 of the United States Revised Statutes; sec. 4, act of June 20, 1874; sec. 8, act of July 12, 1882, and act of March 14, 1900, as to relation of bond deposit to capital.) 50. Eelatiox of Boxd Deposit to Capital. (Sec. 5160.) The deposit of bonds made bv each association shall be in- creased as its capital may be paid up or increased, so that every association shall at all times have on deposit with the Treasurer registered United States bonds to the amount required by law. And any association that may desire to reduce its capital or close up its business and dissolve its organization may take up its bonds upon returning to the Comptroller its circulating notes ill the proportion hereinafter required, or may take up any excess of bonds beyond the amount required by law, and upon which no circulating notes have been delivered. 51. Exchange of Bonds. (Sec. 5161.) To facilitate a compliance with the two preceding sections, the Secretary of the Treasury is authorized to receive from any association, and cancel, any United States coupon bonds, and to issue in lieu thereof registered bonds of like amount, bearing a like rate of interest, and having the same time to run. 52. Bonds Held by Treasurek. (Sec. 5162.) All trans- fers of United States bonds made by any association under the provisions of this title shall be made to the Treasurer of the United States in trust for the association, with a memorandum written or printed on each bond, and signied by the cashier, or some other officer of the association making the deposit. A re- ceipt shall be given to the association, by the Comptroller of the Currency, or by a clerk appointed by him for that purpose, stating that the bond is held in trust for the association on whose behalf the transfer is made, and as security for the redemption and payment of any circulating notes that have been or may be delivered to such association. jSTo assignment 01 transfer of any such bond by the Treasurer shall be deemed valid unless countersigned by the Comptroller of the Currency. 53. Record of Bond Transfers. (Sec. 5163.) The Comp- troller of the Currency shall keep in his office a book in which he shall cause to be entered, immediately upon countersigning it, every transfer or assignment by the Treasurer, of any bonds l^elonging to a national 1)anking association, presented for his signature. He shall state in such entry the name of the asso- 38 594 Appendix. ciation from whose account the transfer is made, the name of the party to whom it is made, and the par value of the bonds transferred. 54. Notice of Transfer. (Sec. 5164.) The Comptroller of the Currency, shall, immediately upon countersigning and entering any transfer or assignment by the Treasurer of any bonds belonging to a national banking association, advise by mail the association from whose accounts the transfer is made of the kind and numerical designation of the bonds and the amount thereof so transferred. 55. Examination of Bonds and Records. (Sec. 5165.) The Comptroller of the Currency shall have at all times, during office hours, access to the books of the Treasurer of the United Slates for the purpose of ascertaining the correctness of any transfer or assignment of the bonds dej)osited by an association, presented to the Comptroller to countersign ; and the Treasurer shall have the like access to the book mentioned in section fifty- one hundred and sixty-three, during office hours, to ascertain the correctness of the entries in the same; and the Comptroller shall also at all times have access to the bonds on deposit with the Treasurer to ascertain their amount and condition. 56. Annual Examination of Bonds. (Sec. 5166.) Every association having bonds deposited in the office of the Treasurer of the United States shall, once or oftener in each fiscal year, examine and compare the bonds pledged by the association with the books of the Comptroller of the Currency and with the ac- counts of the association, and, if they are found correct, to execute to the Treasurer a certificate setting forth the different kinds and the amounts thereof, and that the same are in the possession and custody of the Treasurer at the date of the cer- tificate. Such examination shall be made at such time or times during the ordinary business hours as the Treasurer and the Comptroller, respectively, may select, and may be made by an officer or agent of such association, duly appointed in AVriting for that purpose ; and his certificate before mentioned shall be of like force and validity as if executed by the president or cashier. A duplicate of such certificate, signed by the Treasurer, shall be retained by the association. 57. General Provisions Respecting Bonds. (Sec. 5167.) The bonds transferred to and deposited with the Treasurer of Banking. 595 the United States by any association for the security of its circu- lating notes shall be held exclusively for that purpose until such notes are redeemed, except as i)rovided in this Title. The Comptroller of the Currency shall give to any such association powers of attorney to receive and appropriate to its own use the interest on the bonds which it has so transferred to the Treasurer; but such powers shall become inoperative whenever such association fails to redeem its circulating notes. Whenever the market or cash value of any bonds thus deposited with the Treasurer is redeemed below the amount of the circulation issued for the same the Comptroller may demand and receive the amount of such depreciation in other United States bonds at cash value, or in money, from the association, to be deposited with the Treasurer as long as such depreciation continues. And the Comptroller, upon the terms prescribed by the Secretary of the Treasury, may permit an exchange to be made of any c;f the bonds deposited with the Treasurer by any association for other bonds of the United States authorized to be received as security for circulating notes if he is of opinion that such an exchange can be made without prejudice to the United States ; and he may direct the return of any bonds to the associ- ation which transferred the same, in sums of not less than one thousand dollars, upon the surrender to him and the cancel- lation of a proportionate amount of such circulating notes : Pro- vided, That the remaining bonds which shall have been trans- ferred by the association offering to surrender circulating notes are equal to the amount required for the circulating notes not surrendered by such association, and that the amount of bonds in the hands of the Treasurer is not diminished below the amount required to be kept on deposit with him, and that there has been no failure by the association to redeem its circulating notes, nor any other violation by it of the pro- ^dsions of this Title, and that the market or cash value of the remaining bonds is not below the amount required for the circulation issued for the same. 58. Amount of Circulation Obtainable. — Sec. 10 of the act of July 12, 1882, as amended by act of March 14, 1900, provides that upon the deposit with the Treasurer of the United States, by any national banking association, of any bonds of the United States in the manner provided by exist- 596 Appendix. ing law, such association shall be entitled to receive from the Comptroller of the Currency circulating notes in blank, regis- tered and countersigned as provided by law, equal in amount to the par value of the bonds so deposited; and any national ' banking association now having bonds on deposit for the security of circulating notes, and upon which an amount of circulating notes has been issued less than the par value of the bonds, shall be entitled, upon due application to the Comp- troller of the Currency, to receive additional circulating notes ir. blank to an amount which will increase the circulating notes held by such association to the par value of the bonds de- posited, such additional notes to be held and treated in the same way as circulating notes of national banking associations heretofore issued, and subject to all the provisions of law affecting such notes: Provided, That the circulating notes furnished to national banking associations under the provisions of this act shall be of the denominations prescribed by law, except that no national banking association shall, after the passage of this act, be entitled to receive from the Comptroller of .the Currency, or to issue or reissue or place in circulation, more than one-third in amount of its circulating notes of the denomination of five dollars: And provided furtlier, That the total amount of such notes issued to any such association may equal at any time but shall not exceed the amount at such time of its capital stock actually paid in. 59. PKEPARATioisf OF Bank Cieculatio:)^. (Sec. 5172.) In order to furnish suitable notes for circulation, the Comptroller of the Currency shall, under the direction of the Secretary of the Treasury, cause plates and dies to be engraved, in the best manner to guard against counterfeiting and fraudulent altera- tions, and shall have printed therefrom, and numbered, such quantity of circulating notes, in blank, of the denominations of five dollars, ten dollars, twenty dollars, fifty dollars, one hundred dollars, five hundred dollars, and one thousand dol- lars, as may be required to supply the associations entitled to receive the same, as amended by act of March 14, 1900. Such notes shall express upon their face that they are secured by United States bonds, deposited with the Treasurer of the United States, by the written or engraved signatures of the Treasurer and Register, and by the imprint of the seal of the Baxkixg. 597 Treasury; and shall also express upon their face the promise of the association receiving the same to pay on demand, attested by the signatures of the president or vice-president and cashier; and shall bear such devices and such other state- ments, and shall be in such form, as the Secretary of the Treasury shall, by regulation, direct. I 60. CiECULATiON Shall Bear Charter I^umber. — Sec. 5 of the act of June 20, 1874, provides that the Comptroller of the Currency shall, under such rules and regulations as the Secretary of the Treasury may prescribe, cause the charter numbers of the association to be printed upon all national- bank notes which may be hereafter issued by him. 61. Control of Plates and Dies. (Sec. 5173.) The plates and special dies to be procured by the Comptroller of the Currency for the printing of such circulating notes shall remain under his control and direction and the expenses neces- sarily incurred in executing the laws respecting the procuring of such notes and all other expenses of the Bureau of the Cur- rency [except as provided by sec. 3, act June 20, 1874, and sects. 6 and 8, act July 12, 1882] shall be paid out of the proceeds of the taxes or duties assessed and collected on the circulation of national banking associations under this title. 62. Examination of Plates and Dies. (Sec. 5174.) The Comptroller of the Currency shall cause to be examined, each year, the plates, dies, but pieces [bed pieces], and other ma- terial from which the national-bank circulation is printed, in whole or in part, and file in his office annually a correct list of the same. Such material as shall have been used in the printing of the notes of associations which are in liquidation, or have closed business, shall bo destroyed, under such regu- lations as shall be prescribed by the Comptroller of the Cur- rency and approved by the Secretary of the Treasury. The expenses of any such examination or destruction shall be paid out of any appropriation made by Congress for the special examination of national banks and bank-note plates. 63. Circulation, for what Receivable. (Sec. 5182.) After any association receiving circulating notes under this Title has caused its promise to pay such notes on demand to be signed by the president or vice-president and cashier thereof, in such manner as to make them obligatory promisory notes, 598 Appendix. payable on demand at its place of business, sueli association may issue and circulate the same as money. And the same shall be received at par in all parts of the United States in payment of taxes, excises, public lands, and all other dues to the United States, except duties on imports; and also for all salaries and other debts and demands owing by the United States to individuals, corporations, and associations "within the United States, except interest on the public debt, and in re- demption of the national currency. 64. CiRcrLATioN OF Gold Banks. (Sec. 5185.) Associa- tions may be organized in the manner prescribed by this Title for the purpose of issuing notes payable in gold; and upon the deposit of any United States bonds bearing interest payable in gold with the Treasurer of the United States, in the manner prescribed for other associations, it shall be lawful for the Comptroller of the Currency to issue to the association making the deposit circulating notes of different denominations, but none of them of less than five dollars, and not exceeding in amount eighty per centum of the par value of the bonds de- posited, which shall express the promise of the association to pay them, upon presentation at the office at which they are issued, in gold coin of the United States, and shall be so redeemable. 65. WoKX-ouT OR Mutilated Circulation. (Sec. 5184.) It shall be the duty of the Comptroller of the Currency to re- ceive worn-out or mutilated circulating notes issued by any banking association, and also, on due proof of the destruction of any such circulating notes, to deliver in place thereof to the association other blank circulating notes to an equal amount. Such worn-out or mutilated notes, after a memorandum has teen entered in the proper books, in accordance with such regu- lations as may be established by the Comptroller, as well as all circulating notes which shall have been paid or surrendered to bo canceled, shall be macerated in presence of four persons, one to be appointed by the Secretary of the Treasury, one by the Comptroller of the Currency, one by the Treasurer of the United States, and one by the association, under such regula- tions as the Secretary of the Treasury may prescribe. A cer- tificate of such maceration, signed by the parties so appointed, shall be made in the books of the Comptroller, and a duplicate Baxkixg. 599 thereof forwarded to the association whose notes are thus canceled. 66. Provisions for Redeeming CiRCULATioisr. — Sec. 8 of the act of June 20, 1874, provides that every association organ- ized, or to be organized, under the provisions of the said act, and of the several acts amendatory thereof, shall at all times keep and have on deposit in the Treasury of the United States, in lawful money of the United States, a sum equal to five per centum of its circulation, to be held and used for the redemption of such circulation; which sum shall be counted as a part of its lawful reserve, as provided in section two of this act; and when the circulating notes of any such associations, assorted or unassorted, shall be presented for redemption, in sums of one thousand dollars or any multiple thereof, to the Treasurer of the United States, the same shall be redeemed in United States notes. All notes so redeemed shall be charged by the Treasurer of the United States to the respective associations issuing the same, and he shall notify them severally, on the first day of each month, or oftener, at his discretion, of the amount of such redemptions; and whenever such redemptions for any associa- tion shall amount to the sum of five hundred dollars, such asso- ciation so notified shall forthwith deposit with the Treasurer of the United States a sum in United States notes equal to the amount of its circulating notes so redeemed. And all notes of national banks, worn, defaced, mutilated, or otherwise unfit for circulation, shall, when received by any assistant treasurer, or at any designated depositary of the United States, be forwarded to the Treasurer of the United States for redemption as pro- vided herein. And when such redemptions have been so reim- bursed, the circulating notes so redeemed shall be forwarded to the respective associations by which they were issued; but if any of such notes are worn, mutilated, defaced, or rendered otherwise unfit for use, they shall be forwarded to the Comp- troller of the Currency and destroyed, and replaced as now provided by law: Provided, That each of said associations shall reimburse to the Treasury the charges for transportation and the costs for assorting such notes ; and the associations hereafter organized shall also severally reimburse to the Treasury the cost of engraving such plates as shall be ordered by each asso- ciation respectively; and the amount assessed upon each associa- 600 ArrEXDix. tion shall be in proportion to the circulation redeemed, and be charged to the fund on deposit with the Treasurer. 67. Withdrawing Cikculatiox. — Sec. 4 of the act of June 20, 1874, provides that any association organized under this act, or any of the acts of which this is an amendment, desiring to withdraw its circulating notes, in whole or in part, may, upon the deposit of laAvful money with the Treasurer of the United States in sums of not less than nine thousand dollars, take up the bonds which said association has on deposit with the Treas- urer for the security of such circulating notes, which bonds shall be assigned to the bank in the manner specified in the nineteenth section of the national-bank act; and the outstanding notes of said association, to an amount equal to the legal-tender notes deposited, shall be redeemed at the Treasury of the United States, and destroyed as now provided by law: Pro- vided, That the amount of the bonds on deposit for circulation shall not be reduced below fifty thousand dollars. 68. General Provisions for Withdrawing Circulation. — The act of July 12, 1882, provides: (Sec. 8.) That the national banks which shall hereafter make deposits of lawful money for the retirement in full of their circulation shall, at the time of their deposit, be assessed for the cost of transport- ing and redeeming their notes then outstanding, a sum equal to the average cost of the redemption of national-bank notes during the preceding year, and shall thereupon pay such assess- ment; and all national banks which have heretofore made or shall hereafter make deposits of lawful money for the reduc- tion of their circulation shall be assessed, and shall pay an assessment in the manner specified i^ section three of the act approved June twentieth, eighteen hundred and seventy-four, for the cost of transporting and redeeming their notes redeemed from such deposits subsequently to June thirtieth, eighteen hundred and eighty-one. Sec. 9. (As amended by act of March 14, 1900.) That any national banking association now organized, or hereafter or- ganized, desiring to withdraw its circulating notes, upon a deposit of lawful money with the Treasurer of the United States, as provided in section four of the act of June twentieth, eighteen hundred and seventy-four, or as provided in this act, Banking. 601 is authorized to deposit la^vful money and withdraw a propor- tionate amount of the bonds held as security for its circulating notes in the order of such deposits: Provided, That not more than three millions of dollars of lawful money shall be depos- ited during any calendar month for this purpose: And provided further. That the provisions of this section shall not apply to bonds called for redemption by the Secretary of the Treasury, nor to the withdrawal of circulating notes in conseqeuence thereof. GO. Circulation of Extended Banks. — Sec. 6 of the act of July 12, 1882, provides that the circulating notes of any association so extending the period of its succession which shall have been issued to it prior to such extension shall be redeemed id the Treasury of the United States, as provided in section three of the act of June twentieth, eighteen hundred and seventy- four, entitled ''An act fixing the amount of United States notes, providing for redistribution of national bank currency, and for other purposes," and such notes when redeemed shall be for- warded to the Comptroller of the Currency, and destroyed, as now provided by law; and at the end of three years from the date of the extension of the corporate existence of each bank the association so extended shall deposit lawful money with the Treasury of the United States sufficient to redeem the re- mainder of the circulation which was outstanding at the date of its extension, as provided in sections fifty-two hundred and twenty-two, fifty-two hundred and twenty-four, and fifty-two hundred and twenty-five of the Revised Statutes; and any gain that may arise from the failure to present such circulating notes for redemption shall inure to the benefit of the United States; and from time to time, as such notes are redeemed or lawful money deposited therefor as provided herein, new circulating notes shall be issued as provided for by this act, bearing such devices, to be approved by the Secretary of the Treasury, as shall make them readily distinguishable from the circurating notes heretofore issued: Provided, however. That each banking association which shall obtain the benefit of this act shall reim- burse to the Treasury the qost of preparing the plate or plates for such new circulating notes as shall be issued to it. 70. ClKCULATION OF LIQUIDATING BanKS. (SeC. 5225.) "Whenever the Treasurer has redeemed any of the notes of an 002 Appendix. association ^Yllicll has commenced to close its affairs, he shall cause the notes to be mutilated and charged to the redemption account of the association; and all notes so redeemed by the Treasurer shall, every three months, be certified to and de- stroyed in the manner prescribed in section fifty-one hundred and eighty-four. 71. CiECULATiON OF Closed Banks. — Scc. 8. of the act of June 20, 1874, provides: And it shall be the duty of the Treas- urer, assistant treasurers, designated depositaries, and national bank depositaries of the United States to assort and return to the Treasury for redemption the notes of such national banks as have failed, or gone into voluntary liquidation for the purpose of winding up their affairs, and of such as shall hereafter so fail or go into liquidation. 72. Kegulations for Redemption Records. (Sec. 5232.) The Secretary of the Treasury may, from time to time, make such regulations respecting the disposition to be made of cir- culating notes after presentation at the Treasury of the United States for payment, and respecting the perpetuation of the evidence of the pa\anent thereof, as may seem to him proper. 73. Redeemed Xotes to be Canceled. (Sec. 5233.) All notes of national banking associations presented at the Treasury 01 the United States for payment shall, on being paid, be canceled. 74. Redemption in United States Notes. — Sec. 3 of the act approved June 20, 1874, provides that when the circulating notes of any such associations, assorted or unassorted, shall be presented for redemption, in sums of one thousand dollars or any multiple thereof, to the Treasurer of the United States, the same shall be redeemed in United States notes, 75. Disposition of Redemption Account. — Sec. 6 of the act of July 14, 1890, provides that upon the passage of this act the balances standing with the Treasurer of the United States to the respective credits of national banks for deposits made to redeem the circulating notes of such banks, and all deposits thereafter received for like purpose, shall be covered into the Treasury as a miscellaneous receipt, and the Treasury of the U'nited States shall redeem from the general cash in the Treas- ury the circulating notes of said banks which may come into his possession subject to redemption; and upon the certificate Banking. • 603 of the Comptroller of the Ciirrency that such notes have heen received by him and that they have been destroyed and that no new notes will be issued in their place, reimbursement of their amount shall be made to the Treasurer, under such regu- lations as the Secretary of the Treasury may prescribe, from an appropriation hereby created, to be known as "national-bank notes, redemption account." But the provisions of this act shall not apply to the deposits received under section three of the act of June twentieth, eighteen hundred and seventy-four, requiring every national bank to keep in lawful money with the Treasurer of the United States a sum equal to five per centum of its circulation, to be held and used for the redemption of its circulating notes; and the balance remaining of the deposits so covered shall, at the close of each month, be reported on the monthly public debt statement as debt of the United States bearing no interest. 76. Redej^lptign of Incomplete Ciecitlatign. — The act of July 28, 1892, provides that the provisions of the Revised Statutes of the United States, providing for the redemption of national-bank notes, shall apply to all national-bank notes that have been or may be issued to, or received by, any national bank, notwithstanding such notes may have been lost by or stolen from the bank and put in circulation without the signa- ture or upon the forged signature of the president or vice- president and cashier. 77. Banks Take Cieculatign at Pae. (Sec. 5196.) Every national banking association formed or existing under this Title shall take and receive at par, for any debt or liability tj it, any and all notes or bills issued by any lawfully organized national banking association. But this provision shall not apply to any association organized for the purpose of issuing notes payable in gold. 78. Issue gf Other Notes Prghibited. (Sec. 5183.) ]^o national banking association shall issue post notes or any other notes to circulate as money than such as are authorized by the provisions of this Title. 79. Feaudulent ISTgtes to be Maeked. — Sec. 5 of the act of June 30, 1876, provides that all United States officers charged with the receipt or disbursement of public moneys, and all officers of national banks, shall stamp or write in plain let- 604 Appendix. ters the word '^ counterfeit," " altered," or '' worthless," upon, all fraudulent notes issued in the form of and intended to cir- culate as money which shall be presented at their places of busi- ness; and if such officer shall wrongfully stamp any genuine note of the United States, or of the national banks, they shall, upon presentation, redeem such notes at the face value thereof. TAX ON CIRCULATION. 80. Tax on circulation. 86. Tax on unauthorized circu- 81. Semiannual return of circu- lation. lation. 87. Semiannual return of taxable 82. Proceedings on default. circulation. 83. Enforcing tax on circulation. 88. Failure to make such return. 84. Refunding excess tax. 89. Tax on converted bank circu- 85. Circulation, when exempt from lation. tax. 90. Tax provisions restricted. 91. Taxation of notes, etc. 80. Tax on Circulation. (Sec. 5214.) In lieu of all ex- isting taxes, every association shall pay to the Treasurer of the United States, in the months of January and July, a duty of one-half of one per centum each half year upon the average amount of its notes in circulation. Section 13 of the act of Congress aj^proved March 14, 1900, provides that every national banking association having on deposit, as jn'ovided by law, bonds of the United States bearing interest at the rate of two per centum per annum, issued under the provisions of this act, to secure its circulating notes, shall pay to the Treasurer of the United States, in the months of January and July, a tax of one-fourth of one per centum each half year upon the average amount of such of its notes in circulation as are based upon the deposit of said two per centum bonds ; and such taxes shall be in lieu of existing taxes on its notes in circulation imposed by section fifty-two hundred and fourteen of the Revised Statutes. 81. Semiannual Return of Circulation. (Sec. 5215.) In order to enable the Treasurer to assess the duties imposed by the preceding sections, each association shall, within ten days from the first days of January and July of each year, make a return, under the oath of its president or cashier, to the Treas- urer of the United States, in such form as the Treasurer may Banking. 605 prescribe, of the average amount of its notes in circulation for the six months next preceding the most recent first day of January or July. Every association which fails so to make such return shall be liable to a penalty of two hundred dollars, to be collected either out of the interest as it may become due such association on the bonds deposited with the Treasurer, or, at his option, in the manner in which penalties are to be col- lected of other corporations under the laws of the United States. 82. Proceedings on Default. (Sec. 5216.) Whenever any association fails to make the half yearly return required by the preceding section, the duties to be paid by such associa- tion shall be assessed upon the amount of notes delivered to such association by the Comptroller of the Currency. 83. Enforcing Tax on Circulation. (Sec. 5217.) Whenever an association fails to pay the duties imposed by the three preceding sections, the sums due may be collected in the manner provided for the collection of United States taxes from other corporations; or the Treasurer may reserve the amount out of the interest, as it may become due, on the bonds de- posited with him by such defaulting association. 84. Kefunding Excess Tax. (Sec. 5218.) In all cases where an association has paid or may pay in excess of what may be or has been found due from it, on account of the duty required to be paid to the Treasurer of theUnited States, the association may state an account therefor, which, on being cer- tified by the Treasurer of the United States, and found correct by the Comptroller of the Treasury, shall be refunded in the ordinary manner by warrant on the Treasury. 85. Circulation, when Exempt from Tax. (Sec. 3411. ^ Whenever the outstanding circulation of any bank, associa- tion, corporation, company, or person is reduced to an amount not exceeding five per centum of the chartered or declared capital existing at the time the same was issued, said circula- tion shall be free from taxation ; and whenever any bank which has ceased to issue notes for circulation deposits in the Treasury of the United States, in lawful money, the amount of its cut- standing circulation, to be redeemed at par, under such regula- tions as the Secretary of the Treasury shall prescribe, it shall be exempt from any tax upon such circulation. 606 Appendix. 86. Tax on Unauthokized Circulation. — Sees. 19, 20, and 21 of the act of February 8, 1875, provide: Sec. 19. That every person, firm, association, other than national-bank associations, and every corporation, State bank, or State banking association shall pay a tax of ten per centum on the amount of their own notes used for circulation and paid out by them. Sec. 20. That every such person, firm, association, corpora- tion, State bank, or State banking association, and also every national banking association, shall pay a like tax of ten per centum on the amount of notes of any person, firm, association, other than a national banking association, or of any corporation, State bank, or State banking association, or of any town, city, or municipal corporation, used for circulation and paid out by them. Sec. 21. That the amount of such circulating notes, and of the tax due thereon, shall be returned, and the tax paid at the same time, and in the same manner, and with like penalties for failure to return and pay the same, as provided by law for the return and payment of taxes on deposits, capital, and circula- tion imposed by the existing provisions of internal-revenue law. 87. Semiannual Retuen of Taxable Circulation. (Sec. 3414.) A true and complete return of the monthly amount of circulation, as aforesaid, and of the monthly amount of notes of persons, town, city, or municipal corporation. State banks, or State banking associations paid out as aforesaid for the previous six months, shall be made and rendered in duplicate on the first day of December and the first day of June by each of such banks, associations, corporations, companies, or persons, with a declaration annexed thereto, under the oath of such person, or of the president or cashier of such bank, association, corporation, or company, in such form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful statement of the amounts subject to tax, as aforesaid ; and one copy shall be transmitted to the collector of the district in which any such bank, associa- tion, corporation, or company is situated, or in which such person has liis place of business, and one copy to the Commis- sioner of Internal Revenue. Banking. 607 88. Failure to make such Return. (Sec. 3415.) In de- fault of the returns provided in the preceding section the amount of circulation, and notes of persons, town, city, and municipal corporations, State banks, and State banking asso- ciations paid out, as aforesaid, shall be estimated by the Com- missioner of Internal Revenue, upon the best information he can obtain. And for any refusal or neglect to make return and payment any such bank, association, corporation, company, or person so in default shall pay a penalty of two hundred dollars, besides the additional penalty and forfeitures provided in other cases. 89. Tax on Converted Bank Circulation. (Sec. 3416.) Whenever any State bank or banking association has been con- verted into a national banking association, and such national banking association has assumed the liabilities of such State bank or banking association, including the redemption of its bills, by any agreement or understanding whatever with the representatives of such State bank or banking association, such national banking association shall be held to make the required return and payment on the circulation outstanding, so long as such circulation shall exceed five per centum of the capital before such conversion of such State bank or banking associa- tion. 90. Tax Provisions Restricted. (Sec. 3417.) The pro- visions of this chapter relating to the tax on the circulation of banks and to their returns, except as contained in sections thirty-four hundred and eleven, thirty-four hundred and twelve, thirty-four hundred and thirteen, and thirty-four hundred and sixteen, and such parts of sections thirty-four hundred and fourteen and thirty-four hundred and fifteen as relate to the tax of ten per centum on certain notes, shall not apply to associations wdiich are taxed under and by virtue of Title " National Banks." 91. Taxation of ^N^otes, etc. (Sec. 3701.) All stocks, bonds, Treasury notes, and other obligations of the United States shall be exempt from taxation by or under State or municipal or local authority. The act of August 13, 1894, provides: (Sec. 1.) The circulating notes of national banking G08 Appendix. as30ciations and United States legal-tender notes and other notes and certifieates of the United States, payable on demand and circulating or intended to circulate as currency, and gold, silver, or other coin shall be subject to taxation as money on hand or on deposit under the laws of any State or Territory: Provided, That any such taxation shall be exercised in the same manner and at the same rate that any such State or Territory shall tax money or currency circulating as money within its jurisdiction. Sec. 2, That the provisions of this act shall not be deemed or held to change existing laws in respect of the taxation of national banking associations. REGULATION OF THE BANKING BUSINESS. 92. Laws governing certain asso- 110. ciations. ' 111, 93. Place of business. 94. Reserve cities and reserve re- 112. requirements. 113. 95. Eeserve not maintained. 96. Reserve agents' balances 114. counted as reserve. 115. 97. Clearin-liouse certificates coiuited as reserve. 116. 98. Redemption fund counted as re- serve. 117. 99. United States note certificates counted as reserve. 118. 100. Redemption of such certifi- 119. cates. 120. 101. United States gold certificates 121. counted as reserve. 102. Reserve recjuirements for gold 122. banks. 123. 103. Reserve deposit in central re- 124. serve city. 104. Additional reserve cities. 125. 105. Additional central reserve 126. cities 127. 106. Real estate. 128. 107. Interest. 108. Penalty for unlawful interest. 129. 109. Surplus and dividends. 130. Restriction on loans. Associations must not hold their own stock. Restriction on bank's liability. Improper use of bank circula- tion. Unearned dividends prohibited. Assessment for impairment of capital. Provision for enforcement of assessment. Prohibition against uncurrent notes. List of shareholders. Reports of condition. Verification of such reports. Reports of dividends and earn- ings. Penalty for failure to report. Reports of other banks. State taxation of national banks. National-bank examiners. Qualification for examiner. Compensation of examiners. Examinations in District of Columbia. Limitation of visitorial powers. Use of " National " in titles. 92. T.k.vws Governing Certain Associations. (Sec. 5157.) The provisions of chapters two, three, and four [three, five, and seven of this edition] of this Title, which are expressed without restrictive words, as applying to " national banking Baistking. 609 associations," or to '" associations," apply to all associations or- ganized to carry on the business of banking under any act of Congi-ess, 93. Place of Busi^stess. (Sec. 5190.) The usual business of each national banking association shall be transacted at an office or banking house located in the place specified in its organization certificate. 94. Reserve Cities axd Reserve Requirements. (Sec. 5191.) Every national banking association in either of the fol- lowing cities: Albany, Baltimore, Boston, Cincinnati, Chicago, Cleveland, Detroit, Louisville, Milwaukee, Xew Orleans, Xew York, Philadelphia, Pittsburgh, Saint Louis, San Francisco, and Washington, shall at all times have on hand, in lawful money of the L'nited States, an amount equal to at least twenty- five per centum of the aggregate amount of its deposits in all respects; and every other association shall at all times have on hand, in lawful money of the United States, an amount equal to at least fifteen per centum of the aggregate amount of its deposits in all respects. 95. Reserve not Maintained. (Sec. 5191.) Whenever the lawful money of any association in any of the cities named shall be below the amount of twenty-five per centum of its de- posits, and whenever the lawful money of any other associa- tion shall be below^ fifteen per centum of its deposits, such association shall not increase its liabilities by making any new loans or discounts otherwise than by discounting or purchasing bills of exchange payable at sight, nor make any dividend of its profits until the required proportion between the aggregate amount of its deposits and its lawful money of the United States has been restored. And the Comptroller of the Cur- rency may notify any association, whose lawful-money re- serve shall be below the amount above required to be kept on hand, to make good such reserve; and if such association shall fail for thirty days thereafter so to make good its reserve of lawful money, the Comptroller may, with the concurrence of the Secretary of the Treasury, appoint a receiver to wind up the business of the association, as provided in section fifty- two hundred and thirty-four. 96. Reserve Agents' Balances Counted as Reserve. (Sec. 5192.) Three-fifths of the reserve of fifteen per centum 39 CIO Appendix. required by the preceding section to be kept may consist of balances due to an association from associations approved bv the Comptroller of the Currency, organized under the act of June three, eighteen hundred and sixty-four, or under this Title, and doing business in the cities of Albany, Baltimore, Boston, Charleston, Chicago, Cincinnati, Cleveland, Detroit, Louisville, Milwaukee, New Orleans, New York, Philadelphia, Pittsburg, Bichmond, Saint Louis, San Francisco, and Wash- ington. 97. Cleakixg-House Cektificates Counted as Beserve. — Clearing-house certificates, representing specie or lawful money specially deposited for the purpose, of any clearing- house association shall also be deemed to be lawful money in the possession of any association belonging to such clearing house holding and o^^^ling such certificate, within the pre- ceding section. 98- Bedemption Fund Counted as Beserve. — Sec. 3 of the act of June 20, 1874, provides that the five per cent re- demption fund, which shall at all times be kept on deposit with the Treasurer of the United States, shall be counted as a part of the lawful reserve. 99. United States Note Certificates Counted as Be- serve. (Sec. 5193.) The Secretary of the Treasuty may re- ceive United States notes on deposit, without interest, from any national banking associations, in sums of not less than ten thousand dollars, and issue certificates therefor in such form as he may prescribe, in denominations of not less than five thousand dollars, and payable on demand in United States notes at the place where the deposits were made. The notes so deposited shall not be counted as part of the law^ful-money reserve of the association; but the certificates issued therefor may be counted as part of its lawful-money reserve, and may be accepted in the settlement of clearing-house balances at the places where the deposits therefor were made. (Bepealed March 14, 1900.) 100. Bedemption of such Certificates. (Sec. 5194.) The power conferred on the Secretary of the Treasury, by the preceding section shall not be exercised so as to create any expansion or contraction of the currency; and United States notes for which certificates are issued under that section, or Ba^^king. 611 other United States notes of like amount, shall be held as special deposits in the Treasury and used only for redemp- tion of such certificates. 101. UiN'iTED States Gold Certificates Counted as Re- SEEVE. — Section 12 of the act of July 12, 1882, provides that the Secretary of the Treasury is authorized and directed to re- ceive deposits of gold coin with the Treasurer or assistant treasurers of the United States, in sums not less than twenty dollars, and to issue certificates therefor in denominations of not less than twenty dollars each, corresponding wdtli the de- nominations of United States notes. The coin deposited for or representing the certificates of deposit shall be retained in the Treasury for the payment of the same on demand. Said certificates shall be receivable for customs, taxes, and all pub- lic dues, and when so received may be reissued; and such cer- tificates, as also silver certificates, when held by any national banking association, shall be counted as part of its lawful re- serve; and no national banking association shall be a member of any clearing house in which such certificates shall not be receivable in the settlement of clearing-house balances: Pro- vided, That the Secretary of the Treasury shall suspend the issue of such gold certificates whenever the amount of gold coin and gold bullion in the Treasury reserved for the redemp- tion of United States notes falls below one hundred millions of dollars; and the provisions of section fifty-two hundred and seven of the Eevised Statutes shall be applicable to the cer- tificates herein authorized and directed to be issued. 102. Reserve Requirements for Gold Banks. (Sec. 5186.) Every association organized for the purpose of issuing notes payable in gold shall at all times keep on hand not less than twenty-five per centum of its outsanding circulation, in gold or silver coin of the United States; and shall receive at par in the payment of debts the gold notes of every other such association which at the time of such payment is redeeming its circulating notes in gold coin of the United States, and shall be subject to all the provisions of this Title: Provided, That, in applying the samo to associations organized for issuing gold notes, the terms " lawful money " and " lawful money of tho United States " shall be construed to mean gold or silver coin of the United States: and the circulation of such association 612 Appendix. shall not be within the limitation of circulation mentioned in this Title. 103. Eesekve Deposit in Central Reserve City. (Sec. 5195.) Each association organized in any of the cities named in section fifty-one hundred and ninety-one may keep one-half of its lawful-money reserve in cash deposits in the city of New York. But the foregoing provisions shall not apply to associa- tions organized and located in the city of San Francisco for the purpose of issuing notes payable in gold. This section shall not relieve any asociation from its liability to redeem its cir- culating notes at its own counter at par in lawful money on demand. 101. Additional Reserve Cities — Sec. 1 of the act of March 3, 1887, as amended by the act of March 3, 1903, pro- vides that whenever three-fourths in number of the national banks located in any city of the United States having a popu- lation of twenty-five thousand people shall make application to the Comptroller of the Curency, in writing, asking that the name of the city in which such banks are located shall be added to the cities named in sections fifty-one hundred and ninety-one and fifty-one hundred and ninety-two of the Re- vised Statutes, the Comptroller shall have authority to grant such request, and every bank located in such city shall at all times thereafter have on hand, in lawful money of the United States, an amount equal to at least twenty-five per centum of its deposits, as provided in sections fifty-one hundred and ninety-one and fifty-one hundred and ninety-fiA^e of the Revised Statutes. 105. Additional Central Reserve Cities. — Sec. 2 of the act of March 3, 1887, provides that whenever three-fourths in number of the national banks located in any city of the United States having a population of two hundred thousand people shall make application to the Comptroller of the Currency, in writing, asking that such city may be a central reserve city, like the city of New York, in which one-half of the lawful- money reserve of the national banks located in other reserve cities may be deposited, as provided in section fifty-one hundred and ninety-five of the Revised Statutes, the Comptroller shall have authority, with the approval of the Secretaiy of the Treas- ury, to grant such request, and every bank located in such city Bankog. 613 shall at all times thereafter have on hand, in la^vful money of the United States, twenty-five per centum of its deposits, as provided in section fifty-one hundred and ninety-one of the Revised Statutes. 106. Real Estate. (Sec. 5137.) A national banking association may purchase, hold, and convey real estate for the following purposes, and for no others : First. Such as shall be necessary for its immediate accom- modation in the transaction of its business. Second. Such as shall be mortgaged to it in good faith by way of security for debts previously contracted. Third. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings. Fourth. Such as it shall purchase at sales under judgments, decrees, or mortgages held by the association, or shall pur- chase to secure debts due to it. But no such association shall hold the possession of any real estate under mortgage, or the title and possession of any real estate purchased to secure any debts due to it, for a longer period than five years. 107. Interest. (Sec. 5197.) Any association may take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State, Territory, or District where the bank is located, and no more, except that where by the laws of any State a different rate is limited for banks of issue organized under State laws, the" rate so limited shall be allowed for associations organized or existing in any such State under this Title. When no rate is fixed by the laws of the State, or Territory", or District, the bank may take, receive, reserve, or charge a rate not exceeding seven per centum, and such interest may be taken in advance, reckoning the days from which the note, bill, or other evidence of debt has to run. And the purchase, discount, or sale of a bona fide bill of exchange, payable at another place than the place of such purchase, discount, or sale, at not more than current rate of exchange for sight drafts in addition to the interest, shall not be considered as taking or receiving a greater rate of in- terest. 614 Appexdix. 108. Penalty foe Unlawful Ia^terest. (Sec. 5198.) The taking, receiving, reserving, or charging a rate of interest greater than is allowed bv the preceding section, when know- ingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carried with it, or which has been agreed to be paid thereon. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover back, in an action in the nature of an action of debt, twice the amount of the interest thus paid from the association taking or receiv- ing the same, provided such action is commenced within two years from the time the usurious transaction occurred. 109. Surplus and Dividends. (Sec. -5199.) The directors of any association may semiannually declare a dividend of so much of the net profits of the association as they shall judge expedient ; but each association shall, before the declaration of a dividend, carry one-tenth part of its net profits of the pre- ceding half year to its surplus fund until the same shall amount to twenty per centum of its capital stock. 110. Restriction on Loans. (Sec. 5200.) The total liabilities to any association, of any person, or of any com- pany, corporation, or firm for money borrowed, including in the liabilities of a company or firm the liabilities of the sev- eral members thereof, shall at no time exceed one-tenth part of the amount of the capital stock of such association actually paid in. But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of com- mercial or business paper actually owned by the person ne- gotiating the same shall not be considered as money borrowed. 111. Associations must not Hold their Own Stock. (Sec. 5201.) Xo association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith ; and stock so purchased or acquired shall, within six months from the time of its pur- chase, be sold or disposed of at public or private sale ; or, in default thereof, a receiver may be appointed to close up the business of the association, according to section fifty-two hun- dred and thirtv-four. Banking. 615 112. Restriction on Bank's Liability. (Sec. 5202.) Xo association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the nature fol- lowing : First. Xotes of circulation. Second. Moneys deposited with or collected by the associa- tion. Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the association, or due thereto. Fourth. Liabilities, to the stockholders of the association for dividends and reserve profits. 113. Improper L"se of Bank Circulation. (Sec. 5208.) Xo association shall, either directly or indirectly, pledge or hypothecate any of its notes of circulation for the purpose of procuring money to be paid in on its capital stock, or to be used in its banking operations, or otherwise ; nor shall any association use its circulating notes, or any part thereof, in any manner or form, to create or increase its capital stock. 114. L'nearned Dividends Prohibited. (Sec. 5204.) Xo association, or any member thereof, shall, during the time it shall continue its banking operations, withdraw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital. If losses have at any time been sustained by any such association equal to or exceeding its undivided profits then on hand, no dividend shall be made ; and no dividend shall ever be made by any association, while it continues its banking operations, to an amount greater than its net profits then on hand, deducting therefrom its losses and bad debts. All debts due to any associations, on which in- terest is past due and unpaid for a period of six months, unless the same are well secured, and in process of collection, shall be considered bad debts within the meaning of this section. But nothing in this section shall prevent the reduction of the capital stock of the association under section fifty-one hundred and forty-three. 115. Assessment for Impairment of Capital. (Sec. 5205.) Every association which shall have failed to pay up 616 Appendix. its capital stock, as required hj law, and every association whose capital stock shall have become "impaired by losses or other- wise, shall, within three months after receiving notice thereof from the Comptroller of the Currency, pay the deficiency in the capital stock, by assessment upon the shareholders pro rata for the amount of capital stock held by each ; and the Treasurer of the United States shall withhold the interest upon all bonds held by him in trust for any such association, upon notification from the Comptroller of the Currency, until otherwise notified by him. If any such association shall fail to pay up its capital stock, and shall refuse to go into liquida- tion, as provided by law, for three months after receiving no- tice from the Comptroller, a receiver may be appointed to close up the business of the association, according to the provisions of section fifty-two hundred and thirty-four. 116. Provision foe Enforcement of Assessment. — Sec. 4 of the act of June 30, 1876, provides that if any share- holder or shareholders of a bank shall neglect or refuse, after three months' notice, to pay the assessment, as provided in this iL-cction, it shall be the duty of the board of directors to cause a sufficient amount of the capital stock of such shareholder or shareholders to be sold at public auction (after thirty days' notice shall be given by posting such notice of sale in the office of the bank and by publishing such notice in a newspaper of the city or toA\Ti in which the bank is located, or in a newspaper pub- lished nearest thereto) to make good the deficiency; and the balance, if any, shall be returned to such delinquent shareholder or shareholders. 117. PROniBITION AGAINST UnCURRENT J^OTES. {S'EC. 5206.) Xo association shall at any time pay out on loans or discounts, or in purchasing drafts or bills of exchange, or in payment of deposits, or in any other mode pay or put in cir- culation the notes of any bank or banking association which are not, at any such time, receivable, at par, on deposit, and in payment of debts by the association so paying out or circulat- ing such notes ; nor shall any association knowingly pay out or put in circulation any notes issued by any bank or banking as- sociation which at the time of such paying out or ])utting in circulation is not redeeming its circulating notes in lawful money of the United States. Banking. 617 118. List of Shaeeholdees. (Sec. 5210.) The president and cashier of every national banking association shall cause to be kept at all times a full and correct list of the names and residences of all the shareholders in the association, and the number of shares held by each, in the office where its business is transacted. Such list shall be subject to the inspection of all the shareholders and creditors of the association, and the officers authorized to assess taxes under State authority, dur- ing business hours of each day in -which business may be legally transacted. A copy of such list, on the first Monday of July of each year, verified by the oath of such president or cashier, shall be transmitted to the Comptroller of the Cur- rency. 119. Eeports of Condition. (Sec. 5211.) Every associ- ation shall make to the Comptroller of the Currency not less than five reports during each year, according to the form which may be prescribed by him, verified by the oath or affirmation of the j^resident or cashier of such association, and attested by the signature of at least three of the directors. Each such report shall exhibit, in detail and under appropriate heads, the resources and liabilities of the associations at the close of business on any past day by him specified, and shall be trans- mitted to the Comptroller within five days after the receipt of a request or requisition therefor from him, and in the same form in which it is made to the Comptroller shall be published in a newspaper published in the place where such association is established, or if there is no newspaper in the place, then in one published nearest thereto in the same county, at the ex- pense of the association ; and such proof of publication shall be furnished as may be required by the Comptroller. The Comp- troller shall also have power to call for special reports from any particular association whenever in his judgment the same are necessary in order to a full and complete knowledge of its condition. 120. Veeification of such Repoets. — The act of Febru- ary 26, 1881, provides that the oath or affirmation required by section fifty-two hundred and eleven of the Kevised Statutes, verifying the returns made by national banks to the Comp- troller of the Currency, when taken before a notary public properly authorized and commissioned by the State in which such notary resides and the bank is located, or any other officer 618 Appendix. having an official seal, authorized in such State to administer oaths, shall be a sufficient verification as contemplated by said section fifty-two hundred and eleven: Provided, That the officer administering the oath is not an officer of the bank. 121. Reports of Dividends and Earnixc;s, (Sec. 5212.) In addition to the reports required by the preceding section, each association shall report to the Comptroller of the Cur- rency, within ten days after declaring any dividend, the amount of such dividend and the amount of net earnings in excess of such dividend. Such reports shall be attested by the oath of the president or cashier of the association. 122. Penalty for Failure to Report. (Sec. 5213.) Every association which fails to make and transmit any report required under either of the two preceding sections shall be subject to a penalty of one hundred dollars for each day after the periods, respectively, therein mentioned, that it delays to make and transmit its report. Whenever any association de- lays or refuses to pay the penalty herein imposed, after it has been assessed by the Comptroller of the Currency, the amount thereof may be retained by the Treasurer of the United States, upon the order of the Comptroller of the Currency, out of the interest, as it may become due to the association, on the bonds deposited with him to secure circulation. All sums of money collected for penalties under this section shall be paid into the Treasury of the United States. 123. Reports of other Banks. — Sec. 6 of the act of June 30, 1876, as amended by acts of March 3, 1901, and June 30, 1902, provides that all banks or savings companies or institu- tions organized under authority of any act of Congress to do business in the District of Columbia shall be, and are hereby, required to make to the Comptroller of the Currency, and publish, all the reports which national banking associations are required to make and publish, under the provisions of sections fifty-two hundred and eleven, fifty-two hundred and twelve, and fifty-two hundred' and thirteen of the Revised Statutes, and shall be subject to the same penalties for failure to make or publish such reports as are therein provided, which penalties may be collected by suit before the supreme court of the Dis- trict of Columbia. 124. State Taxation of ISTational Ranks. (Sec. 5219.) Nothing herein shall prevent all the shares in any association Banking. 619 from being included in the valuation of the personal property of the owner or holder of such shares, in assessing taxes im- posed bv authority of the State within which the association is located ; but the legislature of each State may determine and direct the manner and place of taxing all the shares of national banking associations located within the State, subject only to tliD two restrictions, that the taxation shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such State, and that the shares of any national banking association owned by nonresidents of any State shall be taxed in the city or town where the bank is located, and not elsewhere. Xothing herein shall be construed to exempt the real property of associations from either State, county, or municipal taxes, to the same extent, according to its value, as other real property is taxed. 125. Xational-Bank Examinees. (Sec. 5240.) The Comptroller of the Currency, with the approval of the Secre- tary of the Treasury, shall, as often as shall be deemed neces- sary or proper, appoint a suitable person or persons to make an examination of the affairs of every banking association, who shall have power to make a thorough examination into all the affairs of the association, and in doing so to examine any of the officers and agents thereof on oath; and shall make a full and detailed report of the condition of the association to the Comptroller. 126. Qualification for Examinee. (Sec. 5240.) But no person shall be appointed to examine the affairs of any banking association of which he is a director or other officer. 127. Compensation of Examinees. (Sec. 5240.) All persons appointed to be examiners of national banks not located in the redemption cities specified in section five thousand one hundred and ninety-two of the Revised Statutes of the United States, or in any one of the States of Oregon, California, and Kevada, or in the Territories, shall receive compensation for such examination as follows: For examining national banks having a capital less than one hundred thousand dollars, twenty dollars ; those having a capital of one hundred thousand dollars and less than three hundred thousand dollars, twenty-five dol- lars ; those having a capital of three hundred thousand dollars and less than four hundred thousand dollars, thirty-five dollars ; C20 Appendix. those having a capital of four hundred thousand dollars and less than five hundred thousand dollars, forty dollars; those having a capital of five hundred thousand dollars and less than six hundred thousand dollars, fifty dollars ; those having a capital of six hundred thousand dollars and over, seventy-five dollars ; which amounts shall be assessed by the Comptroller of the Currency upon, and paid by, the respective association so examined, and shall be in lieu of the compensation and mileage heretofore allowed for making said examinations ; and persons appointed to make examinations of national banks in the cities named in section five thousand one hundred and ninety-two of the Revised Statutes of the United States, or in any one of the States of Oregon, California, and Xevada, or in the Territories, shall receive such compensation as may be fixed by the Secret-ary of the Treasury upon the recommendation of the Comptroller of the Currency ; and the same shall be assessed and paid in the manner hereinbefore provided. 128. Examinations in District of Columbia. (Sec. 332.) The Comptroller of the CuiTency, in addition to the powers conferred upon him by law for the examination of national banks, is further authorized, whenever he may deem it useful, to cause examination to be made into the condition of any bank in the District of Columbia organized under act of Congress. The Comptroller, at his discretion, may report to Congress the results of such examination. The expense neces- sarily incurred in any such examination shall be paid out of any appropriation made by Congress for special bank exami- nations. 129. Limitation of Yisitoeial Powers. (Sec. 5241.) Xo association shall be subject to any visitorial powers other than such as are authorized by this Title, or are vested in the courts of justice. 130. Use *OF ''Xational'' IN Titles. (Sec. 5243.) All banks not organized and transacting business under the na- tional currency laws, or under this Title, and all persons or corporations doing the business of bankers, brokers, or sav- ings institutions, except savings banks authorized by Congress to use the word " national " as a part of their corporate name, are proliibited from using the word " national '' as a portion of the name or title of such bank, corporation, firm, or partner- Banking. 621 ship ; and any violation of tins prohibition committed after the third day of September, eighteen hundred and seventy- three, shall subject the party charc;eable therewith to a penalty of fifty dollars for each day during which it is permitted or repeated. EXTENSION OF CORPOEATE EXISTENCE. 131. Corporate existence may be ex- 134. Status not changed by extcn- tended. sion. 132. Consent of two-thirds neces- 135. Dissenting shareholders may sary. withdraw. 133. Special examination of bank. 131. CoKPOEATE Existence may be Extended. — The act of July 12, 1882, provides: (Sec. 1) That any national banking association organized under the acts of February twenty-fifth, eighteen hundred and sixty-three, June third, eighteen hundred and sixty-four, and February fourteenth, eighteen hundred and eighty, or under sections fifty-one hundred and thirty-three, fifty-one hundred and thirty-four, fifty-one hundred and thirty- five, fifty-one hundred and thirty-six, and fifty-one hundred and fifty-four of the Eevised Statutes of the United States, may, at any time within the two years next previous to the date of the expiration of its corporate existence under present law, and with the approval of the Comptroller of the Currency, to be granted as hereinafter provided, extend its period of succession by amending its articles of association for a term of not more than twenty years from the expiration of the period of succes- sion named in said articles of association, and shall have suc- cession for such extended period, unless sooner dissolved by the act of shareholders owning two-thirds of its stock, or unless its franchise becomes forfeited by some violation of law^, or unless hereafter modified or repealed. 132. Consent OF Two-thieds I^ECESSAEY. (Sec. 2.) That such amendment of said articles of association shall be au- thorized by the consent in writing of shareholders owning not less than two-thirds of the capital stock of the association ; and the board of directors shall cause such consent to be certified under the seal of the association, by its president or cashier, to the Comptroller of the Currency, accompanied by an ap- plication made by the president or cashier for the approval of the amended articles of association by the Comptroller; and such amended articles of association shall not be valid until the G22 Appendix. Comptroller shall give to such association a certificate under his hand and seal that the association has complied with all the provisions required to be complied with and is authorized to liave succession for the extended period named in the amended articles of association. 133. Special Examination of Bank. (Sec. 3.) That upon the receipt of the application and certificate of the as- sociation provided for in the preceding section, the Comptroller of the Currency shall cause a special examination to be made^ at the expense of the association, to determine its condition ; and if after such examination or otherwise it appears to him that said association is in a satisfactory condition, he shall grant his certificate of approval provided for in the preceding section, or if it appears that the condition of said association is not satisfactory, he shall withhold such certificate of approval. 134. Status not Changed by Extension. (Sec. 4.) That any association so extending the period of its succession shall continue to enjoy all the rights and privileges and immunities granted and shall continue to be subject to all the duties, lia- bilities, and restrictions imposed by the Revised Statutes of the United States and other acts having reference to national bank- ing associations, and it shall continue to be in all respects the identical association it was before the extension of its period of succession. 135. Dissenting Shareholders May Withdraw. (Sec. 5.) That when any national banking association has amended its articles of association as provided in this act, and the Comp- troller has granted his certificate of approval, any shareholder not assenting to such amendment may give notice in writing to the directors, within thirty days from the date of the certificate of approval, of his desire to withdraw from said association, in which case he shall be entitled to receive from said banking association the value of the shares so held by him, to be as- certained by an appraisal made by a committe of three persons, one to be selected by such shareholder, one by the directors, and the third by the first two ; and in case the value so fixed shall not be satisfactory to any such shareholder, he may ap- peal to the Comptroller of tlie Currency, who shall cause a re- appraisal to be made, which «hall be final and binding; and if said appraisal shall exceed the \^lue fixed by said committee, the bank shall pay the expenses of,said reappraisal, and other- Banking. 623 wise the ajopellant shall pay said expenses ; and the value so ascertained and determined shall be deemed to be a debt due, and be forthwith paid, to said shareholder, from said bank ; and the shares so surrendered and appraised shall, after due notice, be sold at public sale, within thirty days after the final ap- praisal provided in this section: Provided, That in the organi- zation of any banking association intended to replace any exist- ing banking association, and retaining the name thereof, the holders of stock in the expiring association shall be entitled to preference in the allotment of the shares of the new associa- tion in proportion to the number of shares held by them re- spectively in the expiring association. 136. Reextension of Cokpoeate Existence. — The act of Congress, approved April 12, 1902, provides that the Comp- troller of the Currency is hereby authorized- in" the manner provided by, and under the conditions and limitations of the act of July 12, 1882, to extend for a further period of twenty years the charter of any national banking association extended under said act which shall desire to continue its existence after the expiration of its charter. LIQUIDATION AND RECEIVERSHIP, 137. Two-thirds vote required for lol. Bonds sold at private sale. liquidation. 1.52. Appointment and duties of re- 138. Notice of voluntary liquidaton. ceiver. 139. Deposit of lawful money. 153. When receiver may be ap- 140. Xo deposit required for consoli- pointed. dation. 154. Xotice to creditors of insolvent 141. Bonds of liquidating banks. banks. 142. Banks whose existence has ex- 155. Distribution of assets of insol- pired. vent banks. 143. Protest of bank circulation. 15G. Expenses of receivership — how 144. Bonds forfeited if circulation is paid. dishonored. 157. Forfeiture of charter. 145. Bank may enjoin further pro- 15S. Individual liability of directors. ceedings. 159. Receiver may purchase prop- 14G. Where proceedings must bo erty to protect his trust. brought. IGO. Taxes on insolvent national 147. Suspension of business after banks remitted. default. IGl. Appointment and qualification 148. Xotice to present circulation of shareholders' agent. for redemption. 1G2. Duties of shareholders' agent. 149. Bonds sold at public auction. 1G3. Illegal preference of creditors. 150. First lien for redeeming circu- 1G4. Creditor's bill against share- lation. holders. 137. Two-TiiiRDs Vote Required for Liquidation. (Sec. 5220.) Any association may go into liquidation and be closed by the vote of its shareholders owning two-thirds of its stock. 624 Appendix. 138. ^Notice of Voluntary Liquidation. (Sec. 5221.) Whenever a vote is taken to go into liquidation it shall be the duty of the board of directors to cause notice of this fact to be certified, under the seal of the association, by its president or cashier, to the Comptroller of the Currency, and the publica- tion thereof to be made for a period of two months in a news- paper published in the city of New York, and also in a news- paper published in the city or town in which the association is located, or if no newspaper is there published, then in the newspaper published nearest thereto, that tlie association is closing up its affairs, and notifying the holders of its notes and other creditors to present the notes and other claims against the association for payment. 139. Deposit of Lawful Money. (Sec. 5222.) Within six months from the date of the vote to go into liquidation the association shall deposit with the Treasurer of the United States lawful money of the United States suificient to redeem all its outstanding circulation. The Treasurer shall execute duplicate receipts for money thus deposited, and deliver one to the association and the other to the Comptroller of the Cur- rency, stating the amount received by him, and the purpose for which it has been received; and the money shall be paid into the Treasury of the United States, and placed to the credit of such association upon redemption account. 140. Xo Deposit Required for Consolidation. (Sec. 5223.) An association which is in good faith winding up its business for the purpose of consolidating with another associa- tion shall not be required to deposit lawful money for its outstanding circulation; but its assets and liabilities shall be reported by the association with which it is in process of con- solidation. 141. Bonds of Liquidating Banks. (Sec. 5224.) When- ever a sufficient deposit of lawful money to redeem the out- standing circulation of an association proposing to close its business has been made, the bonds deposited by the associa- tion to secure payment of its notes shall be reassigned to it, in the manner prescribed by section fiity-one hundred and sixty-two. And thereafter the association and its shareholders shall stand discharged from all liabilities upon the circulating notes, and those notes shall be redeemed at the Treasury of the Banking. 625 United States. And if any such bank shall fail to make the de- posit and take up its bonds for thirty days after the expiration of the time specified, the Comptroller of the Currency shall have power to sell the bonds pledged for the circulation of said bank at public auction in Xew York City, and, after pro- viding for the redemption and cancellation of said circulation, and the necessary expenses of the sale, to pay over any balance remaining to the bank or its legal representatives. 142. Banks whose Existence has Expired. — Sec. 7 of the act of July 12, 1882, provides that national banking associa- tions whose corporate existence has expired or shall hereafter expire, and which do not avail themselves of the provisions of this act, shall be required to comply with the provisions of sec- tions fifty-two hundred and twenty-one and fifty-two hundred and twenty-two of the Revised Statutes in the same manner as if the shareholders had voted to go into liquidation, as pro- vided in section fifty-two hundred and twenty of the Revised Statutes; and the provisions of sections fifty-two hundred and twenty-four and fifty-two hundred and twenty-five of the Re- vised Statutes shall also be applicable to such associations, ex- cept as modified by this act; and the franchise of such associa- tions is hereby extended for the sole purpose of liquidating their affairs until such affairs are finally closed. 143. Protest of Bank Circulation. (Sec. 5226.) Whenever any national banking association fails to redeem in the lawful money of the United States any of its circulating notes, upon demand of payment duly made during the usual hours of business, at the office of such association, the holder may cause the same to be protested, in one package by a notary public, unless the president or cashier of the associa- tion whose notes are presented for payment offers to waive de- mand and notice of the protest, and, in pursuance of such offer, makes, signs, and delivers to the party making such de- mand an admission in writing, stating the time of the demand, the amount demanded, and the fact of the nonpayment thereof. The notary public, on making such protest, or upon receiving such admission, shall forthwith forward such admission or notice of protest to the Comptroller of the Currency, retaining a copy thereof. If, however, satisfactory proof is produced to the notary public that the payment of the notes demanded 40 (326 Appexdix. is restrained bv order of any conrt of competent jurisdiction, he shall not protest the same. AVhen the holder of any notes causes more than one note or package to be protested on the same day, he shall not receive pay for more than one protest. 144. BoxDs Forfeited if Circulatiox is Dishoxobed. (Sec. 5227.) On receiving notice that any national banking association has failed to. redeem any of its circulating notes, as specified in the preceding section, the Comptroller of the Currency, with the concurrence of the Secretary of the Treas- ury, may appoint a special agent, of "whose appointment im- mediate notice shall be given to such association., who shall immediately proceed to ascertain whether it has refused to pay its circulating notes in the lawful money of the United States, when demanded,, and shall report to the Comptroller the fact so ascertained. If from such protest, and the report so made, the Comptroller is satisfied that such association has refused to pay its circulating notes and is in default, he shall, within thirty days after he has received notice of such failure, declare the bonds deposited by such association forfeited to the United States, and they shall thereupon be so forfeited. 145. Bank May Exjoix Fuether Proceedhstgs. (Sec. 5237.) Whenever an association against which proceedings have been instituted, on account of any alleged refusal to re- deem its circulating notes as aforesaid^ denies having failed to do so, it may, at any time within ten days after it has been notified of the appointment of an agent, as provided in sec- tion fifty-two hundred and twenty-seven, apply to the nearest circuit, or district, or Territorial court of the United States to enjoin further proceedings in the premises; and such court, after citing the Comptroller of the Currency to show cause why further proceedings should not be enjoined, and after the decision of the court or finding of the jury that such associa- tion has not refused to redeem its circulating notes, when legally presented, in the lawful money of the United States, shall make an order enjoining the Comptroller, and any re- ceiver acting under his direction, from all further proceedings on account of such alleged refusal. 146. Where Proceedixgs Must be Brought. (Sec. 736.) All procedings by any national banking association to enjoin the Comptroller of the Currency, under the provisions of any Banking. 627 law relating to national banking associations, shall be had in the district where such association is located. l-iT. Suspension of Business After Default. (Sec. 5228.) After a default on the part of an association to pay any of its circulating notes has been ascertained by the Comp- troller, and notice thereof has been given by him to the as- sociation, it shall not be lawful for the association suffering the same to pay out any of its notes, discount any notes or bills, or otherwise prosecute the business of banking, except to receive and safely keep money belonging to it, and to deliver special deposits. 148. jSTotice to Present Circulation for Redemption. (Sec. 5229.) Immediately upon declaring the bonds of an association forfeited for nonpayment of its notes, the Comp- troller shall give notice, in such manner as the Secretary of the Treasury shall, by general rules or otherwise direct, to the holders of the circulating notes of such association, to present them for payment at the Treasury of the United States; and the same shall be paid as presented in lawful money of the United States; whereupon the Comptroller may, in his dis- cretion, cancel an amount of bonds pledged by such associa- tion equal at current market rates, not exceeding par, to the notes paid. 149. Bonds Sold at Public Auction. (Sec. 5230.) WTienever the Comptroller has become satisfied, by the pro- test or the w^aiver and admission specified in section fifty-two hundred and twenty-six, or by the report provided for in sec- tion fifty-two hundred and twenty-seven, that any association has refused to pay its circulating notes, he may, instead of canceling its bonds, cause so much of them as may be neces- sary to redeem its outstanding notes to be sold at public auc- tion in the city of New York, after giving thirty days' notice of such sale to the association. 150. First Lien for Redeeming Circulation. (Sec. 5230.) For any deficiency in the proceeds of all the bonds of an association, when thus sold, to reimburse to the United States the amount expended in paying the circulating notes of the association, the United States shall have a paramount lien upon all its assets; and such deficiency shall be made good out of such assets in preference to any and all other claims what- 628 Appendix. soever, except the necessarr costs and expenses of administer- ing the same. 151. BoK^Ds Sold at Private Sale. (Sec. 5231.) The Comptroller may, if he deems it for the interest of the United States, sell at private sale any of the bonds of an association shown to have made default in paying its notes, and receive therefor either money or the circulating notes of the associa- tion. But no such bonds shall be sold by private sale for less than par, nor for less than the market value thereof at the time of sale; and no sales of any such bonds, either public or private, shall be complete until the transfer of the bonds shall have been made with the formalities prescribed by sections fifty-one hundred and sixty-two, fifty-one hundred and sixty- three, and fifty-one hundred and sixty-four. 152. Appoixtmeistt and Duties of Receiver. (Sec. 5234.) On becoming satisfied, as specified in sections fifty- two hundred and twenty-six and fifty-two hundred and twenty- seven, that any association has refused to pay its circulating notes as therein mentioned, and is in default, the Comptroller of the Currency may forthwith appoint a receiver, and require of him such bond and security as he deems proper. Such re- ceiver, under the direction of the Comptroller, shall take pos- session of the books, records, and assets of every description of such association, collect all debts, dues and claims belonging to it, and, upon the order of a court of record of competent juris- diction, may sell or compound all bad or doubtful debts, and, on a like order, may sell all the real and personal property of such association, on such terms as the court shall direct; and may, if necessary to pay the debts of such association, en- force the individual liability of the stockholders. Such re- ceiver shall pay over all money so made to the Treasurer of the United States, subject to the order of the Comptroller, and also make report to the Comptroller of all his acts and pro- ceedings. 153. When Receiver May be Appointed. — Sec. 1 of the act of June 30, 1876, provides that whenever any national banking association shall be dissolved, and its rights, privileges, and franchises declared forfeited, as prescribed in section fifty- two hundred and thirty-nine of the Revised Statutes of the United States, or whenever any creditor of any national bank- BaahvIXG. 629 ing association shall have obtained a judgment against it in anv court of record, and made application, accompanied by a certificate from the clerk of the court stating that such judg- ment has been rendered and has remained unpaid for the space of thirty davs, or whenever the Comptroller shall become satis- fied of the insolvency of the national banking association, he may, after due examination of its affairs, in either case, ap- point a receiver, who shall proceed to close up such associa- tion, and enforce the personal liability of the shareholders, as provided in section fifty-two hundered and thirty-four of said statutes. A receiver may also be appointed, under the provisions of section fifty-two hundred and thirty-four of the Revised Stat- utes of the United States, for the following violations of law: AVhere the capital stock of a national bank has not been fully paid in and it is thus reduced below the legal minimum and remains so for thirty days. (Sec. 5141, R. S.) For failure to make good the lawful-money reser^'e within thirty days after notice. (Sec. 5191, R. S.) Where a bank purchases or acquires its own stock, to pre- vent loss upon a debt previously contracted in good faith, and the same is not sold or disposed of within six months from the time of its purchase. (Sec. 5201, R. S.) For failure to make good any impairment in its capital stock and refusing to go into liquidation within three months after receiving notice. (Sec. 5205, R. S.) For false certification of checks by any officer, clerk, or agent. (Sec. 5208, R. S.) 154. XoTiCE TO Ceeditoes of Ix'solvent Banks. (Sec. 5235.) The Comptroller shall, upon appointing a receiver, cause notice to be given, by advertisement in such newspapers as he may direct, for three consecutive months, calling on all persons who may have claims against such association to pre- sent the same and to make legal proof thereof. 155. Distribution of Assets of Insolvent Banks. (Sec. 5236.) From time to time, after full provision has been first made for refunding to the United States any deficiency in re- deeming the notes of such association, the Comptroller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to 630 Appendix. his satisfaction or adjudicated in a court of competent juris- diction, and, as the proceeds of the assets of such association are paid over to him, shall make further dividends on all claims previously proved or adjudicated ; and the remainder of the proceeds, if anv, shall be paid over to the shareholders of such association, or their legal representatives, in proportion to the stock by them respectively held. 156. Expenses of Receivership — How Paid. (Sec. 5238.) xVll fees for protesting the notes issued by any national banking association shall be paid by the person procuring the protest to be made, and such association shall be liable there- for; but no part of the bonds deposited by such association shall be applied to the payment of such fees. All expenses of any preliminary or other examinations into the condition of any association shall be paid by such association. All expenses of any receivership shall be paid out of the assets of such asso- ciation before distribution of the proceeds thereof. 157. Forfeituke of Charter. (Sec. 5239.) If the di- rectors of any national banking association shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate, any of the provisions of this Title, all the rights, privileges, and franchises of the asso- ciation shall be thereby forfeited. Such violation shall, how- ever, be determined and adjudged by a proper circuit, district, or Territorial court of the United States, in a suit brought for that purpose by the Comptroller of the Currency, in his own name, before the association shall be declared dissolved. 158. Individual Liability of Directors. (Sec. 5239.) And in cases of such violation every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person shall have sustained in consequence of such violation. 159. Eeceiver May Purchase Property to Protect His Trust.— The act of March 29, 1880, provides: (Sec. 1.) That whenever the receiver of any national bank duly ap- pointed by the Comptroller of the Currency, and who shall have duly qualified and entered upon the discharge of his trust, shall find it in his opinion necessary, in order to fully protect and benefit his said trust, to the extent of any and all equities Banking. 631 that such trust may have in any property, real or personal, by reason of any bond, mortgage, assignment, or other proper legal claim attaching thereto, and which said property is to be sold under any execution, decree of foreclosure, or proper order of any court of jurisdiction, he may certify the facts in the case, together with his opinion as to the value of the property to be sold and the value of the equity his said trust may have in the same, to the Comptroller of the Currency, together with a re- quest for the right and authority to use and employ so much of the money of said trust as may be necessary to purchase such property at such sale. Sec. 2. That such request, if approved by the Comptroller of the Currency, shall be, together with the certificate of facts in the case and his recommendation as to the amount of money which in his judgment should be so used and employed, sub- mitted to the Secretary of the Treasury, and if the same shall likewise be approved by him the request shall be by the Comp- troller of the Currency allowed, and notice thereof, with copies of the request, certificate of facts, and indorsement of ap- provals, shall be filed with the Treasurer of the United States. Sec. 3. That whenever any such request shall be allowed as hereinbefore provided, the said Comptroller of the Currency shall be, and is, empowered to draw upon and from such funds of any such trust as may be deposited with the Treasurer of the United States for the benefit of the bank in interest to the amount as may be recommended and allowed and for the pur- pose for which such allowance was made: Provided, hoivever^ That all payments to be made for or on account of the pur- chase' of any such property and under any such allowance shall be made by the Comptroller of the Currency direct, with the approval of the Secretary of the Treasury, for such purpose only and in such manner as he may determine and order. 160. Taxes on Insolvent j^J^ational Banks Remitted. — The act of March 1, 1879, provides that whenever and after any bank has ceased to do business by reason of insolvency or bank- ruptcy no tax shall be assessed or collected, or paid into the Treasury of the United States, on account of such bank, which shall diminish the assets thereof necessary for the full payment of all its depositors ; and such tax shall be abated from sucii national banks as are found by the Comptroller of the Cur- G32 Appendix. rencj to be insolvent ; and the Commissioner of Internal Revenue, wlien the facts shall so ajDpear to him, is authorized to remit so much of said tax against insolvent State and savings banks as shall be found to affect the claims of their depositors. 161. Appointment and Qualification of Shakeiioldees' Agent. — Sec. 3 of the act of June 30, 1876, as amended by acts of August 3, 1892, and March 2, 1897, provides that when- ever any association shall have been or shall be placed in the hands of a receiver, as provided in section fifty- two hundred and thirty-four and other sections of the Revised Statutes of the United States, and when, as provided in section fifty-two hundred and thirty-six thereof, the Comptroller of the Cur- rency shall have paid to each and every creditor of such asso- ciation, not including shareholders who are creditors of such association, whose claim or claims as such creditor shall have been proved or allowed as therein prescribed, the full amount of such claims, and all expenses of the receivership and the redemption of the circulating notes of such association shall have been provided for by depositing lawful money of the United States with the Treasurer of the United States, the Comj^troller of the Currency shall call a meeting of the share- holders of such association by giving notice thereof for thirty days in a newspaper published in the town, city, or county where the business of such association was carried on, or if no newspaper is there published, in the newspaper published nearest thereto. At such meeting the shareholders shall de- termine whether the receiver shall be continued and shall wind up the affairs of such association, or whether an agent shall be elected for that purpose, and in so determining the said share- holders shall vote by ballot, in person or by proxy, each share of stock entitling the holder to one vote, and the majority of the stock in value and number of shares shall be necessary to de- termine whether the said receiver shall be continued, or whether an agent shall be elected. In case such majority shall deter- mine that the said receiver shall be continued, the said receiver shall thereupon proceed with the execution of his trust, and shall sell, dispose of, or otherwise collect the assets of the said association, and shall possess all the powers and authority, and be subject to all the duties and liabilities originally conferred or imposed upon him by his appointment as such receiver, so Banking. 633 far as t>he same remain applicable. In case the said meeting shall, by the vote of a majority of the stock in value and num- ber of shares, determine that an agent shall be elected, the said meeting shall thereupon proceed to elect an agent, voting by ballot, in person or by proxy, each share of stock entitling the holder to one vote, and the person who shall receive votes repre- senting at least a majoritj^ of stock in value and number shall be declared the agent for the purposes hereinafter provided; and whenever any of the shareholders of the association shall, after the election of such agent, have executed and filed a bond to the satisfaction of the Comptroller of the Currency, con- ditioned for the payment and discharge in full of each and every claim that may thereafter be proved and allowed by and before a competent court, and for the faithful performance of all and singular the duties of such trust, the Comptroller and the receiver shall thereupon transfer and deliver to such agent all the undivided or uncollected or other assets of such associa- tion then remaining in the hands or subject to the order and control of said Comptroller and said receiver, or either of them ; and for this purpose said Comptroller and said receiver are hereby severally empowered and directed to execute any deed, assignment, transfer, or other instrument in writing that may be necessary and proper ; and upon the execution and delivery of such instrument to the said agent the said Comptroller and the said receiver shall by virtue of this act be discharged from any and all liabilities to such association and to each and all the creditors and shareholders thereof. 162. Duties of Shareholders' Agent. — Sec. 3 of the act of June 30, 1876, as amended by acts of August 3, 1892, and March 2, 1897, provides: Upon receiving such deed, assign- ment, transfer, or other instrument, the person elected such agent shall hold, control, and dispose of the assets and property of such association which he may receive under the terms hereof for the benefit of the shareholders of such association, and he may in his o^^Tl name, or in the name of such association, sue and be sued and do all other lawful acts and things neces- sary to finally settle and distribute the assets and property in his hands, and may sell, compromise, or compound the debts due to such association, with the consent and approval of the C34: Appendix. circuit or district court of the United States for the district where the business of such association was carried on, and shall at the conclusion of his trust render to such district or circuit court a full account of all his proceedings, receipts, and ex- penditures as such agent, which court shall, upon due notice, settle and adjust such accounts and discharge said agent and the sureties upon said bond. And in case any such agent so elected shall refuse to serve, or die, resign, or be removed, any shareholder may call a meeting of the shareholders of such association in the town, city, or village where the business of the said association was carried on, by giving notice thereof for thirty days in a newspaper published in said town, city, or village, or if no newspaper is there published, in the newspaper published nearest thereto, at which meeting the shareholders shall elect an agent, voting by ballot, in person or by proxy, each share of stock entitling the holder to one vote, and when such agent shall have received votes representing at least a majority of the stock in value and number of shares, and shall have executed a bond to the. shareholders conditioned for the faithful performance of his duties, in the penalty fixed by the shareholders at said meeting, with two sureties, to be approved by a judge of a court of record, and file said bond in the office of the clerk of a court of record in the county where the busi- ness of said association was carried on, he shall have all the rights, powers, and duties of the agent first elected as herein- before provided. At any meeting held as hereinbefore pro- vided administrators or executors of deceased shareholders may act and sign as the decedent might have done if living, and guardians of minors and trustees of other persons may so act and sign for their ward or wards or cestui que trust. The proceeds of the assets or property of any such association which may be undistributed at the time of such meeting or may be subsequently received shall be distributed as follows : " First. To pay the expenses of the execution of the trust to the date of such payment. " Second. To repay any amount or amounts which have been paid in by any shareholder or shareholders of such association upon and by reason of any and all assessments made upon the stock of such association by the order of the Comptroller of the Baxkixg. 635 Currency in accordance with the provisions of the statutes of the United States ; and " Third. The balance ratably among such stockholders, in proportion to the number of shares held and owned by each. Such distribution shall be made from time to time as the pro- ceeds shall be received and as shall be deemed advisable by the said Comptroller or said agent." 163. Illegal Preference of Creditors. (Sec. 5242.) All transfers of the notes, bonds, bills of exchange, or other evidences of debt owing to any national banking association, or of deposits to its credit ; all assignments of mortgages, sure- ties on real estate, or of judgments or decrees in its favor ; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its shareholders or creditors ; and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in the manner pre- scribed by this chapter, or w'ith a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void. ISTo attachment, injunction, or execution shall be issued against such association or its prop- erty before final judgment in any suit, action, or proceeding in any State, county, or municipal court. 164. Creditor's Bill Against Shareholders. — Sec. 2 of the act of June 30, 1876, provides that when any national bank- ing association shall have gone into liquidation under the pro- visions of section five thousand two hundred and twenty of said statutes, the individual liability of the shareholders provided for bv section fiftv-one hundred and fiitv-one of said statutes may be enforced by any creditor of such association, by bill in equity in the nature of a creditor's bill, brought by such cred- itor on behalf of himself and of all other creditors of the asso- ciation, against the shareholders thereof, in any court of the United States having original jurisdiction in equity for the district in which such association may have been located or established. 636 ArpEXDix. CRIMES, JURISDICTION, ETC. 165. Penalty for improper counter- 174. Penalty for having such im- signing or delivering circula- pressions. tion. 175. Penalty for dealing in counter- 166. Penalty for pledging United feit circulation. States notes or bank circu- 170. Penalty for issuing circulation lation. of expired associations. 167. Penalty for imitating bank cir- 177. False certification of checks. culation for advertising pur- 178. Penalty for false certification poses. of checks. 168. Penalty for mutilating circula- 179. Penalty for official malfeasance. tion.' , 180. Jurisdiction of circuit courts to 169. Penalty for counterfeiting cir- enjoin Comptroller. culation. 181. General jurisdiction of na- 170. What are obligations of the tional-bank cases. United States. 182. Sealed certificates of Comp- 171. Penalty for illegal possession troller are competent evi- or use of material for circu- dence. lation. 183. Certified copy of organization 172. Penalty for passing counter- certificate as evidence. feit circulation. 184. Suits against Unite dStates 173. Penalty for taking unauthor- oflicers or agents. ized' impressions of tools. 185. Indian Territory. 165. Penalty for Improper Countersigning or De- livering Circulation. (Sec. 5187.) Xo officer acting binder the provisions of this Title shall countersign or deliver to any association, or to any other company or person, any circulating notes contemplated by this Title, except in accord- ance with the true intent and meaning of its provisions. Every officer who violates this section shall be deemed guilty of a high misdemeanor, and shall be fined not more than double the amount so countersigned and delivered, and imprisoned not less than one year and not more than fifteen years. 166. Penalty for Pledging United States INotes or Bank Circulation. (Sec. 5207.) No association shall hereafter offer or receive United States notes or national-bank notes as security or as collateral security for any loan of money, or for a consideration agree to withhold the same from use, or offer or receive the custody or promise of custody of such notes as security, or as collateral security, or consideration for any loan of money. Any association offending against the pro- visions of this section shall be deemed guilty of a misdemeanor, and shall be fined not more than one thousand dollars and a further sum equal to one-third of the money so loaned. The officer or officers of any association who shall make any such loan shall be liable for a further sum equal to one-quarter of Banking. 637 the money loaned; and anv fine or penalty incurred bv a vio- lation of this section shall be recoverable for the benefit of the party bringing such suit. Sec. 12 of the act of Julv 12, 1882, provides that the provisions of this section shall apply to the United States certificates of gold and silver coin. 167. Penalty for Imitating Bank Circulation for Advertising Purposes. (Sec. 5188.) It shall not be lawful to design, engrave, print, or in any manner make or execute, or to utter, issue, distribute, circulate, or use any business or professional card, notice, placard, circular, handbill, or adver- tisements in the likeness or similitude of any circulating note or other obligation or security of any banking association or- ganized or acting under the laws of the United States which has been or may be issued under this Title, or any act of Con- gress, or to write, print, or otherwise impress upon any such note, obligation, or security any business or professional card, notice, or advertisement, or any notice or advertisement of any matter or thing whatever. Every person who violates this section shall be liable to a penalty of one hundred dollars, re- coverable one-half to the use of the informer. 168. Penalty for Mutilating Circulation. (Sec. 5189.) Every person who mutilates, cuts, defaces, disfigures, or perforates with holes, or unites or cements together, or does any other thing to any bank bill, draft, note, or other evidence of debt, issued by any national banking association, or who causes or procures the same to be done, with intent to render such bank bill, draft, note, or other evidence of debt unfit to be reissued by said association, shall be liable to a penalty of fifty dollars, recoverable by the association. 169. Penalty for Counterfeiting Circulation. (Sec. 5415.) Every person who falsely makes, forges, or counter- feits, or causes or procures to be made, forged, or counter- feited, or willingly aids or assists in falsely making, forging, or counterfeiting, any note in imitation of, or purporting to be in imitation of, the circulating notes issued by any banking as- sociation now or hereafter authorized and acting under the laws of the United States ; or who passes, utters, or publishes, or attempts to pass, utter, or publish, any false, forged, or counterfeited note purporting to be issued by any such associa- tion doing a banking business, knowing the same to be falsely G38 Appendix. made, forged, or counterfeited, or who falsely alters, or causes or procures to be falsely altered, or willingly aids or assists in falsely altering any such circulating notes, or passes, utters, or publishes, or attempts to pass, utter, or publish as true, any falsely altered or spurious circulating note issue, or puiporting to have been issued, by any such banking association, knowing the same to be falsely altered or spurious, shall be imprisoned at hard labor not less than five years nor more than fifteen years, and fined not more than one thousand dollars. 170. What aee Oblicjatioxs of the U:n"ited Stx^tes. (Sec. 5413.) The words "obligation or other security of the United States" shall be held to mean all bonds, certificates of indebtedness, national-bank currency, coupons. United States notes, Treasury notes, fractional notes, certificates of deposit, bills, checks, or drafts for money drawn by or upon authorized officers of the United States, stamj)s and other representatives of value, of whatever denomination, which have been or may [be] issued under any act of Congress. 171. Penalty for Illegal Possession ok use of Ma- terial for Circulation. (Sec. 5430.) Every person having control, custody, or possession of any plate, or any part thereof, from which has been printed, or which may be prepared by direction of the Secretary of the Treasury for the purpose of printing, any obligation or other security of the United States, who uses such plate, or knowingly suffers the same to be used for the purpose of printing any such or similar obligation, or other security, or any part thereof, except as may be printed for the use of the United States by order of the proper officer thereof ; and every person who engraves, or causes or procures to be engraved, or assists in engraving, any plate in the like- ness of any plate designed for the printing of such obligation or other security, or who sells any such plate, or who brings into the United States from any foreign place any such plate, except under the direction of the Secretary of the Treasury or other proper officer, or with any other intent, in either case, than that such plate be used for the printing of the obligations or other securities of the United States ; or who has in his con- trol, custody, or possession any metallic plate engraved after the similitude of any plate from which any such obligation or other security has been printed, with intent to use such plate, Banking. 639 or suffer the same to be used in forging or counterfeiting any such obligation or other security, or any part thereof ; or who has in his possession or custody, except under authority from the Secretary of the Treasur)^ or other proper officer, any ob- ligation or other security, engraved and printed after the simili- tude of any obligation or other security issued under the au- thority of the United States, with intent to sell or otherwise use the same; and every person who prints, photographs, or in any other manner makes or executes, or causes to be printed, photographed, made, or executed, or aids in printing, photog- raphing, making, or executing any engraving, photograph, print, or impression in the likeness of any such obligation or other security, or any part thereof, or who sells any such en- graving, photograph, print, or impression, except to the United States, or who brings into the United States from any foreign place any such engraving, photograph, print, or impression, ex- cept by direction of some proper officer of the United States, or who has or retains in his control or possession, after a dis- tinctive paper has been adopted by the Secretary of the Treas- ury for the obligations and other securities of the United States, any similar paper adapted to the making of any such obligation or other security, except under the authority of the Secretary of the Treasury or some other proper officer of the United States, shall be punished by a fine of not more than five thousand dollars, or by imprisonment at hard labor not more than fifteen years, or by both. 172. Penalty for Passing Counterfeit Circulation. (Sec. 5431.) Every person who, with intent to defraud, passes, utters, publishes, or sells, or attempts to pass, utter, publish, or sell, or bring into the United States with intent to pass, publish, utter, or sell, or keeps in possession or conceals, "with like intent, any falsely made, forged, counterfeited, or altered obligation, or other security of the United States, shall be punished by a fine of not more than five thousand dollars and by imprisonment at hard labor not more than fifteen years. 173. Penalty for Taking Unauthorized Impression of Tools. (Sec. 5432.) Every person who, without authority from the United States, takes, procures, or makes, upon lead, foil, wax, plaster, paper, or any other substance or material, an impression, stamp, or imprint of, from, or by the use of, any 640 Appendix. bedplate, bedpiece, die, roll, plate, seal, type, or other tool, implement, instrument, or thing nsed or fitted, or intended to be used, in printing, stamping, or impressing, or in making other tools, implements, instruments, or things, to be used, or fitted or intended to be used, in printing, stamping, or impress- ing any kind or description of obligation or other security of the United States, now authorized or hereafter to be author- ized by the United States, or circulating note or evidence of debt of any banking association under the laws thereof, shall be punished by imprisonment at hard labor not more than ten years, or by a fine of not more than five thousand dollars, or both. 174. Penalty fok Having such Impkessions. (Sec. 5433.) Every person who, with intent to defraud, has in his possession, keeping, custody, or control, without authority from the United States, any imprint, stamp, or impression, taken or made upon any substance or material whatsoever, of any tool, implement, instrument, or thing used, or fitted, or in- tended to be used for any of the purposes mentioned in the preceding section ; or who, with intent to defraud, sells, gives, or delivers any such imprint, stamp, or impression to any other person, shall be punished by imprisonment at hard labor not more than ten years, or by a fine of not more than five thou- sand dollars. 175. Penalty for Dealing in CountePvFeit Circulation. (Sec. 5434.) Every person who buys, sells, exchanges, trans- fers, receives, or delivers any false, forged, counterfeited, or altered obligation or other security of the United States, or circulating note of any banking association organized or acting under the laws thereof, which has been or may hereafter be issued by virtue of any act of Congress, with the intent that the same be passed, published, or used as true and genuine, shall be imprisoned at hard labor not more than ten years, or fined not more than five thousand dollars, or both. 176. Penalty for Issuing Circulation of Expired Associations. (Sec. 5437.) Tn all cases where the charter of any corporation which has been or may be created by act of Congress has expired or may hereafter expire, if any director, officer, or agent of the corporation, or any trustee thereof or any agent of such trustee, or any person having in his posses- BaxivIXg. 641 sion or under his control the property of the corporation for the purpose of paying or redeeming its notes and obligations, knowingly issues, reissues, or utters as money, or in any other wav knowingly puts in circulation any bill, note, check, draft, or other security purporting to haye been made by any such ecrporation whose charter has expired, or by any officer thereof, or jDurporting to have been made under authority derived therefrom, or if any person knowingly aids in any such act, he shall be punished by a fine of not more than ten thousand dol- lars, or by imprisonment not less than one year nor more than fiye years, or by both such fine and imprisonment. But nothing herein shall be construed to make it unlawful for any person, not being such director, officer, or agent of the cor- poration, or any trustee thereof, or any agent of such trustee, or any person haying in his possession or under his control the property of the corporation for the purpose hereinbefore set forth, who has received or may hereafter receive such bill, note, check, draft, or other security, bona fide and in the ordinary transactions of business, to utter as money and otherwise cir- culate the same. 177. False Certification of Checks. (Sec. 5:208.) It shall be unlawful for any officer, clerk, or agent of any national banking association to certify any check drawn upon the association unless the person or company drawing the check has on deposit with the association, at the time such check is certified, an amount of money equal to the amount specified in such check. Any check so certified by duly authorized officers shall be a good and valid obligation against the association; but the act of any officer, clerk, or agent of any association, in violation of this section, shall subject such bank to the liabili- ties and proceedings on the part of the Comptroller as provided for in section fifty-two hundred and thirty-four. 178. Pexalty foe False Certification of Checks. — Sec. 13 of the act of July 12, 1882, provides that any officer, clerk, or agent of any national banking association who shall willfulh" violate the provisions of section fifty-two hundred and eight of the Revised Statutes of the United States, or who shall ' resort to any device, or receive any fictitious obligation, direct or collateral, in order to evade the provisions thereof, or who 41 042 Appendix. sliall certify clieeks before the amount thereof shall have been regularly entered to the credit of the dealer upon the books of the banking association, shall be deemed guilty of a misde- meanor and shall, on conviction thereof in any circuit or dis- trict court of the United States, be fined not more than five thousand dollars, or shall be imprisoned not more than five years, or both, in the discretion of the court. 179. Penalty for Official M.^lfeasancf. (Sec. 5200.) Every president, director, cashier, teller, clerk, or agent of any association who embezzles, abstracts, or willfully misapplies any of the moneys, funds, or credits of the association, or who, without authority from the directors, issues or puts in circu- lation any of the notes of the association ; or who, without such authority, issues or puts forth any certificate of deposit, draws any order or bill of exchange, makes any acceptance, assigns any note, bond, draft, bill of exchange, mortgage, judgment, or decree; or who makes any false entry in any book, report, or statement of the association, with intent, in either case, to injure or defraud the association or any other company, body politic or corporate, or any individual person, or to deceive any officer of the association or any agent appointed to examine the afi"airs of any such association; and every person who with like intent aids or abets any officer, clerk, or agent in any violation of this section, shall be deemed guilty of a misdemeanor, and shall be imprisoned not less than five years nor more than ten. 180. Jurisdiction of Circuit Courts to Enjoin Comp- troller. (Sec. 629.) The circuit courts shall have original jurisdiction of all suits brought by any banking association established in the district for which the court is held, under the provisions of Title " Tub Xational Banks," to enjoin the Comptroller of the Currency, or any receiver acting under his direction, as provided by said Title. 181. General Jurisdiction of National-Bank Cases. — Sec. 4 of the act of July 12, 1882, provides that the jurisdiction for suits hereafter brought by or against any association estab- lished under any law providing for national banking associa- tions, except suits between them and the United States or its oificers and agents, shall be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any law of the United States which do or might do banking Banking. 643 business where such national banking associations may be doing business when such suits may be begun. And all laws and parts of laws of the United States inconsistent with this proviso be, and the same are hereby, repealed. Sec. 4 of the act of March 3, 1887, provides that all national banking associations estab- lished under the laws of the United States shall, for the pur- poses of all actions by or against them, real, personal, or mixed, and all suits in equity, be deemed citizens of the States in which they are respectively located; and in such cases the cir- cuit and district courts shall not have jurisdiction other than such as they would have in cases between individual citizens of the same State. The provisions of this section shall not be held to affect the jurisdiction of the courts of the United States in cases commenced by the United States or by direction of any officer thereof, or cases for winding up the affairs of any such bank. 182. Sealed Cektificates of Comptroller aee Compe:- TENT Evidence. (Sec. 884.) Every certificate, assignment, and conveyance executed by the Comptroller of the Currency, in pursuance of law, and sealed with his seal of office, shall be received in evidence in all places and courts; and all copies of papers in his office, certified by him and authenticated by the said seal, shall in all cases be evidence equally with the originals. An impression of such seal directly on the paper shall be as valid as if made on wax or wafer. 183. Cektified Copy of Organization Certificate as Evidence. (Sec. 885.) Copies of the organization certificate of any national banking association, duly certified liv the Comp- troller of the Currency and authenticated by his seal of office, shall be evidence in all courts and places within the jurisdiction of the United States of the existence of the association and of every matter which could be proved by the production of the original certificate. 184. Suits Against United States Officers or Agents. (Sec. 380.) All suits and proceedings arising out of the pro- visions of law governing national banking associations, in which the United States or any of its officers or agents shall be par- ties, shall be conducted by the district attorneys of the several districts under the direction and supervision of the Solicitor o£ the Treasury. G-i4 Appendix. 185. Indian Territory. — Sec. 31 of the Act of May 2, 1890, provides that all laws relating to national banking asso- ciations shall have the same force and effect in Indian Territory Qs elsewhere in the United States. TRUST COMPANIES, ETC., DISTRICT OF COLUMBIA. 186. Provision for organization. 20.3. 187. Organization certificate of com- 204. pany. 205. 188. Charter obtained from District 206. Commissioners. 207. 189. Notice of intention to apply for charter. 208. 190. Charter filed with recorder of deeds for the District. 209. 191. Trust companies under Comp- 210. troUer's .supervision. 211. 192. Powers of these companies. 193. Competent to act as trustee, 212. etc. 194. Qualifications of such trustee, 21.3. etc. 195. Security for faithful perform- 214. ance of trust. 196. Privileges extended to existing 215. corporations. 216. 197. Real estate. 198. Period of corporation's exist- ence. 217. 199. Provisions relating to capital stock. 218. 200. Enforcement of subscriptions to stock. 219. 201. Annual report to Comptroller. 202. Tax on gross earnings. 220. Liability for failure to report. Perjury and larceny. Transfer of stock. Liability of stockholders. Money payment of capital stock required. Number and election of direc- tors. Appointment of officers. By-laws. Directors liable for payment of unearned dividends. Directors' liability may be avoided. Responsibility of directors for excess liabilities. Trustee, etc., not liable ou stock assessment. Increase of capital. Certified copy of incorporation certificate competent evi- dence. No bond or other security' i-e- quired of trust companies. District supreme court has jur- isdiction of trust companies. All similar District corpora- tions subject to this act. Provisions for amendment. 186. Provision for Organization. — The act of October 1, 1890, sec. 1, provides that corporations may be formed within the District of Columbia for the purposes hereinafter men- tioned in the following manner: Any time hereafter any num- ber of natural persons, citizens of the United States, not less than twenty-five, may associate themselves together to form a company for the purpose of carrying on in the District of Columbia any one of the three classes of business herein speci- fied, to mt: First. A safe deposit, trust, loan, and mortgage business. Second. A title insurance, loan, and mortgage business. Third. A security, guaranty, indemnity, loan, and mortgage Banking. 645 business: Provided, That the capital stock of any of said com- panies shall not be less than one million of dollars: Provided further, That any of said companies may also do a storage busi- ness when their capital stock amounts to the sum of not less than one million two hundred thousand dollars. 187. Okganization Cektificate of Company. (Sec. 2.) That such persons ffhall, under their hands and seals, execute, before some officer in said District competent to take the ac- knowledgement of deeds, an organization certificate, which shall specifically state — First. Title. — The name of the corporation. Second. Purposes. — The purposes for which it is formed. Third. Period of existence. — The term for which it is to exist, which shall not exceed the term of fifty years, and be subject to alteration, amendment, or repeal by Congress at any time. Fourth. Officers. — The number of its directors, and the names and residences of the officers who for the first year are to manage the affairs of the company. Fifth. Capital stock. — The amount of the capital stock and ito subdivision into shares. 188. Charter Obtained from District Commissioners. (Sec. 3.) That this certificate shall be presented to the Com- missioners of the District, who shall have power and discretion to grant or to refuse to said persons a charter of incorporation upon the terms set forth in the said certificate and the pro- visions of this act. 189. ISToTiCE OF Intention to Apply for Charter. (Sec. 4.) That previous to the presentation of the said certificate to the said Commissioners notice of the intention to apply for such charter shall be inserted in two newspapers of general circulation printed in the District of Columbia at least four times a week for three weeks, setting forth briefly the name of the rsroposed company, its character and object, the names of the proposed corporators, and the intention to make application for a charter on a specified day, and the proof of such publica- tion shall be presented with said certificate when presentation tliereof is made to said Commissioners. 190. Charter Fieed with Recorder of Deeds for the District. (Sec. 5.) That if the charter be granted as afore- 646 Appendix. said it, together with the certificate of the Commissioners granting the same indorsed thereon, shall be tiled for record in the ofhce of the recorder of deeds for the District of Columbia, and shall be recorded by him. On the filing of the said cer- tificate with the said recorder of deeds as herein provided,' ap- proved as aforesaid by the said Commissioners, the persons named therein and their successors shall thereupon and thereby be and become a body corjDorate and politic, and as such shall be vested with all the powers and charged with all the liabilities conferred upon and imposed by this act upon companies organ- ized under the provisions hereof: Provided, liowever, That no corjioration created and organized under the provisions hereof, or availing itself of the provisions hereof as provided in section eleven, shall be authorized to transact the business of a trust company, or any business of a fiduciary character, until it shall have filed with the Comptroller of the Currency a copy of its certificate of organization and charter and shall have obtained from him and filed the same for record with the said recorder of deeds ?l certificate that the capital stock of said company has been paid in and the deposit of securities made with said Comp- troller in the manner and to the extent required by this act. 191. Trust Companies under Comptroller's Super- vision. (Sec. 6.) That all companies organized hereunder, or which shall under the provisions hereof become entitled to transact the business of a trust company, shall report to the Comptroller of the Currency in the manner prescrilied by sections fifty-two hundred and eleven, fifty-two hundred and twelve, and fifty-two hundred and thirteen, Revised Statutes of the United States, in the case of national banks, and all acts amendatory thereof or supplementary thereto, and with similar provisions for compensating examiners, and shall be subject to like penalties for failure to do so. The Comptroller shall have and exercise the same visitorial powers over the affairs of the said corporation as is conferred upon him by section fifty-two himdred and forty of the Revised Statutes of the United States in the case of national banks. He shall also have power, when in his opinion it is necessary, to take possession of any such company for the reasons and in the manner and to the same extent as are provided in the laws of the United States with respect to national banks. Baxkixg. 647 192. Powers of These Compaxies. (Sec. 7.) That all companies organized under this act are hereby declared to be corporations possessed of the powers and functions of corpora- tions generally, and shall have power — First. Contracts. — To make contracts. Second. Suits. — To sue and be sued, implead and be im- pleaded, in any court as fully as natural persons. Third. Seal. — To make and use a common seal and alter the same at pleasure. Fourth. Loans. — To loan money. Fifth. Special powers. — When organized under subdiyision one of the first section of this act to accept and execute trusts of any and every description which may be committed or trans- ferred to them, and to accept the office and perform the duties of a receiver, assignee, executor, administrator, guardian of the estates of minors, with the consent of the guardian of the per- son of such minor, and committee of the estates of lunatics and idiots whenever any trusteeship or any such office or appoint- ment is committed or transferred to them, with their consent, by any person, body politic or corporate, or by any court in the District of Columbia, and all such companies organized under the first subdivision of section one of this act are further au- thorized to accept deposits of money for the purposes desig- nated herein upon such terms as may be agreed upon from time to time with depositors, and to act as agent for the purpose of issuing or countersigning the bonds or obligations of any cor- poration, association, municipality, or State, or other public authority, and to receive and manage any sinking fund on any such terms as may be agTeed upon, and shall have power to issue its debenture bonds upon deeds of trust or mortgages of real estate to a sum not exceeding the face value of said deeds of trust or mortgages, and which shall not exceed fifty per centum of the fair cash value of the real estate covered by said deeds or mortgages, to be ascertained by the Comptroller of the Cur- rencyr But no debenture bonds shall be issued until the securities on which the same are based have been placed in the actual possession of the trustee named in the debenture bonds, who shall hold said securities until all of said bonds are paid ; and when organized under the second subdivision of the first section of this act said company is authorized to insure titles Q-iS Appendix. to real estate aud to transact generally the business mentioned in said subdivision; and when organized under the third sub- division of section one of this act said company is hereby authorized, in addition to the loan and mortgage business therein mentioned, to secure, guaranty, and insure individuals, bodies politic, associations, and corporations against loss by or through trustees, agents, servants, or emj)loyees, and to guar- anty the faithful performance of contracts and of obligations of whatever kind entered into by or on the part of any person or persons, association, corporation or corporations, and against loss of every kind: Provided, That any corporation formed under the provisions of this act when acting as trustee shall be liable to account for the amounts actually earned by the moneys held by it in trust in addition to the principal so held ; but such corporation may be allowed a reasonable compensation for services performed in the care of the trust estate. 193. Competent to Act as Teustee, etc. (Sec. 8.) That in all cases in which application shall be made to any court in the District of Columbia, or wherever it becomes necessary or proper for said court to appoint a trustee, receiver, admin- istrator, guardian of the estate of a minor, or committee of the estate of a lunatic, it shall and may be lawful for said court (but without prejudice to any preference in the order of any such appointments required by existing law) to appoint any such company organized under the first subdivision of section one of this act, w'ith its assent, such trustee, receiver, admin- istrator, committee, or guardian, with the consent of the guard- ian of the person of such minor: Provided, however. That no court or judge Avho is an o\\Tier of or in any manner financially interested in the stock or business of such corporation shall commit by order or decree to any such corporation any trust or fiduciary duty. 194. QualificatiojS's of Such Trustee, etc. (Sec. 9.) That whenever any corporation operating under this act shall be appointed such trustee, executor, administrator, receiver, assignee, guardian, or committee as aforesaid, the president, vice-president, secretary, or treasurer of said company shall take the oath or affirmation now required by law to be made by any trustee, executor, receiver, assignee, guardian, or com- mittee. Banking. 649 105. Security for Faithful Performance of Trust. (Sec. 10.) That when any court shall appoint the said com- pany a trustee, receiver, administrator, or such guardian, or connittee, or shall order the deposit of money or other valu- ables "with said com^^anv, or where any individual or corpora- tion shall apjwint any of said companies a trustee, executor, assignee, or such guardian, the capital stock of said company, subscribed foT or taken, and all property owned by said company, together with the liability of the stockholders and officers as herein provided, shall be taken and considered as the security required by law for the faithful performance of its duties, and shall be absolutely lialde in case of any default whatever. 19(3. Privileges Extended to Existing Corporations. (Sec. 11.) That any safe deposit company, trust company, surety or guaranty company, or title-insurance company now incorporated and operating under the laAvs of the United States or of the District of Columbia, or any of the States, and now doing business in said District, may avail itself of- the pro- visions of this act on filing in the office of the recorder of deeds of the District of Columbia, or with the Comptroller of the Currency, a certificate of its intention to do so, which cer- tificate shall specify which one of the three classes of business set out in section one it will carry on, and shall be verified by the oath of its president to the effect that it has in every respect complied with the requirements of existing law, especially with the provisions of this act; that its capital stock is paid in as provided in section twenty-one of this act and is not impaired, and thereafter such company may exercse all powers and per- form all duties authorized by any one of the subdivisions of section one of this act in addition to the powers now lawfully exercised by such company. 197. Eeal Estate. (Sec. 12.) That any company oper- ating under this act may lease, purchase, hold, and convey real estate, not exceeding in value five hundred thousand dollars, and such in addition as it may acquire in satisfaction of debts due the corporation, under sales, decrees, judgments, and mort- gages. But no such association shall hold the possession of any real estate under foreclosure of mortgage, or the title and pos- session of any real estate purchased to secure any debts due to it, for a longer period than five years. 650 Appe:sdix. 198. Period of Coepokations' Existence. (Sec. 13.) That the charters for incorporations named in this act may be made perpetual, or may be limited in time by their provisions, subject to the approval of Congress. 199. Provisions Relating to Capital Stock. (Sec. 14.) That the capital stock of every such company shall be at least one million dollars, and at least fifty per centum thereof must have been paid in, in cash or by the transfer of assets as here- inafter provided in section twenty-one of this act, before any such company shall be entitled to transact business as a corpora- tion, except with its own members, and before any company organized hereunder shall be entitled to transact the business of a trust company, or to become and act as an administrator, executor, guardian of the estate of a minor, or undertake any other kindred fiduciary duty, it shall deposit, either in money or in bonds, mortgages, deed of trust, or other securities equal in actual value to one-fourth of the capital stock paid in, with the Comptroller of the Currency, to be kept by him upon the trust and for the purposes hereinafter provided; and the said Comptroller may from time to time require an additional de- posit from any such company, to be held upon and for the same trust and purposes, not exceeding, however, in value one-half the i^aid-in capital stock ; and the said Comptroller shall not issue to any corporation the certificate heretofore provided for until said deposit with him of securities required by this sec- tion. Within one year after the organization of any coipora- tion under the provisions of this act, or after any corporation heretofore existing shall have availed itself of the powers and rights given by this act in the manner herein provided for, its entire capital stock shall have been paid in. 200. Enforcement of Subscriptions to Stock. (Sec. 15.) That the capital stock of every such company shall ho divided into shares of one hundred dollars each. It shall be lawful for such company to call for and demand from the stockholders, respectively, all sums of money by them sub- scribed, at such time and in such proportions as its board of directors shall deem proper, witliin the time specified in sec- tion fourteen, and it may enforce payment by all remedie;^ provided by law; and if any stockholder shall refuse or neg- lect to pay any installment as required by a resolution of the Banking. 651 board of directors, after thirty days' notice of tlie same, the said board of directors mar sell at public auction, to the high- est bidder, so many shares of said stock as shall pay said in- stallment, under such general reg-ulations as may be adopted in the by-laws of said company, and the highest bidder shall be taken to be the person who offers to purchase the least num- ber of shares for the assessment due. 201. Annual Report TO Comptroller. (Sec. 16.) That ■every such company shall annually, within twenty days after the first of January of each year, make a report to the Comp- troller of the Currency, which shall be published in a news- paper in the District, which shall state the amount of capital and of the proportion actually paid, the amount of debts, and the gross earnings for the year ending December thirty-first then next previous, together with their expenses, which report shall be signed by the president and a majority of the direct- ors or trustees, and shall be verified by the oath of the presi- dent, secretary, and at least three of the directors or trustees. 202. Tax on Gross Earnings. (Sec. 16.) And said com- pany shall pay to the District of Columbia, in lieu of personal taxes for each next ensuing year, one and a half per centum of its gross earnings for the preceding year, shown by said veri- fied statement, which amount shall be payable to the collector of taxes at the times and in the, manner that other taxes are payable. 203. Liability for Failure to Report. (Sec. 17.) That if any company fails to comply with the provisions of the pre ceding section, all the directors or trustees of such company shall be jointly and severally liable for the debts of the com- pany then existing, and for all that shall be contracted before such report shall be made: Provided, That in case of failure of the company in any year to comply with the provisions of section sixteen of this act, and any of the directors shall, on or before January fifteenth of such year, file his written re- quest for such compliance wath the secretary of the company, the Comptroller of the Currency, and the recorder of deeds of the District bf Columbia, such director shall be exempt from the liability prescribed in this section. 204. Perjury AND Larceny. (Sec. 18.) That any willful false swearing in regard to any certificate or report or public G52 Appendix. notice required bv the provisions of this act shall be perjury, and shall be punished as snch according to the laws of the District of Cohmibia. And any misappropriation of any of the money of any corporation or company formed under this act, or any money, fnnds, or property intrnsted to it, shall be held to be larceny, and shall be punished as such under the laws of said District. 205. Tkaxsfee of Stock. (Sec. 19.) That the stock of such company shall be deemed personal estate, and shall be transferable only on the books of such company in such manner as shall be prescribed by the by-laws of the company; but no shares shall be transferable until all previous calls thereon shall have been fully paid, and the said stock shall not be taxable, in the hands of individual owners, the tax on the capital stock, gross earnings of the company hereinbefore provided being in lieu of other personal tax. All certificates of the stock of any company organized under this act shall show upon their face the par value of each share and the amount paid thereon. 200. Liability of Stockholders. (Sec. 20.) That all stockholders of every company incorporated under this act, or availing itself of its provisions under section eleven, shall be severally and individually liable to the creditors of such company to an amount equal to and in addition to the amount of stock held by them, respectively, for all debts and contracts made by such company. 207. MoxEY Payment of Capital Stock Required. (Sec. 21.) That nothing but money shall be considered as payment of any part of the capital stock, except that in the case of any company now doing business in the District of Columbia in any of the classes herein provided for, or under any act of Congress or by virtue of the laws of any of the States, and which company has actually received full payment in money of at least fifty per centum of the capital stock required by this act and which company desires to obtain a charter under this act, all the assets or property may be- re- ceived and considered as money, at a value to be appraised and fixed by the Comptroller of the Currency: Provided, That all such assets and property are also transferred to and are thereafter owoied by the company organized under this act. 208. j^uMBER and Election of Directors. (Sec. 22.) That the stock, property, and concerns of such company shall Banking. 653 be managed by not less than nine nor more than thirty direct- ors or trustees, who shall, respectively, be stockholders and at least one-half residents and citizens of the District of Cohnnbia, and shall, except the first year, be annually elected by the stockholders at such time and place and after such published notice as shall be determined by the by-laws of the company, and said directors or trustees shall hold until their successors are elected and qualified. 209. Appointment of Officeks. (Sec. 23.) That there shall be a president of the company, who shall be a director, also a secretary and a treasurer, all of whom shall be chosen by the directors or trustees: Provided, That only one of the above-named officers shall be held by the same person at the same time. Subordinate officers may be appointed by the directors or trustees, and all such officers may be required to give such security for the faithful performance of the duties of their office as the directors or trustees may require. 210. By-eaws. (Sec. 24.) That the directors or trustees shall have power to make such by-laws as they deem proper for the management or disposal of the stock and business af- fairs of such company, not inconsistent with the provisions of this act, and prescribing the duties of officers and servants that may be employed, for the appointment of all officers, and for carrying on all kinds of business within the objects and pur- poses of such company. 211. DiEECTORs Liable for Payment of Unearned Divi- dends. (Sec. 25.) That if the directors or trustees of any company shall declare or pay any dividend, the payment of which would render it insolvent, or which would create a debt against such company, they shall be jointly and severally liable as guarantors for all of the debts of the company then exist- ing, and for all that shall be thereafter contracted, while they shall, respectively, remain in office. 212. Directors' Liability may be Avoided. (Sec. 26.) That if any of the directors or trustees shall object to declar- ing of such dividend or the payment of the same, and shall at any time before the time fixed for the payment thereof file a certificate of their objection in writing with the secretary of the company and with the recorder of deeds of the District 654 Appendix. they shall be exempt from liability prescribed in the preceding section, 213. Responsibility of Directors for Excess Liabili- ties. (Sec. 27.) That if the liabilities of any company shall at any time exceed the amount of the fair cash value of the assets, the directors or trustees of such company assenting thereto shall be personally and individually liable for such ex- cess to the creditors of the company after the additional lia- bility of the stockholders has been enforced. 214. Trustee, etc., not Liable on Stock Assessment. (Sec. 28.) That no person holding stock in such company as executor, administrator, guardian, or trustee shall be person- ally subject to any liability as stockholder of such company, but the estate and funds in the hands of such executor, ad- ministrator, guardian, or trustee shall be liable in like manner and to the same extent as the testator or intestate or the ward or the person interested in such trust fund Avould have been if he had been living and competent to act and hold the stock in his own name. 215. Increase of Capital. (Sec. 29.) That any cor- poration which may be formed under this chapter may increase its capital stock by complying with the provisions of this chap- ter to any amount which may be deemed sufficient and proper for the purposes of the corporation. 216. Certified Copy of Incorporation Certificate Competent Evidence. (Sec. 30.) That a copy of any certifi- cate of incorporation filed in pursuance of this chapter, certi- fied by the recorder of deeds to be a true copy and the whole of such certificate, shall be received in all courts and places as presumptive legal evidence of the facts therein stated. 217. No Bond or Other Security Required of Trust Companies. (Sec. 31.) That no bond or other collateral security, except as hereinafter stated, shall be required from any trust company incorporated under this act for or in respect to any trust, nor when appointed trustee, guardian, receiver, executor, or administrator, with or without the will annexed, committee of the estate of a lunatic or idiot, or other fiduciary appointment; but the capital stock subscribed for or taken, and all property owned by said company and the amount for which said stockholders shall be liable in excess of their stock, Banking. 655 shall be taken and considered as the security required by law for the faithful performance of its duties and shall be abso- lutely liable in case of any default whatever; and in case of the insolvency or dissolution of said company the debts due from the said company as trustee, guardian, receiver, execu- tor, or administrator, committee of the estate of lunatics, idiots, or any other fiduciary appointment, shall have a preference. 218. DisTKiCT Supreme Court Has Jurisdiction of Trust Companies. (Sec. 32.) That the supreme court of the District of Columbia, or any justice thereof, shall have power to make orders respecting such company whenever it shall have been appointed trustee, guardian, receiver, executor, or administrator, with or without the will annexed, committee of the estate of a lunatic, idiot, or any other fiduciary, and require the said company to render all accounts which might lawfully be made or required by any court or any justice thereof if such trustee, guardian, receiver, executor, adminis- trator, with or without the will annexed, committee of the es- tate of a lunatic or idiot, or fiduciary were a natural person. And said court, or any justice thereof, at any time, on applica- tion of any person interested, may appoint some suitable per- son to examine into the affairs and standing of such companies, who shall make a full report thereof to the court, and said court, or any justice thereof, may at any time, in its discretion, require of said company a bond with sureties or other securi- ties for the faithful performance of its obligations, and such sureties or other security shall be liable to the same extent and in the same manner as if given or pledged by a natural person. 219. All Similar District Corporations Subject to This Act. (Sec. 33.) That no corporation or company organized by virtue of the laws of any of the States of this Union and having its principal place of business within the District of Columbia, shall carry on, in the District of Colum- bia, any of the kinds of business named in this act without strict compliance in all particulars with the provisions of this act for the government of such corporations formed under it, and each one of the officers of the corporation or company so offending shall be punished by fine not exceeding one thousand dollars, or imprisonment in some State's prison not exceeding one year, or by both fine and imprisonment, in the discretion 656 Appen^dix. of the court. This section shall not take effect till six months after the approval of this act. 220, Pkovisiois's foe Amendment. (Sec. 34.) That Congress may at anr time alter, amend, or repeal this act, but any such amendment or repeal shall not, nor shall the dissolu- tion of any company formed under this act, take away or im- pair any remedy given against such corporation, its stock- holders or officers, for any liability or penalty which shall have been prcA'iously incurred: Provided, That the courts of the District of Columbia shall not have power to appoint any trus- tee, trustees, guardians, receivers, or other trustee of a fund or property located outside of the District of Columbia, or be- longing to a corporation or person having a legal residence or location outside of said District. GOVEENMENT DEPOSITAEIES. 221. Designation and duties of pub- 224. Penalty for misapplication of lie depositaries. money-order funds. 222. Deposit and withdra\val of pub- 225. Penalty for unauthorized de- lic moneys. posit of public money. 223. Provisions for deposits by cer- 22G. Penalty for unauthorized re- tain postmasters. ceipt or use of public money. 221. Designation and Duties of Public Depositaeies. (Sec. 5153.) All national banking associations, designated for that purpose by the Secretary of the Treasury, shall be depositories of public money, except receipts from customs, under such regulations as may be prescribed by the Secretary; and they may also be employed as financial agents of the Government ; and they shall perform all such reasonable duties, as depositaries of public moneys and financial agents of the Government, as may be required of them. The Secretary of the Treasury shall require the associations thus designated to give satisfactory security, by the deposit of United States bonds and otherwise, for the safe-keeping and prompt payment of the public money deposited with them, and for the faithful performance of their duties as financial agents of the Govern- ment. And every association so designated as receiver or de- positary of the public money shall take and receive at par all of the national currency bills, by whatever association issued, Baxkixg. 657 •u-liicli have been paid into the Government for internal rev- enue, oi: for loans or stocks. 222. Deposit axd Withdrawal of Public Moxeys. (Sec. 3620.) It shall be the duty of every disbursing officer having any public money intrusted to him for disbursement to deposit the same with the Treasurer or some one of the assistant treasurer of the United States, and to draw for the same only as it may be required for payments to be made by him in pursuance of law; and draw from the same only in favor of the persons to whom payment is made, and all transfers from the Treasurer of the United States to a disbursing officer shall be by draft or warrant on the Treasurer or an assistant tieasurer of the United States. In place, however, where there is no Treasurer or assistant treasurer, the Secretary of the Treasury may, when he deems it essential to the public interest, specially authorize in writing the deposit of such pub- lic money in any other pul)lic depository, or, in writing, au- thorize the same to be kept in any other manner and under such rules and regulations as he may deem most safe and ef- fectual to facilitate the payments to public creditors. 223. Provisioxs for Deposits by Certaix' Postmasters. (Sec. 3847.) Any postmaster, having public money belong- ing to the Government, at an office "within a county where there are no designated depositaries, treasurers of mints, or Treas- urer or assistant treasurers of the United States, may deposit the same, at his own risk and in his official capacity, in any national bank in the town, city, or county where the said postmaster resides; but no authority or permission is or shall be given for the demand or receipt by the postmaster, or any other person, of interest, directly or indirectly, on any deposit made as herein described; and every postmaster who make^ any such deposit shall report quartely to the Postmaster-Gen- eral the name of the bank where such deposits have been made, and also state the amount which may stand at the time to his credit. 224. Pexalty for Misapplicatiox^ of Moxey-Order Pux'Ds. (Sec. 1046.) Every postmaster, assistant, clerk, or other person employed in or connected ^vith the business or operations of any money-order office who converts to his own use, in any way whatever, or loans, or deposits in anv bank, 42^ "^ 658 Appendix. except as authorized by this Title, or exchanges for other fiinds^ anv portion of the money-order funds, shall be deemed guilty of embezzlement, and any such person, as well as every other person advising or participating therein, shall, for every such offense, be imprisoned for not less than six months nor more than ten years, and be fined in a sum equal to the amount em- bezzled; and any failure to pay over or produce any money- order funds intrusted to such person shall be taken to be prima facie evidence of embezzlement ; and upon the trial of any in- dictment against any person for such embezzlement it shall be prima facie evidence of a balance against him to produce a transcript from the money-order account books of the Sixth Auditor. But nothing herein contained shall be -construed to prohibit any postmaster depositing, under the direction of the Postmaster-General, in a national bank designated by the Secre- tary of the Treasury for that purpose, to his own credit as post- master, any money-order or other funds in his charge, nor prevent his negotiating drafts or other evidences of debt through such bank, or through United States disbursing officer^ or otherwise, when instructed or required to do so by the Post- master-General for the purpose of remitting surplus money- order funds from one post-office to another, to be used in pay- ment of money orders. Disbursing officers of the United States shall issue, under regulations to be prescribed by the Secretary of the Treasury, duplicates of lost checks drawn by them in favor of any postmaster on account of money-order or other public funds received by them from some other post- master. 225. Penalty foe Unauthoeized Deposit of Public MoxEY. (Sec. 5488.) Every disbursing officer of the United States who deposits any public money instrusted to him in any place or in any manner, except as authorized by law, or con- verts to his o^vn use in any way whatever, or loans with or without interest, or for any purpose not prescribed by law withdraws from the Treasurer or any assistant treasurer, or any authorized depository, or for any pui-pose not prescribed by law transfers or applies any portion of the public money intrusted to him, is, in every such act, deemed guilty of an embezzlement of the money so deposited, converted, loaned, withdrawn, transferred, or applied; and shall be punished by Banking. 659 imprisonment with hard habor for a term not less than one year nor more than ten years, or by a fine of not more than the amount embezzled or less than one thousand dollars, or by both such fine and imprisonment. 226. Penalty for Uxal'tiiorized Receipt or Use of Public Money. (Sec. 5497.) Every banker, broker, or other person not an authorized depositary of public moneys, who knowingly receives from any disbursing ofiicer, or collector of internal revenue, or other agent of the United States, any public money on deposit, or by way of loan or accommodation, with or without interest, or otherwise than in payment of a debt against the United States, or who uses, transfers, converts, appropriates, or applies any portion of the public money for any purpose not prescribed by law, and every president, cashier, teller, director, or other officer of any bank or banking association, Avho violates any of the provisions of this section, is guilty of an act of embezzlement of the public money so de- posited, loaned, transferred, used, converted, appropriated, or applied, and shall be punished as prescribed in section fifty-four hundred and eighty-eight. miscellaneous 227. Legal Tender and Lawful Money. — The following statement concerning the legal-tender properties of money of the L'nited States is based upon United States Revised Stat- utes, sections 3585, 3586, 3587, 3588, 3589, and 3590, and the acts amendatory thereof and additional thereto: Gold coin, standard silver dollars, subsidiary silver, minor coins. United States notes, and Treasury notes of 1890 have the legal-tender quality as follows: Gold coin is legal tender for its nominal value when not below the limit of tolerance in weight ; when below that limit it is legal tender in proportion to its weight ; standard silver dollars and Treasury notes of 1890 are legal tender for all debts, public and private, except where otherwise expressly stipulated in the contract ; sub- sidiary silver is legal tender to the extent of $10, minor coins to the extent of 25 cents, and United States notes for all debts, public and private, except duties on imports and interest on the public debt. Gold certificates, silver certificates, and national - bank notes are nonlegal-tender money. Both kinds of certifi- C5G0 Appendix. cates, liowever, are receivable for all public dues, and national- bank notes are receivable for all public dues except duties on imports, and may be paid out for all public dues, except in- terest on the public debt. The term " lawful money " is imderstood to apply to every form of money which is endowed by law with the legal-tender quality. (See Opinions of Attorneys-General, vol. 17, p. 123.) 228. Miscellaneous Acts. — Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assemhled, That The First jSTational Bank of An- napolis, now located in the city of Annaj)olis and State of Maryland, is hereby authorized to change its location to the city of Baltimore, in said State. Whenever the stockholders representing three-fourths of the capital of said bank, at a meeting called for that purpose, determine to make such change, the president and cashier shall execute a certificate, under the corporate seal of the bank, specifying such determi- nation, and shall cause the same to be recorded in the office of the Comptroller of the Currency, and thereupon such change of location shall be effected, and the operations of discount and deposit of said bank shall be carried on in the city of Baltimore. Sec. 2. That nothing in this act contained shall be so cou' strued as in any manner to release the said bank from any lia- bility or affect any action or proceeding in law in Avhich the said bank may be a party or interested. And Avhen such change shall have been determined upon, as aforesaid, notice thereof, and of such change, shall be published in two weekly papers in the city of Annapolis not less than four weeks. Sec. 3. That whenever the location of said bank shall have been changed from the city of Annapolis to the city of Balti- more, in accordance with the first section of this act, its name shall be changed to The Traders' ]N"ational Bank of Baltimore, if the board of directors of said bank shall accept the new name by resolution of the board, and cause a copy of such resolution, duly authenticated, to be filed with the Comptroller of the Currency. Sec. 4. That all the debts, demands, liabilities, rights, privileges, and powers of The First National Bank of An- napolis shall devolve upon The Traders' National Bank of Baltimore whenever such change of name is effected. Banking. 661 Sec. 5. That this act shall take effect and be in force from and after its passage. Approved, June 7, 1872. Acts of a similar nature to the one preceding have been enacted by Congress for the follo"\\'ing purposes: Authorizing The Manufacturers' Xational Bank of Xew York to change its location from the city of Xew York to the city of Brooklyn. (Approved July 27, 1868.) Authorizing The City Xational Bank of Xew Orleans, Louisiana, to change its name to The Gennania Xational Bank of Xew Orleans. (Approved March 1, 1869.) Authorizing The Second Xational Bank of Plattsburgh, Xew York, to change its name to The Vilas Xational Bank of Platts- burgh. (Approved March 1, 1869.) Authorizing The First Xational Bank of Delhi, Xew York, to change its location and name to The First Xational Bank of Port Jervis, Xew York. (Approved May 5, 1870.) Authorizing The First Xational Bank of Fort Smith, Arkansas, to change its location and name to the First Xa- tional Bank of Camden, Arkansas. (Approved Jidy 1, 1870.) Authorizing the Jersey Shore Xational Bank, Pennsylvania, to change its location and name to The Williamsport Xational Bank, Pennsylvania. (Approved December 22, 1870.) Authorizing the Worcester County Xational Bank of Black- stone, Massachusetts, to change its location and name to The Franklin Xational Bank, Massachusetts. (Approved February 9, 1871.) Authorizing The Farmers' Xational Bank of Fort Edward, Xew York, to change its location and name to The Xorth Granville Xational Bank, Xew York. (Approved Februarv 18, 1871.) Authorizing The Worthington Xational Bank of Coopers- town, Xew York, to change its location and name to The First Xational Bank of Oneonta, Xew York. (Approved February 27, 1871.) Authorizing The Warren Xational Bank of South Danvers, Massachusetts, to change its name to The Warren Xational Bank of Peabody, Massachusetts. (Approved March 12, 1872.) Authorizing the First Xational Bank of Seneca, Illinois, to 662 Appexdix. change its location and name to The First Xational Bank of Morris, Illinois. (Two acts, approved April 5, 1872, and June 18, 1874.) Authorizing The Railroad National Bank of Lowell, Massa- chusetts, to change its location and name to The Railroad Xational Bank of Boston, Massachusetts. (Approved Mav 31, 1872.) Authorizing The Xational Bank of Lyons, Michigan, to change its location and name to The Second Xational Bank of Ionia, Michigan. (Approved December 24, 1872.) Authorizing The East Chester Xational Bank of Mount Yernon, Xew York, to change its location and name to The German Xational Bank of Evansville, Indiana. (Approved January 11, 1873.) Authorizing The First Xational Bank of Xewnan, Georgia, to change its location and name to The Xational Bank of Commerce, Atlanta, Georgia. (Approved January 23, 1873.) Authorizing The First Xational Bank of "Watkins, Xew York, to change its location and name to The First Xational Bank of Penn Yan, Xew York. (Approved February 19, 1873.) Authorizing The Xational Bank of Springfield, Missouri, to change its name to The First Xational Bank of Springfield, Missouri. (Approved March 3, 1873.) Authorizing The Kansas Yalley Xational Bank of Topcka, Kansas, to change its name to The First Xational Bank of Topeka, Kansas. (Approved March 3, 1873.) Authorizing The First Xational Bank of Saint Anthony, Minnesota, to change its location and name to The Merchants' Xational Bank of Minneapolis, Minnesota. (Approved Janu- ary 8, 1874.) Authorizing The Second Xational Bank of Havana, Xew York, to change its name to The Havana Xational Bank of Havana, Xew York. (Approved January 9, 1874.) Authorizing The Passaic County Xational Bank of Paterson, Xew Jersey, to change its name to The Second Xational Bank of Paterson, Xew Jersey. (Approved April 15, 1874.) Authorizing The Citizens' Xational Bank of Hagerstown, Maryland, to change its location and name to The Citizens' Banking. 663 Kational Bank of Washington City, District of Columbia. (Approved May 1, 1874.) Authorizing The Irasburg National Bank of Orleans, at Irasburg, Vermont, to change its location and name to The Barton National Bank, Vermont. (Approved June 3, 187-i.) Authorizing The Farmers' ISTational Bank of Greensburg, Pennsylvania, to change its location and name to The Fifth National Bank of Pittsburg, Pennsylvania. (Approved June 23, 1874.) Authorizing The Citizens' National Bank of Sanbornton, New Hampshire, to change its name to The Citizens' National Bank of Tilton, New Hampshire. (Approved Februarv 19, 1875.) Authorizing The Second National Bank of Jamestown, New York, to change its name to The City National Bank of James- town, New York. (Approved March 3, 1875.) Authorizing The Second National Bank of Watkins, New York, to change its name to The Watkins National Bank, New York. (Approved March 3, 1875.) Authorizing The Slater National Bank of North Providence, Khode Island, to change its name to The Slater National Bank of Pawtucket, Rhode Island. (Approved March 3, 1875.) Authorizing The Auburn City National Bank of Auburn, New York, to be consolidated with The First National Bank of Auburn, New York. (Approved March 3, 1875.) Authorizing The Miners' National Bank of Braidwood, Illinois, to change its location and name to The Commercial National Bank of Wilmington, Illinois! (Approved January 31, 1878.) Authorizing The AVindham National Bank, Windham, Con- necticut, to change its location to the village of Willimantic, Connecticut. (Approved February 10, 1879.) Authorizing The National Bank of Commerce of Cincinnati, Ohio, to change its name to The National Lafayette and Bank of Commerce. (Approved April 29, 1879.) Authorizing The City National Bank of Manchester, New Hampshire, to change its name to The Merchants' National Bank of ]\ranchester. (Approved June 11, 1880.) Authorizing The Blue Hill National Bank of Dorchester, Massachusetts, to change its location and name to The Blue 06 J: ArrEXDix. Hill Xational Bank of Milton, Massacliiisetts, (Approved January 13, 18S1.) Authorizing The First Xational Bank of Meriden, AVest Meriden, Connecticut, to change its name to The First Xational Bank of Meriden, Connecticut. (Approved March 1, 1881.) Authorizing The National Mechanics' Banking Association of Xew York, Xew York, to change its name to AVall Street National Bank. (Approved February 11, 1882.) Authorizing The Lancaster National Bank of Lancaster, Massachusetts, to change its location and name to The Lancas- ter J^ational Bank of Clinton, Massachusetts. (Approved February 25, 1882.) Authorizing The Xational Bank of Kutztown, Pennsylvania, to change its location and name to The Keystone National Bank of Beading. Pennsylvania. (Approved June 27, 1882.) Joint resolution authorizing The National Bank of Winter- set, lova, to change its name to The First National Bank of "Winterset, Iowa. (Approved January 18, 1883.) Authorizing The Second National Bank of Xenia, Ohio, to increase its capital stock. (Approved February 17, 1883.) Authorizing The First National Bank of West Greenville, Pennsylvania, to change its name to The First National Bank of Greenville, Pennsylvania. (Approved February 2G, 1883.) Authorizing The "West Waterville National Bank of Oak- land, Maine, to change its title to The Messalonskee National Bank of Oakland, Maine. (Approved April 15, 1884.) Authorizing The Hillsborough National Bank, Ohio, to change its name to The First National Bank of Hillsborough, Ohio. (Approved December 18, 1884.) Authorizing The Slater National Bank of North Providence, Rhode Island, to change its name. (Approved January 8, 1885.) Authorizing The First National Bank of Omaha Nebraska, to increase its capital stock. (Approved January 10, 1885.) Authorizing The National Bank of Bloomington, Illinois, to change its name to the First National Bank of Bloomington, Illinois. (Approved January 27, 1885.) Authorizing The ^Manufacturers' National Bank of New York to change its name to The Manufacturers' National Bank of Brooklyn, New York. (Approved February 20, 1885.) Banking. 6Gr> Authorizing The Commercial N^ational Bank of Chicago, Illinois, to increase its capital stock. (Approved February 28, 1885.) Authorizing The First ISTational Bank of Larned, Kansas, to increase its capital stock. (Approved March 3, 1885.) Authorizing The First ISTational Bank of Fort Benton, Mon- tana, to change its location and name. (Approved December 18, 1890.) Authorizing The National Safe Deposit Company, of Wash- ington, to change its title to " The ISTational Safe Deposit Sav- ings and Trust Company of the District of Columbia." (Ap- proved February 18, 1892.) Authorizing a national bank at Chicago, Illinois, to establish a branch office upon the grounds of the World's Columbian Exposition. (Approved May 12, 1892.) Authorizing The First National Bank of Sprague, AVashing- ton, to change its location and name. (Approved March 20, 1896.) Authorizing the Interstate National Bank, of Kansas City, Kansas, to change its location. (Approved March 2, 1897.) Authorizing any bank or trust company located in the State of Missouri to conduct a banking office on the Louisiana Expo- sition grounds at St. Louis, Mo. (Approved March 3, 1901.) CUKRENCY ACT, APPROVED MARCH 14, 1900. An Act To define and fix the standard of value, to maintain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes. Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assemhled, That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hun- dred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the LTnited States shall be maintained at a parity of value with this standard, and it shall be the duty of the Secretary of the Treasury to maintain such parity. Sec. 2. That United States notes, and Treasury notes issued under the Act of July fourteenth, eighteen hundred and ninety, when presented to the Treasury for redemption, shall be re- CGG Appendix. doemed in gold coin of the standard fixed in the first section of this Act, and in order to secure the prompt and certain redemp- tion of such notes as herein provided it shall be the duty of the Secretary of the Treasury to set apart in the Treasury a reserve fund of one hundred and fifty million dollars in gold coin and bullion, which fund shall be used for siicli redemption purposes only, and whenever and as often as any of said notes shall be redeemed from said fund it shall be the duty of the Secretary of the Treasury to use said notes so redeemed to restore and maintain such reserve fund in the manner following, to wit : First, by exchanging the notes so redeemed for any gold coin in the general fund of the Treasury; second, by accepting de- posits of gold coin at the Treasury or at any subtreasury in exchange for the United States notes so redeemed; third, by procuring gold coin by the use of said notes in accordance with the provisions of section thirty-seven hundred of the Revised Statutes of the United States. If the Secretary of the Treasury is unable to restore and maintain the gold coin in the reserve fund by the foregoing methods, and the amount of such gold C(dn and bullion in said fund shall at any time fall below one hundred million dollars, then it shall be his duty to restore the same to the maximum sum of one hundred and fifty million dollars by borrowing money on the credit of the United States, and for the debt thus incurred to issue and sell coupon or regis- tered bonds of the United States, in such form as he may pre- scribe, in denominations of fifty dollars or any multiple thereof, bearing interest at the rate of not exceeding three per centum per annum, payable quarterly, such bonds to be payable at the pleasure of the United States after one year from the date of their issue, and to be payable, principal and interest, in gold coin of the present standard value, and to be exempt from the pay- ment of all taxes or duties of the United States, as well as from taxation in any form by or under State, municipal, or local au- tliority; and the gold coin received from the sale of said bonds shall first be covered into the general fund of the Treasury and tljen exchanged, in the manner hereinbefore provided, for an equal amount of the notes redeemed and held for exchange, and the Secretary of the Treasury may, in his discretion, use said notes in exchange for gold, or to purchase or redeem any bonds Baxkixg. 667 oi the United States, or for any other lawfnl purpose the public interests mav require, except that they shall not be used to meet deficiencies in the current revenues. That United States notes when redeemed in accordance with the provisions of this section shall be reissued, but shall be held in the reserve fund until exchanged for gold, as herein provided; and the gold coin and bullion in the reserve fund, together with the redeemed notes held for use as provided in this section, shall at no time exceed the maximum sum of one hundred and fifty million dollars. Sec. 3. That nothing contained in this Act shall be construed to affect the legal-tender quality as now provided by law of the silver dollar, or of any other money coined or issued by the United States. Sec. 4. That there be established in the Treasury Depart- ment, as a part of the oiRce of the Treasurer of the United States, divisions to be designated and known as the division of issue and the division of redemption, to which shall be assigned, respectively, under such regulations as the Secretary of the Treasury may approve, all records and accounts relating to the issue and redemption of United States notes, gold certificates, silver certificates, and currency certificates. There shall be transferred from the accounts of the general fund of the Treas- ury of the United States, and taken up on the books of said divisions, respectively, accounts relating to the reserve fund for the redemption of United States notes and Treasury notes, the gold coin held against outstanding gold certificates, the United States notes held against outstanding currency certificates, and the silver dollars held against outstanding silver certificates, and each of the funds represented by these accounts shall be used for the redemption of the notes and certificates for which they are respectively pledged, and shall be used for no other purpose, the same being held as trust funds. Sec. 5. That it shall be the duty of the Secretary of the Treasury, as fast as standard silver dollars are coined under the provisions of the Acts of July fourteenth, eighteen hundred and ninety, and June thirteenth, eighteen hundred and ninety- eight, from bullion purchased under the act of July fourteenth, eighteen hundred and ninety, to retire and cancel an equal amount of Treasury notes whenever received into the Treasury, either by exchange in accordance with the provisions of thi> Act G6S Appendix. or in the ordinary course of business, and upon the cancellation of Treasury notes silver certificates shall be issued against the silver dollars so coined. Sec, 6. That the Secretary of the Treasury is hereby authorized and directed to receive deposits of gold coin with the Treasurer or any assistant treasurer of the United States in sums of not less tli^ twenty dollars, and to issue gold cer- tificates therefor in denominations of not less than twenty dol- lars, and the coin so deposited shall be retained in the Treasury and held for the payment of such certificates on demand, and used for no other purpose. Such certificates shall be receivable for customs, taxes, and all public dues, and when so received may be reissued, and when held by any national banking asso- ciation may be counted as a part of its lawful reserve: Provided, That whenever and so long as the gold coin held in the reserve fund in the Treasury for the redemption of United States notes and Treasury notes shall fall and remain below one hundred million dollars the authority to issue certificates as herein pro- vided shall be suspended: A)id provided further. That when- ever and so long as the aggregate amount of United States notes and silver certificates in the general fund of the Treasury shall exceed sixty million dollars the Secretary of the Treasury may, in his discretion, suspend the issue of the certificates herein provided for: And provided furflier, That of the amount of such outstanding certificates one-fourth at least shall be in de- nominations of fifty dollars or less: And provided further, That the Secretary of the Treasury may, in his discretion, issue such certificates in denominations of ten thousand dollars, payable to order. And section fifty-one hundred and ninety-three of the Revised Statutes of the United States is hereby repealed. Sec. 7. That hereafter silver certificates shall be issued only of denominations of ten dollars and under, except that not ex- ceeding in the aggregate ten per centum of the total volume of said certificates, in the discretion of the Secretary of the Treasury, may be issued in denominations of twenty dollars, fifty dollars, and one hundred dollars ; and silver certificates of higher denomination than ten dollars, except as herein pro- vided, shall, whenever received at the Treasury or redeemed, be retired and canceled, and certificates of denominations of ten dollars or less shall be substituted therefor, and after such Banking. 6G9 .substitution, in whole or in part, a like volume of United States notes of less denomination than ten dollars shall from time to time be retired and canceled, and notes of denomina- tions of ten dollars and upward shall be reissued in substitution therefor, with like qualities and restrictions as those retired and canceled. Sec. S. That the Secretary of the Treasury is hereby authorized to use, at his discretion, any silver bullion in the Treasury of the United States purchased under the Act of July fourteenth, eighteen hundred and ninety, for coinage into such denominations of subsidiary silver coin as may be neces- sary to meet the public requirements for such coin: Provided, That the amount of subsidiary silver coin outstanding shall not at any time exceed in the aggregate one hundred millions of dollars. Whenever any silver bullion purchased under the Act of July fourteenth, eighteen hundred and ninety, shall be used in the coinage of subsidiary silver coin, an amount of Treasury notes issued under said Act equal to the cost of the bullion contained in such coin shall be canceled and not reissued. Sec. 0. That the Secretary of the Treasury is hereby ^ authorized and directed to cause all worn and uncurrcnt sub- sidiary silver coin of the United States now in the Treasury, and hereafter received, to be recoined, and to reimburse the Treasurer of the United States for the difference between the nominal or face value of such coin and the amount the same Avill produce in new coin from any moneys in the Treasury not otherwise appropriated. Sec. 10. That section fifty-one hundred and thirty-eight of the Revised Statutes is hereby amended so as to read as follows: " Section 5138. ISTo association shall be organized with a less capital than one hundred thousand dollars, except that banks with a capital of not less than fifty thousand dollars may, with the approval of the Sece^ary of the Treasury, be organized in any place the population of wdiich does not exceed six thou- sand inhabitants, and except that banks with a capital of not less than twenty-five thousand dollars may, with the sanction of the Secretary of the Treasury, be organized in any place the population of which does not exceed three thousand in- habitants. Xo association shall be organized in a city the 670 Appendix. population of which exceeds fifty thousand persons with a capi- tal of less than two liundred thousand dollars." Sec. 11. That the Secretary of the Treasury is hereby authorized to receive at the Treasury any of the outstanding bonds of the United States bearing interest at five per centum per annum, payable February first, nineteen hundred and four, and any bonds of the United States bearing interest at four per centum per annum, payable July first, nineteen hundred and seven, and any bonds of the United States bearing inter- est at three per centum per annum, payable August first, nineteen hundred and eight, and to issue in exchange therefor an equal amount of coupon or registered bonds of the United States in such form as he may prescribe, in denominations of fifty dollars or any multiple thereof, bearing interest at the rate of two per centum per annum, payable quarterly, such bonds to be payable at the pleasure of the United States after thirty years from the date of their issue, and said bonds to be payable, principal and interest, in gold coin of the present standard value, and to be exempt from the payment of all taxes or duties of the United States, as well as from taxation in any form by or under State, municipal, or local authority: Pi'ovided, That such outstanding bonds may be received in exchange at a valuation not greater than their present worth to }"ield an income of two and one-quarter per centum per annum; and in consideration of the reduction of interest effected, the Secretary of the Treasury is authorized to pay to the holders of the outstanding bonds surrendered for ex- change, out of any money in the Treasury not otherwise ap- propriated, a sum not greater than the difference between their present worth, computed as aforesaid, and their par value, and the payments to be made hereunder shall be held to be pay- ments on account of the sinking fund created by section thirty- six hundred and ninety-four of the Revised Statutes: And provided further, That the two per centum bonds to be issued under the provisions of this Act shall be issued at not less than par, and they shall be numbered consecutively in the order of their issue, and when payment is made the last numbers issued shall be first paid, and this order shall be followed until all the bonds are paid, and whenever any of the outstanding bonds are called for payment interest thereon shall cease three Banking. 671 months after such call; and there is hereby appropriated out of any money in the Treasury not otherwise appropriated, to effect the exchanges of bonds provided for in this Act, a simi not exceeding one-fifteenth of one per centum of the face value of said bonds, to pay the expense of preparing and issuing the same and other expenses incident thereto. Sec. 12. That upon the deposit with the Treasurer of the United States, by any national banking association, of any bonds of the United States in the manner provided by exist- ing law, such association shall be entitled to receive from the Comptroller of the Currency circulating notes in blank, reg- istered and countersigned as provided by law, equal in amount to the par value of the bonds so deposited; and any national banking association now having bonds on deposit for the security of circulating notes, and upon which an amount of circulating notes has been issued less than the par value of tho b( nds, shall be entitled, upon due application to the Comp- troller of the Currency, to receive additional circulating notes in blank to an amount which will increase the circulatins; notes held by such association to the par value of the bonds deposited, such additional notes to be held and treated in the same way as circulating notes of national banking associations hereto- fore issued, and subject to all the provisions of law affecting such notes: Provided, That nothing herein contained shall be construed to modify or repeal the provisions of section fifty- one hundred and sixty-seven of the Revised Statutes of the United States, authorizing the Comptroller of the Currency to require additional deposits of bonds or of lawful money in case the market value of the bonds held to secure the circulat- ing notes shall fall below the par value of the circulating notes outstanding for Avliich such bonds may be deposited as security: Ayid provided furilier, That the circulating notes furnished to national banking associations under the provisions of this Act shall be of the denominations prescribed by law, except that no national banking association shall, after the passage of this Act, be entitled to receive from the Comptroller of the Cur- rency, or to issue or reissue or place in circulation, more than one-third in amount of its circulating notes of the denomina- tion of five dollars: And provided furfhcr. That the total amount of such notes issued to any such association may equal €72 Appendix. at any time but shall not exceed the amount at such time of its capital stock actually paid in: And provided further, That under regulations to be prescribed by the Secretary of the Treasury any national banking association may substitute the two per centum bonds issued under the provisions of this Act for any of the bonds deposited with the Treasurer to secure circulation or to secure deposits of public money; and so much of an Act entitled ''An Act to enable national banking associa- tions to extend their corporate existence, and for other pur- poses/' approved July twelfth, eighteen hundred and eighty- two, as prohibits any national bank which makes any deposit of lawful money in order to withdraw its circulating notes from receiving any increase of its circulation for the period of six months from the time it made such deposit of lawful money for the purpose aforesaid, is hereby repealed, and all other Acts or parts of Acts inconsistent with the provisions of thi^; section are hereby repealed. Sec. 13. That every national banking association having on deposit, as pro\nded by law, bonds of the United States bearing interest at the rate of two per centum per annum, issued under the provisions of this Act, to secure its circulating notes, shall pay to the Treasurer of the United States, in the months of January and July, a tax of one-fourth of one per centum each half year upon the average amount of such of its notes in circulation as are based upon the deposit of said two per centum bonds; and such taxes shall be in lieu of existing taxes on its notes in circulation imposed by section fifty-two hun- dred and fourteen of the Revised Statutes, Sec. 14. That the provisions of this Act are not intended to preclude the accomplishment of international bimetallism whenever conditions shall make it expedient and practicable to secure the same by concurrent action of the leading commercial nations of the world and at a ratio which shall insure perman- ence of relative value between gold and silver. FAILED XATIO^^AL BAXKS, ETC. Provisos, act April 28, 1902. Provided, That for the fiscal year of nineteen hundred and two and thereafter, a full and complete list of all officers, agents, €]erks, and other employees of the office of the Comptroller of Banking. 673 the Currency, including bank examiners, receivers and attorneys for receivers, and clerks employed by such examiners and re- ceivers, or any person connected with the work of said office in Washington or elsewhere, whose salary or compensation is paid from the Treasury of the United States or assessed against or collected from existing or failed banks under their supervision or control, shall be transmitted to the Secretaiy of the Interior in accordance with the provisions of an Act of CongTCSs ap- proved Januar}^ twelfth, eighteen hundred and eighty-five, re- lating to the Official Register: A7'id provided further. That the Comptroller of the Currency is hereby directed to include in his Annual Report to the Speaker of the House of Representatives, expenses incurred during each year, in liquidation of each failed national bank separately. IXSTRUCTIOXS AXD SUGGESTIOXS RELATIXG TO THE ORGANIZATION OF NATIONAL BANKS. [XoTE. — The following are forms and suggestions prepared and recom- mended by the Comptroller of the Currency, in the organization and formation of National Banks.] ORGANIZATION, The preliminary proceeding in connection with the organ- ization of a national bank is to make an application to the Comptroller of the Currency, stating the desired title, the location, and the proposed capital. The application must be signed by at least five persons who contemplate being stock- holders of the association. (Section 5133, United States Revised Statutes.) The application should contain a state- ment as to the business and financial standing of the signers and an indorsement by a United States Senator, Representa- tive, judge of court, or other prominent public official, per- sonally acquainted with the applicants, in relation to their character and financial responsibility. The following is a copy of the formal application for res- ervation of title and authority to organize a national bank. Copies of this form ^\all be furnished on request. APPLICATIOX TO ORGANIZE A XATIOXAL BATTK. The name of the place should form a part of the title, thus " The First National Bank of A ," but the name of the State should not be included. 43 G74 Appendix. Consideration will not be given to an application for a title including the Avord " First," if a national bank exists or has existed at the given locality; nor to an application for a title identical with that of a national bark heretofore in existence, nor to one materially similar to that of a national, State, or other bank existing in the place. , 190—. To THE COMPTKOLLEB OF THE CURRENCY, Washington. Sir : Notice is hereby given that we, the undersigned, being natural persons, and of lawful age, intend, with others, to organize a national bank- ing association, under the title of " The ," to be located at county of , State of , with capital of $ , to succeed the bank of Population We request that the title be reserved for a period of sixty days and the necessary organization jjapers and instructions sent to , at (This application must be signed by at least five prospective share- holders, and indorsed as indicated.) Signatures of Applicants. Residences. Business. Financial Strength in Figures. The signers of this application are known to me to be reputable citizens, and the foregoing information in reference to their business and financial standing is, in my opinion, correct. If the application receives the approval of the Comptroller, he will furnish all necessary blank forms for completing the organization, "vvith instructions for their proper execution, and the title applied for will be reserved for a period of sixty days, during which time it is expected that the organization of the bank will be completed. CAPITAL REQUIRED. National banks with a mmimum capital of $25,000 may be organized in places the population of which does not exceed 3,000; with minimum capital of $50,000 in places the popula- tion of which does not exceed 6,000; with minimum capital of $100,000 in places the population of which does not exceed 50,000, and \vith minimum capital of $200,000 in places with population of over 50,000. ^Signature of member of Congress, judge of court, or other prominent official. Baistking. 675 stock subsceiption list. The law does not provide for the filing with the Comptroller of the Currency of a list of subscribers to the capital stock of a national banking association, nor are blanks for that purpose furnished by this office. When, however, the proposed in- corporators have received advice of the approval of their ap- plication to organize, there may be properly draAvn up a sub- scription contract, and signatures of the prospective stock- holders obtained. The law only requires that the capital stock of a national bank shall be paid in cash at par, and permits it to be paid in installments. There would appear, however, to be no objection to the incorporation in the subscription con- tract of a provision that the entire amount due on each share shall be paid at the call of the directors; also, that a premium shall be j^aid for the stock to be credited to the surplus fund. Where the stock is sold at a premium of 20 per cent, a bank is enabled at the first dividend period to distribute the net earnings without the carrying of any portion thereof to the surplus fund as provided by section 5199, United States Re- vised Statutes. In case subscriptions to stock are paid in installments, temporary certificates should be issued, and the amount of each payment credited thereon. When all installments have been paid, the temporary certificates should be surrendered and canceled and certificates of stock issued in lieu thereof. The following is a form of temporary certificate in general use: Temporary Certificate. No. . Shares. This is to certify that is entitled to shares of the capital stock of the National Bank of . capital $ , and that upon payment of all installments, amounting to $ , and surrender of this temporary certificate, a certificate of stock will be issued. Witness the seal and the signatures of the president and cashier of the bank. Dated , 190—. The National Bank of . By Cashier. President. Payments on Account of Capital. First installment, per cent, amounting to $ , paid , 190 — . .Second " " " " 190—. Third " " " " 190—. Fourth " " " " 190—. Fifth " " " " 190—. Sixth " " " " 190—. 676 Appendix. Assignment. • For value received I hereby transfer and assign to — this temporary certificate, and liereby appoint and constitute my true and lawful attorney to transfer said certificate, with full power of substitution in the premises. Dated at , this day of , 190—. Witness: . . The persons organizing an association must enter into articles of association, as required bv section 5133. (The sections referred to herein are of the United States Revised Statutes.) The following is submitted as a general form for these articles: Articles of Associatiox. (Executed in Duplicate.) For the purpose of organizing an association to carry on the business of banking, under the laws of the United States, tlie imdersigned subscrib- ers for the stock of the association hereinafter named do enter into the following articles of association : First. The title of this association shall be " The ." Second. The place where its banking house or office shall be located, and its operations of discount and deposit carried on, and its general business conducted, shall be . Third. The board of directors shall consist of shareholders. The first meeting of the shareholders for the election of directors shall be held at on the , or at such other place and time as a majority of the undersigned shareholders may direct. Fourth. The regular annual meeting of the shareholders for the elec- tion of directors shall be held at the banking house of this association on the second Tuesday of January of each year ; but if no election shall be held on that day, it may be held on any other day, according to the provisions of section 5149 of the Revised Statutes of the United States, and all elections shall be held according to such regulations as may be prescribed by the board of directors, not inconsistent with the provisions of the national-banking law, and of these articles. Fifth. The capital of this association shall be thousand dollars, divided into shares of $100 each; but the capital may, with the approval of the Comptroller of the Currency, be increased at any time by share- holders owning two-thirds of the stock, according to the provisions of an act of Congress approved May 1, 1886; and in case of the increase of the capital of the association, each shareholder shall have the privilege of subscribing for such number of shares of the proposed increase of the capi- tal stock as he may be entitled to according to the number of shares owned by him before the stock is increased. Sixth. The board of directors, a majority of whom shall be a quorum to do business, shall elect one of its members president of this association, who shall hold his office (unless he shall be disqualified or be sooner re- moved by a two-thirds vote of all the members of the board) for the term for which lie was elected a director. The directors shall have power to elect a vice-president, who shall also be a member of the board of directors, and who shall be authorized, in the absence or inability of the president from any cause, to perform all acts and duties pertaining to the office of president, except sucii as the president only is authorized by law to per- form, and to elect or appoint a cashier, and such otlier officers and clerks as may be required to transact the business of the association ; to fix the salaries to be paid to them, and continue them in office, or to dismiss them Banking. 677 as, in the opinion of a majority of the board, the interests of the associa- tion may demand. The directors shall have power to define the duties of the officers and clerks of the association, to require bonds from them, and to fix the pen- alty thereof ; to regulate the manner in which elections of directors shall be held, and to appoint judges of the elections; to make all by-law^s that it may be proper for them to make, not inconsistent with law, for the gen- eral regulation of the business of the association and the management of its affaii's, and generally to do and perform all acts that it may be legal for a board of directors to do and perform under the Revised Statutes aforesaid. Seventh. This association shall continue for the period of twenty years from the date of the execution of its organization certificate, unless sooner placed in voluntary liquidation by the act of its shareholders owning at least two-thirds of its stock, or otherwise dissolved by authority of law. Eighth. These articles of association may be changed or amended at any time by shareholders owning a majority of the stock of the association, in any manner not inconsistent with law; and the board of directors, or any three shareholders, maj' call a meeting of the shareholders for this or any other purpose, not inconsistent with law, by publishing notice thereof for thirty days in a newspaper published in the town, city, or county where the bank is located, or by mailing to each shareholder notice in writing thirty days before the time fixed for the meeting. In witness whereof we have hereunto set our hands this dav of Note. — Five persons are required to sign ; more may sign, but this num- ber is sufficient. » Instead of providing, in the third article, for the election of the first board of directors^ the names of the directors may be given in the article. When the stockholders are agreed as to the persons who are to constitnte the directors, this is more convenient that to hold an election. In this event the third article shonld read as follows: The board of directors shall consist of shareholders, and the fol- lowing persons [here insert their names] are hereby appointed directors of this association, to hold their offices as such imtil the regular annual election takes place, pursuant to the fourth article of these articles of association, and until their successors are chosen and have qualified. The third article, if desired, may also be made to provide for Avhat is termed a sliding scale instead of a fixed nnmber or directors ; in other words, a minimum and maximum nnmber of directors, in which event the article should read as follows : The board of directors shall consist of not less than [insert minimum number] nor more than [insert maximum number] shareholders. The number of directors elected at each annual meeting shall constitute the board for the year, all vacancies to be filled in accordance with the provi- sions of section 5148. 678 . Appendix. The persons uniting to organize a national bank must be natural persons — that is, individuals who can legally hold and control property in their individual right — and not cor- porations, firms, or associations of any character. The proportion of capital required for organization (that is, one-half) must be paid in money, and each subsequent install- ment must be so paid until all the capital is paid in. Promis- sory notes or other evidences of debt can not be taken in payment for subscriptions to capital stock. Five persons at least are required to sign the articles of association^ and those who sign the articles" must also sign the organization certificate. The certificate should be executed at the same time or subsequent to execution of the articles of association. The articles of association, organization certificate, and cer- tificate of payment of capital must be executed in duplicate, and one copy of each filed in the office of the Comptroller of the Currency and the other retained by the bank. Okgaxizatiox Certificate. We, the undersigned, whose names are specified in article fourth of this certificate, having associated ourselves for the purpose of organizing an association for carrying on the business of banking, under the laws of the United States, do make and execute the following organization certificate: First. Tlie title of the association sail be '' The ." Second. The said association shall be located in the of , county of , and State of , where its operations of dicount and deposits are to be carried on. Third. The capital stock of this association shall be dollars ($ ), and the same shall be divided into shares of one hun- dred dollars each. Fourth. The name and the residence of each shareholder of this asso- ciation, with the number of shares held, are as follows: Note. — Tlae names, etc., of all the shareholders must be given. Fifth. This certificate is made in order that we may avail ourselves of the advantages of the aforesaid laws of the United States. In witness whereof we have hereunto set our hands this day of . Baistking. 679 Note. — Those that have signed the articles of association are required to sign this certificate, and they must do so in their own handwriting. They must also make acknowledgment. State of , County of Before the undersigned, a of , personally appeared , to me w'ell known, who severally acknowledged that they executed the foregoing certificate for the purposes therein mentioned. Witness my hand and seal of office this day of . [OFFICIAI. SEAL OF OFFTCEK-T The association will have succession for a period of twenty years from the date of execution of the organization certifi- cate, and not from the date of the certificate of the Comp- troller of the Currency authorizing the bank to commence business. (See Sec. 5136.) The name, etc., of each stock subscriber, but not necessarily his signature, is required in the fourth subdivision. Each person who signs the articles of the association is also re- quired to sign the organization certificate. The organization certificate must be acknowledged before a judge of a court of record or a notary public having a seal, and all the shareholders who sign in the fifth subdivision must make proper acknowledgment of the execution of the certificate. Inasmuch as the laws of the several States differ as to the rights of married women in regard to their separate estates and property, and as to the effects of covenants and agree- ments made by them, and also as to the forms of acknowledg- ment of instruments executed by them, any organization papers bearing the signatures of women must be accompanied by evidence that under the laws of the State they have the power to be parties to the organization. When the organization of a bank is effected and stock cer- tificates are paid for in full and issued, they must be in the names of shareholders and for the numbers of shares of stock listed in the organization certificate, transfers to be made in the regular manner in the case of any stock which changes ownership. The foregoing instructions apply solely to new organiza- tions. If it be desired to convert, under the provisions of 680 Appexdix. section 5154, a bank existing under State laws, tlie method of procedure and the forms necessary will be found elsewhere. DIKECTOES. After the execution of the organization certificate, if the directors are not designated in the articles of association, the shareholders should proceed to elect directors as provided in section 5145. Each director must, after his election or ap- pointment (but not prior to the date of execution of the articles and organization certificate);, take an oath of the following form : OATH Of DIRECTOR. State of — ^ County of , ss : L the undersigned, director of The , of , in the State of , being a citizen of the United States, and resident of the State of -, do solemnly swear that I will, so far as the duty devolves on me, diligently and honestly administer the affairs of said association; that I Avill not knowingly violate, or willingly permit to be violated, any of the provisions of the statutes of the United States under which this associa- tion has been organized; and that I am the owner, in good faith, and in my ovm right, of the number of shares of stock required by said statutes, subscribed by me or standing in my name on the books of the said asso- ciation; and' that the same is not hypothecated, or in any way pledged as security for any loan or debt. Place of residence, . Subscribed and sworn to this day of , before the under- signed, a in and for said county. [official seal of officer.] , Notary Public. Note. — Each director when elected must take the oath of office, and, under section 5147, U. S. R. S., it should be transmitted to the Comp- troller of the Currency immediately after the election. If the officer ad- ministering the oath has no seal, a certificate of the proper State, county, or court official to the efi'ect that such officer is authorized to take acknowl- edgments must be attached. OATH OF directors. State of , County of , ss: We, the undersigned, directors of " The ," of , in the State of , being citizens of the United States and residents of the State of , do, each for himself, and not one for the other, solemnly swear that we will severally, so far as the duty devolves on us, diligently and honestly administer the aflfairs of said association; and that we will not knowingly violate, or willingly permit to be violated, any of the provisions of the statutes of the United States under which said association has been organized ; and each for himself does solemnly swear that he is the owner in good faith, and in his own right, of the number of shares of Banking. 681 stock required by said statutes, subscribed by him or standing in his name on the books of the said association; and that the same is not hypothecated, or in any way pledged as security for any loan or debt. Name. (Original signatures necessary.) Place of Residence. Subscribed and sworn to this day of , before the under- signed, a in and for said County. [OFFICIAL SEAL OF OFFICER.] notary Public. Every director must own in his o^vn right at least 10 shares of the capital stock of the association of which he is a director, unless the capital of the bank shall not exceed $25,000, in which case he must own in his own right at least 5 shares of such capital stock. Any director who ceases to he the owner of the required number of shares of the stock or who becomes in any other manner disqualified, shall thereby vacate his place. (Sec. 5146, Rev. Stat., as amended February 28, 1905.) At least three-fourths of the directors must have resided in the State, Territory, or district in which the association is lo- cated for a year or more immediately preceding their election, and must be residents therein during their continuance in ofiice. In all elections of directors, and in deciding all questions at meetings of shareholders, each shareholder shall be entitled to one vote on each share of stock held by him. Under section 5144 shareholders may vote by proxies duly authorized in writ- ing, but no officer, clerk, teller, or bookkeeper of the associa- tion can act as proxy, and no shareholder whose liability is past due and unpaid shall be allowed to vote. The Comptroller, supported by certain decisions of the courts, holds that a di- rector is an officer within the meaning of said section, and, fur- thermore, that the prohibition with regard to the voting of stock by a shareholder who is liable to the bank merely applies to sub- scriptions to capital stock. Cumulative voting at meetings of national banking asso- ciations is not permissible. For instance, if a shareholder is 682 AppEasTDix. the owner of 10 shares of stock and 7 directors are to be elected, he can not cast 70 votes in favor of any one person as a director, bnt is at liberty only to cast 10 votes for each of the 7 can- didates. FORM OF PROXY. Know all men by these presents that I, , do hereby consti- tute and appoint attorney and agent for me, and in my name, place, and stead to vote as my proxy at any and all elections of directors of according to the number of votes I should be entitled to vote if there personally present. In witness whereof I have hereunto set my hand this day of , one thousand nine hundred and . Signed in presence of — The directors having been elected and having qualified should, as soon as practicable, elect a president and vice-president of the association, a cashier, and such other officers as may be re- quired (section 5136, paragraph 5), and call in the subscrip- tions to the stock according to the terms of subscription and the requirements of the law. As soon as at least 50 per cent of the capital stock of the association is paid in and all other legal requirements complied with, a certificate in substantially the following form should be executed and sworn to by the presi- dent or cashier and a majority of the directors, and forwarded to the Comptroller. CEBTIFICATE OF OFFICERS AND DIRECTORS RELATIVE TO PAYMENT OF CAPITAL STOCK AND COMPLIANCE WITH OTHER LEGAL REQUIREMENTS. The imdersigned, officers and directors of , located at , organized under the provisions of the Revised Statutes of the United States authorizing the organization of national banking asso- ciations, do hereby certify that of the authorized capital stock of $- there has been paid into said bank, in cash, as permanent capital $ , constituting the first installment, and that no part of this sum is repre- sented by promissory notes or other evidences of debt; also that the name and place of residence of each director, and the amount of stock individually owned in good faith, are as follows: Name of directors, a Place of residence. (Town oi city and State.) Number of shares of stock. a The names, etc., of all the directors of the association must appear on this page, but only a majority of the directors and the president or cashier are required to sign on the following page and make acknowledgement. Banking. 683 It is further certified that the association has in good faith complied with all of the provisions that are required to be complied with before receiving authority to commence the business of banking. 1 }■ Directors. President. Cashier. State of Count]/ of Before the undersigned, a of , personally appeared the above-named directors and other officers of the aforesaid national bank, and made oath that the foregoing certificate and the matters and things therein set forth are true, to the best of tlieir knowledge and belief. Witness my hand and seal of office this day of 190 — . [official seal of officer.] For instructions as to payment and certification of subsequent install- ments, see page 087. DEPOSIT OF BONDS. Banks with capital of $150,000 or less are required to deposit bonds equal to one-fourth of their capital, and a deposit of at least $50,000 in bonds mvist be made by banks with capital in excess of $150,000. The issue of circulating notes is optional with the directors of a bank, but deposit of bonds is mandatory. United States registered interest-bearing bonds should be sent to the Comptroller of the Currency for transfer to and deposit with the Treasurer of the United States in trust for the association to the account of which they are to be credited. In assigning bonds care should be exercised to enter the exact cor- porate title of the association. Coupon bonds can be exchanged for registered bonds by sending them to the Comptroller of the Currency with a request for their exchange and that the registered bonds be issued to and deposited with the Treasurer of the United States in trust for the association interested. 684: Appendix. The Comptroller ^vill authorize the payment of interest on bonds to the bank depositing them, and the Treasurer of the United States will pay the interest, by check, to the order of the bank, payable at the office of any United States Assistant Treasurer or at any United States depository. WITHDRAWAL OF BO'NDS. The law permits national banking associations to withdraw bonds in excess of the legal requirement, held by the Treasurer of the United States in trust, upon deposit of a like amount of lawful money with the Treasurer or an Assistant Treasurer of the United States, to provide for the redemption of the cur- rency secured by such bonds. Authority to withdraw the bonds must be conferred upon the Comptroller of the Currency by the board of directors, and upon some one other than a Government official to sell and as- sign them. If an official of the bank is authorized to dispose of the bonds the resolution should be certified by some officer of the association other than the one empowered to assign them. It is recommended that resolutions be adopted only at regular meetings, but when passed at a special meeting the certificate must be signed by two officers, a form for which purpose will be furnished upon application to the Comptroller of the Cur- rency. CIKCULATIXG XOTES. j^ational banking associations are entitled to receive and issue ' circulating notes equal to the par value of the bonds deposited, not exceeding the amount of the paid-in capital stock, but only one-third of the amount issued to an association can consist of $5 notes. (See section 5171 as amended March 14, 1900.) Section 13 of the act of March 14, 1900, imposes a semi- annual tax, of one-fourth of 1 per cent on the average amount of notes in circulation, secured by 2 per cent bonds issued under the provisions of that act. Circuating notes secured by all other classes of bonds are subject to the semiannual duty of one-half of 1 per cent provided by section 5214 of the Revised Statutes. Banking. 685 Charter No. ORIGINAL ORDER FOR PLATES AND CIRCULATION. [Letter—; series of 1902.] National Bank of To the Comptroller of the Currency. Sir: You are requested to have plates engraved for this bank, the cost to be paid upon demand, and circulating notes printed therefrom as follows: Cost of plates . $75 75 50 No. of sheets ordered. Denominations on sheets. S5. S5, $5. $5 $10, $10, $10, $50, $100 Total. Value per sheet. $20 50 150 Amount of circulation. Eespcctfully, Cashier. Note. — Original orders for circulation should be as nearly one and one- fourth in amount of the par value of bonds to be deposited as can be made from multiples of the face value of sheets of notes ordered. Circulation ordered in excess of the bonds deposited will be required to replace mutilated notes returned for redemption and destruction. The act of March 14, 1900, provides that no national bank shall be entitled to receive from the Comptroller, or to issue, more tuan one-third in amount of its circulating notes of the denomination of $.5. Banks desiring circulating notes of the denomination of $5, must necessarily order, at least, two plates. It requires about forty days to engrave the plate and to print circulating notes, but the order can not be acted upon until all legal requirements are satisfied, including the deposit of bonds with the Treasurer of the United States, as the charter number of the association, which can not be previ- ously determined, must appear upon the plate from wnich the notes are printed. supplementary order. Charter No. . To the Comptroller of the Currency. Sir: You are requested to have printed for this bank circulating notes in blank to the amount of (see footnote) dollars, and of the fol- lowing denominations : Number of sheets. Plates. Sheets, $5, $5, $5. «5 ( $20 per sheet) . . Sheets, $10, $10, $10. $20 ($50 per sheet) . . Sheets, $50, $100 ($150 per sheet) . . Total Amount. Respectfully, Cashier. Note. — Bank officers should observe the multiples of the different sheets of notes and enter amounts that can be made from such multiples. This 686 Appendix. ■will save returning orders for correction. Under the act of March 14, 1900. five-dollar notes are limited to one-third of a bank's circulation. In ordering currency bank officers should observe this limit, taking into con- siedration, in estimating the amount needed, both the amount of fives out- standing and the amount already printed and on hand in the Treasury Department. CERTIFICATE OF AUTHORITY TO COMMENCE BUSINESS. The necessary amount of bonds having been deposited "with the Treasurer, the Comptroller will, if he is satisfied that the association has complied with the requirements of the law, and that the shareholders have, in good faith, organized for the legitimate objects contemplated by the bank act, give to the association a certificate authorizing it to commence the business of banking (sees. 5168, 5169). This certificate, upon its re- ceipt, must be published according to the requirements of section 5170, and proof of publication forwarded to the Comp- troller at the proper time. This and other certificates referred to elsewhere may be pub- lished for the period of time required by law, either in a weekly newspaper, a weekly edition of a daily newspaper, or in every issue of a daily having no weekly edition. The certificate of authority to begin business or, as is gen- erally understood, the charter issued to a national banking association, reads as follows : No. . Tee A SUB Y Department, Office of the Cojiptboller of the Cubbexcy, M:ashington, , 190 — . Whereas, by satisfactory evidence presented to the undersigned, it has been made to appear that — The , located in the of , in the county of and State of , has complied with all the provisions of the statutes of the United States required to be complied with before an asso- ciation shall be authorized to commence the business of banking; Now, therefore, I, , Comptroller of the Currency, do hereby certify that — The , located in the of , in the county of and State of , is authorized to commence the business of bank- ing as provided in section tiftj'-one hundred and sixty-nine of the Revised Statutes of the United States. In testimony whereof witness my hand and seal of office this day of , 190—. [seal.] , Comptroller of the Currency. Banking. 687 commencement o'f business. The association having received authority to commence the business of banking, it is presumed that a suitable banking house or room has been secured, and also a vault or safe, which should be burglar and fire proof. In ordering stationery pro- vision should be made for the printing of the charter number of the bank on letter heads. The Comptroller should be promptly advised of the date on which the bank begins business. jSToti- fication blank for the purpose is furnished. PAYMENT OF CAPITAL. The certificate of officers and directors, a form for which is given elsewhere, is the certificate of the payment in cash of the first installment of the capital. The five remaining in- stallments must also be paid in money and certified by the president or cashier, under seal of the bank, to the Comptroller monthly from the date of the issuance of his certificate of au- thority to commence business (section 5140). The form for the latter certificates is as follows : CERTIFICATE OF PAYMENT OF CAPITAL STOCK. To the Comptroller of the Currency, Washington, D. C. Sir: It is hereby certified that the installment of dollars ($ ), has been paid in on account of the capital stock of The , the certification of payments to date being as follows: First installment (at organization), $ . Second installment, $ . Third installment, $ '■ — . Fourth installment, $ . Fifth installment, $ . Sixth installment, $ . Total, $ . President or Cashier, State of , County of Subscribed and sworn to before me this day of [official seal of officer.] , Notary Public. Note. — The second and subsequent payments need not be restricted to 10 per cent each, as the capital stock of the bank may be paid, if desired, in advance of the time required by law. Do not include in certificates a fraction of a dollar. No payments on accovmt of subscriptions to the capital stock should be carried to stock account, nor entered in reports of condition as capital 688 Appendix. stock, until date of certification to this office. Pending such certification pajTiients should be carried in a separate account to the credit of share- holders and entered in reports to this office as " capital paid in, not certified." For the legal method of enforcing the payment of subscrip- tions to capital stock, see section 5141. IXCKEASE OF CAPITAL STOCK. A national banking association may, with the consent of the Comptroller of the Currency and bv a vote of shareholders o^^Tiing two-thirds of the shares, increase its capital stock to any sum approved by the Comptroller. Xo increase is valid until the whole amount is paid in cash and the Comptroller's certi- ficate of approval is issued, prior to which, if required, ad- ditional bonds must be deposited. (Section 5142, also act of Congi'ess approved May 1, 1866.) A portion of a proposed increase will not be approved by the Comptroller, The whole amount, as stated in the reso- lution adopted by the vote of the shareholders, must be paid in and the payment certified to the Comptroller. The increase becomes operative upon the issuance of the Comptroller's cer- tificate of approval. An association that contemplates increasing its capital stock should advise the Comptroller thereof before formally sub- mitting the question to the shareholders, and, if the proposi- tion is approved, he will furnish necessary blanks and instruc- tions in relation to the course of procedure. (See notice for shoreholders' meeting.) In increasing the capital stock of a bank no moneys in the surplus fund or in the undivided profit account can be used except by the declaration of a dividend by the board of directors in the regiilar course, whereupon the shareholders, if they so desire, may use the proceeds thereof in payment to that extent of their subscription to the additional stock. Such portion only of the surplus fund as exceeds the amount required by law to be accumulated can be capitalized in the manner indicated. RESOLrriox to ixcrease capital stock. Xo. . The National Bank of , (Date.) . At a meetinfr of the shareholders of Tlie National Bank of . held on , thirty days' notice of the proposed business Baxkixg. 689 liaving been given, at which shareholders were present in person and by proxy, representing shares of the stock of this association, it was Resolved, That, under tlie provisions of the act of May 1. 1886, the capital stock of this association be increased in the sum of $ , making the total capital $- The above resolution was adopted by the following vote, more than two-thirds of the capital stock of the association: representing Name of shareholder. Residence. Name of proxy. Total number of shares voted in favor of the resolution Total number of shares voted against the resolution . . . Total number of shares represented at the meeting Total number of shares of capital stock No. of shares. I hereby certify that the above is a true and correct report of the vote and of the resolution adopted at a meeting of the shareholders of this bank held on . [seal of ba:nk.] , Subscribed and sworn to before me this [official seal of officer.] President or Cashier. dav of , A. D. Notary Public. certificate of increase of capital stock. No. . National Bank of , To the Comptroller of the Currency, Washington, D. C. It is hereby certified that the capital stock of " Tlie National Bank of " has been increased, pursuant to the provisions of the act of Congress approved May 1, 1886, in the sum of dollars, all of which has been paid in cash, and that the paid-up capital stock of said bank now amounts to dollars. [seal of bank.] , State of County of , ss : Subscribed and sworn to before nie this [official seal of officer.] 9811—05 2 President or Cashier. day of , A. D. Notary Public. REDUCTION OF CAPITAL STOCK. A national banking association may, with the consent of the Comptroller of the Currency and by a vote of shareholders 44 690 Appendix. o^^ling two-thirds of the shares, reduce its capital stock to any sum not below the minimum amount required by the Xational Bank Act. The reduction becomes operative upon the issuance of the Comptroller's certificate of approval, prior to whieli the circulation of the bank must be reduced (if excessive) to at least the amount of the caj)ital after reduction by a deposit of lawful money with the Treasurer of the United States and the withdrawal of a like amount of bonds. An association that contemplates reducing its capital stock should advise the Comptroller thereof before formally sub- mitting the question to the shareholders, and, if the proposition is approved, he aHII furnish necessary blanks and instructions in relation to the course of procedure. See notice for share- holders' meeting. RESOLUTION TO BEDI7CE CAPITAL STOCK. The No. . National Bank of (Date.) National Bank At a meeting of the shareholders of The — of , held on , thirty days' notice of the proposed business having been given, at which shareholders were present in person and bv proxy, representing shares of stock of this association, it was Resolved, That, under the provisions of section 5143, United States Revised Statutes, and of the law amendatory thereof, the capital stock of this association be reduced in the sum of $ , leaving the total capacity after said reduction $ . The foregoing resolution was adopted by the following vote, representing more than two-thirds of the capital stock of the association : Name of shareholder. Residence. Name of Proxy. No. of Shares. Total number of shares voted in favor of the resolution Total number of shares voted against the resolution. . . Total number of shares represented at the meeting Total number of shares of capital stock I hereby certify that the foregoing is a true and correct report of the vote and of the resolution adopted at a meeting of the shareholders of this bank, held on . [seal of bank.] , , Subscribed and sworn to before me this [official seal of officeb.] President or Cashier. day of , A. D. Notary Public. Baxkinct. 691 Xo part of the reduction can be carried to surplus or to un- divided profits without the unanimous consent of the share- holders. When the reduction is made the shareholders should return their old certificates. New certificates for the capital as reduced should then be issued. It is not unlawful to issue certificates for fractional shares and to pay dividends thereon. BY-LAWS. When a bank is organized the board of directors should adopt by-laws. (Section 5136, paragraph 6.) The following is sub- mitted as a general form that" may be modified in any manner deemed expedient, but not in conflict with law or the articles of association : GENERAL FORM OF BY-LAWS OF NATIONAL BANKS. BY-LAWS OF THE [HERE INSERT THE TITLE OF THE BANK], ORGANIZED UNDEB THE NATIONAL-BANKING LAWS OF THE UNITED STATES. ELECTIONS. Section L Tlie regular annual meetings of the shareholders of this bank for the election of directors shall be held at its banking house on the second Tuesday of January of each year, between the hours of 10 and 4 of said day. It shall be the duty of the board of directors, within one niontli prior to the time of said election, to appoint three shareholders to be judges of said election, who shall hold and conduct the same, and who shall, after the election has been held, notify under their hands the cashier of this bank of the result thereof and the names of the directors- elect. Sec. 2. The cashier, upon receiving the returns of the judges of the elections as aforesaid, shall cause the same to be recorded upon the minute book of the bank, and shall notify the directors-elect of their election, and of the time at which they are required to meet at the banking house of the bank for the purpose of organizing the new board. If at the time fixed for the meeting of the directors-elect there is not a quorum in attendance, the members present may adjourn from time to time until a quorum is secured ; and no business shall be transacted prior to taking the oath of office as prescribed by law. Sec. 3. If, for any cause, the annual election of directors is not held on the date fixed in the articles of association, the directors in office shall order an election to be held on some other day, of which special election notice shall be given in accordance with the requirements of section 5149, United States Revised Statutes, judges appointed, returns made and re- corded, and the directors-elect notified, according to the provisions of sections 1 and 2 of these by-laws. officers. Sec. 4. Tlie officers of this bank shall be a president, vice-president (who shall be members of the board of directors), cashier, and such other offi- cers aS may be from time to time required for the prompt and orderly transaction of its business, to be elected or appointed by the board of directors, by whom their several duties shall be prescribed. 092 Appendix. Sec. 5. The president shall hold his office for the current year for which the board of Avhich he shall be a member was elected, unless he shall re- sign, become disqualified, or be removed ; and any vacancy occurring in the office of president or in the board of directors shall be filled by the remaining members. Sec. 6. The cashier and tlie subordinate officers and clerks shall be appointed to hold their offices, respectively, during the pleasure of the board of directors. Sec. 7. The cashier of this bank shall be responsible for all the moneys, fund, and valual)les of the bank, and shall give bond, with security to be approved by the board, in the penal sum of dollars, conditioned for the faithful and honest discharge of his duties as such cashier, and that he will faithfully apply and account for all such moneys, funds, and valuables, and deliver the same to the order of the board of directors of this bank, or to the person or persons authorized to receive them. Sec. 8. The president of this bank shall be responsible for all such sums of money and property of every kind as may be intrusted to his care or placed in his hands by the board of directors or by the cashier, or other- wise come into his hands as president, and shall give bond, with security to be approved by tlie board, in the penal sum of dollars, condi- tioned for the faithful discharge of his duties as such president, and that he will faithfully and honestly apply and account for all sums of money and other property of this bank that may come into his hands as such president and pay over and deliver the same to the order of tlm board of directors, or to any other person or persons authorized by the board to receive tlie same. Sec. 9. The teller shall be responsible for all such sums of money, prop- eerty, and funds of every description as may from time to time be placed in his hands by the cashier, or otherwise come into his possession as teller; and shall give bond, with security to be approved by the board, in the penalty of dollars, conditioned for the honest and faithful dis- charge of his duties as teller, and that he will faithfully apply, account for, and pay over all moneys, property, and funds of every description that may come into his hands, by virtue of his office as teller, to the order of the board of directors as aforesaid, or to such person or persons as may be authorized to demand and receive the same. Sec. 10. The following is an impression of the seal adopted by the board of directors of this bank : (Impression of seal.) conveyance of real estate. Sec. 11. All transfers and conveyances of real estate shall be made by the association, under seal, in accordance with the orders of the board of directors, and shall be signed by the president or cashier. increase of stock. Sec. 12. Whenever an increase of stock shall be determined upon, in accordance with law, it shall be the duty of the board to notify all the shareholders of the same, and to cause a subscription to be opened for such increase of capital. In the increase of capital each shareholder shall have the privilege of subscribing for such number of shares of the new stock as he may be entitled to subscribe for, according to his existing stock in the bank. If any shareholder fails to subscribe for the amount of stock to which he may be entitled, the board of directors may determine what disposition shall be made of the privilege of subscribing for the unsubscribed stock. Baxkixg. 693 BUSINESS OF THE BANK. Sec. 13. This bank shall be opened for business from o'clock a. m. to o'clock p. m. of each day of the year excepting Sundays, and days recognized by the laws of this State as holidays. When any regular meet- ing of the board of directors falls upon a holiday, the meeting shall be held on such other day as the board may previously designate. Sec. 14. The regular meetings of the board of directors shall be held on the [here insert time of meeting]. Special meetings may be called by the president, cashier, or at the request of three or more directors, and should there be no quorum at any regular or special meeting, the mem- bers present may adjourn from day to day until a quorum is in attend- ance. In the absence of a quorum no business shall be transacted. Sec. 15. There shall be a committee, to be known as the discount com- mittee, consisting of the president, cashier, and directors, appointed by tlie board every months, to continue to act until succeeded, who shall have power to discount and purchase bills, notes, and other evidences of debt, and to buy and sell bills of exchange; and who shall, at each regular meeting of the board of directors, make a report of all bills, notes, and other evidences of debt disc9unted and purchased by them for the bank since their last report. MINUTE BOOK. Sec. 16. The organization papers of this bank, the returns of the judges of the elections, the proceedings of all regular and special meetings of the directors and of the shareholders, the by-laws and any amendments thereto, and reports of the committees of directors shall be recorded in the minute book : and the minutes of each meeting shall be signed by the president and attested by the cashier. TRANSFERS OF STOCK. Sec. 17. The stock of this bank shall be assignable and transferable only on the books of this bank, subject to the restrictions and provisions of the national banking laws; and a transfer book shall be provided in ■which all assignments and transfers of stock shall be made. Sec. 18. Transfers of stock shall not be suspended preparatory to the declaration of dividends ; and, unless an agreement to the contrary shall be expressed in the assignments, dividends shall be paid to the share- holders in whose name the stock shall stand at the date of the declaration of dividends. Sec. 19. Certificates of stock, signed by the president and cashier, may be issued to shareholders, and the certificate shall state upon the face thereof that the stock is transferable only upon the books of the bank; and when stock is transferred, the certificates thereof shall be returned to the bank, canceled, preserved, and new certificates issued. EXPENSES. Sec. 20. All the current expenses of the bank shall be paid by the cashier, who shall every six months, or oftener if required, make to the board a detailed statement thereof. contracts. Sec. 21. All contracts, checks, drafts, etc., and all receipts for circu- lating notes received from the Comptroller of the Currency, shall be signed by the president or cashier. examinations. Sec. 22. There shall be appointed by the board of directors a committee of members, whose duty it shall be to exercise a supervision of the business of the bank, and to examine every three months the affairs of this bank, count its cash, compare its assets and liabilities with the accounts C9i Appendix. of the general ledger, ascertain whether the accounts are correctly kept and the condition of the bank corresponds therewith, and whether the bank is in a sound and solvent condition, and to recommend to the board such clianges in the manner of doing business, etc., as shall seem to be desirable, the result of which examination shall be reported in writing to the board at the next regular meeting thereafter. Sec. 23. The board of directors shall have power to change the form of the books and accounts when deemed expedient, and define the manner in which the afl'airs oi the bank shall be conducted. QUORUMS. Sec. 24. A majority of all the directors is required to constitute a quorum to do business. Sec. 25. These by-laws may be changed or amended by the vote of a majority of the directors. COXVEESION OF STATE BANK. Section 5154 provides for the conversion of banks existing under State laws into national banking associations, and reads as follows: Any bank incorporated by special law, or any banking institution or- ganized under a general law of any State, may become a national asso- ciation under this title by the mame prescribed in its organization certi- ficate ; and in such case the articles of association and the organization certificate may be executed by a majority of the directors of the bank or banking institution ; and the certificate shall declare that the owners of two-thirds of the capital stock have authorized the directors to make such certificate, and to change and convert the bank or banking institu- tion into a national association. A majority of the directors, after exe- cuting the articles of association and organization certificate, shall have power to execute all other papers, and to do whatever may be required to make its organization perfect and complete as a national association. In case of the conversion of a State bank, there is not a dissolntion of the State corporation, but merely a change of title and governmental supervision ; the bank is liable for all obligations and may enforce all contracts made with it whilo a State corporation. If preferred, the State banks may be placed in voluntary liquidation in conformity with State law, and those interested therein organize a national bank, which association will be at liberty to buy the properly purehaseable assets of the former, and there need be no interruption in business. A specific con- tract is necessary for the purchase of assets and assumption of liabilities to depositors and other creditors of the State bark. In such cases bills receivable and other assets should be listed, carefully scrutinized, and properly indorsed, the banking house, if purchasefl, deeded to the new bank, and the deed recorded ; all general and individual accounts closed and transferred, and new accounts opened and old ]iass books called in and new books issued. The capital must be fully paid in cash, and not in assets of the closed bank. Baxking. 695 Under the national banking law, associations can loan on per- sonal security only ; are prohibited from investing in real estate other than that necessary to the conduct of the business of the bank; and are restricted in the volume of accommodations to any one person, company, corporation, or firm, etc., to 10 per cent of the capital stock of the national bank actually paid in. The courts have held that it is ultra vires of a national ' banking association to invest in the stock of another corporation. State banks proposed to be converted and holding such pro- hibited assets are required to dispose of them prior to receiv- ing official approval to begin business as a national banking association, and an agreement is exacted from directors of a national banking association organized to succeed a State or private bank that no assets of that character Avill be purchased by the association. The following is the form of notice to be submitted of inten- tion to convert a State bank into a national banking association : APPLICATION TO CONVERT A STATE BANK. The name of the place sliould form a part of the title, thus " The First National Bank of A ," but the name of the State should not be included. Consideration will not be given to an application for a title including the word " First " if a national bank exists or has existed at the given locality ; «or to an application for a title identical with that of a national bank heretofore in existence, nor to one materially similar to that of a national, State, or other bank existing in the place. , 190—. To THE Comptroller of the Currency, Washington. Sir: Notice is hereby given that we, the undersigned, being a majority of the board of directors of '" The ," having a paid in and unimpaired capital of $ ,a intend to convert the said bank into a national banking association, in accordance with the provisions of section 51o4 of the Revised Statutes of the United States, under the title " The ," to be located at , county of , State of , with a capital of $ . We request that the title be reserved for a period of sixty days and the necessary conversion papers and instructions sent to , at Signature of directors. Residences. a If the capital is less than the amount required of a national bank of primary organi- zation, the necessary increase must be effected, in conformity with the banking laws of the State, prior to the execution of conversion papers. Evidence, from the proper State official, of the legal increase is required with the conversion papers. 696 Appendix. When the application to convert has received the Comptrol- ler's approval the shareholders should execute a form similar to the following : AUTHORITY FOE COXVEESIOIf OF STATE BANK. We, the undersigned stockholders of The , located in the . county of , State of , having a capital of ■ dollars, do hereby authorize and empower the directors thereof to change and con- vert said bank into a national banking association under the provisions of section 5154 of the Revised Statutes of the United States, or of acts amendatory thereof; and Ave do also authorize the directors, or a majority thereof, to make and execute the articles of association and organization certificates required to be made or contemplated by said statutes; and also to make and execute all other papers and certificates, and to do all acts necessary to convert the said bank into a national banking associa- tion, and to do and perform all such acts as may be necessary to transfer the assets of every description and character of the said State bank to the national banking association into which it is to be converted, so that the said conversion may be absolute and complete; and we do hereby assume, and authorize the said directors to assume, as the name of the national banking association into which the said State bank is to be con- verted, " The : " and Ave do hereby appoint, , , ,. , AA'ho are noAV the directors of the said State bank, to be the directors of the said national bank, to hold their offices as such directors until the regular annual election of directors is held, pursuant to the provisions of said Revised Statutes, and until their successors are chosen and qualified ; and A\'e do hereby authorize the said directors of the said national bank to continue in office the officers of the said bank, or to appoint or elect others. In Avitness whereof Ave have hereunto set our hands and Avritten against our names the number of shares oAvned by us, respectiA'ely, this day of , A. D. . Signature of stockholders, a Xumber of shares owned by each. ARTICLES OF ASSOCIATION. (Executed in duplicate.) We, the undersigned, directors of Tlie , having been authorized by tlie owners of tAvo-thirds of tlie capital stock of said bank to change and conAcrt tlie said bank into a national banking association under the provisions of section 5154 of the Revised Statutes of the United States, or of acts amendatory thereof, and to execute articles of associa- o The signatures of tlie owners of at least two-thirds of the stock. BAJfKING. 697 tion, do liereby, in our own behalf, and in behalf of the stockholders whom we represent, make and execute the following articles of association: First. The title of the association into which the said State bank is to be changed and converted shall be " The ." Second. The place where its banking house or office shall be located, and its operations of discount and deposit carried on, and its general business conducted shall be the , county , State of . Third. The board of directors shall consist of shareholders. Fourth. The regular annual meeting of the shareholders for the election of directors shall be held at the banking house of this association on the second Tuesday of January of each year; but if no election shall be held on that day, it may be held on any other day, according to the provisions of section 5149 of the Revised Statutes of the United States, and all elec- tions shall be held according to such regulations as may be iMescribfd by the board of directors, not inconsistent with the provisions of the national-banking law, and of these articles. Fifth. The capital stock of this association shall be thousand dollars, divided into shares of one hundred dollars each; but the capital may, with the ajjproval of the Comptroller of the Currency, be increased at any time by shareholders owning two-thirds of the stock, according to the provisions of an act of Congress approved ]\Iay 1, 1886; and in case of tlie increase of the capital of the association, each shareholder shall have the privilege of subscribing for such number of shares of the pro- posed increase of the capital stock as he may be entitled to, according to the number of shares owned by him before the stock is increased. Sixth. The board of directors, a majority of whom shall be a quorum to do business, shall elect one of its members president of this association, who shall hold his office (unless he shall be disqualified, or be sooner re- moved by a two-thirds vote of all of the members of the board) for the term for which he was elected a director. The directors shall have power to elect a vice-president, who shall also be a member of the board of directors, and who shall be authorized, in the absence or inability of the president from any cause, to perfom all acts and duties pertaining to the office of president, except such as the president only is authorized by law to perform, and to elect or appoint a cashier and such other officers and clerks as may be required to transact the business of the association; to fix the salaries to be paid to them and continue them in office, or to dismiss them, as, in the opinion of a majority of the board, the interests of the association may demand. The directors shall have power to define the duties of the officers and clerks of the association; to require bonds from them and to fix the pen- alty thereof; to regulate the manner in which the elections of directors shall be held, and to appoint judges of the elections; to make all l)y-laws that it may be proper for them to make not inconsistent with law, for the general regulation of tlie business of the association and the management of its afi'airs, and generally to do and perform all acts that it may be legal for a board of directors to do and jjerform under the Revised Statutes aforesaid. Seventh. This association shall continue for the period of twenty years from the date of the execution of its organization certificate, unless sooner placed in voluntary liquidation by the act of its shareholders owning at least two-tliirds of its stock, or otherwise dissolved by autliority of law. Eighth. These articles of association may be changed or amended at any time by shareholders owning a majority of the stock of the associa- tion in any manner not inconsistent with law; and the board of directors, or any three shareholders, may call a meeting of the shareholders for this or any other purpose not inconsistent with law, by publishing notice thereof for thirty days in a newspaper published in the town, city, or €1)S Appendix. county where the bank is located, or by mailing to each shareholder notice in writing thirty days before the time fixed for the meeting. In witness whereof we have liereunto set our hands this dav of -, having been duly ORGANIZATION CERTIFICATE. We. the undersigned directors of the authorized by the owners of two-thirds of its capital stock to change and convert said bank into a national banking association, and to make the necessary organization certificate, under the provisions of section 5154 of the Revised Statutes of the United States, or of acts amendatory thereof, do sign and execute the following organization certificate, which we hereby declare we are authorized to make by the owners of two-thirds of the capi- tal stock of the said State bank. First. The title of this association shall be '' The ." Second. The said association shall be located and continued in the of , county of , and State , where its operations of dis- count and deposit are to be carried on. Third. The capital stock of this association shall be dollars ( $ ) , divided into shares of dollars each, as it is now divided in the said State bank. Fourth. The name and residence of each of the stockholders of the said State bank, which is to bcome a national bank under the provisions of the Revised Statvites aforesaid, and the number of shares of dollars each held bv each stockholder are as follows : Name. Number of shares. Fifth. The certificate is made in order that the said State bank and the stockholders thereof may avail themselves of the advantages of the afore- said Revised Statutes, and that the said State bank may be changed and converted into a national banking association, under the foregoing title. In witness whereof we have hereunto set our hands this day of . Tlie signatures of a majority of directors required. State of , County of , ss.: Before the undersigned a of -, personally appeared , , , , directors of the aforesaid State bank, to me well known, who severally acknowledged that they executed the fore- going certificate for the purpose therein mentioned. Witness mv hand and seal of office this dav . [official seal of officer.] Banking. 699 •CERTIFICATE RELATIVE TO PAYMENT OF CAPITAL STOCK OF STATE BAXK COX- VERTIXG INTO NATIONAL BANK. It is hereby certified that The Bank of , which is to be converted into " The National Bank of /' in con- formity witli tlie provisions of section 5154 of the Revised Statutes of the United States, authorizing the conversion of '' any bank incorporated by special law or any banking institution organized under a general law of any State," has a paid in and unimpaired capital of $ . President . or Cashier. State of County of Subscribed and sworn to before the undersigned, a of the said county, this day of , 190 — . [official SEAL OF OFFICER.] [office] All other papers and proceedings Avill be similar to those re- quired of associations primarily organized under the national banking laws. EXTENSION O'F CORPORATE EXISTENCE. The act of Congress approved July 12, 1882, empowers the extension of the corporate existence of national banking asso- ciations whose periods of succession are about to expire. Sec- tion 5130 provides that all associations organized under it shall have succession for twenty years from the date of the execution of their organization certificates. The officers of a national bank can therefore ascertain the date of the expiration of the corporate existence of the associa- tion from the date of the last acknowledgment in the organiza- tion certificate. If the certificate has been lost or the date is uncertain, information can be obtained upon application to the Comptroller. Under the act of July 12, 1882, and the regula- tions of the Comptroller's office, shareholders owning at least two-thirds of capital stock are authorized to give their written consent to extension of corporate existence at any time Avithin two years prior to the expiration of existing charter, and the necessary blanks and instructions will be sent a sufficient time in advance to enable them to do so. While no meeting of share- holders is necessary, the law only requiring the written consent TOO Appendix. of the owners of two-thirds of the capital stock, th:-rc is no legal objection to the holding of a meeting of shareholders for the piir^jose of considering the propriety of extending charter. The formal amendment, certificate relative thereto, and request for approval to be executed and filed with the Comptroller are as follows : AMENDMENT OF ARTICLES OF ASSOCIATION OF NATIONAL BANK. In accordance with and in pursuance of the provisions of "An act to enable national banking associations to extend their corporate existence, and for other purposes," approved July 12, 1882, we, the undersigned, shareholders of " The ," located at in the county of and State of , owning the number of shares of the capital stock of said association set opposite our respective names, aggregating not less than two-thirds of the stock of said association, do hereby consent and agree that the article of the articles of association of said national banking association be, and is hereby, amended to read as follows: ■' This association shall continue until close of business on 19 — , imless sooner placed in voluntary liquidation by the act of its shareholders owning at least two-thirds of its stock, or otherwise dis- solved by authority of law." In witness whereof, we, the undersigned, have hereto set our hands. Date of signinif. Signature of share- holder. Address. Signature of proxy. Number of shares. CERTIFICATE. To THE Comptroller of the Currency. Washington, D.C. Sir : In pursuance of the provisions of "An act to enable banking asso- ciations to extend their corporate existence, and for other purposes," approved July 12, 1882, I hereby certify that shareholders owning not less than two-thirds of the capital stock of " The " have con sented in writing to the extension of the charter of said association ; tha t tlie signatures to the attached amendment of the articles of association, executed in duplicate, are the true and correct signatures of said share- liolders, or of their lawfully appointed attorneys, and that one of the in- struments, in all respects like the other, is on file in the bank. The foregoing certificate is made luider seal of the association in accord- ance with a resolution of the board of directors adopted at a meeting held on the day of , 100 — , in which the president or cashier, was also authorized to make an application for tlie approval of the amended articles of association, a copy of which resolution has been re- corded on the minute book of the banl<. [seal of BANK.] , President or Cashier. (The above certificate should not be made prior to date on which the amendment is last signed.) REQUEST FOR APPROVAL. The Comptroller of the Currency is hereby requested to approve the fore- going amendment of the articles of association of said bank, extending its .corporate existence for twenty years, pursuant to the act of Congress en- i:itled "An act to enable national banking associations to extend their corporate existence, and for other purposes," approved July 12, 1882. President or Cashier. PROXY FOR USE IX EXTENDING CORPORATE EXISTENCE OF NATIONAL BANK. Know all men by these presents, that I, , of liereby constitute and appoint irrevocably my true and lawful attorney, for me and in my name and stead to sign all necessary papers in connection with the extension of the corporate existnece of the ■ , under the act of Congress approved July 12, 1882, or any amendment of said act, and I hereby consent that the article of the articles of association of the ^^ , be so amended as to read as follows : "This association shall continue until close of business on , un- less sooner placed in voluntary liquidation, by the act of its shareholders mount coined fron» 1878 to June 30', 1900, was $-198,406,215. The coinage ratio between gold and silver under the act of 1792 was 15 to 1, but by the acts of 1834 and 1837 it was changed first to 16.002 to 1 and finally to 15.988 to 1 (com- monly called 16 to 1). This is the present ratio. Of the 498,496,215 standard silver dollars coined since Febru- ary, 1878, 1,725,000 are reported to have been shipped to Cuba, Porto Rico, and th-e Philippines; there were held in the Treas- ury June 30, 1900, $430,341,739, and the amount outside the Treasury in the United States was $66,429,476. Silver cer- tificates to the amount of $408,499,347 are in circulation against that amount of the standard silver dollars held in the Ireasury. Of the amount held in the Treasury $408,499,347 were held for the redemption of an equal amount of silver certificates in circulation; $6,153,153 were held on account of Treasury notes of 1890, and $15,689,229 were held in the general cash as assets of the Government. The commercial value of an ounce of fine silver June 30, 1900, was $0.61876, and the commercial value of the silver in the silver dollar on that date was 47.857 cents. SUBSIDIARY SILVEE. The silver coins of smaller denominations than one dollar, authorized by the act of April 2, 1792, were half dollars, quarter dollars, dimes, and half dimes. They were the equiva- lent in value of the fractional parts of a dollar which they re}t- resented — that is, two half dollars were equal in weight \o one silver dollar, and so on. These coins were full legal tender when of standard weight, and those of less than full weigh t^ were legal tender at value proportional to their respective M'eights. By the act of February 21, 1853, the weight of the frac- tional silver coins was reduced so that the half dollar weighdl only 192 gTains, and all the smaller denominations were re- Banking. 733 diiced in proportion. Tlieir legal tender quality was at the same time limited to $5, and they thus became subsidiary coins. The present subsidiary coins are half dollars^ quarter dollars and dimes. Their "weight is slightly different from that prescribed by act of 1853 ; but the limit of their legal-tender quality has been raised to $10, and $117,845,395.85 have been coined since 1873. The amount of full-weight fractional silver coined prior to 1853 was $76,734,964.50, and the amount of subsidiary silver coined since that year is $176,892,792.05. There was a period, from 1862 to 1876, when there was no fractional silver coin in circulation in the United States ex- cept on the Pacific coast. During this period the small change of the country consisted of fractional paper currency^ which will be described in its place. ISSUE OF STANDARD SILVER DOLLARS AND SUBSIDL\RY SILVER COIX. Standard silver dollars are issued by the Treasurer and as- sistant treasurers in redemption of silver certificates and Treasury notes of 1890, and are sent by express, at the ex- pense of the Government, in sums or multiples of $500, for -silver certificates or Treasury notes of 1890 deposited with the Treasurer or any assistant treasurer. Upon the deposit of an equivalent sum in United States cur- rency or national-bank notes with the Treasurer or any assist- ant treasurer or national-bank depositary, subsidiary silver coin will be paid in any amount by the Treasurer or assistant treas- urers in the cities where their several offices are, or will be sent by express, in sums of $200 or more, at the expense of the Government, or by registered mail, at the risk of the c6nsignee^ in packages of $50, registration free, from the most convenient Treasury office, to the order of the depositor. For this purpose drafts may be sent to the Treasurer or the assistant treasurer in Xew York, payable in their respective cities to the order of the officer to whom sent. PAPER MONEY. / The first paper money ever issued by the Goveniment of the United States was authorized by the acts of July 17 and Au2:ust 5, 1861. The notes issued were called '' demand 734 Appendix. notes," because they were payable on demand at certain desig- nated subtreasuries. They were receivable for all public dues, and the Secretary was authorized to reissue them when re- ceived; but the time within which such reissues might be made was limited to December 31^ 1862. The amount authorized by these acts was $50,000,000. An additional issue of $10,000,000 was authorized by the act of February 12, 1862, and there were reissues amounting to $30,000. The demand notes were paid in gold when presented for redemption and they were received for all public dues, and these two qualities prevented their depreciation. All other United States notes were depreciated in value from 1862 until thei resumption of specie payments, as shown by the table hereinafter following. The act of February 25, 1862, provided for the substitution of United States notes in place of the demand notes, and the latter were therefore canceled when received. By July 1, 1863, all except $3,770,000 had been retired, and nearly three millions of this small remainder were canceled during the next fiscal year. These notes were not legal tender when first issued, but they were afterwards made so by the act of March 17th, 1862. UNITED STATES XOTES. The principal issue of United States paper money was of- ficially called United States notes. These were the well-known " greenbacks " or " legal tenders." The act of February 25, 1862, authorized the issue of $150,000,000, of which $50,- 000,000 were in lieu of an equal anjount of demand notes, and could be issued only as the demand notes were canceled. A second issue of $150,000^000 was authorized by the act of July 11, 1862, of which, however, $50,000,000 was to be a temporary issue for the redemption of a debt known as the temporary loan. A third issue of $150,000,000 was authorized by the act of March 3, 1863. The total amount authorized^ including the temporary issue, was $450,000,000, and the highest amount outstanding at any time was $449,338,902 on January 30, 1864. There are still outstanding $346,681,016. The reduction from the original permanent issue of $400,- 000,000 to $346,681,016 was caused as follows: The act of April 12, 1866, provided that United States notes might be retired to the extent of $10,000,000 during the ensuing six Banking. Y35 months, and that thereafter they might be retired at the rate of not more than $1,000,000 per month. This authority re- mained in force until it was suspended by the act of February 4, 18GS. The authorized amount of reduction during this period was about $70,000,000, but the actual reduction was only about $44,000,000. jSTo change was made in the volume of United States notes outstanding until after the panic of 1873, when, in response to popular demand, the Government reissued $26,000,000 of the canceled notes. This brought the amount outstanding to $382,000,000, and is so remained until the resumption act of January 14, 1875, provided for its reduction to $300,000,000. The process was, however, again stopped by the act of May 31, 1878, which re- quired the notes to be reissued when redeemed. At that time the amount outstanding was $346,681,016, which is the present amount. The amount of United States notes redeemed from the fund raised for resumption purposes since January 1, 1879, to June 30, 1900, was $564,147,369 ; but the volume outstanding is undiminished because of the provisions of the act of May 31, 1878, which require the notes so redeemed to be paid out again and kept in circulation. The act of March 14, 1900, also directed the reissue of United States notes when redeemed, but they must first be exchanged for gold as provided in the said act. The act also provides that when silver certificates of large denominations are canceled and small denominations issued in their place, a like volume of small United States notes shall from time to to time be canceled and notes of $10 and upward issued in substitution therefor. GOLD CERTIFICATES. The act of March 3, 1863, authorized the Secretary of the Treasury to receive deposits of gold coin and bullion in sums not less than $20, and to issue certificates therefor in denomi- nations not less than $20, said certificates to be receivable for duties on imports. Under this act deposits of gold were re- ceived and certificates issued until January 1, 1879, when the practice was discontinued by order of the Secretary of the Treasury. The purpose of the order was to prevent the holders of United States notes from presenting them for redemption T36 Appendix. in gold, and redepositing the gold in exchange for gold cer- tificates. l\o certificates were issued after January 1, 1879, until the passage of the bank act of July 12, 1882, which au- thorized and directed the Secretary of the Treasury to receive gold coin and bullion and issue certificates. This act, however, provided that " the Secretary of the Treasury shall suspend the issue of gold certificates whenever the amount of gold coin and gold bullion in the Treasury, re- served for the redemption of United States notes, falls below one hundred millions of dollars." The act of March 14, 1900, r«.-enacted this provision, and further provided that the Secre- tary may, in his discretion, suspend such issue whenever and so long as the aggregate amount of United States notes and silver certificates in the general fund of the Treasury shall ex- ceed $60,000,000. ' It provided further that of the amount of such certificates outstanding one-fourth, at least, shall be in denominations of $50 or less. The amount of gold certificates now outside the Treasury is $200,555,469. The act of July 12, 1882, made them receivable for customs, taxes, and all public dues. SILVER CEETIFICATES. The act of February 28, 1878, authorizing the issue of the standard silver dollars, provided that any holder of such dol- lars might deposit them in sums not less than $10 with the Treasurer or any assistant treasurer of the United States and receive certificates therefor, in denominations not less than $10, said certificates to be receivable for customs, taxes, and all public dues. The act of August 4, 1886, authorized the is- sue of the smaller denominations of $1, $2, and $5. Silver certificates have practically taken the place in circulation of the standard silver dollars which they represent. The amount outside the Treasury July 1, 1900, was $408,499,347, while the amount of standard silver dollars outside the Treasuiy was only $66,429,476. The act of March 14, 1900, provided that thereafter the issue of silver certificates should be limited to the denominations of $10 and under, except that 10 per cent of the total volume of such certificates, in the discretion of the Secretary of the Treasury, may be issued in denominations of $20, $50, and $100. Neither silver certificates nor silver dol- lars are redeemed in gold. Baxivixg. Y37 TREASUKY XOTES, ACT OF JULY 14, 1890. These notes were authorized bv the act of July 14, 1800, commonly called the " Sherman Act." The Secretary of the Treasury was directed to purchase each month 4,500,000 ounces of fine silver at the market price, and to pay for the same with Treasury notes redeemable on demand in coin and legal tender for all debts, public and private, except where otherwise expressly stipulated in the contract. It was pro- vided in the act that when the notes should be redeemed or received for dues thy might be reissued, but th^it no greater or less amount of such notes should be " outstanding at any time than the cost of the silver bullion and the standard silver dol- lars coined therefrom then held in the Treasury jiurchased by such notes." The authority for the purchase of silver bullion under this act was repealed by the act of Xovember 1, 1893, up to which date the Government had purchased 108,674,682.53 fine ounces at a cost of $155,931,002, for which Treasury notes were issued. The amount of silver bullion purchased under said act, and now held in the Treasury is 77,454,253.37 fine ounces, which cost $70,079,834.30. When coined it will produce $100,142,873, of which $30,063,639 will be gain, or seign- iorage. The amount of Treasury notes reedemed in gold up to the close of the fiscal year 1900 was $106,556,655 and the amount redeemed in standard silver dollars was $70,703,410. Treasury notes redeemed in standard silver dollars are canceled and retired in accordance with the requirements of the act of 1890. Sections 5 and 8 of the act of March 14, 1900, also provide for the cancellation and retirement of Treasury notes to an amount equal to the coinage of standard silver dollars and subsidiary silver from the bullion purchased ^vitli such notes. The cancellation of notes on account of coinage since March 14, 1900, is $9,200,592, so that there remained out- standing Jime 30, 1900, but $76,027,000. Such notes re- deemed in gold are reissued as required in the course of busi- ness. Copies of the Treasury regulations governing the issue and redemption of currency can be procured by application to the Treasurer of the United States. 47 ^d8 Appendix. FKACTIONAL CUEEENCY. "When specie payments were suspended about January 1^ 1862, both gold and silver coins disappeared from circulation. The place of the subsidiary silver coins was for a time supplied by the use of tickets, duebills, and other forms of private obliga- tions, which were issued by merchants, manufacturers, and others whose business required them to " make change." Con- gress soon interfered, and authorized, first, the use of postage stamps for change; second, a modified form of postage stamp called postal currency, and finally fractional paper currency in denominations corresponding to the subsidiary silver coins. The highest amount authorized was $50,000,000. The highest amount outstanding at any time Avas $49,102,660.27, and the amount still outstanding, though not in use as money, is $15,254,924.41, of which $8,375,934 is officially estimated to have been destroyed. EEDEMPTIO:^". Gold coins and standard silver dollars, being standard coins of the United States, are not " redeemable." Subsidiary coins and minor coins may be presented, in sums or multiples of $20, to the Treasurer of the United States or to an assistant treasurer for redemption or exchange into law- ful money. United States notes are redeemable in United States gold coin in any amount by the Treasurer and all the assistant treasurers of the United States. Treasury notes of 1S90 are redeemable in United States gold coin in any amount by the Treasurer and all the assistant treasurers of the United States. N ational-hanh notes are redeemable in lawful money of the United States by the Treasurer, but not by the assistant treas- urers. They are also redeemable at the bank of issue. In order to provide for the redemption of its notes when pre- sented, every national bank is required by law to keep on de- posit with the Treasurer a sum equal to 5 per cent of its circulation. Gold certificates being receipts for gold coin, are redeemable in such coin by the Treasurer and all assistant treasurers- of the United States. Banking. 'i^S^ Silver certificates are receipts for standard silver dollars deposited, and are redeemable in such dollars only. '" Coin " obligations of the Government are redeemed in gold coin ^vhen gold is demanded and in silver when silver is de- manded. AN ACT DIRECTING THE PUECHASE OP SILVER BULLION AND THE ISSUE- OF TREASURY NOTES THEREON, AND FOR OTHER PUR- POSES. Be it enacted hy the Senate and House of Representatives of the United States of America in Congress assembled. That the Secretary of the Treasury is hereby directed to purchase, from time to time, silver bullion to the aggregate amount of four million five hundred thousand ounces, or so much thereof as may be offered in each month, at the market price thereof, not exceeding one dollar for three hundred and seventy-one and twenty-five hundredths gi'nins of pure silver, and to issue in payment for such purchases of silver bullion Treasury notes of the United States to be prepared by the Secretary of the Treasury, in such form and of such denominations, not less than one dollar nor more than one thousand dollars, as he may prescribe; and a sum sufficient to carry into effect the provisions of this act is hereby appropriated, out of any money in the Treasury not otherwise appropriated. Sec 2. That the Treasury notes issued in accordance with the provisions of this act shall be redeemable on demand, in coin, at the Treasury of the United States, or at the office of any assistant treasurer of the United States, and when so re- deemed may be reissued; but no greater or less amount of such notes shall be outstanding at any time than the cost of the silver bullion and the standard silver dollars coined therefrom, then held in the Treasury purchased by such notes; and such Treasury notes shall be a legal tender in payment of all debts, public and private, except where otherwise expressly stipulated in the contract, and shall be receivable for customs, taxes, and all public dues, and when so received may be reissued; and such notes, when held by any national banking association, may be counted as a part of its lawful reserve. That upon demand of the holder of any of the Treasury notes herein provided for the Secretary of the Treasury shall, under such regulations as he 740 Appendix. may prescribe, redeem siieli notes in gold or silver coin, at his discretion, it being the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio, or such ratio as may be provided by law. Sec. 3. That the Secretary of the Treasury shall each month coin two million ounces of the silver bullion purchased under the provisions of this act into standard silver dollars until the first day of July, eighteen hundred and ninety-one, and after that time he shall coin of the silver bullion purchased under the provisions! of this act as much as may be necessary to pro- vide for the redemption of the Treasury notes herein provided for, and any gain or seigniorage arising from such coinage shall be accounted for and paid into the Treasury. * -x- * * " * * Approved, July U, 1890. MEANING OF 16 TO 1. The phrase " 16 to 1," as applied to coinage, means that the mint value of 16 ounces of silver shall be equal to the mint value of 1 ounce of gold; that is, that 16 ounces of silver shall be coinable into as many standard silver dollars as one ounce of gold is coinabler into standard gold dollars. STANDARD BULUON. Standard bullion contains 900 parts of pure gold or pure silver and 100 parts of copper alloy. J^O^Is)!^^^^ The coining value of an ounce of pure gold is $20.67183, and the coining value of an ounce of standard gold is $18.60465. The coining value in standard silver dollars of an ounce of pure silver is $1.2929, and the coining value of an ounce of standard silver is $1.1636, WHAT IS SEIGNIORAGE. This term, as used in the United States, means the profit aris- ing from the coinage of bullion. The Government does not purchase gold bullion, but coins it on private account. There is no profit from the coinage of gold bullion, the face value of gold coins being the same as their bullion value, but at the present ratio of 16 to 1 the face value of the silver dollar is Banking. V41 greater than its bullion vakie; therefore when silver bullion is purchased and coined into dollars there is a profit arising from such coinage, the amount of which depends upon the price paid for the bullion. For example, there are 371^ gTains of pure silver in a dollar and there are 480 grains of pure silver in a fine ounce. The coinage value of a fine ounce is therefore $1.2929 — . If the fine ounce can be purchased for 70 cents, the profit of its coinage (the seigniorage) is $0.5929 — , and the profit on the 371i grains of pure silver in the single dollar is $0.4586 — , which is the difference between the actual cost of the bullion in the dollar and the nominal value of the coin. The silver purchased bj the Government is carried on the books of the Treasury at its actual cost, and the seigniorage is declared on the coinage of each month and paid into the Treasury. COINAGE OF GOLD. In the United States there is free and imlimited coinage of gold; that is, standard gold bullion may be deposited at the mints in any amount, to be coined for the benefit of the de- positor, without charge for coinage; but when other than stan:l- ard bullion is received for coinage a charge is made for parting, or for refining, or for copper alloy, as the case may be. Ee- fining is the elimination from the bullion of all base metals. Parting is the separation of any silver Avhich may be con- tained in the bullion. The charges for these operations vary according to the actual expenses. When copper is added for alloy, a charge of 2 cents per ounce is made for the amount actually added. The depositor receives in gold coin the full value of the gold in his bullion, less such charges as are indi- cated above. The mints may lawfully refuse to receive gold bullion of less value than $100, or when it is too base for coinage; but in practice deposits of gold bullion are accepted without regard to amounts, and rejected only when too base for coinage. COINAGE OF SILVER. Under existing law in the United States subsidiary silvei* «nd standard silver dollars are coined only on Government ac- T42 Appendix. count They are coined from bullion purchased by the Govern- ment, and the profits of such coinage belong to the Government. There is at present no authority for the purchase of bullion for the coinage of standard silver dollars, but, if necessary, suffi- cient bullion may be purchased to maintain the stock of sub- sidiary silver. The Government is still coining standard silver dollars from the bullion purchased imder the act of July 14, 1890. The amount of bullion on hand Xovember 1, 1893, when the pur^ cliasing clause of that act was repealed, was 140,699,852.67 fine ounces, costing $126,758,280, the coining value of which was $181,914,961. Between Xovember 1, 1893, and July 1, 1900, there were coined from this bullion 79,165,665 standard silver dollars, of which $54,853,083 represent the cost of the bullion coined and are held in the Treasury for the redemption of Treasury notes of 1890, while the remainder, $24,310,582, con- stitute the gain or seigniorage, and, being the property of the United States, has been paid into the Treasury, to be used like other available funds. The seigniorage is an addition to the volume of money in the country, while the silver dollars representing the cost of the bullion are not, since they are paid out only in redemption of the Treasury notes of 1890, whereupon the latter are can- celed and retired, as prescribed by the act of July 14, 1890. The total expenditure by the United States for silver bullion, exclusive of subsidiary silver coinage, is : Under act of February 28, 1878 $308,279,260 71 Under act of July 14, 1890 155,931,002 00 Total $404,210,262 71 There have been coined from the bullion thus purchased stand- ard silver dollars of the face value of $498,496,215, and there remain uncoined 77,454,253.37 fine ounces, which cost $70,- 079,834.30. The present bullion value (July 1, 1900) of the standard silver dollars coined is $238,566,424 07 And the present bullion value of the uncoined bullion is. . 47,925,593 82 Making a total bullion value of $286,492,017 8» Bankixg. '^'4:3 The space required for the storage of 1,000,000 standard silver dollars is 250 cubic feet. The standard silver dollars in the vaults of the Treasury and the several subtreasuries, June 30, 1900, amounting to about 430,000,000, require 107,500 cubic feet of space. For other particulars respecting silver dollars and subsidiary silver, see pages 11, 12, and 13 and the coinage tables herein contained. TKADE DOLLARS. The trade dollar of 420 grains troy was authorized by the act of February 12, 1873. It was intended for circulation in oriental countries as a substitute for the Mexican dollar, which it slightly exceeded in weight ; but by the terms of the authoriz- ing act it was made legal tender in the United States in sums not exceeding $5. This legal-tender quality was withdrawn by the joint resolu- tion approved July 22, 1876, and the coinage was limited to such amount as the Secretary of the Treasury should considei; sufficient to meet the export demand. The act of February 19, 1887, provided for the retirement of trade dollars and their recoinage into standard silver dollars or subsidiary silver. For six months after the passage of the act they could be exchanged at the Treasury or any subtreasury, dollar for dollar, for stand- ard silver dollars or subsidiary coin. The total number of trade dollars coined was 35,965,924. The number redeemed under the act of 1887, was 7,689,036, and from the bullion resulting from the melting of these dol- lars there were coined in subsidiary silver $2,668,674.30, and into standard silver dollars $5,078,472. Since the expiration of the period of redemption above mentioned, trade dollars have been purchased as bullion when presented at the mints. FEEE AND UNLIMITED COINAGE OF SILVER. This term, as used at present in the discussion of the coinage question, means the right of any person to deposit standard silver bullion in any amount at the mints of the United States and have it coined at the expense of the Government, such de- positor to receive in return for his bullion silver coins c 40 48 Troj weights are used, and while metric weights are by law assigned to the half and quarter dollar and dime, troy weights "^ The alloy neither adds to nor detracts from the value of the coin. ^ Seventy-five per cent copper, 25 per cent nickel. ^ Ninety-five per cent copper, 5 per cent tin and zinc. 746 AppE^'DIx. still continue to be employed, 15.432 grains being considered as the equivalent of a gram, agreeably to the act of Julj 28, 1866. The weight of $1,000 in United States gold coin is 53.75 troy ounces, equivalent to 3.68 pounds avoirdupois. The weight of $1,000 in standard silver dollars is 859.375 troy ounces, equivalent to 58.92 pounds avoirdupois, and the weight of $1,000 in subsidiary silver is 803.75 troy ounces, equivalent to 55.11 pounds avoirdupois. Bankixo. 74- Authority for Coining, Changes in Weight and Fineness, and Amount Coined for each Coin. Denomination. Act author- izing coinage or change in weight or fineness. Weight (grains). Fine- ness. Act discontin- uing coinage. Total amount coined to June 30, 1904. GOLD COINS. Double eagle (S20) . Eagle ($10) Half eagle ($5) Quarter eagle ($2.50) . Tliree-dollar piece One dollar •One dollar, Louisiana Pur- chase-Exposition Dollar SILVER COINS. Trade dollar b... Lafayette dollar Half dollar Columbian half dollar . •Quarter dollar Columbian quarter dollar. Twenty-cent piece Dime Half dime , Three-cent piece MINOR COINS. Five cent (nickel) . . Three cent (nickel) Two cent (bronze) . Cent (copper) Cent (nickel) Cent ( bi-onze ) Half cent (copper) . March 3, 1849 April 2, 1792 June 28, 1834 Jan. 18. 1837 April 2, 1792 June 28, 1834 Jan. 18, 1837 April 2, 1792 June 28, 1834 Jan. 18, 1837 Feb. 21. 1853 March 3, 1849 June 28, 1902 April 2, 1792 Jan. 18, 1837 Feb. 28, 1878 July 14, 1890 Feb. 12, 1873 March 3. 1899 April 2, 1792 Jan. 18, 1837 Feb. 21, 1853 Feb. 12, 1873 Aug. 5, 1892 April 2, 1792 Jan. 18, 1837 Feb. 21, 1853 Feb. 12, 1873 March 3, 1893 March 3, 1875 April 2, 1792 Jan. 18, 1837 Feb. 21, 1853 Feb. 12, 1873 April 2, 1792 Jan. 18, 1837 Feb. 21, 1853 March 3, 1851 March 3, 1853 May 16, 1866 March 3, 1865 April 22, 1864 April 2, 1792 Jan. 14, 1793 j Jan. 26, 1796 Feb. 21, 1857 April 22, 1864 April 2, 1792 Jan. 14, 1793 7 Jan. 26, 1796 516 270 258 135 139 67.5 64.5 77.4 25.8 25.8 41? 4121^ 420 412^ 208 206^ 192 cl9.'.9 192.9 104 1031.^ 96 e96.45 96.45 / 77.16 41.6 41 ^ 38.4 g 38.58 20.8 20% 19.2 12% 11.52 77.16 30 96 264 208 168 72 48 132 104 84 .900 .916% .899225 .900 .916% .899;i25 .900 •916% .899225 .900 .900 .900 .900 .8924 .900 .900 .900 .8924 .900 .900 .8924 .900 .900 .900 .8924 .900 .S924 .900 !750" .900 (h) (h) (0 Sept. 26, 1890 Sept. 26, 1890 Feb. 12,1873 Feb."'l9,'i887 May 2, 1878 Feb. 12, 1873 Feb! "'12,' 1873 Sept. 26, 1890 Feb. 12, 1873 Feb. 21, 1857 April 22, 1864 Feb. 21, 1857 Sl,850,281,r60 00 -378,877,070 00 -301,683,260 00 i 30,263,555 00 1,619,376 00 19,499,337 00 250,258 00 1 a 8,031 1 570,272 238 00 300 00 8,303, 35,965. 50. 538 00 924 00 000 00 159,255,307 00 d 2,500, \n. 160 dlO, 271 000 00 687 00 000 00 000 00 45,690,597 90 4,880,219 40 1,282,087 20 23,583,141 40 941,349 48 912, 020 00 1,562,887 44 2,007,720 00 13, 14% 544 77 39,826 11 a Amount coined to February 12, 1873, $8,031,238. b Coinage limited to export de- mand, joint resolution July 22, 1876. c 12i^grams, or 192.9grains. d Total amount coined. e 6J4 grams, or 96.45 grains. "/ 5 grams, or 77. 16 grains. Ex. DEALING IX COMMEECIAL FAFEB. — Continued: page. National bank, authority discussed 3G1, 3(58 State commercial banks have power 369 Limitations against savings banks 360, 370 DEALING IN REAL ESTATE : Provisions of national banlc law 374, 375 May own banking house 374 Power to hold ." 377, 378, 379 Limitation as to time of holding 37T> Banks have no power to buy for profit 379 When investment is a breaeli of bank's power 380 Construction of five-year limitation 382 DEALING IN STOCKS AND BONDS: National bank no authority to deal in, as agent 355 National cannot act as a broker 355 National may act as an agent, when 358 Power to hold as collateral 356 Commercial State bank authority, when 359 Savings banks, limitations against 359 Statute may jjrohibit 359 DEBTS, COMPOUNDING OF: Real estate keld for 613 (See Ba>-ks Bobrowi^g. ) DE FACTO CORPORATION: Bank may act as such, when 43 DEFAULT. (See Officebs.) DENOMINATIONS, NATIONAL BANKS : Circulation of gold banks 598 CirculaLiun of national banks 506 Converted State banlc shares 588 Gold certificates 611 Sliares of national bank stock 583, 588 United States notes certificates 610 DEPOSIT OF UNITED STATES BONDS. (See BoxDS, United States. ) DEPOSITARIES. (See Go\-erxme>-t Depositaries.) DEPOSITS: Nature of 235, 236 General, defined 235, 244 Special, defined 235, 240 Distinction between general and special 236, 241 IMay be received luider contract 2S6, 248 May be paid to party specifically named 237 TrU'it deposit placed to private account 237 Relation, when established 237 Trust funds must be protected 237 When not a loan to bank 239 Bank receiving, when embarrassed, may not be a fraud 239 ^Yhen check does not become 239 Cashier taking special authority questioned 242 In absence of authority cashier cannot accept special 243 Special, when lost, degree of liability 242, 245 Accepting special, purely incidental power 243, 244 If special, the identical thing must be returned 251 IxDEx. 7 73 DEPOSITS — Continued : page. Paper becomes a deposit, wiien 244 Special may be cliuuyed to a geiifial one 253 Deposit and withdrawal of public moneys 657 Reserve to be kept oa 609, 612 State banks may hold public moneys, unless prohibited 372, 373 When and how repaid 254, 255 Contract in writing not necessary for repayment 254 If deposited in firm name should be repaid, how 254 Written order to repay called checks 255 May be repaid on oral order 256 Payment mu.st be in current funds 256 Payment may be demanded without written order 259 May be repaid on telegraphic order 259 Payment of trust funds 259 Bank must protect trust funds 260 Real owner entitled to 260 Minors may withdraw 2643. 261: Parent or guardian may claim deposit of minor 261 Process of law may stop payment 261 Death stops payment, when known to the bank 261 Relation of depositor in mutual .savings banks 477 Depositor has no liability in capitalized savings banks 479 Special deposit in savings banks 480 Notice of withdrawal may be required by savings banks 481 When may be recovered 523^ 525 DEPUTY COMPTROLLER: Appointment, bond, duties, oath, salary 578 DIRECTORS: Duties and responsibilities of 83 Of national banks 88 Election of, in national bank 89, 581, 680 Qualifications of, national bank 89, 586, 681 Oath required of, in national bank , 89, 586, 680 Of State bank 90 Of national bank, President must be a 90 Meetings of 91 Place of meeting . . . .' 91 Notice of meeting 91 Number necessary for quorum 92 Of national bank, must act as a unit 92 Elect officers 92 Vacancies in board, how filled 92, 93 Duties which cannot be delegated 93, 95 Have exclusive authority to make discounts . 93 May pass resolution authorizing officer to make a loan 94 Exclusive power to sell property of bank 95 Statute may authorize directors to increase or diminish capital. . . 96 Cannot alter an assessment on shares of stock in national bank for impairment of capital 96 Cannot give away property 96 Cannot settle with cashier for his deficits 96 No power as a lx>ard to assume debts of otliers 96 Held to be trustees 97, 100 Cannot make profits for themselves, when 97 IMay require bond of officers and clerks 9S Held ; duty to require bonds 98 Power to release a debt 98 Releiising a subscriber to capital stock, questioned 99 But may make settlement with subscriber 99 774: Index. DIRECTORS — Continued : page. May sell proijerty to satisfy preferred creditor 99 May remove employees for cause in State banks 99 May remove without cause in national bank 99, 100 Cannot use bank funds to pay attorney, when 101 May borrow funds from bank when not prohibited 101, 102 Notice to board 103 When law imputes knowledge 104 Notice received in official capacity 104 Must have actual notice 109 When chargeable with knowledge against himself 110 Liability of HO, 630 Degree of care required 1 1 1 Acting in good faith .' 1 1 1 Declaring "dividends _ 112, 614 Excuses of 112 Compensation of 116 Embezzling funds may be a cause for forfeiture of bank charter 512, 630 Liable for losses, when 512 Attestation of reports to Comptroller by 617 Assessment provisions for enforcement of 616 Capital impaired, duties in ." 583 Certificate of officers and 584 Certificate of, to extension 621 Conversion of State bank, action by 5SS, 694 Embezzlement, penalty 642 Enforcing payment of capital 583 Exception on Oklahoma 586 Failure to hold annual election 587 Names and residences of, to be ascertained by Comptroller 584 Number and election of 585 Oklahoma, qualification of national bank in 586 Penalty for issuing circulation of expired association 640 Penalty for offical malfeasance 642 Penalty for unauthorized receipt of public monej^ 659 President of board in national bank to be a 587 Powers of 581 Proxy cannot act as 586, 619 Vacancies in board of 587 Board of, may be named in articles 678 Specify, or minimum and maximum, number of, must appear in articles 678 Oath, forms of 680 Are officers 681 Votes of shareholders in election of 681 Appointment of liquidating agent by 708 DISCOUNTS : Directors have exclusive power to make 360, 362 Rediscounting not borrowing 360 Can authority to make be delegated ? 360 P.ank rediscount only a contingent liability 361 Court discusses question 361 (See Loans.) DISSENTING SHAREHOLDER : In national bank, withdrawal, extension 622 DISSOLUTION: Voluntary liquidation 528 Authority of officers in charge 528 Index. 775 DISSOLUTION — Continued : page. Liquidation does not dissolve corporation 528 Liquidation dividends 529 (See Insolvency.) DISTRICT OF COLUMBIA: Supervision of banks in, authorized by Congress, by Comptroller. . 620 DIVIDENDS: Cannot be declared out of capital 112 Rules ffoverning- in, insolvency 520 In liquidated bank belongs to shareholders 529 Comptroller to make ratable of assets of insolvent bank G29 Directors of national bank may declare, when 614 Earnings of national bank to be reported 618 Penalty for failure to report earnings 618 Restriction on association's liability 615 Unearned, prohibited 615 DONATIONS : Banks cannot make, except through stockholders 388 DRAFTS : Cashier has inherent power to draw 140 Obligations of L'nited States including 6.38 Official maiftasance 642 Liability of association relative to 615 Penalty for mutilating 6.37 DUTIES: Special deposit, when lost; duty of bank 242 Associations organized under act of February 25, 1863 591 Circulation converted State banks 607 Circulation enforcing payment of, on 605 Circulation exempt from 605 Circiilalion not receivable for customs 597 Circulation refunding excess on 605 Circulation restrictions on 607 Circulation semi-annual on 604 Circulalion unauthorized 606 Comptrollers 577 Deputy Comptrollers 578 Directors 585, 586 Examiners • 619 Gold certificates receivable for 611 Notes, etc., other than national bank circulation 607 Public depositaries, designation and 656 Receiver, appointment and 628 Shareholder's agent 633 E. ELECTIONS. NATIONAL BANK: Change of title or location 591 Corporate poAvers 581 Extension of corporate existence 621, 703 Failure to hold annual 587 Increase of stock 590 Reduction of stock 590 Shareholder's agent 631 Voluntary liquidation 623, 624 Directors, oath, oualification, etc 586 776 I]S'DEx. EMBEZZLEMENT. ( See CEiiiES. ) page. Penalty for 642 EMPLOYTXG COUNSEL: Authority vested in whom 3S7, 388 EVIDENCE : Certificate of incorporation pi'oof 50, G-43 EXxUIINATION OF BANKS : Checking up of 5G7 Compensation of national bank examiner 619 exa:\iinations : Of national bank, preliminary proceedings before beginning business 584 Extension of corporate existence 702 Annual, of bonds 594 Ascertainment of value of stock of dissenting shareholders 622 Bonds and records, provisions for 594 Compensation of national examiners 619 Examiners to make 620 Limitation of visitorial powers 620 List of shareholders subject to 617 Plates and dies annually 597, 6S5 Preliminary to beginning business 584 Qualification of examiners 619 Special, of extended associations G32 Appointment of examiners 619 EXCUSE : Of directors 112 EXECUTOR : Holding stock as such not liable 80, 81 (See Teustees.) EXTENSION OF CORPORATE EXISTENCE: OF NATIONAL BANK. Extension of 621 Term of, corpoi-ate of national 'banks 581 Amendment for 699 Expiration of charter, liquidation as a result of 706 Publication of notice of 709 Shareholders may authorize 700 Power of attorney for, form of 700 Two-thirds of stock must consent to 699 Shareholders not assenting to, must be paid for their stock 704 Administrators, etc., voting for ^ 703 Examination before 703 Circulating notes, issue of, in case of 703 Re-extension authorized 623, 704 Transfer of bonds not necessary in case 703 Officers' bonds, renewal of 704 EXPENSES : Relating to national bank. . 579, 583, 597, 599, 600, 601, 604, 619, 620 022, 627, 632 F. FALSE ENTRY, NATIONAL BANK: Penalty for official malfeasance G42 Index. T77 FORFEITURE OF CHARTER: page. Of franchise 508, 513 Acts wliicli may work forfeiture 508, 509 Xon-user of charter 509 ^YiIful violation of law 510 Taking usurious interest may be cause for oil Mismanagement may be cause for 512 Doing business not authorized 513 FORGED PAPER: Riglit of bank against presenter and owner of 299, 300 Bank paying on forged indorsement 296 ( See Crimes ; Penalties. ) FRAUDULENT NOTES: United States and national officers to mark 603 G. GIFT: Bank can make only through stockholders directing 389 GOLD: Certificates not to be issued when reserve of gold coin and bullion is depleted 611 Circulation of gold bank.s redeenvable in 598 Deposit of, for certificates 611 CJold banks not required to take circulation of other banks at par. 603 Ciold l^anks, issue of circulation by, payable in 587 Issue of certificates of deposit of 611 Organization of gold banks 587 Reserve in Treasury 611 Reserve of gold banks to be silver and 611 Taxation of, by State, etc 607 GOLD BANKS: Circulation of, issuable 598 Conversion of 587 Deposit of bonds by 598 Exempted from provision relative to other bank circnlation 603 Organization of 587 Reserve required for 611, 612 Tax on circulation 604 GOLD CERTIFICATES: Deposit of gold for Oil Issue of, prohibited, when 611 Minimum denomination 611 Receivable for 611 Gold reserve in Treasury 755 Gold certificates not to be issued when depleted 611 GOVERNMENT DEPOSITARIES : Deposit and withdrawal of public moneys 657 Deposits by certain postmasters 057 Designation and duties of 656 National bank as 656 National bank circulation to be receiA'ed by 656 National bank as financial agents of 656 Penalty for misapplication money order funds 657 Penalty for unautliorized deposit of public moneys 658 Penalty for imauthorized receipt or use of public moneys 659 Secretary of Treasury to designate 656 Securities to be deposited by . 650 778 Index. GRACE, DAYS OF. (See Checks.) GUARANTY : PAGE. Where bank may make 399 GUARDIAN: Holding stock as such not liable 80, 81 (See Trustee.) I. INCIDENTAL POWERS. (See Bank Po%vebs.) INCREASE OF CAPITAL, NATIONAL BANK: Resolution for 689 Certificate of G89 Valid, when 688 INCOMPLETE CIRCULATION. (See also Cibcul.\tion. ) Redemption of 603 INDORSEMENT: Negotiable paper 153 Forms of, effect of 153 INDORSER. (See Notes, Bills, Checks axd Drafts). IGNORANCE : Excuses 112 INJUNCTIONS. (See CoiiPXROLLEB's Suits.) INSANITY. (See Checks: Deposit-. Stocks; Patiient.) INSOLVENCY : Defined 514, 525 " Solvent," '■ In failing circumstances," defined 517 Rule applicable to 520 Debtor insolvent, when 520 Definition of word " means " " to pay debts " 521 Bank taking deposit when insolvent 522 Knowledge of insolvency, what constitutes 522 Interest continues to run 526 Dividends, rule governing 526 Debts due savings banks 527 In national bank assets, distribution of, by receiver 629 General jurisdiction to national bank cases 642 Impairment of capital 615 Jurisdiction of courts 642 Notice to creditors of associations in 629 Penalty for issuing circulation of associations in 640 Preference of creditors 635 Receiver, appointment of 628 Receiver, duties of 628 Receiver, when may be appointed 628 Redemption of circulation of association in 602 Shareholders' agent 632, 633 Taxes on bank in, remitted 631 IN^TEREST: In bank by Comptroller prohibited 578 By Deputy Comptroller 578 Bonds deposited, how paid 683 Index. 779 IXTEREST — Continued : page. Taking interest in violation of law, ground of forfeiture of bank's charter 511 Bank may be indicted for taking 505 J. JUDG]\IENT: Release of legal, when ordered by directors 120 Appointment of receiver 628 Illegal preference of creditors G35 K. KNOWLEDGE. (See Notice.) L. LAWFUL MONEY: Defined 059 Defined for gold banks Gil Exemption of circulation from taxation, when deposited 005 Expiring association to deposit 025 Extended banks to deposit • 001, 703 Five per cent, funds 599, 002 Forfeiture of bonds, failure to redeem circulation in 026 Liquidating association to deposit 624 Liquidating association consolidating, not to deposit 024 Payment of protested circulation in 027 Receiver to be appointed for. failure to maintain reserve of 028 Redemption accoimt, distribution of 002 Redemption account, reserve to be 009 Withdrawing circulation, deposit of 000 Balances with agents 009. 012 Clearing house certificates 010 Gold banks Oil Five per cent, fund 010 Lawful money on hand 009 Maintenance of 009 Receiver, for failure to maintain 009 Reserve agents, proportion with 610 United States notes certificates 610 LEGAL TENDER: Defined 059 Money constituting 730, 745 LENDING CREDIT: When bank prohibited from 398 Where bank may make a guaranty 399 Guaranty of bank, when acts are ultra vires 400 LIABILITY : Bank not liable for misapplication of trust funds, when 237 Banks colluding with trustees 238 Bank liable for gross negligence 242, 243 Bank liable for failure to select suitable agents 445 Associations for pledging, etc.. United States notes, etc 036 Converted State banks for old notes 607 Creditors' bill against shareholders 635 Estates owning stock subject to 589 False certification of checks 641 Individual, of directors 630 Limited to amount of capital except 615 780 Index. LIABILITY — Continued: page. Personal, of shareholders 589 Eestrictions on 015 Shareholders' agent • 032, 033 Shareholders debarred from voting 586 Shareholders exempt from, when 589 Trustees exempt from, Avlien 589 LIABILITIES, NATIONAL BANKS: Associations organized imder act of Febrviary 25, 1803 591 Change of title or location not to afiect 591 Comptroller's report to contain statement of 579 Converted State bank 0U7 Deficiency in reserve not to be increased 609 Deposit of lawful money, relieves from, on circulation 024 Duties of receiver 628 Exceptions to limitations 615 Extended associations 022 Liquidating associations on consolidation 622 Loans, restrictions on 579 Reports of condition to show 017 Restriction on 015 Shareholders' agent 032 LipNS: Bank may have, on collection 425 General and special, defined 496, 502 On stock ( stock certificates) 497 Rule between correspondent and initial bank 500 Bank cannot acquire, on special deposit 502 Application of rule 502 Illegal preference of creditors 635 Interest on bonds. .' 005, 618 United States has paramount, on assets of national associations.. 627 LIMITATIONS, NATIONAL BANK: Associations, corporate existence 581 Bonds, withdrawal of 594, 600 Capital, converted State banks 58S Capital stock, increase of 590 Capital stock, reduction of 590 Capital stock, payment of 583 Capital stock, requirement 582 Circulation, denominations 590 Circulation, deposit of lawful money on withdrawing 000 Circulation, increase of OOO Circulation exempt from tax 005 Circulation obtainable 592, 595 Circulation obtainable by gold banks 598 Circulation to be taken at par 603 Circulation, tax on 004, 007 Circulation, imauthorized tax on 606 Comptroller or receiver may be enjoined, when 026 Corporate existence of converted gold banks 587 Creditors of insolvent banks, notice to 629 Creditors of insolvent banks, illegal preference 635 Directors, number of 585 Dividends 014. 015 Expiration of corporate existence 625 Extension of corporate existence 621 . 023 Gold certificates, denominations of 611 Ijn'dex. 781 Ll IMITATIONS, NATIONAL BANK — Con tin ued : page. Impaiiiiiout of capital Ul5 Inspection of lists of shareholders 017 Interest rate 013 Jurisdiction of courts 042 Jurisdiction, general, of national bank cases 042 Lawful money deposited to retire circulation 000 Liability of national banks 015 Location of associations, change of 591 Loans 614 "National " in title of bank 020 Place of business 009 Public depositaries 056 Real estate lioldings 613 Reserve gold banks Oil Receiver, appointment of 628 Receiver, purchase of property to protect trust 030 Reports of condition transmitted 617 Reports of earnings and dividends transmitted 018 Reserve requirements 009 Reserve with central reserve agents 012 Reserve with reserve agents 009 Shareholders' agent, duties of 033 Shareholders, personal liability of 589 Shareholders, personal liability of certain converted banks 589 Shares of stock, par value 583 Shares of stock, directors to own 586 State taxation of money 007 State taxation of national banks 618 Stock, purchased or acquired 614 Suits, conduct of 643 LTnited States bonds deposited 584 United States notes certificates, denominations of 610 United States gold certificates, issue of 610 United States Treasurer to redeem circulation presented, when .... 602 Visitorial powers 620 Voluntary liquidation, vote 623 Voluntary liquidation, deposit of lawful money 624 Voters at elections 586 (See Statute of Limitation.) LIQUIDATION: Voluntary 528 Authority of officers in charge 528 Does not dissolve corporation 528 Liquidation dividends 529 Bonds withdrawn 024 Creditor's bill against shareholders 635 Consolidation 624 Expiring association to comply with provisions for 025 Jurisdiction of courts 642 Lawful money to be deposited 624 Notice of, to be ptiblished 624, 709, 712 Penalty for issuing cii'culation of association in 640 Redemption of circulation of as.sociations n 601, 602 Sale of bonds, when 624 Vote required 623 Agency 708 Voluntary, instructions relative to 706 Voluntary, for consolidation 709 Expiration of corporate existence 711 782 IxDEx. LIQUIDATIOX AND RECEIVERSHIP. See pages 623 to 643. page. (See also Liquidation; Receiver.) LOANS : Nature of 323 Real estate, described 323 Bank authorized to make 323 Real estate prohibited by national bank 613 Restrictions on '. 32-4, 614 Restrictions on savings banks 327 In excess of one-tenth of capital when not a violation of law 328 Officer who makes, has authority to arrange for security and collect 330 National association's liability restricted 615 Circulation as collateral for, prohibited 615 Law may prohibit taking bank's own stock as security 330, 614 LOCATION: Change of 591, 706, 981 Organization certificate to state ' 581 (See Place of Business.) LOSSES : Negligence, degree of 468 Bank liable for face value of paper, when 468 Bad debts and, exceeding profits 615 M ]^IANAGEMENT. ( See Directors : Officebs.) :NL\RRIED WOMEN: [May become stockholders in bank 78 Extent of liability of ' 78, 79, 80 MEASURE OF DAMAGES : When paper total loss 468 Negligence, failing to make collection 471 [MEETINGS : Shareholders 712 Notice of "12 MISTAKES: Tellers not responsible for, when using care 182 MONEY: Summary of events in United States 716 System of L'nited States T21 Production of gold and silver in the world since the discovery of America 752, 753 (See Lawful Money; Legal Tender; Circulation; Public Moneys. ) MORTGAGES, NATIONAL BANKS: Assignment of, when illegal 635 Official malfeasance 642 Purchase of, by receiver 630 Real estate, possession, etc., of, by association 613 MUTILATED CIRCULATION : Redemption of, etc 598 MUTUAL SAVINGS BANKS: Defined 25 (See Savings Banks.) Index. 783 NAME : N. PAGE. Change of, national bank 7OG NATIONAL BANKING ASSOCIATION: Defined 20 Restrictions on, limitations of certain commercial privileges 20 Individual liability of shareholder 77, 81, 58'J When not personally liable 589 Liability enforced by Comptroller 81 Liability enforced only in favor of creditors 82 When right of action accrues 82 Assumes liability of State bank after conversion 212 Cannot take over stock of State bank 213 Cannot take over only such assets as it may hold 214 Amendment of articles of association restricted 213, i59U Articles of association entered into by 580 Branches may be retained by converted State banks 589 Capital required 582 Capital of converted State banks . . . . 589 Cancellation of redeemed circulation G02 Certilicate of officers and directors — 584 Circulation obtainable by 595 Circulation of, tax on G04, 000 Circulation of, to be redeemed in United States notes 602 Circulation to ho taken at par 603 Circulation of, for what receivable 597 Circulation unsigned or with forged signatures to be reduced. .. . 603 Closed bank circulation 002 Change of title and location 591 Charter forfeiture 030 Charter number to be printed on circulation of 597 Comptroller and Deputy Comptroller not to be interested in, issuing circulation " 578 Conversion of State banks to 588 . Corporate and incidental powers of 581 Crimes, jurisdiction, etc 636 643 Deposit of bonds by ' 5t^4 Directors individually liable, when 630 Directors, number and election of 585 Directors, oath of 5qO Directors, qualification of 580 Election, holding annual 587 Enjoining proceedings 620 Examination of, prior to being authorized to begin business 585 Expiration of corporate existence, provisions on 625 Extended bank circulation 001 Exchange of bonds 593 Extension of corporate existence of 621, 022 General provisions respecting bonds 594 Gold bank circulation, provisions for issuing 598 Gold banks may be organized 587 Gold banks, conversion of 587 Incomplete circulation of 003 Increase of capital stock by 590 Liquidating bank circulation 601 Liquidation, provisions for 623, 624 Lost or stolen notes of. to be redeemed 603 National Bank Act relative to. in force in the Indian Territory. . . . 644 Oklahoma, qualifications of directors in 586 Organization certificate to specifically state 581 784 IiifBEx. XATIOXAL BAXKIXG ASSOCJATlOy: — Continued: page. Payment of stock prior to beginning business 583 Post-notes, issue of, prohibited 003 Preparation of bank circulation 596 Publication of certificate of authority 585 President of, to be chosen by board 587 Keceiver may be appointed for failure to restore capital 584 Keduction of capital stock 590 Receiver for, wiien may be appointed 028 RedemiJtion and destruction of circulation of 598, 599 Eedemption account, disposition of 002 Regulation of business of COS, 020 Relation of bond deposit to capital of 593 Security for circulation 592 Shares of stock 583 Shareholders of, qualifications of, at elections 586 Shareholders' agent 03^ Status of, organized under act of February 25, 1803 591 Subscribed stock not paid for, forfeited to 583 Suspension of business after default to pay circulation G27 Taxation of circulation of, by States, etc GOT Tax provisions restricted 007 Taxes on insolvent, remitted G31 Where proceedings to enjoin may be brought 626 Withdrawing circulation 600 NEW YORK CITY: Associations in, reservations 609 Bonds, sale of forfeited, in G27 Notice of expiration of corporate existence in paper in 025 Notice of voluntary liquidation in paper in 624 NEGLIGENCE : Bank liable for failure to deliver special deposit 247 Bank liable in not selecting suitable agent 445 NONRESIDENTS: Directors of national banks 580 State, etc., taxation of stock of 018 NOTARY PUBLIC: Bank employing 447 Officer of bank acting as 448 Acknowledgment of organization certificates of national bank Ije- fore 581 Acknowledgment of reports of national bank 617 NOTES AND ACCEPTANCES: Bill of exchange may be accepted oi-allj'^ 278 When note payable at bank, duty of bank 401 Bank may applv a deposit to pav note, when 402 Set-off — Estoppel " 402 Rule of application 403, 404 Makers' right of set-off 405 Special deposit, when accepted to pay note 405 ]\Ioney de])osited M'ith bank to pay note is not pa^Tnent 406 Application of deposit on note 406, 407 NOTICE : ;May be waived by a stockholder 68 To cashier, when notice to bank 172 Board of directors charged with, when assembled at a meeting. . . . 103 Index. 785 NOTICE — Continued : page. W lieii the law imputes knowledge 104 Notice to a single director 104 \\here a person, agent, or officer, acting within their authority, held to be lOG Facts known to president of bank held to be 106 Officer or agent, acting on his own behalf, held not to be 108 . Rule stated 109 Director must have actual knowledge 109 Withdrawal of deposit 481 Loss of pass-book, notice must be given 488 Liquidation, national bank 709, 712 Meetings (national banl<) , general 712 O. OATH: Certificate of officers and directors 583, 584, 580, 712 Examiners may take statements under 5(58, 619 Execution of organization certificate 581, 588 Official, by Comptroller 578 Official, by Deputy Comptroller 578 Pajnnent of installments 583 Reports of condition, etc 617, 618 Semi-annual return of circulation 004, 606, 618 Shareholders, list of 617 (See DiKECTORS axd Officers.) OBLIGATIOXS OF THE L*NITED STATES: Defined 638 Penalty for dealing in counterfeit 640 Penalty for illegal possession or use of material for 638 Penalty for passing counterfeit 639 Penalty for pledging 636 Penalty for taking or having unauthorized impressions of tools. . . 639 OFFICERS : General discussion of duties 83 Election of, in national bank 581, 681, 682 Bonds assign to be signed by cashier or other 593 Certificate of director and 584, 682 Certificate of, form of 682 Certificate of payment of increase of stock 590 Certificate of pavTiient of stock by president or cashier 583 Circulation properly signed issuable 597 Disqualified to examine bank in which interested 619 False certification of checks 641 Cashier has inherent power to certify check 140 Cannot certify liis own check 146 Cashier has inherent power to draw drafts or checks 147 Power to receive off'ers for purchase of bank security 150 Cashier has inherent power to deal in bills of exchange 151 Cashier has charge of personal property 152 Has power to indorse negotiable paper 153 Has no power to indorse for accommodation 154 Cashier's powers and duty when " run on bank " 156 Cashier has no inherent power to borrow money for bank 158 His inherent power to collect debts 167 Forged sigiiatures of. to circulation not to invalidate 603 Fraudulent, to be marked by 603 Official malfeasance, penalty for 642 Penaltv for false certification of checks 641 50 786 I^'DEX. OFFICERS — Continned : page. Penalty for improper countersign, etc., circulation 03G Penalty for issuing circulation of expired association 640 Penalty for official malfeasance 642 Penalty for pledging, etc., circulation 636 Penalty for unauthorized receipt of public money 659 Preference of creditors 635 President of board, national bank, a director 587 President or cashier, certification of extension 621 President or cashier, certification of expiration of existence 625 President or cashier, certification of liquidation 624 President or cashier, waiving notice of protest, national bank. . . . 625 Redemption of unsigned circulation 603 Proxy, cannot act as 681 Bonds of, reneval of. in case of extension of charter 704 Taking deposit when bank insolvent 522, 523 OFFICERS BORROWING MONEY: Cannot loan bank funds to themselves 383 Restrictions and limitations against 383 Restrictions against officers of savings banks 384 Loans may be made to officers by directors, when 386 ORGANIZATION : Preliminarj' steps, organization of national banks 30 Instructions relative to 673 Forms for 673, 674 Articles of association 580 Who can form 30 Capital stock 5S1 Capital stock requirements 582 Forms for 673, 674 Who may become incorporators 31 Married women parties to 670 Parties to. must be natural persons 678 Who are natural persons 30 Certificate of authority to begin business 585 Form of 678 Execution of, in duplicate 678 Acknowledgment of 67!) Certificate of officers and directors 584 Term of existence 3.'3 National associations to have succession for twenty years 670 Purpose of corporation 33 Requirements of law essential 34 When complete 35 Certificate, proof of corporate existence 49, 50, 643 Sealed certificate of Comptroller evidence 643 Specifications in 581 When life of corporation begins 51 Statutory' laws regulate organization of State banks 32 Corporate powers of national bank 581 Deposit of bonds required 584 Directors, election of national bank 587 Number 585 Oath of directors 586 Qualification of directors 586 Directors choose president 587 Vacancy of directors., how filled . 587 Enforcing ])ayment of stock 5S3 Examination of national, preliminary to begi.ining business 584 IxDEx. 787 ORGANIZATION — Con finued : page. Failure to hold election 587 Incidental powers 581 Location and title, change of 591 Location 581 Payment of stock 583 President, qualification of 587 Publication of authority to begin business 32, 585 OVERDRAFTS : Defined 308 When unlawful 308 L^sage or practice no authority for 308 If unlawful directors cannot legalize 310 Overdrawing may be legalized, how 311, 312 Officer allowing overdraft, criminal act, when 312 Drawer liable to bank for overdraft 312, 313 PAPER MONEY: ^' First issued 733 History of 733 United States notes 734 Gold certificates 735 Silver certificates 73G Treasury notes 737 Fractional currency 738 PENALTY: (Acts whicli constitute under National Banking Laws.) Appointment of receiver for violation of act G2S Bond of Comptroller 578 Bond of Deputy Comptroller 578 Counterfeiting circulation G37 Dealing in counterfeit circulation 640 False certification of checks 041 Failure to p;iy installment on stock 583 Failure to redeem circulation 626 Forfeiture of charter 630 Illegal possession for use of material for circulation 638 Imitating bank circulation for advertising purposes 637 Improper countersigning or delivering circulation 636 Interest unlawful 614 Issuing circulation of expired associations 640 Jurisdiction of United States courts 642 Mutilating circvilation 637 Misapplication of money order funds 657 " National,'" imlawful use of the word 620 Official malfeasance 642 Passing counterfeit circulation 639 Pledging United States notes or bank circulation 636 Reports to Comptroller, failure to make 618 Reserve, maintenance of GOO Semi-annual return of circulation 604, 605 Taking or having unauthorized impressions or tools 639, 640 Unauthorized deposit of public money 658 L'nauthorized receipt or use of public money 659 PLATES: Control of ; 597 Cost of engraving 599, 684 Custody of 578 788 Index. PLATES — Coniinued : page. Engraving of 596 Examination annually 597 Expense of examination and destruction of 597 Extended banks GOl, 701 Liquidated bank, to be destroj-ed 597 Penalty for counterfeiting 63S PLACE OF BUSINESS: Must have principal place of 34 Legal existence, where 222 Residence in one State does not forbid a contract to be made in another 222, 223 PLEDGE : Stock, pledged to secure a debt cannot be voted, when 68 Pledgee, statute protecting 77 Pledging or hypothecating circulation prohibited 615 POPULATION : Relation of caijital stock to^ of national bank 582 POST-NOTES : National bank cannot issue 603 PREPARATION OF CIRCULATION: Provisions for national baiilc 596 PRESIDENT: General qualifications 117 Qualifications necessary to hold office 120, 587 Election or appointment of, by directors 58 1 Powers of 121 Powers limited, but is regarded as having charge of bank's affairs. 121 Has inherent power to employ covmsel 122 Is agent of board of directors 122 Has only co-ordinate powers with dii'ectors 122, 123 His acts held binding with knowledge of directors 124 May bind bank by usage, when 123, 124 President's powers derived from statute 127 Limited and prohibited power of 127, 128 Cannot certify his own check 127 Holding out to public, powers believed in, binds the bank 128 Representations and admissions^, effect of 129 Liable to bank for acts which amount to breach of trust 130 Allowing overdraft which causes loss personally liable 130 Usage does not always excuse 131 May borrow money from bank unless prohibited 132 Compensation of .... 134 Certificate of officers and directors (national bank) 584 Countersigning or delivering circulation improperly 636 False certification of checks and penalty for 641 Official malfeasance, penalty for 642 Proxy, not to act as 586 Public money, unauthorized receipt of, by 659 Signature of, forged, not to invalidate circulation . . . . 603 Signature of, on circulation 596, 597 Violations of act by, penalty for 628, 630 PROTEST OF CIRCULATION: Bonds forfeited, when 620 Bonds, sale of, when 627, 628 Failure to redeem circulation 625, 626 Inixex. 789 PRIVATE BANKING: page. May be prohibited 1, Private banker defined 23 PROMISSOF.Y NOTES : Certificate of deposit held to be 314 PROOF: Of corporate existence 40 Entry in pass-book 240 Notice of loss of pass-book required 4S8 PROXY: Shareholders (national bank) may vote by 6S1 Form of ' " 682 Director, officer, clerk, teller and bookkeeper not competent to act as GS 1 PUBLICATION (relating to national banks) : Annual election, notice of holding special 587 Certificate of authority to begin business 585, 686 Change of title or location, notice of 591 Creditors of insolvent associations, notice to 629 Expiration of corporate existence, notice of 625 Non-payment of circulation, notice to present 625, 627 Reports of condition of banks other, in national in District of Columbia 618 Reports of condition of national banks 617 Sale of bonds, notice of 627 Sale of delinquent stock, notice of 583, 616 Shareholder's agent, notice of election of c 632 Voluntary liquidation^ notice of 624, 708, 712 PUBLIC DEBT: Of government from 1865 to 1894 . . . . ^ 75 1 Q. QUALIFICATION: Comptroller and Deputy Comptroller of Currency 578 Directors of national bank 586, 681 In Oklahoma 586 Examiners of national association 619 Receivers of national bank association 628 Shareholder's agent 632 R. REAL ESTATE: Investment and holding restricted 613 Subject to State, etc., taxation 618 (See Dealing in.) RECEIVER OF NATIONAL BANIv: Appointment and duties of 628 Appointment of, for failure to dispose of own stock 628 Appointment of, for failure to restore diminished capital... 584, 628 Appointment of, for false certification of checks 628 Appointment of, for non-payTiient of circulation 628 Appointment of, for impairment of capital 628 Appointment of, for insolvency 628 Appointment of. for non-maintenance of reserve 628 Courts majr enjoin 626 TOO IXDEX. IIECEIVER OF NATIONAL BAy:K — Continued : page. Expenses of, how paid 630 General jurisdiction of national bank cases 642 Jurisdiction of circuit courts 642 Purchase of property by, to protect trust 630 REDEMPTION: Cancellation of circulation sent for 602 Deposit of lawful money for, of association in liquidation 624 Disposition of account 602 Enjoining Comptroller 626 Extended bank circulation 60 1 First lien on assets 627 Five per cent, fund for, to be maintained 590 Five per cent, fund for, part of lawful reserve 610 Forfeiture of bonds 626 Forged signatures not to prevent 603 General provisions respecting 599 Incomplete circulation 603 Liquidating bank circulation 001, 602 Notice to present circulation for 627 Proceeds from sale of bonds for^ of circulation 624 Profit on circulation not presented for 601 Protest of circulation for failure to redeem 625 Provisions for, of circulation 598 Provisions for, of United States notes certificates 610 Records of 602 Sale of bonds 027, 628 State bank circulation converted, provisions for 607 United States notes of circulation in 602 Unsigned circulation to be redeemed 603 "^Vithdrawn circulation 600 ^^'orn or mutilated circulation 598 Gold coins, standard silver dollars, not redeemable 738 Treasuiy notes are 738 National bank notes are 738 Gold certificates are 738 Silver certificates are 739 Gold obligations of the L'nited States are 739 REDEMPTION ACCOUNT : Disposition of 602 Re-extension of corporate existence 623 Law and instructions relative to 703 REDUCTION OF CAPITAL: Resolutions for, by national bank 690 Valid, when, by national bank 690 Disposition of 691 Vote of shareholders owning two-thirds of capital stock in national bank required 229 Two-thirds of a quorum voting not sufficient 229 Released capital becomes property of stockholders 229 No part of reduction can be carried to surplus without unanimous consent of shareholders 230 State bank reducing capital must comply strictly with the law. ... 231 In California, cannot diminish capital less than indebtedness of the corporation 231 Cannot be reduced if capital impaired 231 Certificate of reduction conclusive, when 231 Index. 791 REGULATION OF BANKING (BUSINESS) : page. State banking controlled by the State 1, 8 Question discussed 1, 8 Right of banking 1, 8 National banks controlled and authorized by Congress 9 . Foreign bank, how governed 9 (Regulation relating to National Banks.) Assessment, enforcement of 616 Circulation, improper use of 615 Dividends 61-i Dividends prohibited, when 615 Examiners, appointment of 619 Examiners, compensation of 619 Impairment of capital 615 Interest, limited 613 Interest, unlawful, penalty for 614 Laws governing certain associations 608 Liability of association restricted 615 Loans, restrictions on 614 Net profits 619 Place of business 609 Real estate, purchasing, etc 613 Reports of condition 617 Reports, failure to make 618 Reports, verification of 617 Reports of dividends and earnings 618 Reports, verification of 618 Reserve cities €09, 612 Reserve cities, balances with agents 609 Reserve cities, central 612 Reserve cities, requirements 609 Reserve cities, requirements, goM banks 611 Shareholders, list of 617 State taxation of associations 618 Stock, holding, etc 614 Surplus and dividends 614 Uncurrent notes, use of, prohibited 016 Unearned dividends prohibited ■ 615 Visitorial powers, limitation of 620 RELEASE : President has no power to release judgment of record in favor of bank 129 REMOVING PLACE OF BUSINESS: National may remove with consent of Comptroller, when 219 Law may stop privilege, when 219 State bank may, when law so provides 219, 220, 221 REPORTS ( Required of National Bank, etc. ) : Amendments proposed in Comptroller's 579 Annual, to be made to Congress 579 Banks other than national 618 Circulation, semi-annual return of 604 Closed banks 579 Condition of banks other than national 579 Condition of national banks in 579 Distribution of 580 Dividends and earnings ^ 618 List of shareholders 617 Payment of capital stock 583 792 Index. EEPORTS — Continued : page. Printed, when STO Printed, number of copies •'^>80 Statement of condition of national bank 017 Not less than five required during each j'ear .572 Must be verified by president or cashier and attested by three directors 572, 57.3 Comptroller has power to call for special 573 No uniform law of States requiring 574 Suggestion of law as to verification and attestation bl-i Reports should be more frequently called for 574 RESERVE (Regulation relating to National Bank) : Clearing-house certificates GIO Five per cent, fund G02, 610 Gold and silver held bv gold banks 611 Gold certificates ....". 611 Lawful money 609 Maintenance of 600 Penalty for failure to maintain 609 Proportion of, with agents 600, 612 Requirements 609 Requirements for gold banks til 1 Reserve agents, balance with 600, 612 Silver certificates 609, (ill United States notes certificates 610 RESERVE AGENTS: Balance with 609 Central city 612 Central city additional 612 Cities, additional, in Avhich may be located 6J2 Cities in which located 609 RESERVE CITIES: Additional, provisions for 612 Central, deposits in 612 Central, provisions for 612 Named ■ 609 Requirements, not applicable to gold banks in San Francisco 612 Requirements of associations in 609 RESIDENCE : List of shareholders and reported annually 617 List of shareholders in organization certificate 581 National banks 647 Qualification of directors of associations 586 (See State Baxks.) REPRESENTATIONS. (See Officers, Agents, Etc.) REQUIREMENTS OF LAW ESSENTIAL: Creating a corporation requirements in general law essential 34 A substantial compliance a prerequisite 35 RESTORATION OF CAPITAL STOCK, NATIONAL BANK: Provision for 584, 615 REVOCATION OF PAYMENT OF CHECKS: Payment may be stopped 286 Oral notice may be suflicient 288 Written notice binding, best notice 289 Index. 793 EIGHT OF BANKING: page. Controlled by constitution and legislative measures 1 to 7 " RUN ON BANK " : Cashier's powers and duties 156 May personally take charge of all the bank's affairs 157 May take time to examine depositor's account, before payment of check 157 Has no right to delay payment 157 Under such emergencies may make discounts and pledge securities of the bank I57 May borrow money to meet immediate demands if authorized. . . . 158 May take time to balance depositor's account, when 257 Extra assistance not required to be called to facilitate business during 257 Bank must pay checks in order in which presented 257 To prevent confusion, teller is entitled time to examine depositor's account „ . . 258 S. SAFE DEPOSIT: Bank has incidental power to conduct 391 Is a discretionary power invested in directors 391 Bank holding property as such becomes a bailee 391 Holding property without compensation, bank liable only for gross negligence ". 391 Gross negligence defined 391. 392 Burden upon plaintiff alleging negligence to prove it 393 This burden is never shifted from him ' 393 National Banking Act has no special provisions for conducting. . . 393 Comptrollers holds that the privilege is discretionary with direct- ors 393 Oflfieers accepting property for deposit without authoritv, wlien liable '. .' ] .. 393, 394 SALARY. (See Compensation.) SAVINGS DEPARTMENTS: National Banking Act does not authorize 715 Implied authority recognized 716 National bank taking deposits upon special contracts, matter for judicial determination 716 Comptroller holds that the privilege is one for consideration by the board of directors 716 SAVINGS BANKS: Mutual , defined 25 Capitalized savings bank defined 25 Mutual and capitalized distinguished 28 General discussion of, and nature 473 State regulation of business 470 May deal in stocks and bonds, when 359 Relationship of depositor in mutual 477 Depositor has no liability in capitalized savings bank 479 Na,ture of deposits in capitalized savings bank 479 Trust deposits, what are 479 Rules regulating and governing depositors in 480 Gift — savings bank deposit in trust 480 Amount of deposit received may be governed by statute 480 When special deposit preferred 480 Notice of withdrawal of deposit may be waived 481 T9i IXDEX. SAVINGS BANKS — Con ^iH wee?; page. Bv-la\vs of savings banks 481 Discussion of 481 to 490 General rule defining by-law. held binding betv>cen parties. . . 489, 490 Pass-books, original books of entry 489, 490 Entries in, if questioned, are facts for the jury to determine 490 Pass-book may or may not be assigned 490 When not negotiable, possession does not constitute proof or rights to money 490 Charter of bank determines its powers 491 May borrow money, wlien 491 If law allows, may make discounts 491 Investments 491 Insolvency of savings banks 492 Pieceiver may be appointed 492 Application for, may be made by stockholders 492 Law of State governs . . . '. 492 Plights of depositors when insolvent 492 Depositors" right of set-oflF 492, 493. 494 Special deposit may be set off against debt of depositor 494, 495 Insolvent savings bank directors may levy an assessment 495 SECRETARY OF TREASURY: Agent, special, to be appointed for associations failing to redeem circulation C26 Appointment of Comptroller on recommendation of 577 Appointment and classification of clerks by 578 Appointment of Deputy Comptroller by 578 Assignment of rooms, etc.. for the Comptroller by 578 Authorized to exchange registered for coupon bonds 593 Circulation, worn or mutilated, destruction of, by 598 Currency, expansion or contraction of, by issue of currency cer- tificates, prohibited by CIO Duties of Comptroller under general direction of 577 Exchange of bonds, terms of. prescribed by 594 Organization of national banks with capital less than $100,000, to be approved by 582 Plates and dies, examination of, by 597 Recommendation of appointment of Comptroller by 577 Receivers, appointment of, by Comptroller, concurrence in by, in certain eases 609 Reserve cities, designation of. by Comptroller, to be approved by. . 612 Seal of office of Comptroller, to be approved by 578 Cnited States certificates may be issued by 610 SEIGNIORAGE : ]\Ieaiiing of 740 SET-OFF : Right of depositor in savings banks 492, 493. 494 Special deposit in savings bank 493 Rule — right of depositor 525, 527 Equitable rights of depositor 526 When may be denied by clearing house committee 556 SHAREHOLDERS (See Stockholder's Rights axd Liabilities) : Who may be a subscriber 59 A married woman may become 679 Enforcement of subscription 61 What constitutes a subscriber 64, 65, 66 Purchase and transfer of stock 66 Index. 795 SHAREHOLDERS — Continued : page. How may be acquired 0(5 Rights of GG. 67 Entitled to notice of meetings 67 Xotice may be waived by 68 The right to vote 68 Corporation cannot vote its own stock 68 Pledgee cannot vote stock 68 Right to vote by proxy : 69, 58G, 681 Right of stockholder to inspect record of corporation 69 Liability of stockholder to creditors of corporation 70 Liability cannot be enlarged by a by-law 70 When stockholder liable to corporation liable also to creditors. ... 70 General rule 70 Liability beyond subscription 70 When liability does not exist at time of subscribing, statute can- not afterward impose a liability 73 Fixing date of liability 73 Extent of stockholder's liability 73, 78 Individual liability of stockholders in national bank not depend- ent upon contract of subscription 71, 5S9 Bank charter defining individual liability 74 Liability of pledgee or trustee 75 Statute protecting pledgee '..... 77 Individual liability of shareholders of national banks 77 Extent of liability 78 Liable for interest 78 Representatives of deceased shareholder liable 78 Married woman, shareholder, liable 78 Executors, administrators, guardians, or trustees not personally liable \ 80 Individual liability of shareholder in national bank, how enforced. 81 Creditor may sue stockholder of State bank association 82 When right of action accrues against stockholder in national bank. 82 Shareholder disqualified from voting, when 681 Extension of corporate existence of national banks by 699 Re-extension of corporate exi.stence of national banks by 703 Dissenting to extension of re-extension of national bank corpora- tion may give notice 703 Share of dissenting shareholders to be paid for 703 Rights of shareholders to increased capital of national bank 703 Meetings of, national banks 712 Dissenting to extension of national bank may withdraw 622 Conversion of State banks, requirements 588 Election by, annually, national bank 585, 587 Enforcement of assessment, impaired capital, national bank 616 Enforcing payment by, of installments 583 Qualifications of directors, national bank 58G nights and liabilities of, on transfer of shares, national bank .... 583 Title and location of national bank, change of, by 591 Vote of, necessary to place national bank in liquidation 023 Voting of, not allowed national bank, when 586 SHARES, NATIONAL BANKS: Association not to own or hold its own except 614 Consent of owners of two-thirds, necessary to extension 621 Converted State bank to be the same prior to conversion 588 Disposition of, taken for debt 614 Fifty per cent, of aggregate value of, to be paid in prior to be- ginning business 583 796 I::^DEX. SHARES, NATIONAL BASKS — Continued: page. Holding of, in otlier banks by converted banks authorized 588 Installments, payment and certitication of 583 List of owners of, to be kept and copy sent to Comptroller 017 Loan on security of, prohibited 614 Oath of director relative to 586 Owners of two-thirds may place association in liquidation 023 Organization certificate to state capital and number of 581 Personal property 583 Preference in allotment of, in succeeding association 622 Qualifications of directors 580 Receiver may be appointed for failure to dispose of, taken 028 Sale or forfeiture of, for failure to pay installments due 583 Sale of, when necessary 581, 583, 014, 622 State taxation of 618 Transfer of 583 Value of, of shareholders dissenting to extension, how ascertained. 622 Value, par, of each 581, 588 Voting 586 SIGNATURE ON CIRCULATION: President or vice-president and cashier 596 Treasurer and register of United States 596 SILVER BULLION: Construed to be lawful money, when Oil, 019 Reserve of gold banks to be gold and 611 Act relating to 739 Meaning of 16 to 1 740 SILVER CERTIFICATES: Clearing-house balances payable in 611 Reserve of national banks may be 611 STALE CHECKS. (See Checks.) STANDARD OF VALUE : How adopted 729 STATE AUTHORITY OVER BANKING BUSINESS: State may prescribe restrictions 8 May regulate business 8 May regulate business of foreign bank 9 May establish the right to examine banks 11 STATE BANKS: Defined 18, 27 Organization of 32 Organization, when complete 35 Directors of 9o Reorganization of 588, 094 Purchase of assets from 094 Capital of 589 STATE, TERRITORY, OR DISTRICT: Change of title or location of associations 591 Compensation of national bank examiners 019 Conversion of bank organized under authority of laws of -oSS E\'idence 643 Interest, national banks not to take in excess of 613 Proceedings to enjoin Comptroller or receiver, etc 626 Taxation of circulation of State, etc., associations 000, 607 Taxation of money by 007 Taxation of national banks bv 013 I2ndex. 797 STATUTE OF LIMITATIOXS: " page. Runs against check, v.hen 503 Runs against certificate of deposit, when 503 Runs against stockliolder's liability, when 505 State's statute, when does not apply 506 Fraudulent act, when runs 507 STOCKS : How acquired 60 Absolute assignment may be only security 76 Bank cannot vote its own stock 08 SUBSCRIPTION : Stock subscription list, suggestion relative to 075 (See Shabeholdeb; Stockholdeb. ) SUCCESSION: Expired national associations 622 Period of national banks 581, 679 SUITS RELATING TO NATIONAL BANKS: Against United States officers or agents 643 Certified copy of organization certificate, evidence in 643 Circuit courts, jurisdiction of 642 Corporate powers of associations 581 Creditor's bill against shareholders 635 Crimes, jurisdiction, etc 636, 644 District courts, jurisdiction of 642 Enjoining Comptroller or receiver 626 Forfeiture of cliarter 630 Illegal preference of creditors 635 Indian Territory, in • 644 Jurisdiction of circuit courts 642 Jurisdiction, general, of national bank cases 642 Proceedings to enjoin Comptroller, to be brought where 626 Sealed certificate of Comptroller, competent evidence 643 Shareholders' agent 633 Shareholders' liability, to enforce 628 Solicitor of the treasury to dii'ect and supervise certain 643 SUTIPLUS : Dividend cannot be declared from, when 572 Converted State bank with capital of $5,000,000 589 Creation of, by national bank 614 Receiver may be appointed for deficiency in 589 Accumulation of, use of, etc 614, 688 T. TAX: Bills of converted State bank 607 Circulation, enforcing payment of : 605 Circulation, exempt from 605 Circulation, failure to make returns 605 Circulation, rate and time of pajTiient (i09 Circulation, refunding excess 605 Circulation, semi-annual return of 604 Money of all kinds subject to, by States, etc 007 Notes unauthorized 006 Notes unauthorized, failure to make return 607 Notes unauthorized, semi-annual return 606 Provisions restricted 607 Remission of, on insolvent national banks 631 State taxation of national banks 618 798 Index, TELLER ( See also Officers ) : page. Functions of paying 179 Is an agent 179 His acts when not delegated may be ratified 180 May certify checks ' 145, 181, 183, 185 Not responsible when vising care 182 Ratification of his acts are release of his liability 184 Notice not to pay check, efTect of 185 Prior course of dealing may imply power 185 Teller's duties ^ " 185 Where duties are defined, has no other power . 186 Held: paying teller cannot receive deposit ISO, 187 Rule 188 His unlawful acts do not bind bank 189 Is not held liable unless act is willful 189 Receiving teller has peculin- responsibilities 190 Should be skilled as an expert 190 Deposits received by • 191 Tests used in detecting counterfeits 192 to 198 Limitation of powers 199 Acts of, affecting bank 199 Rule as between bank and depositor 199 Duties are usually defined 200 When duties not defined, is a subordinate of cashier 201 Note teller, duties defined 202 TREASURER, UNITED STATES: Circulation, withdrawal of. provisions for 600 Deposit of United States bonds with, to secure circulation. . . . 584, 592 Disposition of redemption account 002 Enforcing tax on circulation 605 Examination of bonds and records, provisions for 594 Interest on bonds to be retained by, when 605. 615, 618 Public moneys to be deposited with assistant treasurer, govern- ment depositaries, or 657 Proceedings on default in making return on circulation subject to duty 605 Redemption fund to be kept with 599 Redemption of circulation by 599 Redemption of circulation in United States notes by 602 Semi-annual return to. of circulation subject to duty 604 Signature of, on circulation 596 Tax, excess, refunding 605 Tax on circulation to be paid to 604 Transfer of bonds in trust for association to be made to 594 Associations to reimburse, for cost of redemption of circulation and plates 599 Currency bureau in 577 Notice to present circulation at 627 Penalty for failure of association to report to be paid into. . 604, 618 , Redemption account, disposition of 602 Redemption fund, five per cent., in 509 Redemption of circulation at 600. 602 Reserve in 754 TRUST: Purchase of property by receiver to protect 630 TRUSTEE : Shareholders' liability, exempt from 75, 80, 81, 589 Ia'dex. 799 TRUST COMPANIES: page. Defined 23 Distinguished from a bank 563 May have banking powers 563 Rule determining powers 563 lu District of Columbia 6-44 ULTRA VIRES, ACTS : ^'• Defined 13 When not to be applied 15 Defense of 15 National bank cannot buy stock of another corporation 357 Guaranty of bank may be 400 UNCURRENT NOTES: Issue of, prohibited 616 UNITED STATES DISBURSING OFFICERS: Fraudulent notes to be marked by 603 Penalty for unauthorized deposit of public money 658 Withdrawal of public money 657 UNITED STATES NOTES: : Circulation of bank to be redeemed in 602 Fraudulent, to be marked 603 Issue of notes certificate on deposit of 610 Obligations of the United States defined 638 Penalty for dealing in counterfeit 640 Penalty for illegal use or possession of material for jii'inting 638 Penalty for passing counterfeit 639 Penalty for pledging, etc 636 Penalty for taking or having unauthorized impression of tools 639, 640 Redemption of certificates issued for 610 Subject to taxation by States 607 USURY: Interest, when not 613 Penalty for 614 V. VACANCIES IN OFFICE : W'here law does not provide otherwise, implication is that he may hold after the term 92 Where vacancies occur, must be filled as provided by tlie statute. . 93 Absence of charter, statute, or a by-law, provisions may be filled by the stockholders 93 National bank, board of directors, how filled 587 VICE-PRESIDENT: Of national bank circulation, may sign 396, 397 Election or appointment of, in national bank 580 Proxy, not to act as 586 VIOLATION OF NATIONAL BANK ACT: Forfeiture of charter for 630 VISITORIAL POWERS : Limitation of national banking associaton subject to 620 VOTING: Elections and meetings, national bank 681 Qualifications and rights of shareholders in national bank.. 586, 681 ( See Officer.s ; Directors. ) 800 IXDEX. w. WITHDRAWAL, NATIONAL BANKS: page. Bonds, general provisions respecting 594 Circulation, provisions for 600 Deposit and, of pviblic moneys 657, 658 Dissenting shareholders 623 Expired associations, bonds of 025 Illegal preference, of creditors 635 Lquidation associations, bonds of 624 Reduction of capital 590 L'nearned dividends 615 J 000 364 721 ^